Starbucks slashes outlook, blames housing meltdown

By Lisa Baertlein and Nichola Groom

LOS ANGELES (Reuters) - Starbucks Corp said on Wednesday it was the latest victim of the U.S. mortgage meltdown.

Blaming hard-hit housing markets of California and Florida for slowing sales, the coffee shop chain slashed its quarterly and 2008 profit forecast below Wall Street targets and said it faced the "weakest economic environment" in its history.

The company's shares tumbled 12 percent on the news, which came four months after company founder Howard Schultz returned as chief executive with a mandate to turn around the struggling U.S. business.

"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."

Starbucks long considered itself virtually immune to economic swings, but has admitted in recent months that some consumers have avoided its premium coffee as the economy soured.

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."

Fewer customers at U.S. stores triggered a mid-single-digit decline in sales at established stores, called comparable store sales. California and Florida markets, which account for about one-third of its U.S. retail revenue, have been hard hit by the downturn in the U.S. housing market, it added.

As a result, Starbucks reported preliminary second-quarter earnings of 15 cents per share, behind Wall Street analysts' average target of 21 cents per share, according to Reuters Estimates.