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Starbucks' annual report outlines challenges ahead

SEATTLE Starbucks Corp. detailed expectations for “an extremely challenging fiscal 2009” in its annual report Monday, citing increased competition, the possibility for additional restructuring measures and the expectation of continued consumer pressures.

The filing was in keeping with the coffeehouse chain’s fiscal 2009 projections for negative same-store sales and flat revenues that were outlined in its fourth-quarter earnings report Nov. 10. Same-store sales fell 3 percent in fiscal 2008, which ended in September, and the company gave various earnings estimates based on differing levels of negative same-store sales for the current fiscal year.

In its annual report, Starbuck’s cited challenges including increasing competition from quick-service operators — such as McDonald’s, which it did not mention by name, but which has begun offering premium coffee drinks across its vast system — as well as specialty coffee shops and the sale of high-quality coffee beans in grocery stores.

“The continued focus by one or more large competitors in the quick-service restaurant sector on selling high-quality specialty coffee beverages at a low cost has attracted Starbucks customers and could, if the numbers become large enough, adversely affect the company’s sales and results of operations,” Starbucks said in the annual report’s traditional section outlining risks for the company and its investors.

Job losses, home foreclosures, bankruptcies, reduced access to credit and falling home prices have all resulted in less discretionary spending for consumers, the filing noted. The continuing global financial crisis also could impact Starbucks’ liquidity and capital resources, it said.

Starbucks said it could not be sure the company would see the benefit of restructuring efforts first announced in July, including the closure of more than 600 underperforming stores in the United States and 61 in Australia. Turnaround efforts and the related charges this year resulted in a 97-percent decline in fourth-quarter profit. The company has said the company was in a better position to deliver earnings growth in fiscal 2009, but that it was not clear “how long and how deep” the global financial downturn would affect the chain’s 16,680 stores.

“To the extent that the company is unable to improve its financial performance in fiscal 2009, further restructuring measures may be required in the future,” the filing said.

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