Starbucks closing 5 percent of U.S. stores

As many as 12,000 Starbucks workers will lose their jobs when the company begins closing 600 U.S. stores this summer.

The Seattle coffee company is cutting 5 percent of its U.S. locations as part of a wide-ranging effort to boost its bottom line and its stock price. The chain is accelerating international growth.

Most customers whose Starbucks stores close will be a short walk from a caffeine fix, the company said, because many of the unprofitable stores were being cannibalized by nearby Starbucks locations.

The company will try to find jobs for people within Starbucks, but that could be difficult with fewer than 350 new U.S. stores expected to open in the fiscal year beginning Oct. 1.

About 200 of those will be directly operated by Starbucks, with the rest managed by other companies like bookstores and airport concession firms.

As much as 7 percent of Starbucks' work force could be slashed. The company had 172,000 employees worldwide last September.

Starbucks officials said the closures are happening in "all major U.S. markets" between late July and March. Florida and California are among the largest states affected, spokeswoman Valerie O'Neil told Bloomberg News.

There were 2,496 stores in California and 625 in Florida in March. Those two states have been especially hard hit by the real-estate downturn and credit crisis.

"By far, this is the most angst-ridden decision we have made in my more than 25 years with Starbucks," Chief Executive Howard Schultz wrote to employees in a message posted on the company's Web site.

"[B]ut we realize that part of transforming a company is our ability to look forward, while pursuing innovation and reflecting, in many cases, with 20/20 hindsight, on the decisions that we made in the past, both good and bad."

Starbucks originally had planned to close 100 underperforming U.S. stores as part of a turnaround strategy begun when Schultz resumed leading the company in January.

Investors cheered the additional 500 closures, which were announced after regular trading hours Tuesday. After closing down 12 cents to $15.62, shares shot up 72 cents to $16.34 in after-hours trading.

Starbucks has been trading between $28.60 and $15.39 a share during the last year.

Andy Cross, a senior analyst at The Motley Fool in Alexandria, Va., said the higher number of closures was "a little shocking," partly because new Starbucks stores in his area "continue to be packed. But given the environment we're in, nothing really surprises me anymore."

Sharon Zackfia, an analyst with William Blair & Co. in Chicago, said she thinks Starbucks is closing most of its unprofitable stores, except for new locations still ramping up.

"The economy is the big wild card," Zackfia added. "If we're going into another major retrenchment, then anything could happen."

About 70 percent of the stores closing had opened since October 2005. That means Starbucks is shuttering about 10 percent of the 4,081 U.S. stores opened since then.

"They probably made some poor real-estate decisions, and when they opened stores in fiscal 2006, they probably didn't anticipate how tough the economy would be and how the brand would be struggling," said John Owens, an analyst at the research firm Morningstar in Chicago.

The Industrial Workers of the World, which has tried for years to organize Starbucks employees in some cities, said it is "deeply troubled that management's numerous missteps are resulting in more serious hardships for baristas, bussers and shift supervisors."

The union called for Starbucks to disclose which locations are being closed and outline a severance plan.

Starbucks expects profits to drop this year, and its stock is trading about 60 percent below its price in the fall of 2006. It plans to release its third-quarter earnings July 30.

In February, Starbucks rehired former head of store development Arthur Rubinfeld to lead global development.

Last month, it laid off about 100 store-development employees after deciding to throw the brakes on U.S. expansion. It had planned to open fewer than 400 U.S. stores beginning next year, down from 1,788 new U.S. stores last year. That forecast has now been trimmed by 50 more stores.

In February, Starbucks also cut about 600 positions through attrition and layoffs, many of them at its Seattle headquarters.

Starbucks said the store closures will lead to pretax charges of about $328 million to $348 million, including $8 million in severance costs and $120 million to $140 million in lease-termination costs and future lease obligations.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com