Slow Starbucks growth prompts "refocus and renewal"

31-01-2008

Slow Starbucks growth prompts
Starbucks said that it will open fewer stores than expected as profits show sluggish growth and weak US sales in its first-quarter results.

Net earnings totaled $208.1 million (£104.05 million) during the quarter, or 28 cents (14 pence) per share, up 1.5 per cent from $205 million (£102.5 million), or 26 cents (13 pence) per share, 12 months earlier.

For the 13 weeks ending December 30th, year-on-year total sales climbed to $2.8 billion (£1.4 billion), or 17 per cent.

The company, known for high earnings growth, has had a slowdown over the last year, leading investors to sell shares.

"We are absolutely not satisfied with our overall performance in this period,'' chairman, president and chief executive Howard Schultz said during a conference call with analysts yesterday.

"We have work to do to get the business back to where it should be."

Slower growth in the US over the period reflected "continued macroeconomic weakness" and higher operating costs, the statement said.

Operating income in the US declined by four per cent to $310.9 million (£155.4 million) in the company's fiscal first quarter according to the update.

Mr Schultz, who turned the local Seattle coffee chain into a thriving international corporation, is taking the post for the second time after ousting previous chief executive James Donald earlier this month.

He said details of five major consumer initiatives intended to "reassert our coffee leadership" are to be announced in the firm's March annual meeting.

Mr Schultz did say that Starbucks would stop selling warm breakfast sandwiches in its US stores, and was testing a one dollar (50 pence) cup of coffee to appeal to value-conscious consumers.

Plans to close 100 underperforming stores in the US by the end of the company's fiscal year in September were also unveiled.

"By reducing the number of openings, we expect to optimize our resources and potentially reduce cannibalisation of our existing stores," Mr Schultz said.

With much stronger growth coming from international markets, the company said it would accelerate global expansion.

Starbucks' shares fell 3.76 per cent to $19.22 (£9.61) during late trading on the Nasdaq composite yesterday in New York.

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