Insights

Why Starbucks Lost 18% of Its Value in April

What happened
Last month was lousy for most stocks, but it was downright miserable for Starbucks (NASDAQ: SBUX) investors. Shares of the coffeehouse giant fell 18% in April, according to data from S&P Global Market Intelligence, from a combination of store closures in China and the growing threat of unionization at more of its domestic stores.
So what
In its defense, Starbucks stock was facing a headwind anyway. The S&P 500 (SNPINDEX: ^GSPC) fell nearly 9% last month, pulling most stocks in a bearish direction. Nevertheless, the premier name in coffee houses is facing its own unique problems.
Chief among these problems is the (pun completely intended) brewing concern that more of its stores in the United States will see their workers form labor unions. A few dozen Starbucks stores have opted to create unions just within the past few months, and more are likely to be on the way.
Though not explicitly stated as such, this movement among Starbucks’ workers is at least one of the top reasons former CEO Howard Schultz stepped back into the role in early April. His open letter reads, “I am returning to the company to work with all of you to design that next Starbucks — an evolution of our company deep with purpose, where we each have agency and where we work together to create a positive impact in the world.” The publicly posted letter adds, “My first work is to spend lots of time with partners” — that is, baristas and other employees.
These early meetings have not gone particularly well, though, and in some regards may have made the company’s relationships with workers even worse.
Image source: Getty Images.

Unions aren’t the only factor working against Starbucks’ stock price. As part of his regrouping effort, Schultz has also suspended the company’s stock buyback program to devote time and resources to his intended overhaul.
Also unnerving investors is disruption linked to Russia’s invasion of Ukraine, as well as a wave of COVID-19 lockdowns in China — where Starbucks generates between 10% and 20% of annual revenue — aimed at curbing a rekindled spread of the contagion. Although it’s difficult to estimate the impact these new measures may have on Starbucks’ sales there, China’s lockdowns were a key reason the company missed last year’s third-quarter revenue estimates.
Now what
Given everything working against the company in addition to the CEO transition, the stock’s poor performance is understandable, and even forgivable. But it’s not something that’s dismissible despite the currently discounted price.
None of the aforementioned challenges are insurmountable. Indeed, most are bound to be temporary, and even the one that isn’t — the potential for unions that threaten employee flexibility and higher wage requirements — can be handled with some careful adaptation. But with no clarity as to when or how the company can return its full focus on its core business, investors might be better served by considering other opportunities.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy. –

What happened

Last month was lousy for most stocks, but it was downright miserable for Starbucks (NASDAQ: SBUX) investors. Shares of the coffeehouse giant fell 18% in April, according to data from S&P Global Market Intelligence, from a combination of store closures in China and the growing threat of unionization at more of its domestic stores.

So what

In its defense, Starbucks stock was facing a headwind anyway. The S&P 500 (SNPINDEX: ^GSPC) fell nearly 9% last month, pulling most stocks in a bearish direction. Nevertheless, the premier name in coffee houses is facing its own unique problems.

Chief among these problems is the (pun completely intended) brewing concern that more of its stores in the United States will see their workers form labor unions. A few dozen Starbucks stores have opted to create unions just within the past few months, and more are likely to be on the way.

Though not explicitly stated as such, this movement among Starbucks’ workers is at least one of the top reasons former CEO Howard Schultz stepped back into the role in early April. His open letter reads, “I am returning to the company to work with all of you to design that next Starbucks — an evolution of our company deep with purpose, where we each have agency and where we work together to create a positive impact in the world.” The publicly posted letter adds, “My first work is to spend lots of time with partners” — that is, baristas and other employees.

These early meetings have not gone particularly well, though, and in some regards may have made the company’s relationships with workers even worse.

Image source: Getty Images.

Unions aren’t the only factor working against Starbucks’ stock price. As part of his regrouping effort, Schultz has also suspended the company’s stock buyback program to devote time and resources to his intended overhaul.

Also unnerving investors is disruption linked to Russia’s invasion of Ukraine, as well as a wave of COVID-19 lockdowns in China — where Starbucks generates between 10% and 20% of annual revenue — aimed at curbing a rekindled spread of the contagion. Although it’s difficult to estimate the impact these new measures may have on Starbucks’ sales there, China’s lockdowns were a key reason the company missed last year’s third-quarter revenue estimates.

Now what

Given everything working against the company in addition to the CEO transition, the stock’s poor performance is understandable, and even forgivable. But it’s not something that’s dismissible despite the currently discounted price.

None of the aforementioned challenges are insurmountable. Indeed, most are bound to be temporary, and even the one that isn’t — the potential for unions that threaten employee flexibility and higher wage requirements — can be handled with some careful adaptation. But with no clarity as to when or how the company can return its full focus on its core business, investors might be better served by considering other opportunities.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.

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