Starbucks Cutting 6,700 Jobs & Closing 300 Stores

NEW YORK -- Starbucks Corp. said Wednesday its fiscal first-quarter profit and sales fell short of Wall Street's forecast. The high-end coffee chain also announced 6,700 new job cuts as a weak economy weighed on sales.

For the three months ended Dec. 28, Seattle-based Starbucks reported net income of $64.3 million, or 9 cents per share, compared with $208 million, or 28 cents per share, a year ago.

Excluding certain charges, including a $75.5 million pre-tax charge related to store closures, the company said it earned 15 cents per share. Analysts polled by Thomson Reuters were expecting 17 cents. Sales in the quarter fell 6% to $2.6 billion from $2.8 billion a year ago. Analysts expected $2.69 billion.

Same-store sales, or sales at locations open more than a year, dropped 9% worldwide and 10% in the U.S.

Starbucks said store closures and reduced operations would result in a loss of up to 6,000 retail and 700 non-store jobs. The company expects to close 300 underperforming stores.

Along with previously announced cost-saving measures, Starbucks expects the job cuts and closures to help it save $500 million over the next year.

Starbucks would not provide a financial forecast for upcoming quarters, blaming current economic uncertainty.

"The quarter wasn't overly surprising," said Sharon Zackfia, an analyst who covers Starbucks for William Blair & Company. But she said the additional cost savings are a positive sign.

"Starbucks is a retailer," she said. And cutting costs "is the only way to successfully navigate this economy."

In another move to cut waste and costs, many of the Seattle company's cafes are switching to on-demand decaf brewing in the afternoons.

"Demand (for decaf) drops significantly in the afternoon. That's always been the case" at Starbucks, spokeswoman Deb Trevino said.

The company, which has been slashing costs and closing stores to compensate for a slowdown in U.S. sales, said some stores will continue brewing afternoon decaf if there is enough demand, while others will brew it on request.

"They will do what's right for their stores and customers" and that could include preparing individual servings of decaf using a French press, Trevino said.

Trevino, who declined to say how much the move would save the coffee chain, said the decision is part of Starbucks' ongoing attack on expenses.

She did add that some reports, which suggested that the move could save $400 million by September, had made too much of the impact on expenses: "It's more about reducing waste than it is about cost savings

Starbucks (SBUX, Fortune 500), which specializes in higher-end specialty coffee drinks, has struggled with declining sales as a deepening recession has pushed consumers toward cheaper coffee retailers such as McDonald's (MCD, Fortune 500) and Dunkin' Donuts.