Starbucks Stock Feels The Pain of Anti-Bias Training

  • Starbucks expects Q3 same-store growth to be around 1%
  • The company will close 150 stores in FY 2019 up from its 50 average closures

Starbucks (SBUX -0.92%) is still feeling the heat from the dustup in Philadelphia where a Starbucks manager called the police on two black customers. The company’s stock dropped nine percent after it announced it delayed a marketing push during its company’s closing for sensitivity training. What is the path forward for the coffee giant to turnaround its stock performance?

Why This Matters: Starbucks lost approximately $12 million when the company shut its doors for four hours in May for sensitivity training. Jeff Sonnenfeld, senior associate dean for leadership studies at Yale told CNBC he expected the closure to cost the company about $12 million. Starbucks makes around $22 billion a year which comes out to $60 million a day, meaning they could lose about 20% of their daily revenue, according to MarketWatch. For a company that’s worth $78 billion this is a small drop in the bucket.

More damaging than the lost revenue during the store closing was a TV ad campaign Starbucks paused for two weeks during incident in Philadelphia. The company expects its Q3 same-store growth to be around one percent due in large part to the pause on the campaign. “Our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” said Kevin Johnson, Starbucks president and CEO. Company management has mapped out a path to regain its positioning in the market. To help accelerate growth, Starbucks is increasing its 2019 store closings to 150 when they typically averages 50 annual store closings. Starbucks also plans to return around $25 billion to shareholders. Further, the company aims to grow the brand’s global reach through a distribution partnership with Nestlé (NESN:S +0.05%) called the Global Coffee Alliance.

What’s Next: Nestlé has agreed to pay $7.5 billion for the ability to distribute Starbucks coffee around the world through the Global Coffee Alliance. Look out for how quickly the two companies are able to close the deal while also executing on the other components of its plan.

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