Thursday, January 24, 2013 11:14 pm
Starbucks profit climbs as US cafes thrive
By CANDICE CHOIAP Food Industry Writer
The Seattle-based coffee chain said Thursday its profit rose 13 percent in the latest quarter in line with Wall Street expectations. Results were boosted by a 6 percent increase in global sales at cafes open at least a year, a key metric of health.
The performance reflects the sharp turnaround Starbucks has made since its struggles during the recession. After bringing back founder Howard Schultz as CEO in 2008, the company embarked on a massive restructuring effort that included closing underperforming stores in the U.S. Going forward, Schultz has noted that the company has the flexibility to keep growing even through a turbulent economy because most people see Starbucks as an "affordable luxury."
In the flagship Americas region, Starbucks said sales at stores open at least a rose 7 percent as the Pumpkin Spice Latte once again proved to be a hit. Customers are also buying more food, which helps drive up the amount they spend per visit. About a third of purchases currently include food and Starbucks is betting that its new baked goods - supplied from a San Francisco bakery it purchased last year - will continue to drive up that figure.
Cliff Burrows, who heads the Americas region, said Starbucks will continue growing by improving the speed of service and relationships with customers. For example, baristas across the country should be wearing name tags by the end of this month. Sixty percent of new cafes in the U.S. will also have drive-thru service, which makes the stores more profitable.
The introduction of the Verismo single-serve coffee machine in stores this fall also added 0.5 percent to the sales increase for the region. Starbucks said it sold more than 150,000 of the machines, most of them through specialty retailers. Executives said the machine will continue to be a major revenue driver in the coming months and years.
Operating margin in the U.S. decreased slightly to 20.8 percent, however, as a result of costs related to Superstorm Sandy, litigation charges and the company's leadership conference this past October.
In the China and Asia Pacific region, which is set to surpass Canada as Starbucks second biggest market in the next two years, sales at cafes open at least a year rose 11 percent as traffic increased.
Europe continued to be a weak spot, with sales for broader region encompassing Europe, the Middle East and Africa falling 1 percent." Starbucks executives have said they're working to turnaround their performance in the region, in part by closing underperforming stores, licensing operations to local partners and improving customer service. Although traffic increased in Europe during the period, the amount people spent per visit declined.
Troy Alstead, the company's chief financial officer, said the decline reflected weakness in the broader economy.
"A lot of people were trading down it appears," said Troy Alstead, the company's chief financial officer, noting that fewer purchases included food.
Starbucks also has been embroiled in a controversy over its taxes in the United Kingdom. The company has been doing business in Britain for 15 years but hadn't paid any taxes because of a complex way it calculates profits. Following criticism by lawmakers and a campaign by a protest group, Starbucks said last month that it was working to settle the issue.
For October-to-December period, Starbucks Corp. earned $432.2 million, or 57 cents per share. That's compared with $382.1 million, or 50 cents per share, in the year-ago period. Total revenue rose 11 percent to $3.8 billion. Analysts expected a profit of 57 cents per share on revenue of $3.85 billion, according to FactSet.
Revenue for the consumer packaged goods segment, which includes Verismos sold in specialty stores, rose 16 percent to $459.8 million. Although Starbucks is working to diversify by building this segment, it still represents a small fraction of the company's overall revenue.
Starbucks affirmed its outlook for the year, with earnings expected to be between $2.096 and $2.15 per share, representing growth of 15 to 20 percent from the previous year.
Its stock was up 24 cents at $54.81. Starbucks has about 18,000 cafes around the world.
Follow Candice Choi at www.twitter.com/candicechoi