Starbucks to close 300 stores as profit tumbles

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NEW YORK (CNNMoney.com) -- Starbucks Corp. said Wednesday its fiscal first-quarter profit and sales fell short of Wall Street's forecast. The high-end coffee chain also announced 6,700 new job cuts as a weak economy weighed on sales.

For the three months ended Dec. 28, Seattle-based Starbucks reported net income of $64.3 million, or 9 cents per share, compared with $208 million, or 28 cents per share, a year ago.

Excluding certain charges, including a $75.5 million pre-tax charge related to store closures, the company said it earned 15 cents per share. Analysts polled by Thomson Reuters were expecting 17 cents. Sales in the quarter fell 6% to $2.6 billion from $2.8 billion a year ago. Analysts expected $2.69 billion.

Same-store sales, or sales at locations open more than a year, dropped 9% worldwide and 10% in the U.S.

Starbucks said store closures and reduced operations would result in a loss of up to 6,000 retail and 700 non-store jobs. The company expects to close 300 underperforming stores.

Along with previously announced cost-saving measures, Starbucks expects the job cuts and closures to help it save $500 million over the next year.

"These are very difficult decisions but necessary to ensure that we have the appropriate infrastructure and cost structure to remain profitable going forward," Troy Alstead, Starbucks chief financial officer, told analysts in a conference call.

Starbucks would not provide a financial forecast for upcoming quarters, blaming current economic uncertainty. However, the company said it plans to open 95 new stores next year, which is 100 less than it opened in 2008.

"We are moving swiftly to adapt our business to the realities of the current environment," said Howard Schultz, Starbucks' president and chief executive.

For his part, Schultz will have his salary reduced to below $10,000 this year from $1.2 million last year. And the company said it will retain only one corporate plane.

Schultz told analysts in a conference call that Starbucks' "earnings will remain under pressure until the economy begins to recover." But he added that it will "emerge leaner, stronger and better positioned" thanks to the company's cost savings plans.

"The quarter wasn't overly surprising," said Sharon Zackfia, an analyst who covers Starbucks for William Blair & Company. "Still, it's not a very pretty picture," she added.

On the bright side, Zackfia said the additional cost savings plans could begin to show results soon.

"Starbucks is a retailer," she said. And cutting costs "is the only way to successfully navigate this economy."

In addition to managing costs, Starbucks said it plans to offer customers "real value" with several "breakfast pairings at attractive price points" due out in March. But the company declined to elaborate on what the pairings would be.

Starbucks (SBUX, Fortune 500), which specializes in higher-end specialty coffee drinks, has struggled with declining sales as a deepening recession has pushed consumers toward cheaper coffee retailers such as McDonald's (MCD, Fortune 500) and Dunkin' Donuts.

Schultz said the company plans to start "pushing back on misconceptions about our affordability."

At the same time, the company remains committed to upholding its "experience oriented brand" while offering "relevant value" to customers, Schultz said.