Starbucks Earnings Sink 21%

SAN FRANCISCO — Starbucks, faced with a sharp drop-off in customers, reported on Wednesday that earnings declined 21 percent during the second quarter.

Starbucks reported that net income declined to $108.7 million, or 15 cents a share, from $150.8 million, or 19 cents a share, in the year-ago quarter. The company said revenue rose 12 percent, to $2.5 billion.

The report came just a week after Starbucks, the world’s largest coffee chain, warned of lower-than-expected earnings and cut its full-year forecast, citing a decline in quarterly sales and describing the economic environment as the weakest in the company’s history. Wall Street analysts had forecast 19 cents a share for the quarter.

“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,” Howard Schultz, who is chairman, president and chief executive, said in a statement.

Mr. Schultz returned as chief executive in January in hopes of turning the company around, replacing James Donald.

Shares of Starbucks closed up 3 cents, at $16.23, before the report was issued.

Mr. Schultz said the results were heavily influenced by the company’s American business, which accounted for 77 percent of total net revenue.

Starbucks, which had 125 stores when it went public in 1992, now has 15,000 stores in 44 countries. But the company has struggled to maintain its differentiation in the face of growing competition. Most recently, Starbuck’s has suffered the effects of the crisis in the housing market, which has put a pinch on sales, particularly in California and Florida. Mr. Schultz said that customers were simply not visiting Starbucks stores at the rate they once did.

Mr. Schultz is expected to lay out a turnaround plan in a conference call with financial analysts late Wednesday. Among the many changes Mr. Schultz is expected to unveil in coming months, in addition to cutting costs, is the addition of a line of fruit smoothie drinks, the start of a broad effort to offer healthier drinks and expand beyond coffee beverages.

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