Starbucks profit sinks 28% in second quarter

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Starbucks said today that its fiscal second-quarter profit fell 28 percent as U.S. consumers responded to rising food and gas prices by making fewer latte runs.

For the quarter ended March 30, Starbucks' net income sank to $108.7 million, or 15 cents a share, from $150.8 million, or 19 cents a share, in the same period last year.

Revenue rose 12 percent to $2.53 billion from $2.26 billion in the year-ago quarter, the company said Wednesday.

Starbucks warned last week that results would fall short of Wall Street's expectations. Analysts, on average, had forecast a profit of 21 cents a share on $2.63 billion in sales, according to a Thomson Financial survey.

"We continue to come under very heavy consumer pressure due to the economy," said Chairman and Chief Executive Officer Howard Schultz in an interview. "Most retailers, restaurants, certainly other premium brands are facing similar headwinds."

Starbucks plans to throw the brakes on store growth, moving from seven new stores a day in fiscal 2007 to 5.5 stores a day this year. Next year, growth will drop to fewer than 4 stores a day. In the U.S., Starbucks expects to open fewer than 400 new stores next year, compared with 1,020 this year.

Charges for closing a few stores and not moving forward with some planned openings, as well as costs associated with Starbucks' plan to reinvigorate U.S. sales, such as added benefits for loyalty card holders, cut second-quarter earnings by about 3 cents a share.

U.S. same-store sales, a key measure of retail health, fell in the mid-single digits as traffic declined. Starbucks' past guidance called for 3 percent to 5 percent growth in same-store sales, or sales at locations open at least a year.

Starbucks brought Schultz back as CEO in January after a year of sinking share prices, as the company's rapid U.S. growth outpaced demand and sapped stores of their charm, making it easier for chains like McDonald's to compete.

So far, his moves have included a new signature coffee available in every U.S. store every day. Schultz said the new Pike Place Roast is "driving incremental customers to stores."

The CEO also told The Associated Press that the company would launch three new types of drinks in the U.S. this summer: a health-conscious smoothie-style line, an icy Italian coffee-based drink and an energy drink that adds extra kick to the existing Starbucks DoubleShot, which is sold in cans.

Starbucks baristas will start mixing up fresh DoubleShot with Energy drinks at the same time the new cans appear on shelves, Schultz said.

For the full fiscal year, Starbucks said earnings would fall below the 87 cents a share it earned in 2007, and that revenue will grow 13 percent to 14 percent. Previously, it had said fiscal-year profit would grow year-over-year, albeit in the low double digits.

Starbucks' shares slipped to $16.20 in after-hours trading, after ending the day up 3 cents at $16.23.

Information from Seattle Times business reporter Melissa Allison is included in this report.