More cuts on Starbucks menu as profit falls

LOS ANGELES (Reuters) - STARBUCKS (SBUX.NQ)Corp quarterly profit fell more than expected as sales at established U.S. stores tumbled 10 percent, and the company said it will close 300 more coffee shops and slash as many as 6,700 jobs.

Starbucks, whose shares fell 1.6 percent after-hours, said the moves are part of its plan to cut fiscal 2009 costs by $500 million from a previously targeted $400 million.

During the quarter, customers visited less frequently and spent less money when they did. Starbucks also took a hit as the dollar strengthened against the pound and the Canadian dollar. Total revenue slid 6 percent.

After cementing its global brand by selling $3 lattes to the masses, the company ran into trouble when it built too many U.S. outlets. It has been hobbled by the housing-led recession that has wiped out well over 3 million U.S. jobs, decimated home values and investments and battered consumer spending and confidence.

Analysts held out hope that Starbucks' aggressive cost-cutting efforts will put it back on a growth track once the economy rebounds.

"The operating environment is terrible but they're doing a lot of the right things here -- slowing their growth, looking for cost savings. They're preparing themselves for the time in the future where sales come back," said Larry Miller, an analyst with RBC Capital Markets.

"There are a lot of stores that haven't been profitable. It's a harsh reality but they need to right-size the organization. Unfortunately, there are some casualties."

Starbucks said 200 of the new-store closures will be in the United States, where it had already targeted 600 stores for termination. The remaining 100 are in international markets. Last year, Starbucks also shut 61 cafes in Australia.

"We will not allow underperforming stores to weaken our store base," Chief Financial Officer Troy Alstead said on a conference call.

The company, which brought back Howard Schultz as chief executive in January 2008, repeatedly has jolted investors with bad news since its U.S. traffic started slowing in late 2007.

Starbucks said it now expects to open 140 new company-operated stores in the United States in fiscal 2009, 60 fewer than previously targeted. The company plans to open 170 new international company stores, down from 270.

Net new licensed-store targets also were lowered to 125 in the U.S. and 360 internationally.

Job cuts related to the new round of unit closures could reach 6,000. Another 700 non-store jobs are being axed, with half coming from its Seattle support center.

CEO Schultz said on a conference call on Wednesday that Starbucks was able to find new positions for about 70 percent of the workers affected by the closure of the 600 domestic stores.

"We believe all of the work we are doing will pay off in the long run," said Schultz, whose base salary is falling to $10,000 from $1.2 million.

Starbucks reported a non-GAAP earnings per share of 15 cents for the fiscal first quarter ended December 28, lagging a comparable consensus estimate for 17 cents, according to Reuters Estimates.

Net income for the fiscal first quarter ended December 28 fell 69 percent to $64.3 million, or 9 cents per share. Operating margin was 4.5 percent of total net revenues, compared with 12.0 percent in the year-earlier period.

Total revenue fell to $2.6 billion from $2.8 billion.

The company said business in the United Kingdom and Canada softened but that China was still enjoying "good growth."

At the end of the fourth quarter, there were more than 11,500 U.S. Starbucks stores and more than 5,000 abroad.

"Starbucks was full throttle ahead into the recession. They were opening 2,000 stores a year in the U.S. In 2007 they hit the recession, they couldn't hit the brakes soon enough," said Sharon Zackfia at William Blair & Co.

"There are stores out there that are in no-man's-land, there are fields of dreams of unsold homes, this is not surprising."

Stock in the company fell to $9.50 in after-hours trade, versus a regular close of $9.65.

(Writing by Edwin Chan; Editing by Carol Bishopric)