Starbucks shares fall on June sales worries

7/07/2008 - 21:58
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STARBUCKS 58,640 -0,78%

By Lisa Baertlein

LOS ANGELES (Reuters) - Shares in STARBUCKS (SBUX.NQ)Corp fell almost 4 percent on Monday as investors worried about eroding sales at the coffee chain that is shuttering 600 underperforming U.S. outlets.

The stock, which finished down 61 cents at $14.95 and hit a new 52-week intra-session low, was among the biggest drags on the Nasdaq 100 Index <.NDX>.

"There is some concern about how same-store sales are going to shake out," Edward Jones analyst Jack Russo said.

Hodges Capital Management analyst John Langston falls into that camp. He expects June quarter sales from established restaurants to worsen from the mid-single-digit decline Starbucks reported for the March period.

"The U.S. consumer is hurting more now than they have in the last 18 months," said Langston, who expects the back half of the year to be "pretty dismal" for consumers.

"People look at spending $4 on a latte or $4 on a gallon of gas, and they're probably going to pick the gallon of gas," Langston said.

The Seattle-based coffee seller, which had appeared recession-proof until the current economic downturn, is slated to report third-quarter results on July 30.

Demand for Starbucks' premium-priced coffee drinks has softened as consumers grapple with a housing downturn and higher prices for must-haves like food and fuel.

Still, economic malaise is not Starbucks' only obstacle.

Competitors ranging from Dunkin Donuts' to McDonald's Corp are chipping away at Starbucks' core business with offerings ranging from espresso drinks to iced coffee.

The company is also paying the price for an overly ambitious building binge.

Most of the 600 stores slated for closure are located near an existing Starbucks. Seventy percent of them were opened since fiscal 2006, when shares were trading at around $40 and the company was being lauded for its real estate savvy.

Analysts said Starbucks is doing the right things to revive its business, but cautioned that a turnaround will take time.

"To stabilize the company is still going to take time and work," Pioneer Investments analyst Carol Lintz said.

(Reporting by Lisa Baertlein, editing by Mark Porter)

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