Starbucks cuts 600 jobs amid stagnant U.S. growth

By Lisa Baertlein

LOS ANGELES (Reuters) - Starbucks Corp <SBUX.O> said on Thursday it would eliminate 600 jobs as it works to turn around stagnating U.S. coffee shops in the face of a weak economy.

The coffee seller has been battered in recent months by slower consumer spending, higher milk and labor costs and concerns that it may have saturated its domestic market.

Sales at established U.S. outlets fell last quarter, and Seattle-based Starbucks has already announced plans to expand overseas and close underperforming U.S. stores.

UBS Equity Research analyst David Palmer called the move a visible step to remove bureaucracy and cost.

"We expect earnings to ramp through the year as unit growth slows, innovation improves (and) dairy pressures abate," Palmer said in a client note.

Chief Executive Howard Schultz, who made the announcement in an e-mail to employees, is slated to share details of the company's strategy at a shareholder meeting on March 19.

Shares in Starbucks, which were drifting lower prior to the announcement, fell 2.4 percent, or 43 cents, to $17.83 on the Nasdaq.

Schultz also said the company would double the number of its U.S. field organizations to four by March 24, in a bid to get closer to customers and employees -- which Starbucks refers to as partners.

Starbucks laid off 220 employees on Thursday. One-third of them worked in Seattle, spokeswoman Valerie O'Neil said.

Those employees performed a variety of duties from finance to design and marketing.

The company has also eliminated an additional 380 open positions, O'Neil said.

None of the cuts affect people working at Starbucks outlets, said O'Neil, adding that Starbucks has 170,000 employees.

McAdams Wright Ragen analyst Dan Geiman said the layoffs were expected.

"I don't think it's a surprise at this point," he said.

(Editing by Gerald E. McCormick and Braden Reddall)