Posted on 08/03/2006 9:28:46 AM PDT by Cagey
SEATTLE — Starbucks Corp. shares sank nearly 10 percent Thursday, a day after the coffee retailer said it was retooling some store operations to improve service in the wake of slower sales growth in July.
July sales grew at the slowest pace in nearly five years, and executives blamed unexpectedly high demand for Frappuccinos and other frozen blended beverages in the peak morning hours of what's been a steamy summer for much of the nation. Normally, Starbucks' baristas crank out more hot espresso drinks, at a quicker pace.
"While this is an issue, and we're working on it, and we're going to get it solved, it perhaps doesn't quite deserve the focus it's been getting" from analysts, Chief Financial Officer Michael Casey said Wednesday on a conference call in which executives sought to trumpet their profits and expansion over the sales issue.
Chief Executive Jim Donald said the company was working to solve the problem by having more baristas work the morning peak hours, among other possible changes, including reducing the time it takes to blend cold drinks.
But investors sent Starbucks shares down $3.27 to $30.03 in midday trading Thursday on the Nasdaq Stock Market, erasing almost all their gains since the start of the year.
Comparable-store sales for July grew at 4 percent, the lowest rate the company had seen since December 2001, down from 7 percent a year ago. Executives said they expect comparable-store sales to range from 3 percent to 7 percent for the remainder of fiscal 2006 and 2007.
Despite the operations issues, Seattle-based Starbucks said profits rose 16 percent.
For the 13 weeks ended July 2, Starbucks had net income of $145.5 million, or 18 cents per share, up from $125.5 million, or 16 cents a share, in the same period a year earlier. Revenue for the latest quarter increased to $1.96 billion, up from $1.6 billion last year.
Excluding a 1 cent tax benefit, Starbucks' income was in line with the 17 cents per share forecast among analysts surveyed by Thomson Financial.
Sharon Zackfia, an analyst with William Blair & Co. LLC, suggested the market was overreacting to Starbucks' comparable-store sales figures. "There wasn't really anything else you could pick at," she said. "I think the market is skittish, period, when it comes to retail stocks right now."
Casey said the company saw signs of the cold-drink service slow-down as early as April, "but quite honestly, we didn't recognize it because we didn't look hard enough until we basically got into July and started to do the analysis."
"Had we known I think we could've done better training and better deployment to have avoided it. ... We wish we had the benefit of hindsight," he added.
Rather than comparable-store sales, Starbucks Chairman Howard Schultz urged analysts to focus on the earnings increase, its plans to expand into Brazil later this calendar year, India and Russia next year, and boost new-store openings to 2,000 worldwide in fiscal 2006 _ up from 1,800 as previously forecast _ and 2,400 in fiscal 2007.
The company held fast to its previous guidance for earnings of 16 to 17 cents a share for its fourth fiscal quarter and 71 to 72 cents per share for fiscal 2006. It set its fiscal 2007 earnings target at 87 cents to 89 cents.
As of July 30, Starbucks had 11,946 stores in 37 countries. It opened 559 stores in the latest quarter, 395 of them in the United States and 164 internationally.
I gave up caffeine about 4 months ago. Guess the effects from me take a while. ;) I wonder if giving up caffeine is becoming a trend or if you and I are the only ones??
Have you been checking me out? LOL
LOL!
Well, "close" is a relative term I guess. When I lived in Sussex County 45 miles was close. Where I live now, twenty yards is too close.
Ya I don't know about their coffee. It is kinda bitter or something. Frappachino's are good, but more like a shake. You should try one sometime when you haven't eaten in a while. lol.
Lets see....profits up 16%, same store sales up only 4% .... and that was because they could not sell their product fast enough.
Looks like a buy to me.
That's a far piece to go for a cuppa.
My wife -- the Starbucks addict -- will not be pleased. Then again, it is a buy opportunity for Starbucks shares...
Starbucks needs to decide whether to be an ice cream store or a coffee shop.
(I prefer the strong black Joe they serve over at Main Street Cafe myself.)
Buy away. :-)
That's exactly it. They charge an arm and a leg for the same taste you can get at home by drinking yesterday's leftover coffee.
Are frappachino's flavored?
Misleading headline to say sales sputter.
Their mocha is not bad either.
Frappachino's are flavored. You can get vanilla, chocolate, caramel, coffee, and some other flavors that I am not sure of. Worth a try, but they might be too sweet for some.
I might try one sometime as long as they don't come with any nasty whipped cream or anything.
starbucks coffee is too strong and tastes like dirt.It is also way over priced.
In Europe, a great "cafe" could usually be had for 1 to 1.3 Euro, just about anywhere. Even their machines made better coffee and espresso that anything available here, except at speciality shops. They get some things right over there.
People pay insane prices at Starbucks and have to wait way to long for their smug "european style" drinks.
lol. They do!!!!!
Sounds like a Mexican lawyer.
Why TF can't they just use English? The time it takes to pronounce their foreign words probably slows their sale, too. Also, try these useful and meaningful words: small, medium, large.
LOL. Shoot. Looks like I'm destined to never drink at Starbucks.
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