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alstry (35.69)

Wake UP and smell the Coffee

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July 29, 2008 – Comments (6)

Starbucks to close 61 of its 84 stores in Australia, putting almost 700 out of work SYDNEY, Australia (AP) --

Starbucks will close more than two-thirds of its 84 stores in Australia by the end of the week under a cost-cutting plan announced Tuesday that will put almost 700 people out of work.

The surprise announcement came a few weeks after the global coffee shop franchise that has become ubiquitous around the world announced it was closing 600 company-owned stores in the United Sates to try to bolster its business.

The closure of the "underperforming" stores in Australia was the result of conditions specific to Australia that were not reflected elsewhere in the world, Starbucks' chief executive Howard Schultz said in a statement.

http://biz.yahoo.com/ap/080729/australia_starbucks.html

Closures in Australia due to issues not reflected elsewhere in the world??????????????????

What about the United States............You just announced closing 600 stores??????????????

Somebody is spiking his coffee!!!!!!!!!!!!!

Mervyn's likely declaring bankruptcy, Starbucks shutting down around the world,..............anyone see trends developing........yet?????????

6 Comments – Post Your Own

#1) On July 29, 2008 at 6:40 AM, alstry (35.69) wrote:

The shutdown rolls on and on......

GMAC to Halt Auto Leasing in Canada

By John D. Stoll

GMAC LLC has informed dealers that it will suspend subsidized leasing of automobiles in Canada as of Aug. 1 as the conditions for financing these types of loans has tightened.

GMAC, the biggest auto lender in North America in terms of volume, follows Chrysler LLC's Chrysler Financial arm, which informed its dealers of a similar decision concerning U.S. leasing Friday. GMAC, like Chrysler Financial, is controlled by Cerberus Capital Management. General ...

http://online.wsj.com/article/SB121729702645192115.html?mod=hpp_us_whats_news

For some dealers, around half their sales comes from leasing......

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#2) On July 29, 2008 at 8:00 AM, saunafool (98.67) wrote:

I would say there is a difference between closing 600--about 10% of the U.S. stores, compared to 61 of 84 stores--about 70% of the Aussie stores.

If SBUX closed 4000 stores in the U.S., then we'd be talking about a collapse.

As pessimistic as I am, SBUX is a buy right now--I bought about 2 weeks ago, and I hope it gets cut in half so I can buy more. McDonald's didn't go out of business during the recessions of the 70's; SBUX will survive this just fine, and as a coffee addict, I can assure you that good coffee is far more important to me than a fast-food burger.

I realize it's just one part of your overall story--that the world is crashing down upon us--but SBUX is one block of the building that will still be there when it's all over. 

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#3) On July 29, 2008 at 9:44 AM, dpid (85.82) wrote:

Saunafool,

 Do you think the P/E ratio for starbucks is a little rich still?  I understand its cheap compared to history, but I feel its still high than it should be....

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#4) On July 29, 2008 at 9:45 AM, alstry (35.69) wrote:

Sauna,

It is not the absolute number that is important, it is the trend.  Starbucks went from closing 100 US stores in April to 600 in June.  Now they are practically shutting down Australia.

But more important than retail is financials.  Financials accounted for as much as 40% of the S&Ps profits.  Much of that reported profit over recent years was based on nonsense financing deals.

Now that business is gone.  Further, trillions in that paper is listed as assets on the books of banks and pension funds around the country.  In the past few days, Bank of Australia wrote some of its paper down to $0.10 on the dollar and MER wrote paper down to $0.20 on the dollar after impairing it $0.50 just a few weeks ago.

Financial institutions use leverage, sometimes as high as 5-10X or more.  Just a 20% write down in capital can wipe out ALL equity.

At the end of the day, all of our assets are primarily in stocks and bonds, cash, and real estate. 

Real Estate is now crashing.  What happens if the stock market crashes and more banks default?  There is only $50 Billion of insurance protecting $6 Trillion of savings.

Just take a look at the faces of people who really understand what is going on....I am sure you will see concern.

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#5) On July 29, 2008 at 10:39 AM, dpid (85.82) wrote:

Saunafool,

 Do you think the P/E ratio for starbucks is a little rich still?  I understand its cheap compared to history, but I feel its still high than it should be....

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#6) On July 29, 2008 at 12:39 PM, saunafool (98.67) wrote:

It is tough to judge value on P/E ratios. Basically, my bet is that once SBUX closes non-performing stores and the world returns to normal, the new, slimmed down company will be able to earn more than it earns today.

At this point, I have a small position, basically to make sure I keep an eye on the story. Much too early to really know what is going to happen. Alstry might be right--things could get really bad and SBUX could fall another 80%. I just don't think so.

I think things are bad, people who paid too much for their houses are going to get creamed, the banks will write off their losses, the Fed will bail them out, and in a few years, we'll get to wipe off the dust and start all over again. 

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