SEATTLE Starbucks Corp. is pulling its hot breakfast sandwiches and closing 100 stores after posting a 1-percent year-over-year decline in domestic same-store sales for the first quarter ended Dec. 30. Traffic at U.S. coffee shops was down 3 percent on a comparable-unit basis from the same period of a year ago, the company said Tuesday.
Net earnings for the quarter totaled $208.1 million, or 28 cents per share, a 2-percent increase over the $205 million, or 26 cents per share, for the same period a year ago. Revenue rose 17 percent to $2.8 billion on the strength of store openings and better same-store sales overseas.
Howard Schultz, who last month replaced Jim Donald as chief executive and president, said he would detail five "bold consumer facing initiatives" at the company’s annual shareholder meeting, which begins March 19. But he confirmed that the chain is already testing a $1 “short cup” of brewed coffee as a way to appeal to new customers and offer a new level of pricing.
Yet Schultz, who remains Starbucks’ chairman, brushed off assertions that the coffeehouse segment leader is losing business to fast-feeders such as McDonald’s and Dunkin’ Donuts.
“The past several weeks have also been notable for the noise about competition in the coffee space. Let me emphasize: We don't see that as the issue," he said.
Schultz also disclosed that the line of hot breakfast sandwiches that were rolled out during Donald’s watch would be eliminated by the end of the year. He said the items, which are heated in a special high-speed oven, tempered the smell of coffee within stores. In a memo intercepted and posted online last February, Schultz lauded that aroma as a key to the concept’s appeal.
Speaking to financial analysts and investors during Tuesday’s conference call, Schultz repeated earlier assertions that Starbucks needs to focus on differentiation and innovation.
In line with statements he made when he replaced Donald, Schultz said Starbucks will close 100 underperforming stores in the United States and decrease unit openings during the current fiscal year to 1,175, a 34 percent drop from the chain's fiscal 2007 growth. Fewer than 1,000 domestic stores are slated to open during fiscal 2009.
However, Starbucks intends to raise its international growth target for fiscal 2008 by 75 stores, to 975 in total. More than 1,000 international units are planned for fiscal 2009, which would mark the first time overseas development has outpaced domestic growth for the chain.
During the first quarter, Starbucks’ international same-store sales rose year over year by 5 percent, reflecting a 3-percent increase in transactions and a 2-percent uptick in check averages. As a result, consolidated same-store sales were up 1 percent.
Officials also announced the board’s authorization of a repurchase of up to an additional 5 million shares of common stock. During the first quarter, the company repurchased a total of 12.2 million shares for $295 million, leaving 1.3 million available for repurchase.
Schultz also said the company will no longer report same-store sales or give annual guidance as of fiscal 2009.