Starbucks to Close 600 Stores, May Cut 12,000 Jobs

By Duane D. Stanford and Joseph Galante

July 1 (Bloomberg) -- Starbucks Corp. will close 600 U.S. coffee shops and eliminate as many as 12,000 jobs, the most in its history, as Chief Executive Officer Howard Schultz slows the chain's expansion after it doubled in size in four years.

Starbucks gained as much as 7.2 percent in late Nasdaq trading after saying the reductions amount to 7 percent of its workforce worldwide. The cuts include full- and part-time employees and will come over the next nine months, the Seattle- based company said today in a regulatory filing.

Seventy percent of the stores to be shut are less than three years old, the company said. Schultz, the 54-year-old former CEO who regained the post in January, is coming to grips with Starbucks' declining earnings and the ``overgrowth'' of the past few years, said Matthew DiFrisco, an analyst at Oppenheimer & Co. in New York.

``It shows Schultz is willing to do the tough things that are necessary,'' James Walsh, an analyst at Coldstream Capital Management Inc. in Bellevue, Washington, said today in a telephone interview. Coldstream has $1.1 billion under management, including Starbucks shares.

Starbucks Chief Financial Officer Peter Bocian estimated the stores were taking 25 percent to 30 percent of sales from nearby locations. The closings will hurt long-term revenue projections while helping the company achieve its profit goals, Bocian said on a conference call, without elaborating.

Fewer Luxuries

Starbucks' sales and earnings have declined as cash- strapped consumers facing record gasoline prices pull back on gourmet coffee and other luxuries. The company still plans to open 200 other company-owned stores through September 2009.

Most of the 600 stores to be closed were opened in late 2005 and 2006, Bocian said on the call with investors and analysts. During that time, more than 50 percent of the new stores had drive-through service, he said.

Consumers are driving less because of gasoline prices that have soared to more than $4 a gallon, according to separate surveys in the past two weeks by Mastercard Advisors analyst Michael McNamara and JPMorgan Securities Inc. analyst Himanshu Patel.

Most of the closings, which include 100 that were announced previously, will be completed by next March, Starbucks said. The stores are located in ``all major U.S. markets,'' the company said, without naming them. Florida and California are among the largest states affected, spokeswoman Valerie O'Neil said in an interview. Starbucks isn't targeting any other stores for closure, Bocian said.

``I think it will be well received by the Street,'' Sharon Zackfia, an analyst at William Blair & Co., said in an interview. ``It's pretty clear they want to enter fiscal '09 with a clean slate.''

Starbucks rose 71 cents, or 4.5 percent, to $16.33 at 6:38 p.m. after the close of regular trading on the Nasdaq Stock Market, following the announcement.

To contact the reporter on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net