SBUX Summary: Struggling in Weak Consumer Environment

Starbucks (SBUX - commentary - Cramer's Take) released earnings for the quarter ended March 31 in line with reduced expectations. The company reported total earnings of $108.7 million, or 15 cents a share compared to $150.8 million or 19 cents a share in the year-ago period. Revenue rose 12% for the quarter to $2.5 billion, but overall profit margins declined. Analysts had expected 15 cents but had a slightly higher forecast of $2.63 billion in revenue.

Although lower payroll costs helped SG&A expenses drop by 4.75% in the quarter, the overall margins fell to just 7.15% down from 10.7% last year. The margin decline was a result of reduced traffic and much higher store operating expenses. The company attributed the increase in store costs to the expense related to the recently announced transformation plans for the company's stores in the United States.

Revenue in the United States, which account for 77% of Starbucks sales, declined 8% in the period, falling to $1.9 billion as a result of much lower store traffic. International sales were up 27% to $493.4 billion but higher sales and occupancy costs caused the units net operating income to fall 15.67%.

Rising sales of prepackaged coffees and teas helped drive the Global Consumer Product division's sales up 22%. It was the only unit to increase profits in the quarter with a 13.3% gain in net income.

Howard Schultz the recently returned CEO and president of Starbucks expressed hope that the higher expenses in the quarter would pay off in a brighter future for the chain of coffee shops saying, "Fiscal 2008 is a transitional year for Starbucks and, while our financial results are clearly being impacted by reduced frequency to our U.S. stores, we believe that as we continue to execute on the initiatives generated by our transformation agenda, we will reinvigorate the Starbucks Experience for our customers, and in doing so, deliver increased value to our shareholders."

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.