U.S. News

Starbucks Chairman Affirms Growth Targets, Downplays Memo


Starbucks Chairman Howard Schultz affirmed the coffee shop chain's aggressive growth targets and said a leaked memo in which he warned of the "commoditization" of the company's brand was not meant as a criticism of management.

At its annual meeting in Seattle, the world's largest coffee shop chain also backed its 2007 arnings and sales forecasts.

The memo, which Schultz sent to Chief Executive Jim Donald and other members of senior management on Feb. 14, was "not intended in any way to be critical of or demonstrate a lack of faith in the management of this company," he said during a speech at Starbucks' annual meeting in Seattle.

In the memo, which sparked a drop in the company's stock price after it was made public on Feb. 23, Schultz said measures taken to fuel Starbucks' rapid expansion had led to a "watering down" of its iconic brand. He said automatic espresso machines, bagged coffee and store designs that don't vary from New York to China have led to sterility and invited competition from fast-food companies and others.

At the meeting, Schultz did not address the concerns raised in the memo but said its tone was consistent with memos he has sent throughout his 25 years with the company.

"It is important that we take a step back and ask ourselves serious questions about whether or not we are as good as we once were," Schultz said. "My role in the company more often than not is to challenge us."

Schultz also addressed Starbucks' battered share price, saying he doesn't "feel very good" about the fact that the stock is worth less now than it was a year ago.

He asked investors, who have driven the stock down more than 20% since November, to consider Starbucks' track record of delivering shareholder value.

"There has never been a better time to be a Starbucks shareholder," Schultz said.

Finally, Schultz reaffirmed the company's growth targets, saying it plans to open at least 10,000 stores in the next four years and increase net earnings faster than revenue.

He also stood by the company's long-term goal of one day having at least 40,000 stores worldwide.

Starbucks also said it still expects to earn between 87 cents and 89 cents a share for the year on about 20% total revenue growth.

Same-store sales, a key retail measure that tracks sales at stores open at least 13 months, are expected to rise between 3% and 7%. That forecast is also unchanged.