Higher prices seen boosting Starbucks Q2 sales

LOS ANGELES Wed Apr 27, 2011 12:16am EDT

Related Topics

LOS ANGELES (Reuters) - Starbucks Corp (SBUX.O), the world's biggest coffee chain, is likely to report that higher prices for its prepared coffee drinks boosted sales at its core U.S. business this past quarter -- even as higher food and gasoline costs cut into consumers' disposable income.

The Seattle company, which reports fiscal second-quarter results on Wednesday, looks to the United states for 70 percent of overall revenue, money that funds expansion in key growth markets like China.

Investors particularly focus on Starbucks' sales at established U.S. cafes, a key gauge of performance.

Those sales were up 8 percent in the first quarter, when more customers came in and also spent more money per visit.

Analysts, on average, expect U.S. sales at Starbucks cafes open at least 13 months to be up about 5 percent for the second quarter.

"I think the sense is that they're far stronger than that," said RBC Capital Markets analyst Larry Miller.

Indeed, some analysts expect an increase in second-quarter U.S. same-restaurant sales of as much as 7 percent.

Starbucks has been rolling out price increases to various markets since last year to offset a spike in coffee costs. Those higher prices should again help boost the same-restaurant sales results, Miller said.

Consumer-focused companies generally had healthy results for the March quarter, led by stores that cater to customers in higher-income brackets, William Blair & Co analyst Sharon Zackfia said.

Starbucks appeals to more affluent consumers and its cafes are packed, Zackfia said. "I think the trade-up is on again."

Starbucks ended a long-time grocery distribution deal with Kraft Foods KFT.N on March 1 and investors are standing by to see how much the company will have to pay Kraft as a result of that decision.

Shortly after ending the Kraft deal, it also raised the price of packaged coffee sold in grocery stores by an average of 12 percent.

Starbucks Chief Financial Officer Troy Alstead said in late March that the chain would take a 1-cent to 2-cent charge related to the earthquake and tsunami in Japan and to the bankruptcy of cafe partner Borders Group Inc.

Japan is one of Starbucks largest markets and the natural disasters there resulted in some store closures.

While Alstead repeated Starbucks' prior call for second-quarter earnings of 32 cents or 33 cents per share, he said, "these unusual events have likely removed earnings upside in this quarter beyond that level."

Analysts, on average, expect a second-quarter profit of 34 cents a share, according to Thomson Reuters I/B/E/S.

(Editing by Steve Orlofsky)

FILED UNDER: