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Union-related issues continue to brew at Starbucks (SBUX +1%), prompting a roughly 10% correction since last week. The Starbucks Workers Union, which was formed in late 2021, has over 11,000 organized workers across 535 company-owned stores in the U.S. However, by comparison, SBUX employs more than 200,000 people and operates over 10,000 stores in the U.S. Last week, the union stated that 98% of unionized workers voted to authorize a strike. The dates were set for between December 20 and today and were expected to affect over 300 stores nationwide by Christmas Eve.

Last night, SBUX provided an update on the strike, noting that only a small number of stores, around 60, were temporarily closed due to the union's actions. Management added that the strike could reach additional stores today. However, the company noted that 97-99% of its stores will continue to operate normally. As such, the strike is expected to have a limited impact on SBUX's overall operations. 

• SBUX has not expressed much concern over the 4% of its U.S. stores where its employees have chosen to be represented by a union. The striking does add another headache that the company and its recently appointed CEO, Brian Niccol, must work through. However, we view union-related setbacks as mostly noise.
• Still, the noise coincides with macroeconomic headwinds that have kept a tight lid on recent growth. In Q4 (Sep), SBUX's North America and International comps contracted by 6% and 9%, respectively, while China comps (SBUX's second-largest market) fell by 14%. Mr. Niccol, who joined the company in early September, conceded that results were underwhelming, reinforcing his view that changes are needed, from menu simplification, removing excess consumer costs, and returning abandoned perks.
• SBUX's "Back to Starbucks" plan aims to take on these much-needed changes, ultimately targeting a return to sustainable growth domestically and abroad. SBUX's strategy involves meaningful investments in equipment, renovation, and marketing, which could weigh on the company's near-term bottom-line performance. However, investors remain excited over Mr. Niccol carrying over his success at Chipotle and Taco Bell. Shares remain over +10% higher since the announcement of his appointment as CEO.

A strike by unionized workers across a minuscule percentage of SBUX's total footprint in the U.S. is not expected to weigh materially on the company's operations. More stores could vote to unionize in the future. However, we view the problem as relatively minor. Instead, SBUX is up against a more significant hurdle: reenergizing demand. It is still early into Mr. Niccol's turnaround plan, so Q4 numbers provide more of a baseline from which SBUX should improve rather than signal a future trend. Therefore, Q1 (Dec) results in the coming months should offer more clues as to how "Back to Starbucks" is shaking out.