Starbucks to Close 600 Stores

The coffee retailer also will open 200 fewer stores in 2009.
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SAN FRANCISCO -- In a sharp reversal of its growth plans that led to an oversupply of stores, coffee behemoth Starbucks (SBUX) - Get Report will shutter about 600 locations while opening fewer than 200 by the end of the fiscal year.

The U.S. closures, which include 100 stores that Starbucks had previously planned to close, will result in cutting up to 12,000 full-time and part-time jobs, although the company said it will try to reassign as many people as possible.

Shares of Starbucks climbed more than 7% in recent after-hours trading to $16.72.

In January, amid slumping sales at the popular chain, Chief Executive Howard Schultz revealed a transformation plan intended to win back customers. This included the shuttering of underperforming stores -- an effort that has been stepped up since Starbucks reported a 28% profit decline in the second quarter.

"Throughout the history of the company, we have always aspired to put our people first," Schultz said in a statement Tuesday. "This makes our decision to close stores difficult, because it is disrupting the lives of the people who have worked so hard to deliver superior service to our customers."

They Just Don't Get Starbucks!

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Costs for severance packages to employees are expected to total $8 million. The company will also take a pretax charge of $200 million to be recognized in the third quarter.

Additionally, it will take a hit of about $120 million to $140 million in lease termination costs and future lease obligations, to be recognized in the fourth quarter and the first half of fiscal 2009.

All told, Starbucks estimates pretax closure costs of $328 million to $348 million.

Stores targeted for closure will be spread through the U.S. Most of them -- about 70% -- are relatively new stores that have only been open since the beginning of fiscal 2006. The company said it identified stores that were either not profitable or not projected to provide strong returns in the future.