This is old news by now, but curious to see what people think:
Starbucks Corp. announced that it will close 600 "underperforming" stores in all major U.S. markets.
Approximately 70 percent of the stores opened since the beginning of fiscal 2006, Starbucks said in a statement.
The Seattle coffee giant said that it will also open fewer than 200 new stores in the U.S. in its fiscal 2009 year. Starbucks operates about 7,000 stores itself and licenses another 4,100 in the U.S.
"We recognize that it is necessary to make decisions that will strengthen the U.S. store portfolio and enable us to enter into fiscal 2009 focused on enhancing operating efficiency, improving customer satisfaction and ensuring long-term value for our partners, customers and shareholders," said CEO Howard Schultz.
Starbucks (NASDAQ:SBUX) said pre-tax charges related to the closings will be about $200 million in asset write-offs that will be recognized in the third quarter of 2008. In the fourth quarter of 2008 and for the first half of fiscal 2009, the company said it expects up to $140 million in lease-related costs. Severance costs are expected to be about $8 million. Long-term this is probably what had to be done to ensure brand and service quality. This process of closing stores and laying off workers will take a decent amount of time and I'm not expecting the share price to do a whole lot probably for another year or so. It's a bummer that the company chose to do this in the start of the summer season which often is a great time for beverage sales (although Starbucks has a more rounded offering of drinks so it isn't quite as big a deal).
I will be looking to add to my position over the next 1-2 years depending on how this transition goes and as we find out what else Schultz and company have in mind. Starbucks has tremendous brand power, and right now the world economy is going through a somewhat difficult time. Schultz understands this business more than anyone else so I have a lot of confidence in the decisions he makes.
On a related note I found
this article interesting:
(June 30, 2008) With consumer confidence at a 16-year low, fewer families dining out and oil prices spiking above $130 a barrel, the time seems right for restaurant companies to retrench, not grow.
But executives at such chains as Chipotle Mexican Grill, Bruegger’s Bagels, BJ’s Restaurants and Buffalo Wild Wings nonetheless view 2008 as a great time to roll out new restaurants.
Compelled by the opportunity to take business from competitors and capitalize on more favorable leasing conditions for tenants, including stable or decreased rents, chains that have continued to post revenue and same-store sales gains despite the economic downturn are laying the foundation for long-term growth.
Chipotle is leading the charge with projections of 130 to 140 new units this year, for a total of more than 830 units. Buffalo Wild Wings also is flying high, planning about 75 new locations for a total of roughly 568 restaurants.
“Our sales model and restaurant performance have been very, very strong, and this is a great time for us to be more aggressive,” said Rex Jones, chief development officer at Chipotle. “We look at this as a long-term [opportunity].”Both Chipotle and Buffalo Wild Wings I own so I find this very interesting and can see why it is very smart to take advantage of the slow economy and build new stores when the competition is low. Both companies have excellent balance sheets so they're able to take advantage of times like these. Chipotle, Buffalo Wild Wings, Netflix, Middleby, and quite a few other companies look so compelling right now at the levels they're trading at. Now that I just got some cash available with bargains everywhere, it's going to be hard to either wait and see or pick one of them right now. ;-)
Tags:
buffalo wild wings, chipotle mexican grill, pencils fund, restaurants, starbucks
Posted at: 07:57 PM | Add Comment
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