Starbucks warns of weak 2008 outlook

Source: Food and Drink Digital

Date :16/11/2007 11:29:47

Starbucks, the world's largest coffee chain, has warned of a tough 2008, as fewer US coffee drinkers have been streaming into the stores.

The coffee chain reported a 35 percent jump in quarterly profits but lowered sales and earnings forecasts for next year. Rising dairy costs would also dent the company's bottom line, Starbucks said.

For the three months ended September 30, Starbucks posted net earnings of $158.5 million, a 35 percent jump from $117.3 million, for the same period last year, with same-store sales, a key measure of a retailer's health, increasing four percent.

Quarterly revenue was $2.44 billion, up from $2 billion; analysts anticipated $2.43 billion in revenue.

Business in overseas stores was also healthier, with traffic rising five percent and average transaction value increasing one percent.

Improving operations

For the full fiscal year, Starbucks earned $672.6 million, or 87 cents per share, compared with $564.3 million, or 71 cents per share, in fiscal 2006. Revenue in fiscal 2007 was $9.41 billion, compared with $7.79 billion last year.

Starbucks said it would open 2,500 stores in fiscal 2008, beginning in October, 100 fewer than originally forecast, one of several moves aimed at improving operations.

Chief Executive Jim Donald said slowing the pace of U.S. store openings will help the company choose the right markets, "It gives us a little bit of breathing time," he said.

Starbucks reduced the upper end of its same-store sales guidance for 2008, saying it expects growth of three to five percent, with projected earnings of 28 cents per share for the first fiscal quarter of 2008 and full-year earnings ranging from $1.02 to $1.05 per share.

Over the past year, stock has fallen more than 40 percent due to higher dairy costs, increased competition and economic concerns.

Starbucks shares fell 15 cents to close at $24.10, before falling another $1.88 in extended trading after the company's earnings report was released.

November 16, 2007