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Author: c0ffeen0te Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25143  
Subject: Re: 2nd quarter earnings Date: 7/31/2012 4:11 PM
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sbux price drop is buying opportunity

Maybe yes maybe no, normally there's a reason for a drop like this. I thought sbux was priced to perfection at 50 (in some long ago post I explained why), sold, and promptly watched it go to 61...ouch, 22% up! But perfection is hard to sustain and the past two quarters, we saw
- same store sales increase down to 7% in both quarters -- not bad but not perfection when previous three quarters were 9, 9, and 8. SSS in next few quarters will therefore have very tough baseline to overcome.
- Gross margin right around 56% (56.2 and 55.8), continuing a steady decline since the peak of 59.5 in the quarter ending 1/3/2011
- Negative free cash flow in quarter ending 4/1/12 (don't have latest quarter's cash)...this is partly seasonal and its less negative than year ago, but two years ago was positive. "Less negative" is not perfection.

At some point I may look to get back in but I would like to see a turn around in margin performance and I am worried about further reductions in same store sale growth given the economic headwinds. Also watching cash as always. Not quite yet. I have already proven I can't call the top and I know I can't call the bottom, so i'm watching for signs that could be omens.

For anybody out there who bought in the upper 50's, be careful. The legendary trader Paul Tudor Jones has a sign over his desk to remind himself that "Losers average Losers." I have done it more often then i care to admit (i'm not wrong, the market's wrong) and usually it ends in tears.
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