SEATTLE (AP) - Feverish summer demand for frozen drinks in the morning gummed up lines at Starbucks Corp. last month, slowing sales and presenting a rare operational snag for the world's largest specialty coffee retailer. The company said Wednesday its comparable-store sales, those at stores open at least a year, rose 4 percent in July, down from 7 percent a year earlier.
Executives blamed the slide on unexpectedly high demand for Frappuccinos and other frozen blended beverages in the peak morning hours, when baristas generally crank out more hot espresso drinks.
Chief Executive Jim Donald said the company was working to solve the problem by having more baristas work the morning peak hours, among other possible changes, including reducing the time it takes to blend cold drinks.
Nevertheless, Wall Street focused on the sales dip. Starbucks shares closed at $33.30 on the Nasdaq Stock Market on Wednesday, then plunged $3.04, or 9 percent, in after-hours trading.
"While this is an issue, and we're working on it, and we're going to get it solved, it perhaps doesn't quite deserve the focus it's been getting in the last couple of hours," said Michael Casey, the company's chief financial officer.
Comparable-store sales for July grew at the lowest rate the company had seen since December 2001. Executives said they expect comparable- store sales to range from 3 percent to 7 percent for the remainder of fiscal 2006 and 2007.
Despite the cold-drink issues, Seattle-based Starbucks said profits rose 16 percent.
For the 13 weeks ended July 2, Starbucks posted net earnings of $145.5 million, or 18 cents per share, up from $125.5 million, or 16 cents a share, in the same period a year earlier. Revenue for the latest quarter increased to $1.96 billion, up from $1.6 billion last year.
Excluding a one-time tax benefit of a penny per share, the company met the forecast of analysts surveyed by Thomson Financial, who predicted earnings of 17 cents per share on revenue of $1.96 billion.
Sharon Zackfia, an analyst with William Blair & Co. LLC, suggested the market was overreacting to Starbucks' comparable-store sales figures. "There wasn't really anything else you could pick at," she said. "I think the market is skittish, period, when it comes to retail stocks right now."
Rather than comparable-store sales, Starbucks Chairman Howard Schultz urged analysts to focus on the earnings increase, its plans to expand into Brazil, India and Russia, and open 2,000 new stores worldwide in fiscal 2006—up from 1,800 as previously forecast—and 2,400 in fiscal 2007.
"We couldn't be more enthused and excited about what's happening internationally, which complements obviously the growth and development that we've had over the last 30 years in the U.S.," Schultz said.
Starbucks plans to expand into Brazil later this fiscal year, which ends in October, and into India and Russia in fiscal 2007.
The company held fast to its previous guidance for earnings of 16 to 17 cents a share for its fourth fiscal quarter and 71 to 72 cents per share for fiscal 2006. It set its fiscal 2007 earnings target at 87 cents to 89 cents.
As of July 30, Starbucks had 11,946 stores in 37 countries. It opened 559 stores in the latest quarter, 395 of them in the United States and 164 internationally.
Also on Wednesday, Starbucks said its board of directors had authorized the repurchase of up to 25 million shares of company stock. Those are on top of about 3.4 million shares that remain available from a previous repurchase authorization.
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