Starbucks (SBUX) Will Have To Close A Lot More Than 100 Stores

Retail

Published: January 31, 2008 2:50 am

No one on Wall St. liked the Starbucks (SBUX) quarterly results and the shares moved down after they were announced. They still sit close to a 52-week low. The company reported revenues of $2.8 billion, a 17 percent increase from fiscal Q1 of 2007. Earnings per share were $0.28, compared to $0.26 per share in the period a year ago. Comparable store sales growth of one percent worldwide.

The company’s solution to these problems seems to have three pieces. First, Starbucks will sell a $1 cup of coffee. It may bring in foot traffic, but probably won’t be profitable. Second, the company will eliminate selling sandwiches.

Finally, Starbucks will close 100 stories in the US. That is out of a total of 11,168 in the US at of the end of 2007, which is up from 9,401 at the end of 2006. In the US, same-store sales fell 1% in the last quarter.

Howard Schultz is back as Starbucks CEO and there is already something wrong with his math. Shareholders are bleeding and the company is planning to close 100 under-performing stores out of a universe of over 11,000.

If Starbucks is going to get back in the good graces of investors, it is going to have to look at a program significantly more radical than the one it proposes. It is plain to almost everyone except the company that with shrinking same-store sales a .1% reduction in locations is not even close to adequate.

But, Schultz has already fired his CEO, and he is unlikely to do the same thing to himself.

Douglas A. McIntyre

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