January 28, 2009 / 9:39 PM / in 9 years

UPDATE 2-Starbucks cutting stores, jobs as profit lags

* Q1 non-GAAP EPS of 15 cents lags consensus 17 cents

* Company closing 300 more cafes globally this year

* May cut as many as 6,700 jobs worldwide

* Shares slide 2.5 percent after-hours (Adds company and analysts’ comment, details on cost cuts, updates share activity)

By Lisa Baertlein

LOS ANGELES, Jan 28 (Reuters) - Starbucks Corp’s (SBUX.O) quarterly profit fell more than expected as sales at established U.S. stores fell 10 percent, and the company said it will close 300 more cafes and could slash up to 6,700 jobs.

Starbucks, whose shares fell 2.5 percent after-hours, said it now aims to cut fiscal 2009 costs by $500 million from a previously targeted $400 million.

The coffee chain reported fewer customers, spending less, and was hit by a stronger dollar against the pound and the Canadian dollar. Total revenue slid 6 percent.

After cementing its global brand by selling $3 lattes to the masses, the company got into trouble when it built too many U.S. outlets. It has been hard-hit by a U.S.-led recession that has wiped out more than 3 million jobs, decimated home values and investments and battered consumer spending and confidence.

“The operating environment is terrible but they’re doing a lot of the right things here -- slowing their growth, looking for cost savings. They’re preparing themselves for the time in the future where sales come back,” said Larry Miller, an analyst with RBC Capital Markets.

“There are a lot of stores that haven’t been profitable. It’s a harsh reality but they need to right-size the organization. Unfortunately, there are some casualties.”

Starbucks said 200 of the new-store closures will be in the United States, where it had already targeted 600 stores for termination. The remaining 100 are in international markets. Last year, Starbucks also shut 61 cafes in Australia.

The coffee chain, which brought back Howard Schultz as chief executive in January 2008, has repeatedly jolted investors with bad news since its U.S. traffic started slowing in late 2007.

Schultz said on a conference call on Wednesday that Starbucks was able to find new positions for about 70 percent of the workers affected by the closure of the 600 domestic stores.

Starbucks said it now expects to open 140 new company-operated stores in the United States in fiscal 2009, 60 fewer than previously targeted. The company plans to open 170 new international company stores, down from 270.

Net new licensed-store targets also were lowered to 125 in the U.S. and 360 internationally.

    “In the midst of the weakening global consumer environment, Starbucks is following a well-developed plan to strengthen our business through more efficient operations,” Schultz said in a statement.

    Starbucks reported a non-GAAP earnings per share of 15 cents for the fiscal first quarter ended Dec. 28, lagging a comparable consensus estimate for 17 cents, according to Reuters Estimates.

    It said net income for the fiscal first quarter ended Dec. 28 fell to $64.3 million, or 9 cents per share. A year earlier, the Seattle-based company reported a profit of $208.1 million, or 28 cents per share.

    Total revenue fell to $2.6 billion from $2.8 billion.

    At the end of the fourth quarter, there were more than 11,500 U.S. Starbucks stores and more than 5,000 abroad.

    Analysts held out hope that Starbucks’ aggressive cost-cutting efforts will put it back on a growth track once the economy rebounds.

    “Starbucks was full throttle ahead into the recession. They were opening 2,000 stores a year in the U.S. In 2007 they hit the recession, they couldn’t hit the brakes soon enough,” said Sharon Zackfia at William Blair & Co.

    “There are stores out there that are in no-man‘s-land, there are fields of dreams of unsold homes, this is not surprising. I think it’s a very rational thing to do in this environment.”

    Stock in the company fell to $9.41 in after-hours trade, versus a regular close of $9.65. (Writing by Edwin Chan; Editing by Carol Bishopric)

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