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Originally published Tuesday, July 1, 2008 at 12:00 AM

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Starbucks to close 600 U.S. stores

Starbucks continues to shrink its empire in an effort to turn around profits and a stagnant stock price. The Seattle coffee company announced...

Seattle Times business reporter

Starbucks continues to shrink its empire in an effort to turn around profits and a stagnant stock price.

The Seattle coffee company announced this afternoon that it will close approximately 600 underperforming company-operated stores in the United States in the next nine months, 500 more than it had already targeted.

It also expects to open fewer than 200 new U.S. company-operated stores during its 2009 fiscal year, which starts Oct. 1.

"In January, we committed to transforming the company through a series of critical and strategic initiatives to improve the current state of our U.S. business and build the business for the long term," Howard Schultz, chairman, president and chief executive, said in a prepared statement.

The closures are "significant, but a relatively small percentage of the store base," said John Owens, an analyst at the research firm Morningstar in Chicago.

"By most companies' standards, it looks like a really big number, but the extra 500 stores represent about 7 percent of U.S. company-operated stores, 4 percent of total U.S. stores and 3 percent of global stores," Owens said.

Nearly three-quarters of the stores being closed were opened since October 2005, the company said. That means about one in five stores open since then are being shuttered, Owens figured.

"They probably made some poor real estate decisions, and when they opened stores in fiscal 2006, they probably didn't anticipate how tough the economy would be and how the brand would be struggling," he said.

Andy Cross, a senior analyst at The Motley Fool in Alexandria, Va., said the number of closures was "a little shocking" partly because new Starbucks stores in his area "continue to be packed."

"But given the environment we're in, nothing really surprises me anymore," he said.

Starbucks said it will take pretax charges of about $328 million to $348 million as a result of the closures, including $8 million in severance costs and $120 million to $140 million in lease termination costs and future lease obligations.

Starbucks said it will try to find jobs within the company for those working at the stores that will be closing.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com.

Copyright © 2008 The Seattle Times Company

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