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Starbucks Lowers 2008 Forecast as Sales Slide

Starbucks on Wednesday warned of weaker-than-expected earnings for the second quarter and full year as it struggles to reignite U.S. growth in the "weakest economic environment" in its history, sending its shares down 11 percent.

Starbucks
Starbucks

"The wheels have really come off of this train,'' RBC Capital Markets analyst Larry Miller told Reuters, noting his surprise at the warning. "It's amazing how fast business has derailed. If sales are down mid-single digits, that is a rapid erosion."

Chief Executive Howard Schultz said in a statement that "the current economic environment is the weakest in our company's history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers."

The coffee-chain operator, which has been trying to revive business in the United States, said it expects second-quarter earnings of 15 cents a share.

Wall Street analysts, on average, had been expecting earnings of 21 cents per share, according to Reuters Estimates. In the same period last year, Starbucks earned 19 cents a share.

Starbucks estimated that costs associated with turnaround efforts and store closures lowered earnings by 3 cents a share in the second quarter.

U.S. same-store sales fell in the mid-single-digits on declining traffic. The company said its key California and Florida markets have been hard hit by the downturn in the U.S. housing market.

Given Starbucks year-to-date results and the continued weakness in the U.S. economy, Starbucks warned that fiscal 2008 earnings per share would be "somewhat lower" than the 87 cents it reported in fiscal 2007.

"At this time, the company is not providing a more precise expectation due to lack of visibility into near-term economic conditions," Starbucks said in a statement.

The company is slated to report quarterly results on April 30.

Shares of Starbucks fell 11 percent in after-hours trading after briefly being halted for the news.

In regular trading, the stock rose 15 cents, or 0.9 percent, to close at $17.85 on the Nasdaq Stock Market.

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