I am old enough to remember when Starbucks (SBUX) only had stores in the Northwest and just served the basic coffee drinks: espresso, cappuccino, lattes and coffee. Lines were long in the morning but moved fast as the drinks were made as fast as the register clerks could yell them out. At the end of 1991, Starbucks had 116 stores and went public in 1992 at a split-adjusted 53¢. By the end of 2007 the company had 15,756 stores (a one year increase of 3,316) and the stock reached a peak of almost $40 per share in 2006. This was a gain of over 7,000% for initial shareholders who held the stock from the initial offering to the peak.

Along the way Starbucks expanded their offering into "handcrafted beverages", coffee and espresso machines, gourmet chocolate, music CDs, fresh food and bottled product that were available in numerous retail locations. Along the way they managed to convince many of us that dropping $7 to $8 bucks or more for our morning coffee and pastry was perfectly acceptable.

Then the growth machine started to lose steam. The stock peaked first in May of 2006. Revenues and net income continued to grow through FY 2007. In January 2008, sensing that economic conditions were turning customers against Starbuck's high priced offerings, Former CEO (from 1987 until 2000) and then current Chairman Howard Schultz came back to the company as CEO. His mission was to refocus the company on providing the "Starbuck's Experience" and "re-igniting the emotional attachment with customers". He also wanted to slow the pace of growth, streamline management and increase the profitability of individual stores.

For stockholders, Mr. Schultz's return came a little too late, year-over-year profits started falling in the 2nd quarter and finished with the company only earning 1¢ per share in the just released 4th quarter off 97% from a year earlier. The stock price has continued to fall, down 75% from the peak of 2006 and off 50% for 2008. Looking at the decline another way, anyone who was up the 7,000% from the IPO has given up over 5,000 of those percentage points.

Starbucks is now in the midst of closing up to 600 unprofitable stores in the U.S.. at a cost of up to $170 million (revised up $50 million from June) and reducing international expansion for 2009 from 900 new stores to 700. They are also lowering the price on merchandise for the holiday season in an attempt to entice customers back into the stores. Read between the lines company earning guidance for 2009 is between 71¢ and 90¢ per share compared to 43¢ for just completed 2008. I believe a turn around will be more difficult than management is projecting. Here are a few troubling figures from 2008.

• Revenues increased 10.5% to $10.4 billion.
• Operating income decreased 54%.
• U.S.. comparable store sales fell 5%.

Combine these numbers with a slowing economy and a disinclination of consumers to pay for luxury goods, I think it will be a while, if ever, for Starbucks to become the kind of growth stock it has been. After this long history and background on Starbucks, my recommendation is to stay away from the stock until the prove they can both add stores and increase same store sales numbers. If you want to invest in the casual food sector, look at McDonald's (MCD), which continues to surprise with quarter after quarter of earnings growth.