Financial News

  • 28 April 2014, 13:19

Starbucks Sales Fall For First Time In 16 Years

Starbucks' turnover dropped last year for the first time, in the wake of revelations about its corporate tax practices.

Sales for the year to September 29 were £399m, a decline of 3.4% compared to the previous year.

The company said the decline, the first since it started UK operations 16 years ago, was due to the closure of unprofitable outlets and not the result of other reasons.

It reduced its average UK workforce by 11.6% in the financial year to 7,726.

Starbucks was able to increase its gross profit by 13% to £79.7m, before deductions of £100.5m were taken into account.

Its pre-tax loss was £20.4m in the period, down from the £30.4m recorded in the 2011-12 financial year.

The company's tax liability in the period was £3.4m, but including deferred taxation was reduced to £2.25m.

A Starbucks spokesman told Sky News: "The UK business is moving in the right direction, but the turnaround will take time.

"The continued loss is largely because the reforms we have introduced are yet to take full effect.

"Many of the expensive leases we have renegotiated occurred after our financial year started in October 2012. The benefits of this action will be shown in the accounts for this current year."

It said the £10m fall in the pre-tax loss was largely due to the rise in gross profits. Its staff costs dropped £13.5m in the tax year compared to the previous year.

In October and December 2012, key executives were grilled by MPs about multinational corporate (MNC) arrangements.

Revelations about royalty, licensing and transfer pricing structures used by MNCs to minimise UK tax burden became a focus for Westminster's Public Accounts Committee.

Seattle-based Starbucks was quizzed on why it remained a loss-making business for tax purposes while telling investors it was profitable.

Groups such as UK Uncut urged boycotts of Starbucks and organised store protests and the company's unmoderated website blog was flooded with hundreds of critical comments.

But the company said the latest sales drop was not related to the 2012 tax furore and says Britain is its star EU performer.

"The UK is our fastest growing market in Europe. We are on schedule to open 100 new stores this year and expect the business to continue to grow as economic growth picks up," the spokesman said.

However, the latest accounts filed with Companies House show that it is acutely aware of the impact certain issues may have on the company.

It said there was potentially a "significant risk" of "adverse impacts resulting from negative publicity regarding the company's business practices".

Responding to the widespread criticism in late 2012 it offered to pay a voluntary†£20m in tax over two years, and has already given £15m of that to HM Revenue and Customs.

It also dropped total remuneration for its three directors by almost a fifth to £886,000, with the highest paid executive's salary falling by more than half to £268,582.

At the end of last September Starbucks had 549 company-operated stores in the UK, down 44 in the period.

It also had 125 licensed and 57 franchised operations. Although it has a planned franchise expansion, the company's website says it is not looking for new partners.

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