UPDATE 2-Costa hits record sales as Starbucks tax woes rumble on

Tue Dec 11, 2012 6:27am EST

* Q3 group LfL sales up 3.3 pct, total sales up 14.4 pct

* Premier Inn Hotels LfL sales up 2.5 pct

* Costa UK LfL sales up 7.1 pct

* Says on track to deliver FY expectations

* Top FTSE 100 rise, shares up 3.8 pct

By Neil Maidment

LONDON, Dec 11 (Reuters) - Britain's Whitbread Plc has hit record sales at its expanding Costa Coffee business, serving almost 4 million customers in the same week that rival Starbucks Corp bowed to public criticism and agreed to pay more tax.

"Costa's been the UK's favourite coffee shop for quite some time and we remain the taxman's favourite coffee shop too," Whitbread Chief Executive Andy Harrison said on Tuesday, as he revealed a 3.3 percent rise in third-quarter group like-for-like sales.

Shares in the group, which have gained 50 percent on a year ago, were up 3.8 percent to 2,506 pence by 0905 GMT, pushing it to the top of the FTSE 100 risers.

"Costa's performance is likely to have received a boost from the negative publicity around Starbucks' tax affairs, although it has consistently reported this level of like for-like-sales growth over the past 18 months," analysts at brokerage Panmure wrote.

Whitbread, which also runs Premier Inn hotels and the Beefeater and Brewers Fayre restaurant chains, said underlying sales at Costa were up 7.1 percent in the 13 weeks to Nov. 29, up from 6.8 percent in the first half.

Sales at the Costa Coffee chain, which has expanded rapidly to over 1,200 UK stores, were boosted by new advertising and by food and Christmas ranges, it said, with sales hitting a record 10 million pounds last week as 3.8 million customers flocked through its doors.

It said this was a record but gave no previous figures.

BRAND PREFERENCE

While Harrison said it would be difficult to single out any benefit it was getting from Starbucks' woes, he did note brand preference data had showed the U.S. firm "had taken a knock".

Last week Starbucks said it could pay 20 million pounds in corporation tax in Britain over the next two years, responding to public criticism over allegations of tax avoidance.

Whitbread's overall 3.3 percent growth marked a slowdown from the first half's 4.3 percent rise in underlying sales, but this had been expected as the first six months were boosted by Britain's wet weather and the Olympic Games.

Across the group, underlying sales at its larger Premier Inn unit grew 2.5 percent in the quarter, as it benefited from a growing market share, particularly in London, and cost-conscious customers remaining loyal to its affordable rooms.

Whitbread said overseas sales at Costa, which is aiming to double in size to 3,500 stores worldwide by 2015/16, were also up, with solid trading in the Middle East and China.

Underlying growth in the latter market had slowed slightly from 19 percent in the first half, however, while central and southern Europe remained difficult, it added.

Total Costa sales for the first 39 weeks of the year were up 22 percent to 734 million pounds. Like-for-like sales at its restaurants in the quarter rose 1.9 percent.

Whitbread said it remained on target to meet market expectations for the full year. On average it is expected to post a pretax profit of 347.90 million pounds for 2012/13, according to a Reuters poll of 22 banks and brokerages, up from 320.1 million in 2011/12.