Starbucks CEO tried to assuage Wall Street fears

Starbucks Corp. Chief Executive Howard Schultz attempted to calm Wall Street's fears about the premium coffee company's sliding sales, profits and stock price on Thursday during a conference with analysts.

Schultz assured analysts at the New York conference that the company will emerge from an environment in which consumers are no longer as willing to spend on small luxuries like $4 lattes as a stronger, leaner and more socially conscious company.

He said he has confidence that "when, not if, this environment does get better that Starbucks is going to be a stronger company for having gone through it."

Investors seemed pleased, sending Starbucks shares up 8.5 percent, or 74 cents, to $9.38.

But Schultz said to make its way through a period of falling consumer confidence, Starbucks cannot drastically change its identity or its brand.

"This is not the time, after 30-plus years, after building one of the most recognized brands in the world, to throw the baby out with the bath water," he said.

Although most consumers have been demanding value, Schultz said Starbucks cannot destroy its identity as a premium brand and must offer value through that "lens."

"We are not a fast-food operator," he added. "We are not a discount business."

Several fast-food operators, most notably industry leader McDonald's Corp., have become more competitive with Starbucks by introducing their own latte-style drinks at lower prices.

Although several analysts have said the retailer has not taken the threat of its discount competitors seriously, Chief Marketing Officer Terry Davenport said Starbucks recognizes that its competitors have attempted to turn customers away from the company.

But Davenport said Starbucks will not get into a conversation about whose coffee is better.

"The answer to how we're going to respond to the competition is, we're not going to respond," he said. "We're going to keep doing what we do."

Rather than compete by cutting prices, Starbucks has been offering loyalty cards that give registered customers discounts and giveaways. The newest rewards card, which costs $25 a year, has attracted about 350,000 users in its first four weeks in stores, Davenport said.

He added the company plans to personalize its Gold Card more so that baristas worldwide can identify customers by name, where they live and their favorite drinks.

The company is also working with Costco Wholesale Corp. to offer consumers cards in bulk. Davenport said Starbucks expects to see $25 million in sales in January from the Costco deal once consumers begin to redeem the cards they receive as gifts during the holiday season.

The tough economy, with consumers focused on stretching their paychecks, is far different from the one Starbucks was in at its last analyst conference in 2006, when the company unveiled its plan to open 40,000 global stores.

Two years later, Starbucks has had to rethink its growth strategy. With sales at established locations declining and profit sliding, the company is in the midst of a cost-cutting campaign that forced the closure of more than 600 underperforming stores in the U.S and 61 stores in Australia. The company has also eliminated more than 1,000 positions.

Starbucks said it expects to see cost savings of about $200 million to $210 million in fiscal 2009 from initiatives already under way and has identified another $400 million in possible savings. Chief Financial Officer Troy Alstead said the additional savings will come from several areas, including waste and labor costs.

Besides cutting costs, Starbucks is attempting to brand itself as a more socially conscious company through initiatives like donating money from sales of holiday drinks to the Global Fund to help raise funds for and awareness of AIDS in Africa.

The company has also been introducing new products, from smoothies to oatmeal. More new products are on the way in 2009, including a line of tea-based, chai-style drinks made with tea and either milk or juice. The drinks will be in stores beginning early next year.