Starbucks restores Schultz--shares up most since 2006.

UNITED STATES -- Howard Schultz was peddling a unique idea when he turned a Seattle coffee-bean roaster into a chain of U.S. cafes called Starbucks Corp. Now he is returning to lead a company battered by the competitive landscape it created.

Investors responded by sending shares up the most in almost two years. Starbucks trained customers to demand better-tasting coffee. In the process, it spawned thousands of mom-and-pop imitators and enticed even McDonald's Corp., the world's biggest restaurant company, to open coffee counters.

By bringing back its leader eight years after he stepped aside as chief executive officer, Starbucks is telling shareholders the challenges run deeper than labor costs or a drop in consumer spending. Schultz, who returns after Starbucks reported its first quarterly drop in U.S. customer visits, called the chain's problems "self-induced" and said Starbucks hadn't introduced enough "exciting" products. "I'm here to tell you that just as we created this problem, we will fix it," Schultz, recently said in a conference call.

Starbucks recently gained $1.48, or 8.1%, to $19.86 according to the New York Times in composite trading on the Nasdaq Stock Market, the biggest gain since February 2006.

Andrew M. Barish, an analyst with Banc of America Securities LLC, raised his recommendation on Starbucks to "neutral" from "sell" today. "This could be the first step to Starbucks more consistently returning cash to shareholders," Barish said in a research note.

Schultz, who was raised in federally subsidized housing projects in Brooklyn, replaces Jim Donald, 53, who ran Starbucks for less than three years. Schultz took over the Seattle chain in 1987 and was CEO until 2000. The shares jumped almost 13-fold during his tenure, as Starbucks expanded from a few Seattle espresso stands to 10,684 U.S. locations as of Sept. 30, among 15,000 worldwide in 43 countries. The stock has declined in two of the past three years. Last year's drop, 42%, was the steepest since the company went public in 1992. "The perception is that Starbucks is oversaturated in the U.S. and that the quality of the experience has deteriorated as they've grown," said Walter Todd, a principal at Greenwood Capital Associates LLC in Greenwood, South Carolina.

Starbucks cut profit and sales forecasts in November after it raised prices 9 cents a cup to offset higher food and labor expenses. Competition is growing, Schultz, who will retain his title of chairman, said yesterday.

"Howard coming back is absolutely the right strategy," Howard Penney, an analyst at Friedman Billings Ramsey & Co. in New York. "Consistent with other companies that have seen pressure on profitability, someone has to pay the price."

Schultz said he will slow the pace of U.S. expansion and close some cafes. Money earmarked for the U.S. will go toward international growth, he said. At the same time, he said, Starbucks has grown cautious, introducing variations of drinks instead of products that might attract new buyers. "They have not been transformative, they are not exciting," Schultz said. "You could see this company buying back easily $700 million to $1 billion a year in stock," Penney said.

Starbucks is still expanding. Fourth-quarter net income was $158.5 million, a 35 percent gain from the same period a year earlier. Revenue climbed 22% to $2.44 billion. The company's earnings forecast for next year suggests an increase of as much as 21%.