Starbucks profit falls steeply on store-closing costs

NEW YORK — Starbucks said today that fewer U.S. customers and the costs of closing poorly performing stores led to lower sales and profit in the fourth quarter.

Seattle-based Starbucks said profit fell 97 percent to $5.4 million, or a penny a share, from $158.5 million, or 21 cents a share, a year earlier. The coffee retailer earned 10 cents a share when the costs of closing about 600 stores in the U.S. and 61 locations in Australia are excluded.

Analysts expected profit of 13 cents a share, according to a poll by Thomson Reuters.

Starbucks began shutting the U.S. 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 U.S, where the turmoil in the economy during the summer months reduced consumer spending.

Revenue rose 3 percent to $2.52 billion from $2.44 billion. Analysts expected sales of $2.58 billion. Same-store sales, or sales at locations open at least a year, dropped 8 percent in the U.S. 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 drip coffee.

For the 2008 fiscal year, Starbucks earned $315.5 million, or 43 cents a share, down from $672.6 million, or 87 cents a share, in 2007. Revenue rose to $10.38 billion from $9.41 billion.

Starbucks said it expects 2009 profit, excluding one-time costs, between 71 cents and 90 cents a share depending on how steeply same-store sales decline during the year. Analysts predict profit of 87 cents a share for the year.

The company also said it will open about 700 net new stores overseas during the fiscal 2009 year. In the U.S., the company said it will close about 225 stores and open 205 new ones.

The financial results were released after the stock market closed today. Shares fell 13 cents to $10.07 in after-hours trading after dipping 35 cents, or 3.3 percent, to close at $10.20 in the regular trading session.