Starbucks’ New Investor: Pershing Square

Pershing Square Capital Management, the activist hedge fund controlled by activist investor William Ackman, now has about a 1.1 percent stake in Starbucks.

The Wall Street Journal (WSJ), citing comments Ackman made at the Grant’s Interest Rate Observer conference in New York, reported Ackman called Starbucks one of the “most dominant companies in the industry we’ve ever seen.” Ackman went on to say, according to the WSJ, that the stock has been under pressure because of a slowdown in same-store sales, a reduction in longer-term targets for its growth and because of leadership changes, things he’s apparently not worried about. The WSJ noted Ackman said he thinks same-store sales have been positive on a consistent basis and that the market in the U.S., particularly in the Midwest and South, have potential to grow.

In late June, Starbucks announced it was scaling back its growth and cutting its sales targets for the third quarter. This comes as its loyalty program and mobile app are driving business, with 39 percent of the company’s sales in the U.S. coming from those venues. According to a report in CNBC at the time, Starbucks said it would slow down the pace of licensed store openings and will shutter underperforming ones that are in highly populated areas. While Starbucks typically shuts around 50 stores a year, in 2019 it expects that pace to increase to around 150 stores. “We know that we drive more shareholder value in a company-owned store … than a licensed store,” CEO Kevin Johnson said during a presentation at the Oppenheimer Annual Consumer Conference that was covered by CNBC.

In addition to the store closings, Starbucks plans on returning around $25 billion to shareholders via stock buybacks and dividends, with the latter increasing by 20 percent. The program lasts through 2020 and marks a $10 billion increase from what it said back in November. As for same-store sales growth in the third quarter, the company is forecasting an increase of 1 percent, reported CNBC. “We must move faster to address the more rapidly changing preferences and needs of our customers,” Johnson said in a statement to CNBC. “Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organization and enhance focus on our core value drivers, which serve as the foundation to re-accelerate growth and create long-term shareholder value.” The comments coming out of the June conference drove the stock lower.