Starbucks Profit Drops 77 Percent

Seattle-based Starbucks said that, for the quarter ended March 29, its net income fell to $25 million, or 3 cents per share, from $108.7 million, or 15 cents per share a year ago.

Excluding the charges, Starbucks earned 16 cents per share. Analysts polled by Thomson Reuters expected profit of 15 cents per share.

The 123 store closures during the quarter are part of a plan to shut underperforming stores and shave costs companywide. Since January 2008, the chain has announced a total of more than 900 store closures and said it plans to cut as many as 6,700 jobs.

In all, 507 U.S. stores and 64 international stores have been closed so far.

The gourmet coffee retailer says quarterly revenue fell 8 percent to $2.33 billion. Analysts predicted revenue of $2.36 billion.

Same-store sales, or sales at stores open at least a year, fell 8 percent both worldwide and in the U.S. That's better than the 10 percent decline in the U.S. the company reported for the previous quarter.

Edward Jones analyst Jack Russo said he was surprised that same-store sales did not improve more during the period, although he said January and February were difficult months for consumers.

"We were surprised we didn't see a bit more bump on the same-store sales," he said.

Same-store sales is considered a key retail metric because it excludes performance of stores that opened or closed during the year.

Consumers have cut back on small luxuries during the recession, and that has cut into Starbucks sales. To entice value-conscious consumers, Starbucks has been trying to change the perception that its drinks are too pricey - an image that has helped McDonald's Corp. make inroads in the specialty coffee market.

McDonald's, which has reported big increases in same-store sales in recent quarters, is more than halfway done rolling out a new line of espresso-based coffee drinks to its 14,000 U.S. locations.

To try to keep its customers from bypassing the 'Bux for the Golden Arches and other lower-priced alternatives, Starbucks has introduced a line of instant coffee, called Via, which sells for less than $1 per cup, and it has created two "breakfast pairings" that offered consumers a lower price if they buy a latte or cup of coffee along with a food item.

Although Russo said he was somewhat disappointed by the sales decline, he said the company is ahead of schedule in term of cutting costs.

Starbucks said it delivered $120 million in cost savings during the quarter, exceeding its goal of $100 million. The company has targeted $500 million in cost savings for the full fiscal year.

Starbucks shares fell 19 cents to $13.50 in after-hours trading. During regular trading Wednesday, shares rose 19 cents to close at $13.69.