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Starbucks: now it’s really scary

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The stock got another hit today as its CFO says that: meeting the high end of the coffee shop chain’s 2007 earnings forecast will be “very challenging” due to rising dairy costs and slowing sales growth in its U.S. business,…

It seems high gas prices are really hurting them, in two ways. Some customers have to choose between a $4 latte between $3 gas, you can read this Dallas Monring News article if you are into the details. From cost side, the rising diary cost was passed on from higher corn (think ethanol) price. Also, keep in mind, the capital expenditure of new stores opened recently will take some time to bring returns. So, you can say they are facing a head wind. Wallstreet gave up on them because its growth has clearly slowed down in the US.

On the other hand, I think SBUX has a way to go internationally. They bought the stakes in the joint ventures in China lately. Again short term it’s a lot money. But long term, I believe Chinese are increasingly addicted to the brand and the coffee. As Starbucks Gossip says “America’s favorite drug dealer”, maybe simiar things can be said in China, not in too distant future?

Discloure: I’m holding SBUX at this time.

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