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By Lisa Baertlein
LOS ANGELES, July 30 Starbucks Corp (SBUX.O) posted its first quarterly loss as a public company on Wednesday and said its U.S. coffee chain would shrink in the year ahead, but investors stunned by months of uncertainty sent shares up 4 percent as it stuck by its profit target for 2009.
Starbucks had been an engine of steady expansion since it went public in 1992, but sales growth has been slowing in the United States for more than a year, and the problem worsened as the housing market slumped and gas prices rose.
On Wednesday, the company lowered its 2008 profit forecast, saying fewer customers were visiting U.S. stores and costs were rising.
Chief Executive Howard Schultz warned that U.S. consumers were still hurting and cut the 2008 U.S. store-opening target for the third time this year.
"We want to be as cautious as possible and not over-expand at a time when the consumer may be under significant pressure," Schultz said on a conference call.
He also lowered 2008 and 2009 targets for opening international stores. Overseas growth had been cast as the growth engine of a recovering company.
Morningstar analyst John Owens said Starbucks isn't yet out of the woods.
"Over the long run, I think Starbucks has very good prospects for turning the business around, but whether we really start to see some benefits in 2009, that's uncertain," Owens said.
RBC Capital Markets analyst Larry Miller said the company's 2009 profit target appeared within reach and that its decision to stand by the forecast could put a floor under Starbucks shares, which have lost nearly half of their value over the last year.
Starbucks, which has been criticized for building too many shops in the United States, announced at the beginning of the month it would close 600 domestic stores and 61 in Australia. The company expects to make 200 of the U.S. store closures in the fourth quarter and the remainder in fiscal 2009.
With the closures, Starbucks expects to have a net decrease of 60 stores in the United States in 2009.
Chief Financial Officer Peter Bocian said the job cuts and store closures would save 17 to 18 cents per share next year.
He reiterated the company's fiscal 2009 forecast for adjusted earnings of 90 cents to $1 per share, a move that analysts said sent shares higher, in part because it was based on modest same-store sales and minimal price increases.
SWING TO LOSS
Starbucks reported a fiscal third-quarter net loss of $6.7 million, or 1 cent per share, compared with its year-earlier net profit of $158.3 million, or 21 cents per share.
Costs related to store closing and restructuring pushed it into a loss. Excluding 17 cents per share in charges, Starbucks had a per-share profit of 16 cents, lagging the 18 cents average Wall Street target, according to Reuters Estimates.
Total revenue rose a slower-than-expected 9 percent to $2.6 billion, as U.S. business deteriorated from the prior quarter and contributed to a mid-single-digit decline in sales at established stores.
Starbucks said traffic during the latest quarter softened in the United Kingdom -- which is coping with its own housing crisis -- and that sales lost momentum in Canada.
During the quarter, Starbucks rolled out Vivanno smoothies and an icy drink called Sorbetto, which executives said have helped boost afternoon sales. The company, which will be selling gift cards at Costco (COST.O) club stores, also plans to roll out healthy food options in the fall.
Citing weak traffic and increased costs, Starbucks now expects full-year fiscal 2008 earnings in the mid-70 cent range, excluding the charges related to store closures and its restructuring.
The company, which is bracing for its first full-year profit drop since 2000, had previously forecast 2008 earnings that were "somewhat lower" than the 87 cents reported last year.
The company lowered its U.S. store-opening targets for fiscal 2008 to about 900 net new stores, evenly distributed between company-operated and licensed. It had previously targeted 1,020 openings.
Internationally, Starbucks now sees about 825 net new store openings during fiscal 2008 -- including the closures in Australia -- about 90 stores less that previously forecast.
Capital expenditures for fiscal 2008 are now expected to be about $1.0 billion, below the $1.1 billion previously forecast.
Internationally, Starbucks is planning to open about 900 net new stores in 2009, compared with about 1,050 previously.
For 2009, the company now sees capital expenditures of about $750 million, reflecting the reduced store targets for the U.S. and International segments.
Starbucks shares rose to $15.30 from their Nasdaq close of $14.67. (Reporting by Lisa Baertlein; Editing by Gary Hill and Andre Grenon)