Starbucks CEO says on track to make savings

SEATTLE (Reuters) - STARBUCKS (SBUX.NQ)Corp is on track to hit its target of $500 million in cost savings this fiscal year as it closes stores and sheds staff, its chief executive said at the annual shareholder meeting of the world's biggest coffee chain.

The company is also seeing signs of success in its attempts to adapt to the tough economy, as it rolls out cheap breakfast food and drink combos and a new line of instant coffee.

"We are seeing the beginnings of things starting to gain traction on many of the initiatives we put in place," Starbucks CEO Howard Schultz said at a relatively subdued annual shareholder meeting.

Seattle-based Starbucks, which has more than 16,000 stores worldwide, is closing more than 900 of them and shedding up to 6,000 in-store staff as it trims operations in the global downturn.

Starbucks shares have lost more than 70 percent of their value from 2006 highs, hurt by the declining economy. Despite the recent slide, many Seattle locals have grown rich off the local coffee seller, with $1,000 invested in Starbucks' 1992 initial public offering worth almost $17,000 today.

About 1,200 loyal shareholders turned out for the meeting, which was less energetic than previous years, when Starbucks rolled out new products and had pop stars such as k.d. lang perform.

The meeting was Schultz's second annual performance since returning as CEO early last year with a mission to revive the company's fortunes. His next focus will be providing value in tough economic times.

"We can no longer sit back and ignore the pressure our customers are under," he said. "We are being incredibly smart, we're giving everything we can, to be sensitive to the needs of our customers."

Starbucks rolled out a new $3.95 breakfast combo earlier this year in an attempt to combat the view that the company is mostly focused on high-end drinks. This month it launched its Via instant coffee blend, hoping to break into a market it values at $17 billion.

Customers who were visiting stores less often because of the recession were not going to fast-food competitors for coffee, said Schultz.

Some fast-food chains are focusing more on coffee, with McDonald's Corp recently introducing espresso drinks.

Despite the planned store closures, the company's chief financial officer still forecast net growth in U.S. stores this year.

Starbucks shares rose 36 cents, or 3.2 percent, to close at $11.50 on the Nasdaq.

(Reporting by Bill Rigby; Additional reporting by Lisa Baertlein; Editing by Brian Moss, Gary Hill)