British plunge puts brake on Starbucks

Starbucks today admitted the number of people getting their caffeine fixes in its British cafes has slumped so much that it is denting the group's international sales.

The coffee giant has now launched a plan to slow its expansion of new stores. Operating profit for the last three months dropped 95% to $2.6 million (£1.7 million) from $51 million a year ago.

Today's warning highlights just how bad the UK slide has become since the company first warned of a downturn here in May. Before that, Starbucks' problems had been confined to the US.

Overall net profit for the fourth quarter slumped 97% to $5.4 million, after Starbucks took $105.1 million in charges related to its restructuring programme, including a large-scale retreat from Australia. Revenues increased 3%, more slowly than expected, to $2.5 billion.

Internationally, Starbucks is planning to open approximately 700 net new stores, down from 900, in 2009. It did not say what this meant for Britain except it was taking a more cautious approach in the UK and western Europe.

It does not break down profits by country but said revenues in its 45 non-US markets for the fourth quarter rose 13% from a year earlier to $533.6 million. Same-store sales outside the US were flat for the fourth quarter, mainly because of a decline in traffic in the UK along with continued softer sales in Canada. When the US was taken into account established store sales fell 8%.

Chief executive Howard Schultz has abandoned the optimistic tone he set in October when he said the company might have hit bottom in the fourth quarter. Instead he is modelling for what the firm would earn "if the current environment worsens".

But Schultz said the company has seen cautious signs of improving same-store sales, a key gauge of retail health.