Starbucks' Q4 Profit Plummets 97 Percent
Unit closure costs and lower traffic counts contributed significantly to Starbucks Corp.’s dramatic profit decline in the fourth quarter, which fell 97 percent to $5.4 million, from $158.5 million in the same period a year ago, the Seattle-based company reported.
This summer, Starbucks began shutting a slated 600 underperforming stores in the United States and 61 in Australia, as part of a larger plan to slow sales and profit erosion long term. Howard Schultz, the former CEO who re-took the leadership of the company after performance began to slip dramatically, put the turnaround strategy in place at the beginning of the year.
In addition to closing stores, Starbucks has cut more than 1,000 positions and introduced a variety of new products, including Vivanno smoothie drinks, health breakfast pastries and oatmeal, as well as a new breakfast sandwich and lunch sandwiches called Piadini.
The company has also replaced aging espresso machines and other equipment, and introduced new single-cup Clover brewing machines in certain markets.
All of the changes take together, however, did not boost results in fourth quarter, however, company executives claim they will yield long-term benefits in 2009 and beyond.
Starbucks’ sales increased 3 percent to $2.52 billion, up from $2.44 billion, however same-store sales declined 8 percent in the U.S. as customer foot traffic and transaction size per customer declined, according to the company. Overseas, same-store-sales were flat.
"We appear to be more resilient than many other premium brands," Schultz said in a statement. "And while we cannot call isolated signs of improving sales a trend, we are encouraged by our ability to drive increased traffic at a relatively low cost, as we did on Election Day" when the company offered customers a free "tall" drip coffee.
Year-to-date in fiscal 3008 Starbucks has earned $315.5 million, down from $672.6 million in 2007. Year-to-date revenue increased to $10.38 billion, up from $9.41 billion a year ago.
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Starbucks said it expects to open about 700 net new stores overseas and 20 net new stores in the U.S. (close about 225 and open 205 new ones).