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Recession has Finally Hit Latte Land


More evidence of Recession. People are feeling sufficiently pinched (it costs about $50.00 to fill up even the tank of a Toyota Prius) that they are cutting back on $4.00 lattes.

Starbucks said it expects first-quarter earnings per share of 15 cents, compared with the 21 cents Wall Street analysts were expecting. In the same period last year, Starbucks earned 19 cents a share.

Starbucks says it now expects full-year earnings per share to be ??omewhat lower?than the 87 cents per share recorded the previous year. That would be the first annual decline in profits in eight years. Analysts expected a profit of 97 cents per share. The company said sales in stores open at least a year fell in the mid-single-digit range in the U.S., due to a decline in traffic. Restructuring costs also hurt earnings by 3 cents per share in the second quarter.

Starbucks shares were down 11 percent in late Nasdaq trading. Shares closed at $17.85. The chain’s 52-week high for its share price is $32.30.

Chief Executive Howard Schultz said in a statement that “the current economic environment is the weakest in our company’s history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers.”

Especially hard hit have been key Starbucks markets California and Florida. With steep housing declines, people are feeling less flush than they used to when rising home values and home equity lines were like ATM machines.

People have been silly enough to buy Taco Bell with a credit card, perhaps some were writing home equity checks for a Frapuccino?

Schultz is trying to shake new life into Starbucks with a new, permanent everyday coffee, couponing, a bit more advertising than the chain is used to, retraining of baristas and new brewing standards.

On a personal note, I have cut back my purchases of lattes outside my house to coincide with the prices I am paying at the pump and for home heating and cooling energy. And find Starbucks’ Pike Place everyday coffee a fine substitute for only about $1.50 a cup. And I didnt say that because Schultz once sent me a Starbucks card.


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