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Starbucks to stop serving breakfast sandwiches

Starbucks Corp.'s fiscal first-quarter profit rose by less than 2 percent, as U.S. customers grappling with a soft economy lined up in smaller numbers for a second quarter in a row.
/ Source: news services

Starbucks Corp.'s fiscal first-quarter profit rose by less than 2 percent, as U.S. customers grappling with a soft economy lined up in smaller numbers for a second quarter in a row.

As part of a broad push to revitalize its business, the company said it will open hundreds fewer stores, close down about 100 poorly performing ones and quit offering warm egg-and-cheese breakfast sandwiches, which Chairman and Chief Executive Howard Schultz said fight with the coffee aroma in stores.

During fiscal 2008, the company plans to open about 425 fewer domestic stores and 75 more overseas than previously planned, for a global total of 2,150 new stores.

Schultz said the slowdown in U.S. growth will allow the company to make better use of its time, money and staff and could reduce "cannibalization" — easing pressure some stores experience when a new one opens nearby.

By 2009, Starbucks said it aims to open more stores overseas than domestically for the first time — more than 1,000 stores in its international markets, where Schultz has said he sees enormous potential for growth, and fewer than 1,000 in the U.S.

The world's largest coffee retailer said sales at stores open at least 13 months, a key measure of a retailer's health, fell 1 percent in the U.S. as traffic declined 3 percent — the second consecutive quarter the company had fewer customers coming into its stores.

The coffee chain has been battered in recent months by slower consumer spending, higher milk prices and concerns it may have saturated the U.S. market.

"There's a macroeconomic headwind that we're all facing that strongly suggests that the consumer is in a recession," Schultz said in a telephone interview.

Stronger growth overseas helped boost global comparable-store sales a modest 1 percent, compared with 6 percent in first quarter 2007.

For the 13 weeks ended Dec. 30, Starbucks posted net earnings of $208.1 million, or 28 cents per share, up from $205 million, or 26 cents a share, during the same period a year ago.

Analysts polled by Thomson Financial were expecting a profit of 27 cents per share.

Revenue for the quarter was $2.77 billion, in line with analysts' estimate and up from $2.36 billion a year ago.

Company still eyeing 40,000 stores
The company opened 745 new stores worldwide in the latest quarter, boosting its worldwide store count to 15,756. More than two-thirds of those stores are in the U.S. The company's long-term goal is to have 40,000 stores worldwide, half of them overseas.

Starbucks shares fell 75 cents, or 3.8 percent, to close at $19.22 Wednesday, then fell another 23 cents in extended trading after the results were released. The company's stock is down about 50 percent since late 2006, when it was trading close to $40 a share.

Analysts have been eager for specifics on Schultz's plans to revitalize Starbucks, but he said the company won't release details about its transformation plan until its annual shareholders meeting in Seattle on March 19.

Schultz, who was brought back as CEO when the company fired Jim Donald earlier this month, said he expects low double-digit earnings-per-share growth this fiscal year because of the company's efforts to improve operations and "continued macroeconomic weakness."

That could drag earnings below the company's previous target of $1.02 to $1.08 per share. The company earned 87 cents a share last year, and it did not release an updated target for fiscal 2008.

Schultz said the company will no longer release annual earnings guidance or quarterly comparable-store sales growth because he wants executives to focus on improving the customer experience rather than simply trying to keep Wall Street happy by hitting certain numbers.

He said the company will release different "quantifiable, longer-term metrics" in its second fiscal quarter.