Starbucks profit plummets; more closings brewing-WEB ONLY

Starbucks Corp. plans to slash 6,700 more jobs during a new round of store closures and other cuts, the company said yesterday as it reported 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 United States – by the end of the fiscal year, in addition to the 600 U.S. stores it began closing this summer. At least a dozen Indianapolis-area Starbucks locations were included in the first round of closings.

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 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, CEO 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.

“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 profit 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.

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

The company also said it would sell one of its two corporate planes and will reach out to landlords to try to negotiate lower rents for its stores.