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Starbucks Q4 profit drops 97% on closure costs

Fewer US customers and venti-sized costs for closing poorly performing stores led to lower sales and profit in the fourth quarter at Starbucks Corp, the company said on Monday.

Seattle-based Starbucks said profit fell 97 percent to US$5.4 million, or a US$0.01 a share, from US$158.5 million, or US$0.21 per share, a year earlier. The coffee retailer earned US$0.10 per share when the costs from closing about 600 stores in the US and 61 locations in Australia are excluded.

Analysts expected profit of US$0.13 per share, according to a poll by Thomson Reuters.

Starbucks began shutting the US and Australian stores this summer as part of a campaign to reverse slowing sales and falling profits at the company. That turnaround began at the start of the year when former chief executive Howard Schultz took back the reins of the company to again fill the CEO and chairman posts.

Besides closing the stores, Starbucks has cut more than 1,000 positions — many of which were unfilled — and introduced a slew of new products, including Vivanno smoothie drinks and breakfast pastries.

The company also replaced aging espresso makers and launched new single-cup Clover brewing machines in some markets.

But all the changes did little to boost sales in the fourth quarter, particularly in the US, where the turmoil in the economy during the summer months took a gulp out of consumer spending. Revenue rose 3 percent to US$2.52 billion from US$2.44 billion.

Analysts expected sales of US$2.58 billion. Same-store sales, or sales at locations open at least a year, dropped 8 percent in the US as fewer customers came into the stores. Those that did also spent less, the company said. Same-store sales were flat overseas.

Despite the sales slowdown, Schultz said the company was doing what it needed to get back on track.

“We appear to be more resilient than many other premium brands,” Schultz said in a statement. “And while we cannot call isolated signs of improving sales a trend, we are encouraged by our ability to drive increased traffic at a relatively low cost, as we did on Election Day” when the company offered customers a free “tall” drip coffee.

For the current fiscal year, Starbucks earned US$315.5 million, or US$0.43 per share, down from US$672.6 million, or US$0.87 per share last year. Revenue rose to US$10.38 billion from US$9.41 billion.

Starbucks said it expects next year’s profit excluding one-time costs between US$0.71 and US$0.90 per share depending on how steeply same-store sales decline during the year. Analysts predict profit of US$0.87 per share for the year.

The company also said it will open about 700 net new stores overseas during the next year. In the US, the company said it will close about 225 stores and open 205 new ones.

Shares fell US$0.13 to US$10.07 in electronic after-hours trading after dipping US$0.35, or 3.3 percent, to close at US$10.20.
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