If you were lucky enough to get into Starbucks (NASDAQ: SBUX) stock in the early days -- and held -- you're looking at robust capital gains. Your share count has skyrocketed, too, since the coffee titan has conducted six two-for-one stock splits since going public in 1992.
That means a 100-share purchase back then would translate into 6,400 shares in your portfolio today.
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A stock split doesn't increase the value of your investment, just as you don't get more pizza simply by cutting a pie into additional slices. However, a split usually comes following a period of significant share price gains, and it reflects rising confidence on the part of the management team that the business -- and the stock -- has plenty of room for growth ahead.
Starbucks' situation today isn't so bullish, so it's likely to be some time before the company splits its stock again.
Starbucks' stock split history
While announcing its most recent split, in 2015, then-CEO Howard Shultz pointed out that the stock had hit a new record and the business was firing on all cylinders. "This split is a direct reflection of the past seven years of increasing shareholder value," Shultz said in a press release. "It also takes place at a time when Starbucks shareholders are experiencing an all-time high in value as we continue to deliver world-class customer service and, in turn, record profits and revenue," he noted.
Today, Starbucks is still posting record results. However, its operating trends are weakening. Customer traffic is down over the last nine months, and the slowdown surprised management enough to convince them in late July to lower their sales and profit outlooks for the year. While making sure to emphasize that they see significant growth opportunities ahead, executives cited intense pressure on the retailing industry that "has us a bit more cautious" heading into the holiday season.
Additionally, the stock hasn't had a particularly strong run lately. Shares are underperforming the market over the past year, down 4% compared to a 12% boost for the S&P 500. Starbucks did touch an all-time high earlier in the year, but shares have dipped significantly since then. Finally, at around $55 per share, the stock isn't priced so high that it's difficult for smaller investors to build up positions in the coffee chain.
In that context, management's focus is better aimed at getting sales back on track in the core U.S. market. For example, executives are encouraged by early tests of its expanded lunch menu and just scaled up the expansion of that test into other markets. Food has been stuck at close to 20% of annual sales even following a successful revamp of its breakfast menu. A bulked-up lunch offering, and the extra traffic that goes with it, could change that, though.
Similarly, the company sees international expansion and digital ordering and delivery as huge long-term growth drivers.
If these strategies contribute to a sales growth rebound, then shareholders should be rewarded for their patience through sharp stock price gains, just as they have over the long term with this high-performing stock. But management isn't likely to seriously consider another stock price split until the business returns to a market-beating expansion pace.
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