November 4, 2010 / 9:49 PM / 9 years ago

UPDATE 4-Starbucks raises targets as traffic, prices rise

* Traffic growth, price hikes prop up full-year view

* Global same-restaurant sales up 8 percent

* Plans to end retail distribution pact with Kraft

* Shares up more than 2 percent (Adds details on results, industry background, CEO comment; updates shares; adds byline)

By Lisa Baertlein

LOS ANGELES, Nov 4 (Reuters) - Starbucks Corp (SBUX.O) raised its full-year profit forecast, boosting confidence it has entered a new phase of growth and sending its shares up 2 percent.

Higher drink prices and improving traffic in its stores gave the world’s biggest coffee company leeway to hike its fiscal 2011 outlook. Starbucks in September raised prices on large and labor-intensive drinks to offset surging prices for coffee and other commodities. [ID:nN22103255]

U.S. sales at restaurants open at least 13 months jumped 8 percent in the fiscal fourth quarter from a year ago, driven by a 6 percent rise in customer visits and a 2 percent increase in spending per visit.

International same-restaurant sales were up 7 percent, helped by a 4 percent traffic increase and a 3 percent rise in average ticket.

Efficiency efforts and cost controls also had a part in the company increasing its earnings target for the 2011 fiscal year to a range of $1.41 to $1.47 per share, from $1.36 to $1.41 previously. Wall Street’s average forecast was for $1.43, near the low end of the new range.

“The increase really is based on the strength of the quarter we just recorded and the momentum we bring into the new year,” Starbucks Chief Financial Officer Troy Alstead said in a telephone interview.

Shares in Starbucks, which dipped below $8 in 2006, rose 2.1 percent to $30.40 following the company’s earnings report.


Seattle-based Starbucks has returned to financial health after closing stores and slashing costs in 2008 and 2009.

Some employees told Reuters that those fixes eroded the cafe culture that made the company great. [ID:nN03175882] Starbucks responded by thanking employees for their hard work and announced a plan to give bonuses to 100,000 employees around the world, including “baristas” — hourly cafe workers — on the front lines.

Starbucks is eyeing profit growth through new products like Via instant coffee and by expanding its middle-market Seattle’s Best brand in the United States. Wall Street is most excited about its plans to build new cafes in important international markets like China.

“I am convinced that we are about to enter an era of even more opportunity for Starbucks, and am more convinced than ever that our future has never looked brighter,” founder and Chief Executive Howard Schultz said on a conference call.

The CEO also said Starbucks plans to end its distribution pact with Kraft Foods Inc KFT.N, which for more than a decade has delivered its bagged coffee to grocery stores and other retailers.

“The details and timing around any transition will be subject to further private dialogue,” said Schultz, who declined to elaborate.

“Starbucks ... in recent times has expressed their desire to control their strategic brands,” Kraft Chief Financial Officer Tim McLevish said in a conference call with analysts.

“We can’t at this point speculate exactly how that may happen or when that may happen,” McLevish said. “We respect their decision to consider ending the agreements and we’ll inform you as more developments come.” [ID:nN04194868]

Net income for the fourth quarter ended Oct. 3 rose 86 percent to $278.9 million, or 37 cents per share, handily besting analysts’ average call for a profit of 32 cents per share, according to Thomson Reuters I/B/E/S.

Net revenue grew more than 17 percent to $2.8 billion, after global sales at restaurants open at least 13 months rose a better-than-expected 8 percent.

Starbucks has more than 16,000 cafes around the world.

It gets about 75 percent of company revenue from its roughly 10,000 stores in the United States, where it is facing competition from the upscale independent coffee chains at the top of the market and from large companies like McDonald’s Corp (MCD.N) and Dunkin’ Donuts on the lower end. (Editing by Edwin Chan, Gary Hill)

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