Starbucks cutting 6,700 jobs, closing 300 cafes

All that penny-pinching advice about cutting back on your $3-a-day latte habit finally got through to the caffeine-addicted masses, who have pulled back so dramatically that they sent Starbucks into a tailspin.

The Seattle-based coffee company is closing stores again and slashing significantly more jobs than expected to stem eroding profits.

Starbucks surprised workers and Wall Street on Wednesday with plans to close 300 more stores, eliminating 6,000 store positions by fall. The firm will lay off 700 more workers in the next couple of weeks, including 350 people or about 11 percent of its Seattle headquarters.

The cuts came as Starbucks announced a 69 percent drop in profit to $64.3 million, or 9 cents a share, for the first quarter ended Dec. 28. Results included $75.5 million in pretax restructuring charges.

"There is an acute understanding of the situation," CEO Howard Schultz assured Wall Street analysts during a conference call Wednesday. "We're making significant steps, courageous steps to ensure Starbucks not only weathers the storm but maintains our leadership position."

Starbucks' latest tightening comes as companies nationwide cut loose workers in hopes of preserving meager profits. The coffee chain reported a 9 percent drop — its worst ever — in sales at stores open more than a year.

The trend is grim compared to last fall, when Schultz told investors that "our year of transition and transformation is over" and "October may have represented a bottoming-out milestone for our company."

Altogether, the cutbacks are meant to save the company $500 million this year.

The closures include 200 U.S. stores and come on top of 616 U.S. shop closures begun last year. From the initial group, Starbucks has relocated 70 percent of the employees to other locations, spokeswoman Deb Trevino said.

Starbucks announced several other changes Wednesday and hinted at more to come:

• The chain again scaled back plans for new stores, planning 140 in the United States and 170 internationally this year. In late December, the company had 16,875 stores worldwide.

• At his request, Schultz's salary was dropped from $1.2 million to less than $10,000 a year, the minimum necessary for him to receive health-care and other benefits.

• Starbucks will own one corporate jet, "assuming we can sell an aircraft in this difficult economy," the company said. It has three jets, including one it bought last month.

• The company will expand franchising for Seattle's Best Coffee, which operates mostly in Borders bookstores.

• "Breakfast pairings at attractive price points" will be offered beginning in March, Schultz said. He cited the popularity of the chain's oatmeal, which debuted last year, but declined to elaborate.

Starbucks is not hurting in all markets, executives said. Although sales are suffering in the United States, the United Kingdom and Canada, Starbucks has positive same-store sales in China and double-digit growth in Australia after closing 61 underperforming stores.

The Australia closures have "helped shape how we look at underperforming stores," Chief Financial Officer Troy Alstead said on the call with analysts.

Schultz said the company is "dealing with things we've never dealt with before," such as foreclosures in California and Florida on a scale that it never could have predicted.

The nonstore job cuts include all key support functions, Starbucks said, including finance, technology, marketing, human resources and public-affairs employees.

Starbucks' stock rose 50 cents to $9.65 Wednesday. The earnings and layoff news came after the market closed, and shares fell 32 cents to $9.33 in after-hours trading.

Melissa Allison: 206-464-3312