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Starbucks, the world's largest chain of coffee shops, reported fourth-quarter profit that fell more than analysts estimated after customer visits declined for the fifth consecutive quarter.
Sales at stores open at least 13 months, a key measure of retail performance, declined 8 per cent, which was more than the company expected, as consumers paying higher petrol and grocery prices cut back on premium coffee.
The slowdown has forced Starbucks chief executive Howard Schultz to back away from his previous goal of opening 40,000 new cafes as he concentrates instead on making existing stores more profitable.
"The economy is not co-operating," Emily Sanders, CEO of Sanders Financial Management in Atlanta, said. "They are fighting an uphill battle."
Fourth-quarter net income fell 96 per cent to US$5.4 million ($9.2 million), or US1c a share, in the three months through September 28, from US$158.5 million, or US21c, a year earlier, the Seattle-based company said. Excluding costs to close stores and cut jobs, Starbucks earned US10c a share, missing analysts' average estimate by US3c.
Same-store sales in October dropped less than they did in the fourth quarter, signalling a possible bottom to the decline, Schultz reiterated yesterday without specifying the monthly figure.
If the company's same-store results for the year ending in September 2009 are similar to October's, earnings per share will grow by 20 per cent, he said.
Schultz is now betting on a raft of new initiatives to boost sales in existing cafes as the chain weans itself from years of growth driven by store expansion. The chain doubled in size to more than 16,000 stores since 2004 as it reached for its long-term goal of more than twice that number.
"This is not a time for lofty goals," Schultz said.
Starbucks said on July 1 it would close 600 underperforming cafes in major US cities, 70 per cent of which were less than three years old. The company is eliminating as many as 13,000 jobs, the most in its history. It also shut three-quarters of its 84 stores in Australia, backing away from a market it entered eight years ago.
Starbucks opened a net total of 883 new stores in the US in 2008, less than it opened in 2007, chief financial officer Peter Bocian, who is leaving the company at the end of the month, said during a conference call after the results were announced.
The chain retrained its baristas to improve the way they made espresso, introduced a milder coffee to encourage afternoon purchases, and added a protein smoothie drink and oatmeal to its food lineup.
Executives also enhanced its customer loyalty-card programme with increased discounts and gave away more free coffee to lure consumers back.
- BLOOMBERG
