Starbucks rivals seen slurping up its sales

By Lisa Baertlein

LOS ANGELES (Reuters) - Hot coffee sales at McDonald's Corp (MCD.N) may be eating into results at Starbucks Corp (SBUX.O), which is expected to report another period of lower profits when it posts quarterly results on Wednesday.

Traffic to U.S. Starbucks stores also has softened as consumers pinched by the mortgage meltdown, job losses and higher costs for food and fuel cut back on everyday luxuries like coffee drinks that sell for $3 to $5.

"People aren't buying $5 coffee anymore. Starbucks made it through the last recession or two because it was a new concept. Now Starbucks is meeting up with reality," said Scott Rothbort, president and founder of LakeView Asset Management in Millburn, New Jersey.

Rothbort owns shares of McDonald's and watches, but has no intention of buying, shares in Starbucks.

"The consumer knows to stop buying the $5 cup of coffee at Starbucks and to buy the $1 cup or $2 cup of coffee at Dunkin Donuts," which like McDonald's is working to woo away Starbucks devotees, he said.

Analysts expect Starbucks's fiscal third-quarter profit excluding items to cool to 17 cents per share, compared with its year-earlier June quarter of profit of 21 cents per share, according to Reuters Estimates.

The chain, which has more than 18,000 owned and licensed U.S. locations, recently said it will close 600 underperforming outlets by early next year -- an admission that stores built in the last few years were either too close to already established cafes or in areas of questionable potential.

Starbucks, which like other restaurant operators is grappling with rising costs for milk and other ingredients, is starting to book closure-related charges in the third quarter so it will be difficult for investors to tease out the impact of competition.