Starbucks food bet drives traffic as profit tops estimates

July 26, 2013 06:03 AM

Starbucks Corp. Chief Executive Officer Howard Schultz’s push into food is starting to pay off, driving traffic into U.S. stores and lifting sales and profit.

In recent months, the world’s largest coffee-shop operator has introduced a range of menu items, including salad bowls with such flavors as zesty chicken and black bean. Earlier this week, the company announced a partnership with Danone SA to develop and sell Greek yogurt in cafes and in supermarkets. It also is adding La Boulange baked goods in locations in the U.S.

Starbucks’s fiscal third-quarter net income advanced 25 percent to $417.8 million, or 55 cents a share, from $333.1 million, or 43 cents, a year earlier, the Seattle-based company said yesterday in a statement. Analysts projected 53 cents a share, the average of 28 estimates compiled by Bloomberg.

“Foods have been phenomenal for us,” Chief Financial Officer Troy Alstead said during an interview. Refreshers energy drinks and macchiato espresso coffees also helped U.S. sales during the quarter, he said.

Revenue advanced 13 percent to $3.74 billion in the three months ended June 30, and analysts estimate it will increase 12 percent to $14.8 billion in the company’s fiscal 2013.

The shares rose 5.9 percent to $72.21 at 9:34 a.m. in New York, after jumping as much as 6.7 percent for the biggest intraday gain since Nov. 2. Starbucks had climbed 27 percent this year through the close of regular trading yesterday, compared with a 15 percent increase for the Standard & Poor’s 500 Restaurants Index.

Sales at stores open at least 13 months gained 9 percent in the Americas, topping the 6.1 percent average of 22 analysts’ estimates compiled by Consensus Metrix.

Affordable Luxury

Starbucks raised prices for some of its drinks at U.S. company-operated cafes last month. In some areas, it was the first price increase on Starbucks items in as long as two years.

“They’re positioned like an affordable luxury,” Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. “Even if they take a couple percentage points in price, I don’t think that people notice.”

Starbucks increased its forecast for fiscal 2013 profit excluding certain items to as much as $2.23 a share from a previous estimate of as much as $2.18. Analysts project $2.18 a share, on average.

Profit in the company’s fourth quarter will be as much as 60 cents a share, which includes a 3-cent gain from the sale of its equity in some operations in Argentina and Chile, Starbucks said. That compares with analysts’ average estimate of 57 cents.

Coffee Prices

Lower coffee bean prices (NYBOT:KCU13) are boosting profit at Starbucks and may help fourth-quarter earnings by 2 cents a share, Alstead said. The company has about 80 percent of its coffee needs locked for fiscal 2014, he said.

Starbucks has also been trying to boost sales by adding more items in grocery stores. It’s selling Evolution Fresh juice, which it bought in 2011, in supermarkets, and has plans to sell Teavana brand teas there, too.

The company in May lowered prices by 10 percent for its Starbucks bagged coffees sold in grocery and retail stores. It also cut prices for its Seattle’s Best brand of packaged beans. Starbucks also sells Tazo tea and cold-bottled beverages in supermarkets.

Global same-store sales increased 8 percent, topping analysts’ average estimate for growth of 5.8 percent, according to Consensus Metrix, a researcher owned by Wayne, New Jersey- based Kaul Advisory Group. Same-store sales advanced 2 percent in the company’s Europe, the Middle East and Africa division and rose 9 percent in China and Asia Pacific.

Comparable-store sales are considered an indicator of a retailer’s growth and performance because they exclude recent store openings and closings.

Starbucks has more than 19,200 locations worldwide.

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