SEATTLE The froth is off at Starbucks Corp., as the largest coffeehouse operator reported for its September-ended fourth quarter its first decline in domestic transaction counts since it started reporting that figure and its worst U.S. margin performance in at least two years.
While reporting a 35-percent jump in its fourth quarter profit, Starbucks was forced to reduce its fiscal 2008 per-share earnings outlook and its same-store sales expectations because of both slowing sales that it blamed on a challenging macroeconomic environment and higher dairy costs, which are expected to continue next year.
The company, which operates or licenses about 15,000 locations worldwide including 10,684 in the United States, pledged to turn around its stalled domestic results through a reduction in new-store growth as well as its first-ever national television advertising campaign, which is set to start during the holiday season.
“It is apparent that our customers are feeling the impact of this economic slowdown,” said Jim Donald, Starbucks president and chief executive.
Comparable sales for U.S. stores during the fourth quarter grew 4 percent, which reflected a 5-percent increase in the average value-per-transaction and a 1-percent drop in transaction counts. The check average was boosted through two price increases during the year. Starbucks introduced an average 9-cent price increase for its beverages in late July, after another price hike was taken in October 2006.
In the company’s current fiscal year, which began Oct. 1, the chain will “take a breather” on U.S. store openings, Donald said, with plans to open about 900 corporate locations — 100 fewer than previously announced — and 700 licensed locations. International growth remains on target with 300 corporate locations and 600 licensed units planned for the current fiscal 2008.
In the Sept. 30-ended fiscal 2007, the target was 2,400 openings worldwide, but the year finished with 2,571 new stores.
Though analysts have expressed fears of cannibalization, company officials said saturation is not an issue, noting that the slower pace of openings would allow them to “recalibrate” and review selected locations.
The bigger-picture goal of opening another 10,000 stores by 2010 remains intact, but the company aims to “balance long-term opportunity for store growth with the near-term reality,” said Pete Bocian, chief financial officer for Starbucks.
Consolidated net income for Starbucks’ fourth quarter totaled $158.5 million, or 21 cents per share, compared with $117.3 million, or 15 cents per share, for the same quarter a year earlier. Revenues rose 22 percent to $2.44 billion.
For the year, net earnings rose to $672.6 million, a 19-percent increase from the previous year. Per-share profit rose to 87 cents from 71 cents in fiscal 2007. Annual revenues increased 21 percent to $9.41 billion.
Starbucks said it expects earnings per share in the current fiscal year to total $1.02 to $1.05 and first-quarter earnings per share of 28 cents. The company said it expects a same-store sales increase of 3 percent to 5 percent in fiscal 2008.
Donald said the company is renewing its focus on consistent execution, emphasizing Starbucks’ offer of a unique guest experience, which earlier this year was called into question by brand founder and corporate chairman Howard Schultz. In a widely circulated memo, Schultz asked whether Starbucks had grown too fast and forgotten its coffeehouse roots.
The company’s first national television advertising campaign debuts today. The commercials will highlight Starbucks’ holiday offerings, such as its “Pass the Cheer” promotion.
Throughout the year, Starbucks will offer fewer but “more powerful” promotions. In addition, field managers will be asked to spend more time in stores to ensure high standards are met, and new baristas will receive additional training, the company said.