SEATTLE Describing the current economic environment as the weakest in the company’s history, Starbucks Corp. on Wednesday projected a year-to-year decline in second-quarter earnings and cut its annual expectations.
For the quarter ended March 30, the coffeehouse giant now expects to earn 15 cents per share, down from year-ago earnings of 19 cents per share. The latest-quarter result would include charges of 3 cents per share stemming from Starbucks’ store closures and the implementation of menu and customer service changes that started in January, when chairman Howard Schultz resumed the responsibilities of chief executive to address declining same-store guest traffic. Starbucks said its total revenue in the latest quarter should increase 12 percent.
Domestic same-store sales continued to suffer, Starbucks said, with first-quarter results experiencing “a mid-single-digit decline” mostly because of slower traffic. Starbucks said guest counts were weakest in California and Florida, where consumers have been hardest hit by the downturn in the housing market. About 32 percent of Starbucks’ domestic retail revenues come from those affected markets, the company noted.
Schultz said the current economic climate is “marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers.”
Given the expectation of continued turmoil for U.S. consumers, the company said it expects full-year earnings to be somewhat lower than the 87 cents per share earned in fiscal 2007, but added that it’s too soon to estimate the decline.
Starbucks said it is “aggressively implementing” such changes as management restructuring, upgraded equipment, barista training, introduction of a new premium drip coffee, and the rollout of a new coffee brewer, which have yet to impact the bottom line.
“I am as enthusiastic as I was when I returned to Starbucks as CEO three-and-a-half months ago about our opportunity to reinvigorate the Starbucks experience,” Schultz said.
Internal research shows that Starbucks customers are visiting less often because of economic pressures, but they’re not switching to other competing brands, he added.
“We remain the destination for a true coffee experience and the steps we are taking to transform our company will allow us to ensure an even greater draw for customers when economic conditions improve,” Schultz said.
The company is scheduled to discuss key financial metrics for the next three years on April 30, when it reports its full fiscal second-quarter results.