Fewer New Cafes
Starbucks Corp., the worlds biggest
chain of coffee shops, said it will open fewer cafes this year
and forecast annual profit that trailed analysts estimates. The
stock fell the most in almost four weeks.
Starbucks will open 2,150 stores through September, down
from a previous projection of 2,500. It forecast “low double-
digit growth in earnings per share, compared with the 16
percent increase estimated by 16 analysts in a Bloomberg survey.
Chairman Howard Schultz, who built a local Seattle coffee
chain into a corporation with more than 15,000 cafes, is reining
in the companys expansion after ousting Chief Executive Officer
James Donald this month and taking his place. Starbucks will
close 100 underperforming stores after customer visits dropped
in the U.S. for the second consecutive quarter.
“We have work to do to get the business back to where it
should be, Schultz said yesterday on a conference call with
analysts. “We are absolutely not satisfied with our overall
performance in this period.
The company also reported first-quarter net income that
rose 1.5 percent to $208.1 million, or 28 cents a share, from
$205 million, or 26 cents, a year earlier.
The earnings met the average 28-cent-a-share estimate of 17
analysts surveyed by Bloomberg.
Starbucks dropped 78 cents, or 4.1 percent, to $18.44 at
1:07 p.m. New York time in Nasdaq Stock Market composite
trading. It was the biggest decline since Jan. 2. Starbucks fell
6.1 percent this year through yesterday after falling 42 percent
in 2007, the worst performance in the companys history.
`Disappointing Quarter
“It might be one of the more disappointing quarters
theyve ever had, Jack Russo, an analyst at Edward Jones %26amp; Co.
in St. Louis, said today on Bloomberg Television. “They are
going from being a growth company to more of a mature consumer
products company.
After taking over as CEO for the second time on Jan. 7,
Schultz, 54, said Starbucks problems were “self-induced and
vowed to introduce more innovative products and clean up aging
stores. Starbucks rose the most in almost two years in U.S.
trading the day after Schultzs return.
Schultz said yesterday the company will announce five
initiatives on March 19. He declined to give details. He also
said Starbucks will no longer sell warm breakfast sandwiches at
U.S. stores starting Sept. 30, in part because their smell
overwhelmed the aroma of coffee in the cafes.
Not `Embraced
Sharon Zackfia, an analyst with William Blair %26amp; Co. in
Chicago, estimated the breakfast sandwiches contribute $130
million to sales, or about 2 percent. She said baristas who
serve coffee at Starbucks stores “never really embraced the
sandwiches.
Former CEO Donald, 53, left Starbucks less than three years
after taking the job. Schultz, who took over the chain in 1987
and was chief executive through 2000, brought the company public
in 1992 and expanded it overseas.
On Jan. 11, Schultz put four senior executives in new
roles to focus on marketing and product development, store
design, global strategy and human resources. One week later, the
company said Frank Kern, vice president of marketing, and Karin
Koonings, vice president of marketing in Starbucks
international division, were leaving the company.
“Theres been a lot of action already, Zackfia said in
an interview.
Sales globally at stores open at least 13 months rose 1
percent, the lowest gain ever. Customer visits in the U.S.
dropped 3 percent, the second decline ever after a 1 percent
decrease the previous quarter.
`Right People
“Once you get to a certain size, it becomes more
challenging to find the right people and the right operational
expertise to execute effectively in all the locations, David
Tarantino, an analyst with Robert W. Baird %26amp; Co., said on
Bloomberg Radio before the earnings were announced.
Schultz said Starbucks wont give same-store sales numbers
for the rest of 2008 and will consider giving them again in
2009. He said the figures wouldnt be an accurate guide as
growth slows. The company will halt annual earnings forecasts in
2009.
Facing an increased threat from McDonalds Corp.s new
cappuccinos and lattes, Schultz said his test of eight-ounce
(237 milliliter) “short coffees in Seattle-area stores for $1
is aimed at consumers facing “economic pressures.
He compared the $1 cups with Daimler AGs entry-level C-
Class Mercedes-Benz sedans and Polo Ralph Lauren Corp.s less-
expensive Chaps brand.
“McDonalds and Dunkin Donuts are going to do a much
better job in terms of specialty coffee, so Starbucks is going
to have its hands full starting this year and into next year,
Edward Jones %26amp; Co.s Russo said. “Theres no doubt McDonalds
is going to come in probably 75 cents lower on a cup of coffee
versus Starbucks.
Starbucks opened 2,571 stores worldwide in the year through
September. The chain has stores in 43 countries, about 10,600 of
them in the U.S.
