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Starbucks' expansion is losing steam

January 31, 2008|From Reuters

Starbucks Corp. said Wednesday that it would close 100 underperforming U.S. stores and slow domestic openings in the face of a likely consumer recession and its own overbuilding.

Its shares fell nearly 2% in after-hours trading.

The coffee chain -- which is turning its focus to increasing its overseas business -- has been battered in recent months by slower consumer spending, higher milk and labor costs and concerns it may have saturated the U.S. market.

Starbucks cut its forecast for 2008 U.S. store openings to 1,175 from 1,600 and planned to increase international store openings by 75 outlets to 975.

Executives said they would discontinue guidance for fiscal 2009 and beyond and stop issuing same-store sales results, saying they would not be effective indicators of the business during the turn-around period.

Seattle-based Starbucks said it now expected earnings per share in fiscal 2008 to grow in the low double-digits by percentage. Starbucks' previous forecast was for earnings a share of $1.02 to $1.05 in fiscal 2008, which would mark a 17% to 21% increase.

Starbucks had fiscal first-quarter net income of $208.1 million, or 28 cents a share, compared with $205.0 million, or 26 cents, a year earlier. Revenue rose 17% to $2.8 billion.

The result topped analysts' average call for profit of 27 cents a share and revenue of $2.76 billion, according to Reuters Estimates.

The company said total quarterly same-store sales grew 1%, while U.S. same-store sales fell 1%. International same-store sales were up 5%.

Starbucks shares fell to $18.90 after closing at 19.22 in regular trading.

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