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Starbucks slows U.S. expansion again, slates new beverages, breakfast

SEATTLE Blaming the challenging economic environment, Starbucks Corp. significantly scaled back its U.S. expansion targets for the next three years, but expressed hope that the summer launch of new beverages would snap a slowdown in traffic. The company also disclosed plans to take yet another crack at the breakfast market, this time with proprietary baked goods and chilled products.

With profits dropping 28-percent drop for the second quarter ended March 30, Starbucks officials lowered their store-opening projections for the United States to about 1,020, including 620 company-operated and 400 licensed units. That represents a 43 percent decline from the 1,800 units that were opened domestically last year. Earlier in 2008, officials disclosed plans to cut new openings by 425 units and close 100 underperforming stores.

Slower domestic growth is expected to continue through the next three years, with fewer than 400 net new stores expected to open each year for a total of 21,500 by the end of 2011.

However, Starbucks plans to continue accelerating international expansion, with a target of foreign units accounting for about 40 percent of the global portfolio by 2011. As previously announced, this year 975 new stores are expected to open internationally, growing to 1,050 in 2009, 1,150 in 2010, and 1,300 in 2011.

Meanwhile, Starbucks this summer will unveil three new types of beverages, including entries into the $4.4 billion energy drink market.

Starbucks will debut new custom-made “double shot” caffeine drinks as well as ready-to-drink energy beverages in partnership with Pepsi-Cola.

In response to increased consumer demand for healthful products, Starbucks said it will also roll out a new whey protein-and-fruit-based drink that will be available in two flavors, each containing fewer than 270 calories.

In Southern California, Starbucks will begin offering a new Italian-style frozen fruit drink that will likely roll out nationally in 2009.

In September, the company is expected to unveil its new breakfast line, featuring a proprietary baked and chilled food program. More innovative food products are due for release next year, officials said.  Starbucks has said it is pulling its last breakfast line, an array of egg sandwiches that were reheated and available throughout the day. Chairman and chief executive Howard Schultz said the smell of the sandwiches overpowered the aroma of coffee, the chain’s signature.

As previously announced, consolidated revenues for the second quarter increased 12 percent to $2.5 billion, compared with $2.3 billion for the year-ago period. The lower-than-expected revenue was driven by a “mid-single-digit” decline in same-store sales within the U.S, largely a result of decreased traffic.

Net earnings totaled $108.7 million, or 15 cents per share, down from the year-ago $150.8 million, or 19 cents per share — though company officials blamed costs associated with implementation of its transformational agenda for some of the profit decline.

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