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Starbucks’ net income drops 28%

From the Associated Press

Starbucks Corp. said Wednesday that its fiscal second-quarter profit fell 28% as U.S. consumers responded to rising food and gasoline prices by making fewer latte runs.

For the quarter ended March 30, Starbucks’ net income sank to $108.7 million, or 15 cents a share, from $150.8 million, or 19 cents, a year earlier. Revenue rose 12% to $2.53 billion.

Starbucks warned last week that results would fall short of Wall Street’s expectations. Analysts, on average, had forecast a profit of 21 cents a share on $2.63 billion in sales, according to a Thomson Financial survey.

“We continue to come under very heavy consumer pressure due to the economy,” said Chairman and Chief Executive Howard Schultz. “Most retailers, restaurants, certainly other premium brands are facing similar head winds.”

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Charges for closing a few stores and not moving forward with some planned openings, as well as costs associated with Starbucks’ plan to reinvigorate U.S. sales, such as added benefits for loyalty cardholders, cut earnings by about 3 cents a share.

Sales at U.S. stores open at least a year, a key measure of retail health, fell in the mid-single digits. Starbucks’ past guidance called for 3% to 5% growth in so-called same-store sales.

Starbucks added 266 U.S. stores in the quarter and 470 outside the country, bringing the worldwide total to 16,226.

Starbucks brought Schultz back as CEO in January after a year of sinking share prices as its rapid U.S. growth outpaced demand and sapped stores of their charm, making it easier for chains such as McDonald’s Corp. to compete.

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His moves have included a new signature coffee available in every U.S. store every day. Schultz said the new Pike Place Roast is “driving incremental customers to stores.”

The company plans to launch three new types of drinks in the U.S. this summer: a health-conscious smoothie-style line, an icy Italian coffee-based drink and an energy drink that adds extra kick to the existing Starbucks DoubleShot, which is sold in cans.

Starbucks baristas will start mixing up fresh DoubleShot with Energy drinks at the same time the new cans appear on shelves, Schultz said.

For the full fiscal year, Starbucks said that earnings would fall below the 87 cents a share it earned in fiscal 2007 and that revenue would grow 13% to 14%. Previously, it had said fiscal-year profit would grow in the low double digits.

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Starbucks’ shares slipped to $16.20 in after-hours trading, after ending the day up 3 cents at $16.23 before the earnings news.


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