Starbucks Reports Lower Profit, Cuts Guidance

Starbucks reported earnings that declined from last year, and the company said its profit for the fiscal year will be below last year's level.

The coffee shop chain, which is struggling to turn around a slowing U.S. business, had fiscal second-quarter net income of $108.7 million, or 15 cents per share, compared with a year-earlier net profit of $150.8 million, or 19 cents per share. Sales rose 12 percent to $2.5 billiion.

A consensus estimate from Thomson Financial put Starbucks' earnings at 15 cents a share on sales of $2.549 billion.

For the full fiscal year, Starbucks said earnings would fall below the 87 cents per share it earned in 2007, and that revenue will grow 13 percent to 14 percent. Previously, it had said fiscal-year profit would grow year-over-year, albeit in the low double digits.

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Charges for closing stores or not moving forward with planned openings, as well as costs associated with Starbucks' plan to reinvigorate U.S. sales, cut earnings by about 3 cents per share.

The company, which warned last week of the worst economic environment in its history, said U.S. customer visits had slowed but estimated growth in international business profit margins over the next few years.

Starbucks said it planned to reduce its fiscal 2008 U.S. store openings to 1,020 from its previously lowered target of 1,175. U.S. company-owned and licensed store openings would be limited to 400 per year in 2009-2011, while international openings in those years would range from 1,050 to 1,300.

"It's not really surprising that they've slowed their store growth. The fact that they are making plans to slow it is certainly better than what they were telling us before," said John Langston, an analyst at Hodges Capital Management.

Starbucks added 266 U.S. stores in the quarter, and 470 outside the country, bringing the worldwide total to 16,226.

U.S. same-store sales, a key measure of retail health, fell in the mid-single digits as traffic declined. Starbucks' past guidance called for 3 percent to 5 percent growth in same-store sales, or sales at locations open at least a year.

- Wire services contributed to this report.