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Starbucks Cuts More Stores and Workers Amidst Recession and Lower Earnings

By David Kiley and Burt Helm

Starbucks said Wednesday that it will close another 300 stores and cut nearly 7,000 workers as it continues to stagger from overexpansion and a sharp sales slowdown.

The iconic coffee chain reported that revenue in its fiscal first quarter ended Dec. 28 fell 6% to $2.6 billion, with sales at stores open more than a year falling 9%. To cope with the downturn, CEO Howard Schultz said an additional 200 U.S. stores will close in 2009 on top of a cut of 600 stories announced in 2008. An additional 100 stores overseas are closing.

The Seattle-based coffee seller posted net income for the fiscal first quarter of $64.3 million, or 9 cents per share, compared with a profit of $208.1 million, or 28 cents per share, in the year-earlier period.

Shares fell 23 cents to $9.52 in after-hours trading after closing the regular session up 50 cents to $9.65.

Some 700 corporate employees will be cut, the CEO said, while some 6,000 store employees will be eliminated.

The coffee chain is suffering from consumer cutbacks in spending on its pricey coffee, as unemployment and consumer anxiety continue to rise.

Schultz said that the company has found an additional $100 million in cost cuts to add to the $500 million already targeted for 2009. The CEO said that marketing efforts would continue to attack two problems??misperceptions about affordability,” and attracting customer traffic at different times of the day, especially in the morning.

One of the new cost cutting moves announced was the elimination of ready-brewed decaf coffee after noon. Last year, Starbucks cut back on the number of rotating daily coffees it offered, choosing instead to make Pike Place its daily house brand always available.

Starbucks last year launched a new business of Vivanno fruit smoothies. It also began selling hot oatmeal. Schultz said a big push would begin in March to make Starbucks “more of a breakfast destination” by promoting “value pairings” of food and coffee for breakfast to attack the perception that Starbucks has become an unaffordable luxury during the Recession.

Schultz indicated a push behind greater franchising and distribution of Seattle’s Best coffee, such as the addition of the brand into Subway shops this year.

Starbucks has long touted its offering of healthcare benefits to qualifying full and part time employees. Schultz said that the company would continue that benefit in 2009, but had already announced that the company would cut back or eliminate 401K contributions this year.

The company also said it was limiting executive compensation. In addition to eliminating 2008 bonuses for senior executives and holding their base salaries steady in 2009, Howard Schultz cut his own annual salary from $1.2 million in 2008 to under $10,000 a year in 2009. Meanwhile, the company said it would aim to sell all but one of its private planes.

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