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Starbucks to cut up to 12,000 jobs, close 600 stores

1/07/2008 - 22:21
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STARBUCKS 57,710 -0,17%

By Lisa Baertlein

LOS ANGELES (Reuters) - STARBUCKS (SBUX.NQ)Corp said on Tuesday it plans to close 600 underperforming stores and eliminate as many as 12,000 full- and part-time positions, lifting shares nearly 6 percent.

The company, which has been grappling with the slowing U.S. economy and consumer spending at the same time that major competitors like McDonald's Corp have begun attacking its core business, now plans to close a total of 600 underperforming stores by the end of March 2009.

Howard Schultz, the coffee chain's founder and chief executive, retook the helm in January and quickly announced plans to shutter 100 underperforming outlets.

With U.S. sales growth slowing, he slashed plans for store openings and shifted the company's most ambitious expansion efforts to international markets.

"At this point, management has decided that 2008 is a wash and to throw in everything but the kitchen sink to get ready for growth in 2009 and beyond," said William Blair analyst Sharon Zackfia.

"It's another sign that management doesn't have their head in the sand," said Zackfia, who has an "outperform" rating on the stock.

Starbucks said the closures are spread across all major U.S. markets and that 70 percent of the targeted stores have been open since the beginning of fiscal 2006. The accompanying job losses would represent about 7 percent of the company's global work force.

Starbucks estimated that total pretax charges associated with the planned U.S. company-operated store closures, including costs associated with severance, would be in the range of $328 million to $348 million.

The Seattle-based company aggressively opened stores in areas such as California and Florida, which have been hardest hit by the U.S. housing downturn. Some investors, worried that the company had built too many outlets in the United States, pushed the company to increase the number of store closures.

"This is validating some of the critics who said they were opening stores too close to one another," said James Walsh, an analyst at Starbucks investor Coldstream Capital Management.

Starbucks also said it will open fewer than 200 new U.S. company-operated stores in fiscal 2009, down from 250 previously.

The stock rose to $16.53 in late electronic trading, up 5.8 percent from its close of $15.62 on Nasdaq.

(Additional reporting by Nichola Groom and Jennifer Martinez; editing by Jeffrey Benkoe, Leslie Gevirtz)


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