Starbucks shareholders have right to feel jumpy

ECONOMIC NAVIGATION & SIGHTSEEING

May 04, 2008|By JAY HANCOCK

Profit at coffee megachain Starbucks fell sharply in the first quarter, and the company also missed Wall Street's expectations and said it was cutting back on U.S. store expansions.

Starbucks made 15 cents a share when analysts had expected 19 cents, on average. Profit fell 28 percent for the first three months of the year compared with the same period in 2007.

The company blamed the recession. Doesn't everybody?

"Fiscal 2008 is a transitional year for Starbucks, and, while our financial results are clearly being impacted by reduced frequency to our U.S. stores, we believe that as we continue to execute on the initiatives generated by our transformation agenda, we will reinvigorate the Starbucks experience for our customers, and in doing so, deliver increased value to our shareholders," company boss Howard Schultz said in a rather breathless sentence in a news release.

Be careful of those words "transitional year." People have been saying that about the Orioles since 1999 or so.

This might be worse than just a cyclical bump for the coffee chain. It said it had a "mid-single digit decline" (percentage) in sales at stores open at least a year, which might have been the most disturbing "metric" of all.

Starbucks stock has fallen from nearly $40 in 2006 to about $17 now. It didn't do much after results came out last week because the company had already warned of a disappointment, but shareholders are correct to be feeling jittery.

Starbucks has defied the skeptics before. But now the company's phenomenal growth story appears to be transitioning into something else.

jay.hancock@baltsun.com

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