Starbucks profit disappoints again as customers cut back

Wall Street figured on a lousy earnings report from Starbucks Corp., but not quite this lousy.

The coffee retailer’s shares have slumped in after-hours trading, in the wake of the company's report that store traffic and average customer spending slid in the quarter ended Sept. 28.

And that was before the worst of the financial market meltdown hit in October, and retail sales in general fell off a cliff.

Seattle-based Starbucks said total sales were $2.5 billion in its fiscal fourth quarter, up 3% from a year earlier.

But U.S. same-store sales slumped 8%, which Starbucks blamed on "deteriorating traffic trends in the U.S. and a decline in the average value per transaction."

After charges to close stores and pare its workforce, the company earned just $5.4 million, or 1 cent a share, in the quarter, down from $158.5 million, or 21 cents, a year earlier.

Excluding restructuring costs, Starbucks earned 10 cents a share in the quarter. That was 3 cents shy of analysts’ consensus estimate.

For the full year the company earned $315.5 million, or 43 cents a share, compared with $672.6 million, or 87 cents, in 2007. Sales totaled $10.4 billion, up 10% from 2007.

The stock, already down 50% this year to $10.20 at the closing bell today, fell as low as $9.75 after hours and recently was trading at $9.90. The 52-week closing low was $9.59 on Oct. 27.

Starbucks said it expected the current quarter, ending Dec. 31, to be its "toughest" of the new fiscal year in terms of year-over-year profit comparisons. But in a conference call with analysts after today's report, the company said October "did not show further deterioration" in sales or traffic compared with the fourth quarter, although it didn't provide specific numbers. The hint there was that things may be bottoming.

And Chief Executive Howard Schultz promised an earnings pickup in the new year, saying that "despite a global economic environment which shows no immediate signs of improvement, the steps we took in fiscal 2008 position us to deliver earnings per share growth in fiscal 2009" -- albeit from this year's depressed levels.

The company has been slashing costs to cope with consumers' new frugality. In July, Starbucks announced plans to close about 600 poorly performing U.S. stores.

Even so, you probably won't have trouble finding that latte. The total U.S. store count was 11,567 as of Sept. 30. Foreign stores totaled 5,113.

Photo credit: Amy Sancetta (Associated Press)

Comments

[Ralph L. Seifer]

I was a regular, frequent patron at Starbucks for several years until about two years ago when I perceived what I considered a serious service deficit. I located the lady who was the district manager for the stores in this area, and I discussed the issue with her.

She agreed to look into the problem, and she had some favorable effect on the stores in this neighborhood, at least briefly. With the passage of only a short time and a turnover of many of the people behind the counters at the stores here in Long Beach and its close-by cities, the problem of course recurred.

I then wrote an email to Seattle and explained my concerns. I soon received a semi-anonymous snailmail reply from a "Suzy W." (or something like that) thanking me for my email. Suzy W. enclosed a couple of comps for beverages, and wrote as if my concerns were completely eliminated by her reply to me.

I sent a second email and got another semi-anonymous reply from "Debbie Z" (or something like that), again thanking me for my concern. No promises were made to examine my concerns or to do anything about the problem.

Now, I visit Starbucks perhaps once a month, where the problem I first noted two years ago still continues. Usually, however, I now purchase my coffee at Peet's or McDonalds, neither of which exhibits the malfunction I saw at Starbucks. It's just easier to enjoy my coffee at a business where customer satisfaction seems more easily attainable. Ralph L. Seifer, Long Beach, California

[Brett Schulte]

I've noticed a massive decline in the quality of Starbucks employees. Messy uniforms, bad attitudes, and dirty stores. What I haven't seen is a decline in the lines... I dunno where the slow down is happening, but not in LA.

[Reggie]

You're paying a premium so either you want value in your buy or simply hype??? Peets is 50 notches above plus their coffee/tea is of superior quality and their staff is consistent. Just my 2 cents!!!!