Starbucks cautious on 2008, cuts store openings

LOS ANGELES Wed Jan 30, 2008 5:44pm EST

The Starbucks logo is seen outside a coffee-shop in New York's Times Square March 15, 2007. Starbucks Corp on Wednesday posted higher quarterly profit as the premium coffee seller works to revive its historically swift growth as it grapples with slower U.S. consumer spending, high milk prices and increased competition. REUTERS/Shannon Stapleton

The Starbucks logo is seen outside a coffee-shop in New York's Times Square March 15, 2007. Starbucks Corp on Wednesday posted higher quarterly profit as the premium coffee seller works to revive its historically swift growth as it grapples with slower U.S. consumer spending, high milk prices and increased competition.

Credit: Reuters/Shannon Stapleton

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LOS ANGELES (Reuters) - Starbucks Corp (SBUX.O) on Wednesday said it is slowing store openings in the U.S. as returning Chief Executive Howard Schultz warned that the American consumer is likely facing a recession, and its shares fell 2.5 percent.

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.

Starbucks cut its forecast for new U.S. store openings to 1,175 for fiscal 2008, from 1,600. This would include the closing of 100 underperforming stores in the U.S. Meanwhile, it plans to increase international store openings by 75 outlets to 975.

The coffee seller said it now expects earnings per share in fiscal 2008 to grow in the low double-digits by percentage. Starbucks' previous forecast was for earnings per share of between $1.02 and $1.05 in fiscal 2008, which would mark a 17 to 21 percent increase in earnings per share.

"The guidance looks conservative. That doesn't run counter to expectations. The expectation was that the guidance would come down a bit," said Dan Geiman, analyst at McAdams Wright Ragen.

Starbucks had fiscal first-quarter net income of $208.1 million, or 28 cents per share, compared with net income of $205.0 million, or 26 cents per share, in the year-ago quarter ended December. Consolidated net revenue rose 17 percent to $2.8 billion.

The result topped analysts' average call for a net profit of 27 cents per share and revenue of $2.76 billion, according to Reuters Estimates. It landed as Seattle-based Starbucks faces new competition from fast-food giant McDonald's Corp (MCD.N), which is expanding its selection of coffee-based drinks.

The Seattle-based company said total quarterly same-store sales grew 1 percent, while U.S. same-store sales fell 1 percent, hurt by a decline in traffic. International same store sales were up 5 percent.

"By reducing the number of openings, we expect to optimize our resources and potentially reduce cannibalization of our existing stores," said Schultz said in a statement.

"They're focusing on international operations, which is what we really want to see with them. Their growth opportunity is really overseas," said James Walsh, analyst, Coldstream Capital Management in Bellevue, Washington.

The company brought back founder and Chairman Howard Schultz as chief executive earlier this month and said it would pare aggressive domestic expansion plans, close underperforming U.S. outlets, improve performance at existing stores and speed up international growth.

Schultz, who was chief executive from 1987 to 2000, bought Starbucks Coffee Company in 1987 and transformed the small Seattle outfit into one of the world's most recognized brands. It now has more than 15,000 locations, including more than 10,000 in the United States.

Shares in Starbucks have fallen more than 40 percent over the last 12 months, wiping out roughly $13 billion in market value. In after-hours trade, Starbucks shares fell to $18.75 after closing Nasdaq trade at $19.22.

(Reporting by Lisa Baertlein; editing by Carol Bishopric)

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