Starbucks (SBUX) to be troubled by rising price of coffee (risen 22% since 1-1-08)

[Omaha Steve]

http://www.bloggingstocks.com/2008/03/02/starbucks-sbux-to-be-troubled-by-rising-price-of-coffee/

Posted Mar 2nd 2008 6:20AM by Douglas McIntyre
Filed under: Forecasts, Starbucks (SBUX), Commodities

Starbucks (NASDAQ:SBUX) is already contending with rising milk prices and slow same-store sales in the US. But, the commodity which affects it the most is obviously coffee. According to The Wall Street Journal "The price of green coffee beans has risen 22% since the beginning of the year in trading on ICE Futures U.S."

Much of the coffee that Starbucks buys in on long-term contracts with fixed prices. It may be the rising price will not hit the company for several quarters. That could be just about the time that the turnaround efforts of founder Howard Schultz begin to take hold.

Since the trend in commodities prices is still sharply upward, coffee prices may not have peaked. Starbucks is probably looking at a strain on its margins toward the latter part of the year. That may be combined with softness in business due to a slowdown in the economy and rising competition from other chains.

To put a point on it. Starbucks may not do much trading above $20 (per share) for another year or longer.

Douglas A. McIntyre is an editor at 247wallst.com.

[Captain Angry]

1. SBUX completely fits their sector.

Consumer Discretionary.

Their input costs are rising. That's not their problem. They are not a necessity. Their sales numbers should *suck* this year as people stop overspending for coffee.

The depressing thing is that thanks to overuse of credit cards, there are people who will pay for that overpriced cup of coffee for years.