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Starbucks blames UK for flat international sales

12 November 2008 by

Starbucks - which posted an astonishing plunge in profits this week - appears to blame its international performance on a decline in traffic in the UK.

The headline figures, taken up gleefully by the international business press, were that the chain did not simply suffer a fall in profits but a positive tumble in profits, down by a barely-believable 97%. It is a figure which deserves closer attention.

Closer inspection of Starbucks' report which, as always, is couched in the company's unique and almost impenetrable corporate-speak, shows that it is the final quarter of its year which produced the big downturn. The group's performance for the entire year does show a bad fall in profits, but overall a less dramatic one. For the 2008 fiscal year, profits were down to $315.5 million, slightly less than half its profits for the previous full year.

In that notable final quarter, Starbucks did actually increase net revenues by a million dollars, up to $2.5 billion. From this, it reported net profits of $5.4 million, down from $158.5 million for the same period a year ago.

That gigantic fall in profits appears to be largely, but not entirely, due to the costs of the massive restructuring plan announced in July to close 600 American sites and 61 Australian shops, with the loss of a thousand jobs. The ‘restructuring charges' arising from this amount to something over $105 million.

The company appears to have done better with its international business than at home in the States. The American division, again in Starbucks' unique language, ‘posted comparable store sales of negative 5 percent', whereas its international net revenues went up by 13% to $533.6 million for that final quarter. Notably, however, Starbucks' report includes the phrase: ‘Overall, comparable store sales for the international segment were flat for the fourth quarter, primarily resulting from a decline in traffic in the UK ‘.

With all this in view, Starbucks has adapted its store-opening programme for next year. Internationally, it will look to open 700 stores, most of them licensed rather than company-owned, in what the brand calls ‘a more cautious approach in the UK and Western Europe'. In the States, again in Starbucks' own terminology, ‘the U.S. store opening target is now approximately a negative 20 net new stores'.

Commenting on the figures, the chairman, president, and chief executive officer (all in one!) Howard Schultz referred to his ‘re-architected' cost structure, and a ‘new galvanised company', and looked forward to higher margins in 2009. "We appear," he said optimistically, "to be more resilient than many other premium brands."

By Ian Boughton

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