Starbucks Slows Growth Sees Profit Below Estimates
Starbucks Corp., the worlds biggest
chain of cafes, said it will open fewer shops this year and
forecast annual profit that trailed analysts estimates.
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. Analysts surveyed by
Bloomberg estimated a 16 percent increase for the year.
First-quarter net income rose 1.5 percent to $208.1 million,
or 28 cents a share, the company said in a statement today.
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. 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 during a conference call with
analysts. “We are absolutely not satisfied with our overall
performance in this period.
Starbucks declined 75 cents, or 3.8 percent, to $19.22 at
8:10 p.m. after the close of regular trading. The stock fell 3.8
percent in Nasdaq Stock Market composite trading before the
announcement.
The earnings met the average 28-cent-a-share estimate of 17
analysts surveyed by Bloomberg. A year earlier, profit was $205
million, or 26 cents.
Schultzs Return
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 today 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.
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.
New Jobs
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.
“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 today on
Bloomberg Radio before the earnings were announced.
Fewer Numbers
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.
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.
