Stock market: the owner thinks differently

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GUEST EXPERT. On April 4, Howard Shultz took the presidency of Starbucks (SBUX, US $ 83.20), the company he founded in 1972. One of his first steps as interim chairman was to cancel the company’s stock buyback program.

The previous management announced in October its intention to pay US $ 20 billion (US $ billion, all following figures are in US dollars) of capital over the next three years to the company’s shareholders in the form of dividends (for almost one-third) and share buybacks (for about two-thirds).

In the first quarter of fiscal 2022, which ended Jan. 2, 2022, the company repurchased more than $ 3.5 billion of its own shares. In a press release announcing the return of Howard Shultz, he said that “This decision will allow us to invest more in our people and our stores-the only way to create lasting value for all parties involved.“. Like many other companies in North America, Starbucks has had difficulty finding staff for some time. In addition, it has faced a unionization movement on the part of some of its employees.

At a forum with employees at company headquarters last Monday, Howard Shultz said,I am not in the business, as a Starbucks shareholder, to make all my decisions based on the stock price for the quarter.He said the company needs to grow faster and improve the in-store experience to be more relevant to consumers, even if that means reducing quarterly earnings and short-term shareholder returns.

Howard Shultz is a major shareholder of Starbucks, a stock we own in some of our managed portfolios. The last time he declared his shareholding in the company, in June 2020, he owned 34.7 million (M) shares (directly and indirectly), representing 3.0% of the company’s shares and worth nearly $ 2.9 billion in stock price recently. . Clearly, Mr. Shultz has an interest in seeing the company and its stock continue to grow over the long term.

This is also common: an owner thinks differently from a simple manager. In my opinion, aside from the fact that he founded the company 50 years ago, owning some 34.7M shares encourages the founder to make the necessary decisions for the long-term benefit of the company.

Often, such decisions are costly in the short term. For example, the decision to invest more in R&D lowers a company’s profits in the short term, but it can significantly boost its growth and profitability in the longer term.

I also have the example in mind from America (UHAUL, US $ 549.22), a company we hold in some of our portfolios for many years and the business is better known as its core division, U-Haul. Edward Shoen, the chairman, owns nearly 8.4 million shares of the company, or 42.7% of the total, valued at more than $ 4.6 billion. However, the latter made a decision a few years ago to invest heavily in a new service for its customers, storage for individuals, a decision that weighed in on the company’s profitability for several years before it began. contributed significantly to its growth over the past two years.

The decision to stop stock buybacks and invest more in its stores could have the same impact on Starbucks. It’s always hard to predict things like this, but you can be sure that a leader like Howard Shultz, with a proven track record and a strong drive to create shareholder value, will make the decisions he thinks he should. which is most beneficial to long-term shareholders.

Philippe LeBlanc, CFA, MBA

Chief Investment Officer of COTE 100

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