Starbucks loses some of its froth

Friday 16 November 2007 08.06
Starbucks loses some of its froth

Coffee chain Starbucks said that for the first quarter in its history, the number of visits to its established US stores fell as economic worries and two recent price hikes spooked customers.

Starbucks also reported a 35% rise in fourth-quarter earnings, helped by higher prices and its rapid store growth, but forecast 2008 earnings below many Wall Street estimates.

In addition, it said 2008 sales at stores open at least 13 months would be at the low end of its long-term targeted range.

'We're seeing this pushback that other retailers have described,' CEO Jim Donald said, adding that a July price increase of about 9 cents a cup had hurt traffic. That move came less than a year after the company's previous price hike.

Starbucks also said that next year it would open about 100 fewer stores in the US than originally planned.

After years of saying its perpetually growing number of stores was resistant to blips in the US economy, Starbucks in recent months has tempered that message as customers have cut back on visits to the chain.

The company has also been hit by soaring prices on milk and stepped-up competition from rivals such as McDonald's, which has been expanding its coffee offerings.

To help boost US results during the important holiday shopping season, Starbucks said it would launch its first national television advertising campaign.

Net income for the fiscal fourth quarter rose to $158.5m compared with $117.3m a year ago. In the fourth quarter, total revenue rose 22% to $2.44 billion, a little above analysts' average expectation of revenue of $2.42 billion.

For fiscal 2008, Starbucks said it would open 2,500 stores - down from its previous target of 2,600.

The company said it was still on track to open 10,000 stores in the next four years and backed its long-term goal of one day having 40,000 outlets worldwide. It currently has more than 15,000 locations.