Starbucks Expects 2Q Earnings Below Analysts' View

By: By Curt Woodward
By: By Curt Woodward

Starbucks Corp. warned Wednesday that its second-quarter earnings would fall short of analysts' expectations due to the weak U.S. economy and the cost of its turnaround plan.

The world's largest coffee retailer said it expects second-quarter earnings of 15 cents per share on a 12 percent revenue increase, down from earnings of 19 cents per share a year earlier. Analysts polled by Thomson Financial were predicting a profit of 21 cents per share for the quarter ended March 30.

Starbucks also warned yearly earnings could fall below the 87 cents per share reported for fiscal 2007. Analysts were expecting a profit of 97 cents per share this year. The company plans to release a full quarterly financial report April 30.

The news sent Starbucks shares tumbling in after-hours trading. They fell to $16.00, down 10 percent from their regular-session close Wednesday of $17.85.

Starbucks has spent the last few months sharpening its focus on basics as part of its efforts to reinvigorate its U.S. business, which has suffered amid the soft economy and growing competition from rivals including McDonald's Corp. and Dunkin' Donuts.

The company also has scaled back the number of new U.S. stores it plans to open this year, while ramping up growth overseas.

Those initiatives brought down earnings by about 3 cents per share in the second quarter, Starbucks said Wednesday. Softness in revenue was partially attributed to a mid-single-digit decline in comparable store sales, a key measure of a retailer's health.

Starbucks said in January it would stop releasing quarterly comparable sales figures in hopes of lessening the focus on short-term performance. It was not expected to elaborate further on comparable sales during its upcoming earnings report.

Linking its performance to the overall economy, Starbucks said the California and Florida markets that were hit particularly hard by the housing downturn have typically accounted for 32 percent of the company's U.S. retail revenue.

Howard Schultz, who returned as the company's chief executive less than four months ago, said Starbucks' turnaround efforts are in the early stages and will eventually show financial benefits as the national economy rebounds.

"In the interim, we are rigorously managing our expenses and seeking additional opportunities to reduce costs," Schultz said in a release.

In February, Starbucks announced it was laying off about 220 support staff who worked at the coffee retailer's Seattle headquarters and in field operations, and would leave about 380 open jobs unfilled.

Starbucks has a long-term goal of 40,000 stores worldwide. The company now has about 16,000 stores worldwide, more than two-thirds of them in the United States.


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