Starbucks ditches share buybacks

Starbucks’ shares dipped by around 4% – bringing total losses to 22% this year – after founder Howard Schultz marked the start of his third spell as chief executive officer by suspending a sharebuyback plan, says John Bowker on Bloomberg. Schulz’s predecessor Kevin Johnson – who stepped down three week ago after five years as CEO – said in October that the coffee chain would spend $20bn on dividends and buybacks over three years. (By February, it had already spent $3.52bn.) However, Schultz argues the money “could be better spent on stores and staff” to create “longterm value for all stakeholders”. The decision to shun buybacks in favour of investing comes as Starbucks faces several challenges, say Andrew EdgecliffeJohnson and Taylor Nicole Rogers in the Financial Times. These include “a growing unionisation movement in its home market, rising wage and commodity costs, and potential threats to its international growth from its suspension of operations in Russia to Covidrelated lockdowns in China”. Shareholders “tend to be much more forgiving when a buyback programme is shelved than when a dividend is cut”, says Spencer Jakab in The Wall Street Journal. But Starbucks’ investors should ignore the relatively mild market reaction to Schultz’s announcement and consider “what they would have done if the regular quarterly dividend payout had been cut”. This may be “the same sort of distress signal”. As inflation squeezes incomes, the prospect of Americans “cutting back on an affordable luxury like pricey takeout coffee” is very real, while “wage pressures remain acute” due to low unemployment. “It might be time for shareholders to give up on their coffee habit altogether for now.”