Peltz and Starbucks: Bad for Schultz, Good for Shareholders

17 May 2:20am
Posted by ToddSullivan
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so famed investor Nelson Peltx has taken a just over 1% stake in Starbucks (SBUX). At least there is finally someone there who makes the stock (and company) interesting..


Recently, the billionaire has bought large stakes in Wendy's (WEN), Kraft (KFT) and H.J. Heinz (HNZ) through his hedge fund. Peltz then pressured management to make changes aimed at improving profit margins and lifting stock prices. Typically Peltz pressures the companies to focus on the core of their businesses and divest sell off less-profitable endeavors.

Based on that alone one can expect the "Entertainment" division of Starbucks to be first on the chopping block. Rather than producing albums and books, let just get the coffee thing going in the right direction.

Starbucks is coming off a Q2 that saw net income fall 28% and its same store sales at U.S. locations fall by their widest margin ever. Management is going to have a real hard time dismissing any ideas Peltz puts forward based on both their current track records lately.

This is really good for shareholders. If nothing else, Peltz will remind them of what the chain really is supposed to be, a coffee house. Not a book and record producer. Not a coffee machine retailer. Not a baker and so forth. Just do coffee and do it very well and people will return.

Here is another idea. Why not franchise? Really, why? It may be a bizarre control things in Seattle but it works just fantastically for every other multi-location food retailer (yes, that is what you are). Franchise fees alone would add to the bottom line while reducing costs, freeing up money (not for expansion) but for buying back shares or actually giving shareholders a dividend. They deserve something after the last 18 months. Hell, put 10% to 20% of the US stores up for sale to "master franchisees" and watch the offers come pouring in.

It would work.....if they will just listen out there which, unfortunately, is not a given..


Disclosure ("none" means no position):None

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About

ToddSullivan

A Massachusetts based value investor, I look for companies whose current valuation is at a discount to their true value. When I purchase a stock, my typical holding period is several years. I consider buying a stock purchasing a piece of a business. I am confident once I make a decision to buy that eventually the market as a whole will recognize the true value of the business and value it accordingly. It may take 1 month, 6 months or a year, but if I buy it at enough of a discount to its true value my results will be (and have been) superior to the market as a whole. Of all the disparate investing disciplines, value investing has stood the test of time. The great investors of have all been value investors. Warren Buffett, Ben Graham, Bill Ruane (Sequoia Fund), Bill Miller and Wally Weitz, all have consistently outperformed the market for decades by using various forms of value investing. Currently I am a contributing writer to Seeking Alpha, Vinvesting.com, The Stock Masters and Value Investing News. Posts have been reprinted in The Wall St. Journal, Yahoo Finance, Google Alerts, Google Finance, TheStreet.com. 24/7 Wall St. and Topix.net.

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