Apr 5, 2022 - Economy

Starbucks halts stock buybacks as it faces union push

Illustration of a Starbucks coffee cup with a stock trend line drawn on the side with marker

Illustration: Annelise Capossela/Axios

Corporate leaders have increasingly leaned on stock buybacks to keep their equity prices aloft. But Starbucks on Monday halted a plan to spend billions buying back its own stock this year.

  • The big question now facing CEO Howard Schultz: Will Wall Street allow him to quit buybacks cold turkey?

Why it matters: Critics of buybacks have said that the boom in share repurchases has eaten into corporate spending on wages and the kind of business investment that drives economic growth, a view Schultz tacitly acknowledged in making the announcement.

What he's saying: "This decision will allow us to invest more into our people and our stores — the only way to create long-term value for all stakeholders," said Schultz, who just reclaimed the reins of the coffee giant, in a statement.

  • Starbucks shares fell 3.7% on the announcement. The company has already drastically underperformed the market this year.

State of play: The decision comes as Starbucks — heavily reliant on its 235,000 workers in American stores — faces a historically tight labor market.

  • Climbing wages, one of the company's largest costs, have eaten into profit margins.
  • The company's high-end Reserve Roastery in New York's Chelsea neighborhood voted to unionize on Friday — the 10th location to do so over the past several months.

The big picture: Starbucks' move to freeze buybacks also comes amid increased regulatory and political scrutiny of a practice that has become a cornerstone of the way the American stock market functions.

  • The SEC has proposed new rules that would require faster disclosure of corporate stock purchases and more info on their justification.
  • Companies themselves are the largest buyers of stock in the U.S. markets, according to Goldman Sachs analysts.
  • Goldman estimates that companies will purchase $700 billion worth of stock this year — even after netting out stock issuances — making them by far the largest purchaser of equities.

So far, Starbucks' move doesn't seem to have won it much breathing room from SBWorkersUnited, the union attempting to organize the company's shops.

  • "If Howard Schultz wants to lift us up, protect shareholder interests, and design our shared future, he should start by ending the ruthless anti-union campaign costing shareholders millions," the union said in a statement to Axios.

The bottom line: Schultz is asking for patience from shareholders as it attempts to sort out its labor issues and reinvigorate its stock price. We'll see how it goes.

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