Starbucks Takes $20M Hit
Thursday, August 17th 2000, 12:00 am
By: News On 6
SEATTLE (AP) â€” Coffee retailing giant Starbucks Corp. said Wednesday it has lowered its earnings expectations because of a $20.6 million charge from its investment in living.com, which is filing for bankruptcy protection.
But Amazon.com, which owned 18 percent of living.com and had expected to receive $145 million over five years in a Web-hosting deal with the home-furnishings retailer, said it will take no similar charge and should not see its earnings seriously affected.
``There will be no material impact on Amazon's financial statements,'' said company spokeswoman Patti Smith. ``We've been recognizing a proportionate share of their losses over the last two quarters, which offsets our investments.''
Amazon closed up $1.06 at $38.625 a share on Wednesday and Starbucks was down 31 cents to $40.44 a share, both on the Nasdaq Stock Market.
Seattle-based Amazon.com, which sells a vast array of goods on its Web site but has never posted a profit, acquired its stake in living.com earlier this year. The $145 million was expected to be a significant cash infusion.
The loss of the expected revenue has been factored into Amazon.com's plans and should not affect the company's expectations of soon posting a profit, Smith said, pointing to a major new alliance with Toys R Us and other recent moves.
Analysts have said the Amazon.com could be profitable by 2002.
Living.com, based in Austin, Texas, stopped taking orders Tuesday and laid off its 275 employees in Austin and North Carolina. The company said it would file for protection from creditors under Chapter 7 of the U.S. Bankruptcy Code, after failing to find a source for new capital.
Seattle-based Starbucks said the move will reduce its own after-tax profits from an expected 22 cents per share to about 15 cents for the quarter that ends Oct. 1. For fiscal year 2000, also ended Oct. 1, the charge reduces expected earnings from 71 cents per share to about 64 cents per share.
The $20.6 million represents Starbucks' full investment in living.com and about a third of the coffee retailer's online, ``e-commerce'' investment portfolio, Starbucks said.
Starbucks, which continues to hold $43 million in e-commerce investments, warned that many such companies are having difficulty raising capital and said it ``may conclude in the future that some or all of these investments warrant similar non-cash write-downs.''
Starbucks operates 3,300 retail coffee outlets worldwide.
Living.com, offered furniture, home accessories, bed and bath, lighting and home textiles. In February, the company announced it had raised a total of $41.5 million in investments from Benchmark Capital, Austin Ventures, Comdisco Ventures, Pivotal Asset Management, GE Capital, and Starbucks, among other companies.
Amazon's other recent alliances with online retailers include digital audio seller Audible Inc., car-shopping Web site greenlight.com, online pharmacy drugstore.com, and pet-supply store Pets.com. Items from those companies are featured on the Amazon.com site, which once sold only books but now operates as a sort of online department store.