Starbucks Changes Its Spin From Positive to Negative

Last Updated Dec 1, 2008 2:40 PM EST

In its 10-K released on Monday, Starbucks warned investors that, ". . . the company expects to face an extremely challenging fiscal 2009." What's surprising about this is that the warning contrasts sharply with CEO Howard Schultz's optimistic quotes in the company's quarterly earnings release of just two weeks ago.

In Why Executives Shouldn't Put Positive Spin on Bad News, I advised that company and product positioning should be positive, but only if it meets five criteria, two of which were "It must be credible, which means that big elephants in the room should be dealt with in a proactive manner or it won't pass the laugh test;" and "It can't come back to haunt you later."
This is exactly what I was talking about in my post. I didn't think Schultz dealt effectively with the elephant in the room â€" namely a prolonged and challenging turnaround during a brutal market climate. And I thought that, if the company underperforms in 2009, Schultz's optimism may come back to haunt him. In fact, I thought his positioning should have been more like, well, like the way the 10-K is written. Judge for yourself:

Quarterly earnings announcement, November 10, 2008:

"With a re-architected cost structure at the close of fiscal 2008, we began the new fiscal year with a healthier store portfolio that will allow for operating margin expansion," commented Howard Schultz, chairman, president and ceo. "Despite a global economic environment which shows no immediate signs of improvement, the steps we took in FY08 position us to deliver EPS growth in FY09."

Schultz continued, "We appear to be more resilient than many other premium brands. As we head into the holiday season and Calendar '09, consumers are looking for value and we've been pleased with the steady progress of our Starbucks Rewards program and the enthusiastic reception to the Starbucks Gold Card. I am optimistic we are well positioned to weather this challenging economic environment."

Remember that last sentence when you read this:

Annual 10-K, November 24, 2008:

"The company will face an extremely challenging fiscal 2009 because Starbucks customers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced access to credit and sharply falling home prices. Any resulting decreases in customer traffic or average value per transaction will negatively impact the company's financial performance."

"As the global financial crisis has broadened and intensified, other sectors of the global economy have been adversely impacted and a severe global recession of uncertain length now appears likely. As a retailer that is dependent upon consumer discretionary spending, the company expects to face an extremely challenging fiscal 2009 because of these economic conditions."

Now, I'm not saying the quarterly announcement directly contradicts the 10-K, but you've got to admit, the former sounds optimistic while the latter presents a clear warning to investors. How exactly do Schultz and the board reconcile the difference in positioning, or am I missing something here?