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First-quarter net income plunged 69.1% to $64.3 million, or $0.09 per share. This figure included $75.5 million in restructuring charges related to store closures in the quarter. Revenue fell 5.5% to $2.6 billion, while same-store sales dropped a rather abysmal 9%.
In some glimmer of good news for shareholders, Starbucks reduced its short-term debt with the $521 million in free cash flow it generated in the quarter. That's a relief for those of us who would rather see strong balance sheets and manageable debt loads in these turbulent times.
The big story, of course, was that Starbucks plans to close 300 additional stores (200 in the U.S., and 100 in international markets). The majority of the closures will take place during fiscal 2009. Starbucks said this could result in the loss of about 6,000 store workers in fiscal 2009, although it said it will work to place some in other stores. These plans increase Starbucks' fiscal 2009 cost-savings goals to $500 million (from $400 million before).
Starbucks isn't the only retailer cutting jobs, of course. Other retailers have recently expressed similar tidings, including Best Buy (NYSE: BBY ) and Target (NYSE: TGT ) . By enacting mass layoffs, they may risk joining big employers throughout the economy cutting their own throats. A few days ago, I felt disappointed that Starbucks' changes to management pay incentives didn't go further; I'm no happier now that the company's announced plans to cut even more of its rank and file.
I still believe in Starbucks for the long term, and at these levels, it's looking cheap. But the company certainly must adjust to new economic realities, which call for fewer stores than the bubble era seemed to dictate. In the long haul, these moves should help it boost its profitability; in the short term, they'll almost certainly try Starbucks investors' patience. The bad news just keeps on coming for the java giant, but Starbucks has yet to unleash any of the innovation I'd hoped for in response. Of course, in these terrible economic times, survival may be the best idea of all.
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