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.
Mass suicides reported of nose ring-wearing liberals in Seattle.
The blush is off the rose and the drinks are just too expensive for what they really are. Save the environment and cut your prices Star-BUCKS.
More money needed for gas, less money for overpriced coffee...
Take note: hot coffee is never a big seller during a sweltering summertime. I must admit though, those chocolate croissants are great at breakfasttime.
price of coffee going up too.
Starbucks is one of those companies that is basically held hostage by high fuel prices -- because the vast majority of their sales are discretionary by nature. Lots of people drink coffee, but cost pressures in other areas of the economy will lead many people to drop this "boutique coffee" in favor of "normal coffee."
They always make it sound worse than it is.
I gave up caffeine last week, so I was expecting this. Just not so soon.
Outrageous, I won't even get a coffee from Dunkin Donuts. $2.00 for a coffee? No thanks, I'll brew my own.
Maybe people are starting to realize how nasty their coffee really is.
So profits were in line with predictions, management laments that they could have sold more with better planning, and the stock tumbles?
Bargain hunting time. Goes to show you when you've got a ton of liberals who invest in your company, you have to deal with the fact that they're eager to lose. (Oh, and it's Bush's fault.)
The blush isn't off of anything when profits are up sixteen per cent.
Wow... people paying $5-$7 for something they can get elsewhere for <$1... and you didn't think it was a fad??? I'm shocked.. shocked I tell you.
I've never been to a starbucks, nor have I had one of their high priced beverages... JMO, but a cup of designer coffee that costs as much as a gallon of gas has a short life...:|
LOL. You beat me to it (see #8).
Starbucks coffee is way too acidic for my taste, and of course the prices are idiotic (I blame the consumers for paying it, not SB), but the desserts and specialty drinks are good. I think the heat wave caused the slump.
That, and you can now find flavored coffees everywhere you step... Why drive to starbucks when the guy who shines shoes in the lobby of your building is selling the same thing for less than 1/2 price?
Amen. I wouldn't drink that if you gave it to me for free, let alone pay the small fortune they charge for it.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.