For some consumers, not even the morning cup of coffee is immune from economic woes.
Citing a decline of about 5 percent in sales last quarter, Starbucks on Wednesday projected weaker-than-expected earnings and cut its full-year forecast, sending the company’s stock down nearly 11 percent in after-hours trading.
The company now projects a fiscal second-quarter profit of US$0.15 a share, down from US$0.19 a share in the quarter last year. Wall Street analysts had expected US$0.21 a share.
The costs of store closings and new initiatives cut earnings by US$0.03 a share, the company said.
Starbucks also said it expected full-year earnings per share to be “somewhat lower” than the prior fiscal year’s US$0.87.
Echoing other retailers, Starbucks said the imprecise guidance was a result of a “lack of visibility into near-term economic conditions.”
Next Wednesday the company will report financial results.
The announcement was another indication that luxuries like US$4 Frappuccinos are looking less appealing to consumers.
Starbucks chief executive Howard Schultz called the current economic environment the weakest in the company’s 37-year history, “marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers.”
The company noted that 31 percent of its stores are in California and Florida, where the housing market has been especially hard hit.
Schultz returned to the company as chief executive in January to try to turn around the company’s sagging stock price.
Last month he announced a series of changes, including a new brewed coffee, an improved automatic espresso machine, a rewards program for customers and a Web site where visitors could make suggestions to enhance “the Starbucks experience.”
In the company’s announcement, Schultz said those initiatives were in their early stages and were not reflected by the earnings.
Citing company research and alluding to the increased competition from Dunkin’ Donuts, McDonald’s and other fast-food outlets, he said customers were not substituting Starbucks purchases with “coffee products from others.”
Instead, he said, they are just not ordering lattes and cappuccinos as often.
Larry Miller, an analyst at RBC Capital Markets, said sales at Starbucks had eroded more than those at other food and beverage chains.
“As they’re entering a period of experimentation to re-establish their brand and pricing power,” he said, “some things are going to go right, and some things are going to go wrong. It’s going to be a very rocky road.”
Stock in Starbucks, which is based in Seattle, closed market trading up US$0.15 at US$17.85 a share on Wednesday, but fell 10.7 percent to US$15.94 in after-hours trading.
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