Starbucks losses increase 15-fold

LOSSES at the Irish arm of US coffee giant Starbucks increased 15 fold last year after the company recorded an impairment charge of €3.97m due to underperforming stores in Ireland.

The iconic global coffee brand only established in Ireland in 2005, but accounts just filed by Starbucks Coffee Company (Ireland) Ltd show that its accumulated losses now stand at €7.6m.

This follows the company confirming that in the year to the end of September last pre-tax losses increased to €5.4m compared to a loss of €359,586 the previous year.

In the filings lodged with the Companies’ Office, Starbucks sustained the losses in spite of increasing its turnover by 55% from €11.1m to €17.2m.

Starbucks achieved the sharp increase in turnover after opening an additional eight stores in Ireland during 2008, bringing the number to 20, while the company also opened its first two licensed stores.

Starbucks has continued its Irish expansion since the end of last September and now operates 29 stores with 27 in the Dublin area, one in Cork and one in Kildare.

However, the directors state that 2008 “has been challenging for Starbucks in Ireland”. In response to the general downturn in retailing, they have taken the decision to impair some of the underperforming stores.

The exceptional cost amounts to €3.97m and the directors state that “whilst this decision has impacted the results, it is felt this is an exceptional cost and should the situation change in future years, this will be reversed”.

No dividend was paid in 2008.

The directors say that liabilities exceed assets by €2m and “as the company was only recently incorporated, this relates primarily to business establishment costs”.

The directors state that its parent, the Starbucks Corporation intends to continue to support its Irish subsidiary as a going concern.

When the impairment of fixed assets is not included, the accounts show that the company’s operating loss last year increased nine-fold from €120,229 in 2007 to €1.09m. The company’s cost of sales last year increased by 59% from €8.9m to €14.3m.

Starbucks last year increased the number it employs in Ireland from 211 to 296 with its staff costs increasing by 58% from €3.6m to €5.7m.

The directors say the company’s gross margin decreased from 19.3% to 17.2%, partly due to rising commodity prices.