Starbucks shares rose Monday as the world’s largest coffee chain moved closer to a deal with one of the globe’s biggest activist investors—and on news another major activist name has decided to build a stake of its own. Shares initially jumped over 4% Monday amidst reports that directors at Starbucks and Elliot Management have engaged in settlement talks, and on Friday’s report from The Wall Street Journal that fellow activist firm Starboard Value wants a say in how the firm is run.
The flurry of activist activity comes as Starbucks sales have drooped in both the U.S. and China. The slump has seen shares fall about 20% year-to-date, and post a decline of 40% from their all-time of $126.06 in June of 2021. The stock was trading above the $76 mark Monday afternoon, up about 1.75% from Friday's close.
All of this had placed mounting pressure on CEO Laxman Narasimhan, including from his predecessor, three-time chief executive Howard Schultz. The 57-year-old Narasimhan is reportedly poised to keep his job, however, if the coffee maker reaches a deal that would make Elliot managing partner Jesse Cohn a Starbucks director.
This is far from the first time Elliot and Starboard, both famous for mounting campaigns in the tech sector, have bumped into each other. Just last month, the Journal reported Starboard had begun applying pressure to online-dating company Match Group, which was already contending with Elliot. Both firms have also simultaneously held big stakes in Salesforce and eBay.
The activist funds are also mounting independent pressure campaigns. This included Starboard securing board seats at Bloomin’ Brands, the parent of Outback Steakhouse. Elliot, meanwhile, has publicly tried to oust Southwest Airlines chairman Gary Kelly and CEO Bob Jordan.
Elliot has appeared content to work more quietly with Starbucks directors behind the scenes, however. After a significant miss on first quarter earnings, the coffee maker's Q2 results provided some relief, largely meeting guidance that had been slashed twice during the year.
International performance was a particular challenge, Narasimhan admitted on the call in late June. Comparable store sales decreased by 14% year-over-year in China, likely a product of both intense price competition and the country’s economic malaise.
Sales in the U.S. also declined, though a 6% decline in transactions was partially offset by price increases. Bank of America analysts agreed with Narasimhan that new promotions and menu changes were gaining traction, adding that the company could continue to benefit from lowering operating costs.
“As [Starbucks] continues to deploy new equipment (Siren System) and store operation improvements (Siren Craft),” BofA analysts Sara Senatore, Katherine Griffin and Isiah Austin wrote in a note, “we see opportunity for further margin expansion."
Investors appear optimistic that activist intervention could help these improvements bear fruit.
