SEATTLE Taking a $105.1 million hit as a result of this year’s turnaround efforts, Starbucks Corp. on Monday reported a 97-percent decline in fourth quarter profit but said the coffeehouse chain was well-positioned to face ongoing challenges in the next fiscal year.
Saying that Starbucks is “more resilient than many other premium brands,” company officials also reiterated earlier hints that Starbucks may have hit bottom in the fourth quarter, saying first-quarter sales have “episodically improved” over the past few weeks, though it was too early to declare a definite trend.
Howard Schultz, Starbucks chairman and chief executive, blamed the disappointing year-end results on the difficult economic climate in the United States and abroad, adding that “it’s not clear how long and how deep” the impact will be felt among the chain’s 16,680 stores.
Changes made so far, however, will show results in fiscal 2009, he said. “Despite a global economic environment which shows no immediate signs of improvement, the steps we took in fiscal ’08 position us to deliver EPS growth in fiscal ’09,” he said.
For the quarter ended Sept. 28, Starbucks reported net income of $5.4 million, or 1 cent per share, compared with $158.5 million, or 21 cents per share, a year ago. Costs associated with the company's restructuring efforts hurt earnings by about 9 cents per share, Starbucks said. Those efforts included the planned closure of more than 600 stores and workforce reductions of about 1,000, as well as the “transformation agenda” that included equipment, training and menu upgrades.
Fourth quarter revenues increased 3 percent to $2.5 billion. After several periods of not reporting comparable-store sales, Starbucks reported an 8-percent decline in U.S. same-store sales for the quarter globally. Consolidated same-store sales for the quarter fell 7 percent and reflected a 4-percent decline in traffic and a 3-percent drop in average tickets.
Restructuring charges during the fourth quarter totaled $99.2 million, including an estimated $38.6 million for executing the decision to close more than 600 underperforming stores in the United States and 61 stores in Australia, as well as severance pay and other costs tied to the job cuts.
Company officials upped their projection of lease exit costs to $170 million, an increase from estimates in July that ranged between $120 million and $140 million. During the quarter, 205 of the underperforming stores were closed, and the nearly 400 remaining will likely be closed toward the end of fiscal 2009, officials said.
For the year, net income fell 53 percent to $315.5 million, or 43 cents per share. A year ago, Starbucks earned $672.6 million, or 87 cents per share. Fiscal 2008 revenue rose 10 percent, to $10.4 billion.
Same-store sales for the year declined 3 percent, which included a 5-percent drop in the United States and a 2-percent bump in international same-store sales.
Heading into the holidays, usually Starbucks’ strongest season, Schultz said the prices on retail goods have been positioned to reflect value with virtually the same margins, a move that could lower ticket averages. However, he said new food items, such as the chain’s popular oatmeal, could make up the difference.
For the current fiscal 2009, Starbucks estimated its earnings would range between 59 cents to 78 cents per share, based on forecasts of same-store sales declines of between 2 percent and 7 percent.
Starbucks said it expected to end fiscal 2009 with 20 fewer domestic stores, forecasting a 225-unit net decline in company-operated stores and 205 new licensed branches.