Starbucks suspends buybacks to invest in operations as Schultz returns

Pausing the buyback program, which Starbucks initiated last fall, represents the best way for the company to invest in its next phase of growth, Schultz told employees in a letter coinciding with his return Monday as the coffee giant’s CEO (Photo: AP)
Pausing the buyback program, which Starbucks initiated last fall, represents the best way for the company to invest in its next phase of growth, Schultz told employees in a letter coinciding with his return Monday as the coffee giant’s CEO (Photo: AP)

Summary

Howard Schultz, who built Starbucks into a global chain, says the move is necessary to invest in operations as he retakes the company’s reins

Starbucks Corp. said it is suspending billions of dollars in share repurchases, a move that interim Chief Executive Officer Howard Schultz said would free up cash to invest in cafes and employees.

Pausing the buyback program, which Starbucks initiated last fall, represents the best way for the company to invest in its next phase of growth, Mr. Schultz told employees in a letter coinciding with his return Monday as the coffee giant’s CEO.

“We all have a stake in our future," Mr. Schultz wrote. “This serves as an invitation to come build it."

Mr. Schultz is returning to run the coffee chain he built over several decades after Kevin Johnson, who had served Starbucks’s CEO since 2017, in March announced his intention to step down. Mr. Schultz said he would focus on reinvigorating Starbucks as the chain navigates rising costs and a broadening unionization push among U.S. baristas, while the company plans to build thousands of new cafes around the world in the coming years.

Starbucks previously halted share repurchases in 2020 after the Covid-19 pandemic hurt its business. The company told investors in October that it would make a new authorization of $20 billion in dividends and buybacks over three years. About two-thirds of that spending would go to share repurchases, the company said at the time. Starbucks in February issued $1.5 billion in debt for corporate purposes that included buybacks.

The company said in February that it had repurchased 31.1 million shares of stock in its quarter ended Jan. 2, and had roughly 17.8 million shares remaining available for purchase under the current authorization.

Repurchases can support stocks by boosting per-share profit, and boost investor sentiment about a company’s financial prospects. Companies this year are spending more money on dividends and share repurchases after preserving cash following the pandemic’s first hit. The repurchases are helping to lend support to the battered stock market.

Starbucks’s shares have been trailing other restaurant stocks over the past 12 months as the company navigates growing costs for supplies and wages. Investors have been asking about Mr. Schultz’s plans and whether they could further pressure profit margins, Wall Street analysts said.

Stock buybacks have long faced criticism in Washington. Pro-union baristas and politicians supporting their efforts have criticized Starbucks’s buybacks and issuing of dividends, saying the money would be better invested in employee wages and benefits.

A Starbucks spokeswoman Sunday said that the company has a long history of investing in employees to support its business, including its customer experience and stock.

In his letter, Mr. Schultz said many companies are grappling with new realities in a changed world, including challenged supply chains, pandemic-driven losses, heightened political tensions, racial unrest and consumers seeking more accountability from business.

“As Starbucks, we can either choose to rise to this moment—or stand idle," he wrote.

Mr. Schultz said he was returning to help design Starbucks’s next phase, and first aimed to spend time with employees to hear their concerns and provide inspiration. He said he and other company leaders would be traveling to stores and manufacturing plants around the world in coming weeks to better understand what was on workers’ minds. That feedback will inform the company’s future decision making, he said.

Mr. Schultz is slated to lead a town hall meeting with employees at Starbucks headquarters Monday, with other workers expected to attend virtually.

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