Starbucks Chairman Tries to Soothe Shareholder Worries

By Associated Press
Mar 21, 2007

SEATTLE (AP) - Starbucks Corp. doesn't plan to slow its aggressive growth, despite recently publicized worries about weakening the coffeehouse titan's brand, Chairman Howard Schultz told investors Wednesday.

Starbucks, which has more than 13,500 stores worldwide, plans to add 10,000 more on its way to doubling in size over the next four to five years, Schultz announced at the company's annual shareholders meeting.

Company leaders reiterated financial targets for 2007 and reinforced a long-term commitment to 40,000 stores worldwide, half of them outside the U.S.

Wednesday's meeting also featured two special appearances: Rwandan President Paul Kagame, who praised Starbucks' efforts to help coffee farmers, and former Beatle Paul McCartney, who was introduced as the first artist signed to Starbucks' new record label.

Schultz, who lamented a nearly 10 percent slide in the company's stock in the past year, asked shareholders not to lose confidence in the world's largest specialty coffee retailer.

"I'm here to tell you that I believe that there's never been a better time to be a Starbucks shareholder," Schultz said. "We are building Starbucks for the long term, and I would hope that after 15 years ... you would give us the same trust that you have in the past."

Starbucks' stock rose 89 cents, or more than 2.8 percent, to close at $32.27 on the Nasdaq Stock Market before adding another 2 cents in after-hours trading.

The meeting came as some negative headlines, questions about brand strategy, and investor concerns about operating numbers have knocked about 20 percent off the stock's price following a 52-week high in November.

Schultz also slapped back at critics who have questioned the Seattle-based company's strategy since an internal memo he penned to top executives was leaked to the press in February.

In the e-mail, Schultz worried that the company's growth had led to "dilution of the experience" customers get in Starbucks stores.

On Wednesday, Schultz said those concerns - while not meant for the public - were nothing new as he and other leaders try to map the company's way forward.

"Some speculated that perhaps it was a signal to Wall Street - I wish we were that smart - that perhaps we were going to slow down the growth," Schultz said.

Financial analysts had expected Schultz to soothe jittery investors at the Starbucks meeting, which are typically heavy on fanfare and special guest appearances.

Dan Geiman, an analyst at McAdams Wright Ragen, said this year's meeting carried a bit more serious tone. But he said Schultz did a good job addressing any lingering shareholder worries.

"I think Howard reaffirmed it today, but I expect that growth is going to continue to be at a pretty healthy rate," Geiman said. "I don't see many, if any, hiccups going forward."

Chief Executive Jim Donald said the company is still looking for about 20 percent net sales growth, same-store sales growth of 3 percent to 7 percent, and earnings per share of 87 to 89 cents in 2007. Starbucks expects net earnings to outpace revenue.

Starbucks officials also expect to open their first Russian store, in Moscow, in August or September. The first Starbucks in India is slated to open near the end of the year.

"We remain focused on building shareholder value through thoughtful and aggressive growth," Donald said.

McCartney, who addressed the crowd in a live video link from London, will be signed to a one-album deal for now, with a new recording expected in June on the new company's new Hear Music label, Starbucks officials said.

The album will be offered in Starbucks stores along with other traditional and digital music outlets, with no advance sales and no additional content for Starbucks stores, the company said.
McCartney said he was excited to use Starbucks as a platform to reach consumers.

"It's a new world now, and people are thinking of new ways to reach the people," McCartney said. "For me, that's always been my aim with my music."

The Kagame appearance was directly targeted at complaints from the international charity Oxfam that Starbucks is unfairly opposing the Ethiopian government's attempts to trademark three leading coffee names.

Starbucks officials said they are committed to purchasing practices that help African farmers get a better price.

But Schultz said the company thinks trademarking coffee names would not guarantee that the money gets down to growers, among other things.

Schultz also criticized Oxfam, saying he believed the group was targeting Starbucks as part of a membership drive.

"We welcome debate, we welcome criticism. We just want it to be an honest appraisal of the things we are doing," Schultz said.

Oxfam spokesman Seth Petchers rejected Schultz's comments, and said the "Starbucks has simply said 'No. Do it our way,"' Petchers said.

A small group of protesters criticizing the company's stance on unions and its resistance to Ethiopia's trademarking attempts greeted investors as they entered the overflowing meeting hall.

Some Starbucks workers have aligned with the International Workers of the World to press for changes in Starbucks' policies. Schultz dismissed the efforts of "fringe unions," while Donald said surveys show Starbucks workers remain satisfied with the company.