Starbucks' UK sales are going off the boil

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The company's problems had been limited to its 11,434 outlets in America, but now there are signs that problems are emerging on UK High Streets.

"We did see some early signs of softness in traffic in our UK stores," chief executive Howard Schultz told analysts. "Starbucks coffee and premium coffee experience has, over time, been an affordable luxury. And at this time, it isn't for some people."

The company does not break down sales by country, but says it is facing the worst economic climate in its history and a squeeze on margins in markets including the UK.

While international total net revenue increased 27%, operating profit fell 16% to $18 million (£9.1 million) with margins outside the US of about 4%, down 1.8% from the same time last year.

Starbucks said sales in California and Florida, the states hardest hit by the subprime meltdown, hitting the wall. Schultz vowed to slash store openings in the US but said that international openings - including the UK - would go ahead despite the slowdown.

Starbucks said it still plans to open 975 more stores in Britain, Canada, China and Japan. It has almost 650 outlets in Britain, making it the biggest coffee chain in the country until it was over-hauled by Whitbread's Costa Coffee, which opened its 700th store last week.

Schultz, brought back in January to lead a turnaround of the company, dismissed criticism that Starbucks had expanded too fast.

"We don't believe that we've saturated the market, but we do believe that we have a headwind the likes of which we've never seen," he said.

Net profit for the second quarter dropped to $108.7 million although sales climbed 12% to $2.53 billion.

Starbucks again warned that it expects full-year profits to fall, but would not say by how much because of "near-term economic conditions".

Schultz said he will focus on cutting costs and will continue to expand product lines.

Starbucks will begin selling energy drinks in partnership with PepsiCo. The line will feature protein and fruit-blended drinks and frozen smoothie beverages.