Sir Paul and Schultz calm Starbucks investors' jitters

Rather than wooing investors with its usual annual-meeting panache, Starbucks fought Wednesday to keep their trust.

The three-hour meeting remained upbeat, with Sir Paul McCartney dropping in via satellite from London for a short chat with Starbucks Chairman Howard Schultz about signing a one-album deal with the coffee company's new record label.

Still, Starbucks executives spent much of the meeting telling the company's side of the story regarding a languishing stock price, a leaked memo from Schultz to top executives and the way they believe the media have mischaracterized some issues.

"The last few weeks, a few things have cast a shadow on the company," Schultz told nearly 6,000 employees and other investors who overflowed Marion Oliver McCaw Hall at Seattle Center.

Starbucks' stock price has slid more than 9 percent since its last annual meeting, Schultz said.

Still, he pointed out, anyone who invested $10,000 in the company's 1992 initial public offering would have stock worth $467,000 today. Starbucks' long-term strategy and execution should keep its performance strong, Schultz said.

"I'd hope that ... you'd give us some of the trust you have in the past," he said.

Starbucks shares have taken two steep dips in the past year — one last summer, when the company reported lower-than-expected sales growth for established stores, and more recently as analysts began worrying about profit margins.

"Over the last three quarters, operating margins have declined on a year-over-year basis," said Dan Geiman, an analyst at McAdams Wright Ragen in Seattle.

The memo

It didn't help the stock when a memo Schultz sent to top executives was leaked to the Web site www.StarbucksGossip.com last month.

"The Street had some concern in the last few weeks that his memo somehow signaled that the company's growth strategy was shifting," Geiman said. "He made clear today that that's not the case."

Schultz and Chief Executive Jim Donald affirmed that Starbucks still plans to add 2,400 stores this year and to meet its earnings target of 87 to 89 cents a share for fiscal 2007.

Its long-term goal remains 40,000 stores worldwide.

The two men added new promises as well, including plans to boost the number of stores by 10,000 during the next four years from about 13,000 now, and to grow profit faster than revenues.

Investors responded by sending Starbucks shares up 89 cents, or 2.8 percent, to $32.27 Wednesday. The stock has traded between $28.72 and $40.01 during the past year.

Schultz also wanted to set matters straight about the leaked memo, which last month told the world the man who built Starbucks believes it has stores that "no longer have the soul of the past."

The memo does not reflect any lack of faith in Starbucks' executives, Schultz said, and is similar to many others he has written over the years pushing the company to excel.

"I am challenging the status quo of Starbucks, as I have for 25 years," he said.

Finally, Schultz addressed some issues that get under his skin, like "being pulled into things by special-interest groups, fringe unions, NGOs [non-governmental organizations]. You have to ask, 'What is the connection these have to Starbucks?' "

He said Starbucks makes mistakes, but that "we're trying to build a company with a conscience."

Again adopting the role of an imploring suitor, Schultz promised investors that Starbucks is "a company you can trust and believe in, not only for the profit it makes but for the good it does."

CEO Donald took up one of the issues more directly, saying Starbucks' intent regarding Ethiopian coffee farmers has been mischaracterized by the media and bloggers.

Starbucks shares the Ethiopian government's goal of increasing the recognition of Ethiopian coffee names and the incomes of its coffee farmers, Donald said.

He said the company is working to improve its relationships with the Ethiopian government and Oxfam, an international development organization that wants Starbucks to sign an agreement acknowledging Ethiopia's ownership of certain coffee brands.

One guest at the meeting who supported Starbucks' claims about its devotion to the coffee farmers' welfare was Paul Kagame, president of Rwanda.

Starbucks and Rwanda have a friendship and partnership that represents a "great opportunity for the farmers who grow the coffee," he said.

Kagame also wouldn't mind if Starbucks opened a coffee shop in Rwanda.

Come to Rwanda

"We are very much looking forward to that," he said, although the company has no immediate plans to do so.

Late last year, Starbucks opened its first store on the African continent, in Egypt.

Usually, Starbucks tops off its shareholders meeting with high-profile entertainment, like last year's performance by singer Tony Bennett.

This year, investors had to settle for the remote exchange between a clearly tickled Schultz and a former Beatle.

Schultz promised to exceed McCartney's expectations, to which Sir Paul said he's ready to reach people around the world in a new way, "so let's get on with it, man!"

McCartney's new album, which doesn't yet have a name, is expected out in early June and will be released simultaneously in Starbucks and other retail stores.

During a session at the end of the meeting, when a few people asked questions about Starbucks and Ethiopia, Schultz said Oxfam's involvement might be part of a membership drive.

Seth Petchers, coffee-program manager for Oxfam America who was at the meeting, said Oxfam was not working any harder than usual to gain members and has been supporting Ethiopian coffee growers for more than five years.

"[Schultz] was trying to neutralize the negative publicity Starbucks is getting right now," Petchers said.

As large as the bad publicity seems to loom for Starbucks executives, many employees and investors have hardly noticed.

Analysts don't mention Ethiopia or attempts at union organization as reasons for the decline in the stock price.

Georgia McCollum, an investor from Gig Harbor, said when she heard there would be protests around the annual meeting this year — the Industrial Workers of the World helped lead a small rally for workers' rights outside McCaw Hall — "I couldn't think of one thing to protest."

"I don't even drink that much coffee," she said, "but I love what they do."

Melissa Allison: 206-464-3312 or mallison@seattletimes.com