Starbucks shuts stores, cuts jobs as profit lags

Starbucks shuts stores, cuts jobs as profit lags
Comment E-mail Print Share
First Published: Thu, Jan 29 2009. 11 40 AM IST
Updated: Thu, Jan 29 2009. 11 40 AM IST
Los Angeles: Starbucks Corp’s quarterly profit fell more than expected as sales at established US stores fell 10%, and the company said it will close 300 more cafes and could slash up to 6,700 jobs.
Starbucks, whose shares fell 2.5% after-hours, said it now aims to cut fiscal 2009 costs by $500 million from a previously targeted $400 million.
The coffee chain reported fewer customers, spending less, and was hit by a stronger dollar against the pound and the Canadian dollar. Total revenue slid 6%.
After cementing its global brand by selling $3 lattes to the masses, the company got into trouble when it built too many US outlets. It has been hard-hit by a US-led recession that has wiped out more than 3 million jobs, decimated home values and investments and battered consumer spending and confidence.
“The operating environment is terrible but they’re doing a lot of the right things here - slowing their growth, looking for cost savings. They’re preparing themselves for the time in the future where sales come back,” said Larry Miller, an analyst with RBC Capital Markets.
“There are a lot of stores that haven’t been profitable. It’s a harsh reality but they need to right-size the organization. Unfortunately, there are some casualties.”
Starbucks said 200 of the new-store closures will be in the United States, where it had already targeted 600 stores for termination. The remaining 100 are in international markets. Last year, Starbucks also shut 61 cafes in Australia.
The coffee chain, which brought back Howard Schultz as chief executive in January 2008, has repeatedly jolted investors with bad news since its US traffic started slowing in late 2007.
Schultz said on a conference call on Wednesday that Starbucks was able to find new positions for about 70% of the workers affected by the closure of the 600 domestic stores.
Starbucks said it now expects to open 140 new company-operated stores in the United States in fiscal 2009, 60 fewer than previously targeted. The company plans to open 170 new international company stores, down from 270.
Net new licensed-store targets also were lowered to 125 in the US and 360 internationally.
Starbucks reported a non-GAAP earnings per share of 15 cents for the fiscal first quarter ended 28 December, lagging a comparable consensus estimate for 17 cents, according to Reuters Estimates.
At the end of the fourth quarter, there were more than 11,500 US Starbucks stores and more than 5,000 abroad.
Analysts held out hope that Starbucks’ aggressive cost-cutting efforts will put it back on a growth track once the economy rebounds.
“There are stores out there that are in no-man’s-land, there are fields of dreams of unsold homes, this is not surprising. I think it’s a very rational thing to do in this environment.”
Comment E-mail Print Share
First Published: Thu, Jan 29 2009. 11 40 AM IST
More Topics: Starbucks | Coffee | US | Recession | Jobs |