SAN FRANCISCO - Coffee behemoth Starbucks ( SBUX) took a big hit as it tried to transform its business, posting a third-quarter loss and offering a bleak outlook for the year. The Seattle-based company reported a net loss in the third quarter of $6.7 million, or 1 cent a share, compared to a profit of $158.3 million, or 21 cents, a year ago in the same period. Starbucks earned 16 cents a share for the quarter but that was offset by the estimated 17 cents a share that had gone toward its transformation plan, which includes shuttering about 600 underperforming stores at a cost of $167.7 million. Analysts had expected earnings of 18 cents a share, excluding the costs associated with the transformation plan. Revenue for Starbucks increased 9% in the third quarter to $2.6 billion compared with $2.4 billion a year ago. That matched estimates on Wall Street. "While we recognize the near-term impact to our business from this transitional year, we also believe this is the right approach toward strengthening our business model and creating a healthy, solid foundation for fiscal 2009 and beyond," said Chief Executive Howard Schultz in a statement. "The store closures and organizational restructuring we announced this month resulted from rigorous evaluations of the entire business," he continued. "While this has led to difficult decisions that impact the lives of our partners, customers and the communities we serve, these were necessary actions to transform our business and allow us to focus on delivering significant improvement in our long-term financial performance."
On July 1, Starbucks announced that it would close 600 company-operated stores in the U.S., resulting in the elimination of 1,000 jobs. For the full year, Starbucks now expects earnings to be in the mid-70 cent range, excluding a 19-cent year-to-date impact from restructuring and transformation costs. Analysts had predicted full-year earnings of 81 cents a share. The company attributed its bleak view to declining economic conditions, which has led to a fall-off in customers at its stores. Lower-than-expected revenue growth in the third quarter came as a result of slowing traffic in the U.S. Starbucks saw a mid single-digit decline in same-store sales, or sales at store open at least a year. International revenue grew 24% to $103.6 million, up from $535.6 million a year ago. The company continued to expand its store presence in its 44 markets outside the U.S., but noted that the revenue growth was dampened somewhat by a slight decline in traffic in the U.K. along with slower sales in Canada.