Starbucks (SBUX) is Just an Expensive Mcdonald’s (MCD)

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[00:00:04] Doug McIntyre: least Starbucks is supposed to be a big turnaround. I was, I thought this would be the quarter when every, everything went right and suddenly same store sales would be up. maybe EPS not as much, but, they announced earnings and it is like, oh my God, what a dog. Same store sales or what they call comparable store sales, down around 1%, both internationally, and in the United States.

[00:00:34] Doug McIntyre: But there’s no, there, there was absolutely nothing in their earnings or on the earnings call that I would say gives any sense that this is getting better.

[00:00:43] Lee Jackson: No, no. And, our pal, the new CEO who gets to jet in from Newport Beach, he’s, he’s Glenn. He hasn’t been there that long, so he’s got a little bit of rope, but I mean, they’ve had five straight quarters of declining revenues, if I’m not mistaken.

[00:01:01] Lee Jackson: And that, that just can’t continue. And you’ve probably seen they’ve, they’ve come out with kind of a new ad campaign. They came out with one at Christmas trying just to say, Hey, we’re the friendly place where you can get a coffee and, work on your computer or whatever. But there’s just between, between the added competition.

[00:01:21] Lee Jackson: And, and, and price increases. A lot of people are just, it’s just too expensive and the coffee’s not that good. It always tastes a little burn to me.

[00:01:31] Doug McIntyre: These are the things I hate about Starbucks. Number one, the union. It is getting more and more unionized. Okay. Not nothing to do with whether I like unions or not.

[00:01:43] Doug McIntyre: It just drives, no, it’s just a reality. Number two, ingredient costs are way up, particularly coffee prices. I know they hedge, I know they have special contracts they buy, but there’s an overall trend, even if you’re hedging or you have your own sources, to me that’s not like, oh, that’s such a good thing.

[00:02:02] Doug McIntyre: Right. The next one is, when you make people unhappy with late service, there are not a lot of things you can do to get those people to come back. I think that what’s happened is, is those people have churned out of Starbucks, they’re at Dunkin Donuts, they’re at McDonald’s, they’re at the local coffee shop.

[00:02:21] Doug McIntyre: I don’t think telling people the service is gonna get better is gonna make ’em come back. It’s like, no. Well, yeah, okay. But I like Dunkin Donuts. It’s even faster. And, they’re now using AI and a whole bunch of other stuff to speed up, giving people coffee. But, I haven’t seen it. And, and, and they certainly weren’t able to brag about it on, on the call.

[00:02:46] Doug McIntyre: It’s not like, oh, yeah, we’ve timed it and it’s, dropped by X percent. The thing that worries me most about Starbucks is McDonald’s. McDonald’s said basically what the, the, the takeaway from McDonald’s is people are not eating out even at the cheaper, what I would call fast food ish.

[00:03:11] Doug McIntyre: Places, right. Is the most expensive.

[00:03:15] Lee Jackson: McDonald’s had a very disappointing report.

[00:03:16] Doug McIntyre: You, you’re absolutely right. All Starbucks is is an expensive McDonald’s. That’s it. It’s an expensive McDonald’s. If you have a bad economy, the first thing people cut is the expensive McDonald’s. The next thing they cut is the McDonald’s.

[00:03:32] Doug McIntyre: McDonald’s, and then they go down to beans and dog food. You know what I mean? You, you, you basically go down the food chain When it comes to expense, the, to me the McDonald’s numbers make Starbucks more of a sale than it was after bad earnings. If I’m looking at that stock, absolutely. I’m saying, okay, it got killed by earnings.

[00:03:55] Doug McIntyre: It’s gonna get killed more by the cost of goods sold. And the fact that if people aren’t gonna go to McDonald’s, they’re not gonna go to Starbucks.

[00:04:02] Lee Jackson: Well, I, I think that’s really a good point because, the years of. Of, of kids embracing, sweet, caffeine drinks. Okay, well that, that, that already started, 10, 15 years ago.

[00:04:21] Lee Jackson: When I first started going into a Starbucks in 1995, I didn’t see any kids in there, high school kids or whatever. Now they’re out the door, to buy caffeine infused sweet stuff. And again, if we hit a rough spot in the economy, boom, the first thing to go is gonna be that expensive stuff, unless you’re willing to use your whole allowance on it.

[00:04:52] Doug McIntyre: Listen, people under 18 are buying, five hour energy drinks and red Exactly. And. Exactly. Red. If Red Bull went public, it would’ve a market cap like four times what it is at Starbucks.

[00:05:05] Lee Jackson: Well, Monster’s (NASDAQ: MNST) public and, and it’s huge. Yeah, but you’re exactly right.

[00:05:10] Lee Jackson: That that’s where the, the young, that, that really pushed the caffeine-related sales from 20 whatever, 15 till today, you’re, you’re exactly right. Because everyone I see, or if, like, I have guys that can come and cut our yard. They all have an energy drink. They all do. None of ’em has a coffee.

[00:05:31] Doug McIntyre: Starbucks, rest in peace. This is dead as a growth stock. It’s not, listen, it’s not to say that it’s, maybe it’ll go back to 1% or 2%. Same store sales. For some reason they’re still adding stores, right? They got three stores every quarter. They add stores. It’s like, please, couldn’t you go and close some?

[00:05:52] Doug McIntyre: Couldn’t you come to us and say you had net store closings at least in one quarter, but Starbucks is debt as a growth stock. It was a, I think it was a growth business. It was a revenue growth business for years and years. It’s just one of those companies it, where it’s over. It’s growth, it’s over. You can forget it.

[00:06:13] Doug McIntyre: If, if you, if you want sort of a steady stock which is already sold down and may still sell down again a little bit, that’s fine. But it’s a crummy stock now. It’s a crummy company. It’s a crummy business model. It’s a crummy style.

[00:06:28] Lee Jackson: Yeah. And it, and it’s, it’s just not the kinda hip place to go anymore ’cause nobody cares.

[00:06:35] Doug McIntyre: Well you know, this guy, is it Nicole Brian? Nicole, I don’t know how to say his last name, but he got on the call and he said, oh yeah, well I turned around Taco Bell and I turned around Chipotle and it’s like, Hey guy, so what, when I played for the Yankees, I had a 320 batting average.

[00:06:51] Doug McIntyre: When I played for the Tigers, I had a three 10 batting average, right. With the St. Louis Cardinals. That doesn’t mean my batting average is gonna be over 300 [00:07:00] again, right. I’m a slump or I went to a bad team or something. His reputation is a turnaround artist is now over.

[00:07:09] Lee Jackson: Well, they’re gonna give him some more time, but

[00:07:12] Lee Jackson: Okay. Alright. Listen, you know what’ll happen, you know what’ll happen, you know what’ll happen if they stay on this same, on this same plan. Somebody that we know will be back for time. Number five, Starbucks is the Disney (NYSE: DIS) coffee company.

[00:07:26] Doug McIntyre: Howard Schultz will be back. But listen, I, I don’t, it’s not that I don’t think he’s a good guy.

[00:07:32] Doug McIntyre: Maybe he’s, yeah, he’s, maybe he’s a smart guy. But the fact is, is that, the thing is a dog. So I, you can get good managers. That’s one of the things that investors don’t understand. Investors who follow around superstar CEOs and say, I want to own stock in that company because this CEO has done such a great job.

[00:07:57] Doug McIntyre: It’s a very poor way to pick stocks because CEOs go into companies for a lot of money ’cause they’ve got good track records and suddenly everybody discovers it’s a crummy company. It’s a crummy company. Put anybody you want in, put Jack Welsh in. He can’t fix it. Put He can’t fix it.

[00:08:19] Doug McIntyre: It’s a dog. It’s not a good company. It’s not a good stock.

[00:08:23] Lee Jackson: Well, and and your, your, your whole premise of not following CEOs, good thing you didn’t follow the CEO that went to Kohls (NYSE: KSS).

[00:08:31] Doug McIntyre: No. You got a girlfriend and you give her some extra contracts and you get it. Didn’t work

[00:08:36] Lee Jackson: out real good.

[00:08:37] Lee Jackson: Kohl’s is kind of the Starbucks of, of the clothing world. They, they could be next.

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