Starbucks cautious on 2008, sees recession likely

Starbucks Corp (SBUX.O: Quote, Profile, Research) said on Wednesday it is closing 100 underperforming U.S. stores and slowing domestic openings in the face of a likely consumer recession and "cannibalization" from overbuilding.

The coffee chain, whose shares dropped about 2 percent after the news, also said it was pulling much-hyped hot breakfast sandwiches from stores, despite the cost of reducing sales, because customers complained that the smell was overwhelming the aroma of coffee.

Starbucks, which posted a higher quarterly profit, is turning its focus to international markets and revamping U.S. plans. It has been battered in recent months by slower consumer spending, higher milk and labor costs and concerns it may have saturated the U.S. market.

"There's a macroeconomic headwind that we're all facing that strongly suggests that the (U.S.) consumer is in a recession," Starbucks recently-returned Chief Executive Howard Schultz said in a telephone interview.

Starbucks cut its forecast for 2008 U.S. store openings to 1,175 from 1,600. Meanwhile, it plans to increase international store openings by 75 outlets to 975.

"We believe having less openings at this point in time, in addition to the economic environment, gives us an opportunity to have less cannibalization and better use of capital," Starbucks Chief Financial Officer Peter Bocian, said on a conference call.

Executives said they will discontinue guidance for fiscal 2009 and beyond and cease to issue same-store sales results, saying those will not be effective indicators of the business during the turn-around period.

Seattle-based Starbucks said it now expects earnings per share in fiscal 2008 to grow in the low double-digits by percentage. Starbucks' previous forecast was for earnings per share of between $1.02 and $1.05 in fiscal 2008, which would mark a 17 to 21 percent increase in earnings per share.

Source : http://www.reuters.com