Yesterday, we pre-announced our preliminary second quarter results and our revised earnings per share target for fiscal 2008 to the financial community, which reiterated the negative effect that the economy is having on our business. Like many other retailers and consumer brands, especially at the premium end, we are experiencing a down turn in customer traffic. We have conducted research that validates that our customers are not going to other places for their coffee experience, instead they are visiting us less frequently as the result of economic pressures. However, I remain concerned about the macroeconomics of our current business environment and the duration of this challenging period in the U.S. economy.
Although these are difficult days, I promise you that we will manage through them in a way that will provide long-term value for you and our shareholders. This is the time when we must do everything within our power to enhance the customer experience through constant innovation and stellar customer service as well as partner engagement. With the recent success of the Espresso Excellence Training and launch of Pike Place Roast, we have created great excitement with our partners and renewed customer interest in our brewed coffee platform, which I believe, is an early positive sign of the potential success of our transformation.
As I have previously said, we will continue to focus on our core and be more innovative in the next 12 to 18 months than we have been in the last five years. This is a big statement that comes with a tremendous amount of responsibility, but the leadership team is up to the challenge. We are laser focused on every aspect of our business including managing our expenses and making the proper investments to move the business forward.
When we introduced the Starbucks Transformation Agenda in January, we promised to take a critical look at all parts of our business, without exception. Although it is painful, we are revisiting and refining certain business strategies that are not directly related to our core. Therefore, we have decided this is the appropriate time to restructure the Entertainment business. Our new Entertainment business strategy will focus on our Digital Strategy and Core Content. Digital Strategy includes Starbucks existing strategic relationships with Apple and AT&T, as well as the in-store “Now Playing” LCD screens and potential expansion into new spaces. The Core Content area includes Starbucks current relationship with the William Morris Agency that enables the agency to identify book projects that we can offer in our stores as well as provide strategic counsel on opportunities in the entertainment space. We will partner with the Concord Music Group to manage the Hear Music Record Label and leverage our superb curatorial voice to offer compelling entertainment options, including our music compilations as well as existing and new recording artists.
Ken Lombard, senior vice president and president of Starbucks Entertainment, has left the company. Under Ken’s leadership, Starbucks enjoyed success across many entertainment platforms, and I am personally grateful for Ken’s numerous contributions to the company. Chris Bruzzo, chief technology officer, has been promoted to senior vice president and will assume the leadership helm of Entertainment as part of his responsibilities, which you will learn more about in an upcoming organization announcement. The new Entertainment business will be more focused on our core, and will have fewer SKUs. Additionally, the team will be significantly smaller. The new organization is currently being finalized and partners within the Entertainment business will learn more about the structure within the next two weeks. Rest assured that we will make every effort to assist displaced partners by either redeploying them to another role within Starbucks or assisting them with their job search outside of the company. I would like to personally thank each of them for their contributions to our business and acknowledge their numerous successes in this area including: three No. 1 books on the New York Times Bestseller’s List, eight Grammy® Awards for Ray Charles’ Genius Loves Company CD, and the introduction of emerging artists like Hilary McRae and Sia.
In closing, I would like to reiterate that we are still in the early stages of our transformation and efforts to enhance our customers’ experience. There is still much work to be done, but we will succeed. Our summer, fall, and holiday promotional periods are coming up, which, I believe, will be enthusiastically embraced by our customers and partners.
We are off to a good start and I thank you for your commitment and tireless efforts to transform Starbucks for the future.
Onward,
Howard
