Starbucks To Close 300 More Stores

NEW YORK — Starbucks Corp. plans to slash nearly 7,000 more jobs during a new round of store closures and other cuts, the company said as it reported Wednesday that its profit dropped by more than two-thirds in its fiscal first quarter.

The gourmet coffee chain plans to close 300 underperforming stores around the world _ including 200 in the U.S. _ by the end of the fiscal year in addition to the 600 U.S. stores it began closing this summer.

The new store closures could result in the loss of 6,000 jobs, but the company said it will try to offer employees transfers to other nearby locations.

Starbucks also plans to lay off about 700 non-store employees and has reduced the number of new stores it plans to open.

The cuts and changes will result in about $500 million in savings in fiscal 2009, the company said.

With the recession now well into its second year, consumers concerned more about the possibility of losing their jobs than maintaining a $4 daily latte habit are increasingly forgoing the company's brew.

Starbucks also has had to make room for a new lower-priced competitor in the specialty-coffee industry since McDonald's Corp. introduced espresso-based coffee drinks in its U.S. stores.

On a conference call with investors, Chief Executive Howard Schultz implored Wall Street to focus on the company's attempts to bolster its business for the long term instead of worrying about its quarterly profit and sales results.

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"We believe all of the work we are doing will pay off in the long run," Schultz said. "We feel good about the progress we are making."

Edward Jones analyst Jack Russo said the cuts make sense given the decline in Starbucks' sales in recent quarters.

"This is going to be a transition year," Russo said. He said the company will have to "claw their way back."

Wall Street had largely expected Starbucks to report dismal performance for the quarter, which ended Dec. 28, because it had warned last month that slow sales likely would cause it to miss analysts' estimates.

Heeding the company's warning, analysts lowered their average expectation from 22 cents per share to 17 cents per share.

But the company still fell short, with net income of $64.3 million, or 9 cents per share, down 69 percent from $208.1 million, or 28 cents per share a year earlier.

Excluding charges from closing the 600 U.S. stores and 61 stores in Australia, the company's profit was still 2 cents per share shy of analysts' estimates, which typically exclude special items.

Revenue fell to $2.62 billion from $2.77 billion, while analysts had predicted revenue of $2.70 billion.

The revenue drop stemmed from a 9 percent decline in same-store sales, or sales at locations open at least a year, considered a key gauge of restaurant and retail performance. That dip was worse than the company's fourth-quarter decline of 8 percent.

The company's U.S. same-store sales dropped 10 percent in the first quarter. The company said its international business suffered the most in Canada and the U.K.

Schultz said Starbucks will offer customers more value through breakfast "pairings" at new prices but declined to offer any specifics.

Starbucks also said Schultz asked the company's board of directors to cut his salary last week. The board agreed to pay Schultz just $10,000 in base salary for fiscal 2009, including health insurance and other benefits.

Schultz, whose salary was $1.2 million in 2008, still could take home millions in the form of stock options. In the last fiscal year, he received stock options worth $7.8 million when granted, which helped boost his total compensation near $10 million.

The company said it plans to open only 140 new stores in the U.S. in fiscal 2009, down from its previous target of 200. Overseas, it will open 170, down from the 270 it had planned to open.

Starbucks added it would sell one of its two corporate planes and will reach out to landlords to try to negotiate lower rents for its stores.

The company also said it will not provide any sales or earnings guidance "given the uncertainty in the global consumer retail environment."

The company also declined on the conference call to discuss sales trends for January.

Shares fell 24 cents to $9.41 in electronic after-hours trading after rising more than 5 percent during regular trading Wednesday.

Comments

[CR46]

Maybe poor business plainng is part of the problem. There is a Starbucks in my local grocery store and one in the same stores parking lot, to me thats just bad planning. Personally I'm not a Starbucks customer though, just 2 cups before leaving home in the morning and I'm done for the day.

[tkinbaltimore]

Still waiting to see the list of 300 stores that are closing. Also, I'm still waiting to hear about all these mom-&-pop coffeeshops that Starbucks put out of business. Sure, there may have been a few here and there, but compared to Wally World, Starbucks has hardly caused any businesses to fail. Yeah they opened way too many stores, and their prices could be lower. But as others have said, the myth of the $4-5 cup of coffee has been perpetuated by people who obviously have never gone to Starbucks, or looked at their menu. I hate ignorance.

[davidwayneosedach]

Starbucks needs a reality check. Who's going to pay $5 for a cup of coffee?

[1manisland]

No disrespect, but coffee doesn't cost $ 5 at Starbucks. Obviously you must not go there to know that a Venti ( their largest cup ) is approximately $ 2.15 - give or take on local taxes. There is no real difference in the price of coffee between them and Dunkin Donuts. Why is it you people all insist on confusing the price of coffee with Lattes and Fraps which are expensive no matter where you go. I hate sounding like a broken record on this issue, but it was DnD and McDonalds that spent millions to copy Starbucks drinks lately, not the other way around. If you frequent a Starbucks locally, once they get to know you, they are always throwing freebies to regular customers. I never got anything free for my loyalty from DnD and McD's. Where else can you get endless refills for .55 cents or free ? Not from the other guys. Most importantly, my money goes to Seattle and not back to foreigners families in foreign countries. And they give health benefits to employees instead of the taxpayers paying the tab. Don't knock it until you've really tried it !

[Quattro]

This is the Chairman of Starbucks. Your are fired.

[Myshkin57]

There is no $5 cup of coffee. And, in spite of the rumors to the contrary, the McDonald's coffees are only pennies cheaper and come from a machine that uses premix latte juice.

[jerrypl]

Starbucks is just a symptom of the commercial real estate bubble collapse. Remember, every Starbucks rents their location. It offered, like them or not, their commercial developer an anchor store in that small strip-mall of retailers. Yes, there may have been too many. And yes, they were the ones that pushed out the independent coffee shops. They were not much different than Wal-Mart in their squeezing out of the local independent coffee shop. With fewer Starbucks, communities may find a new independent willing to give it a go, again. Empty stores creates a blight just as empty foreclosed homes blight an community.

http://eye-on-washington.blogspot.com

[CaptainHowdy]

Yep... it's a very, very wise decision for all these companies to be laying off more people right now.

The logic is sooo obvious. The less people that have jobs, the more money that people have to buy goods and services.

Sigh...

We are now witnessing the d-e-a-t-h spiral of capitalism­... at the hands of corporate s-o-c-i-o-­p-a-t-h-s.

[Ken Volok]

I prefer to support the small locally owned coffeehouses.

[Myshkin57]

Yep. Support those local businesses that pay their employees as little or less and don't provide health insurance. Hatred of corporations for its own sake is so self-righteous and gratifying.

[TrueIndy08]

that god awful coffee was waaaayyyyy over priced to begin with...

[thats2much]

The best thing I ever got from Starbucks, is the hot little Barista that I picked up at lunch time in downtown Chicago. We staiyed together for 4 years. I can honestly say that I have never purchased a cup of coffee from Starbucks.

[RobTheAgnostic]

realitycheck7: "Only women and homosexuals drink that stuff"

Is that so? Don't think you know many women . . . or many homosexuals. If your intention was to disparage women and gay men, you've only succeeded in showing yourself to be a fearful "mucho macho" clone. Your comment was not funny, not nice and not accurate.

[JimBozo]

In my Manhattan neighborhood, we have a new Starbucks inside a new Bank of America branch.

[davidly]

Classic.

[solarian]

not to many people can afford $3 coffee, bad business model

[Minako]

You know, a lot of the comments here are pretty disgusting. If you don't like Starbucks coffee, good for you, but do you realize how many more people this is going to put out of a job?

Sure they're expensive, sure they're a froo-froo yuppie place to get coffee, but the most important thing is that they're employing people in this economy! Everyone shouting "so long" and "they should close all the stores" should be ashamed of themselves. Hate the coffee if you want to, hate the company if you want to, it's your right, but realize that there are real people who are going to end up looking for a new job when these stores close.

[courageunderfire]

I agree with everything you said, and it is never good when so many will lose their jobs.
But, I do think that Starbucks has overloaded the market.
I used to live in Houston and on this one street (as I suspect many streets across America) there were two Starbucks stores across the street from each other, right across the street, 200 yards apart.
As much as I hate to see people lose their jobs, I also think that Starbucks needs to close stores that are literally a stones throw away from the next one.

[Myshkin57]

Not only do they employ people but they provide health insurance to part-time workers. Show me the small locally owned coffee shops that do that and I'll go there.

[ramal]

Good! Mediocre coffee that is overpriced. Support your local, independent coffee shop instead.

[toallmyfriends]

I'm sorry to have to inform certain people, especially those who enjoy drinking their coffee from a Wal-Mart Mc Cancer, that Starbucks is one of only a hand full of companies that offer gracious benefits to both full & part-time employee's. In fact by the first day of employment every kid who's hired receives 1lb. of coffee a week, stock-options, competitive wages for that kind of work, periodic raises, cheap dental and health care a few months down the road. I see no vortex. I believe thats not all, each store donates coffee and pastries daily to local charities and churches, participates in local fund-raisers including Aids walk, Breast Cancer Awareness, campaigns for NGO's like Red Cross giving them a percentage on the purchase of your fruity latte. And the only place that reminded me that I had to Vote.

[strangerinthenight]

There is a Starbuck every other corner in this metropolis where I work, and 3 Starbucks in this 65 story building where my company leases. I have to say that the free coffee they they dole to the employees is horrendous. So many stop by at the lobby, or to the 15th, and 45th floors.

Still, I'd rather brew my own at home and with my thermal cup, 1 is enough. Not bragging, but my coffee is better - at least inexpensive and taste as good as Starbucks. I just don't know how they stay in business ?