Starbucks profit drops 97%

Starbucks is a good indicator of the demise of the easy spending freewheeling boom years. This Globe and Mail article highlights the hard times now facing Starbucks:

NEW YORK — Fewer U.S. customers and venti-sized costs for closing poorly performing stores led to lower sales and profit in the fourth quarter at Starbucks Corp., the company said Monday.

Seattle-based Starbucks said profit fell 97 per cent to $5.4-million (U.S.), or a penny a share, from $158.5-million, or 21 cents per share, a year earlier. The coffee retailer earned 10 cents per share when the costs from closing about 600 stores in the U.S. and 61 locations in Australia are excluded.

Analysts expected profit of 13 cents per share, according to a poll by Thomson Reuters.

Starbucks began shutting the U.S. and Australian stores this summer as part of a campaign to reverse slowing sales and falling profits at the company. That turnaround began at the start of the year when former Chief Executive Howard Schultz took back the reins of the company to again fill the CEO and chairman posts.

Besides closing the stores, Starbucks has cut more than 1,000 positions – many of which were unfilled – and introduced a slew of new products, including Vivanno smoothie drinks and breakfast pastries.

The company also replaced aging espresso makers and launched new single-cup Clover brewing machines in some markets.

But all the changes did little to boost sales in the fourth quarter, particularly in the U.S, where the turmoil in the economy during the summer months took a gulp out of consumer spending.

As noted in an earlier post, Starbucks is a bellwether of the changing economic fortunes of North Americans. With money getting tighter, people will be splurging less on expensive coffees.

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2 Responses to Starbucks profit drops 97%

  1. Joanne says:

    Do you think people are really changing? Or just while it hurts? If their economic situation was reversed tomorrow, would they go back to ‘convenience’ and ‘rewarding’ themselves with splurges? I tend to think the latter for most.

  2. thepennypincher says:

    Probably. However, I expect that in the next year or two, fewer people will have the money to reward themselves with splurges. It won’t be easy.

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