Polen Capital recently published its Q2 investor letter – you can download a copy here. According to the letter, Starbucks Corporation (NASDAQ: SBUX) was the investment management firm’s largest detractor in the second quarter. The investor discussed the company in the letter. In this article, we’ll take a look at Polen Capital’s comment about Starbucks.
Starbucks was our largest detractor this past quarter. The business has seen a period of malaise in same-store sales growth, most notably in the United States over the last year. While difficult to parse the exact cause, management has seen that the most notable weakness is in the afternoon daypart which is when the “occasional” Starbucks customer drops in now and then. The My Starbucks Rewards (MSR) loyalty members are much more heavily skewed to the morning daypart due to their more habitual daily visits. While new beverage innovations are usually enough to keep the occasional customer coming back, it would be far better if Starbucks could convert them into MSR members where they can have better behavioral data on those customers to create personalized offers and rewards designed to increase their frequency. We believe that the company is now rightly focusing on taking the friction out of getting into the MSR loyalty program. There was weakness in China this quarter as well, which has not happened before and was unexpected.
In addition, Howard Schultz, Starbucks founder and chairman, and Scott Maw, CFO, stepped down. We believe the China issue mostly involves dealing with the peculiarities of coffee delivery, which is important in that country (ordering coffee online through a third party to pick up at Starbucks and deliver to you). On the management departures, we expected Howard Schultz to leave the board within the next year or so. As such, the timing was