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Friday, April 27, 2012

Starbucks brews up 18 percent profit jump

Continuing to deliver solid growth around the world, Starbucks posted second quarter earnings after the bell that came in a penny above estimates.  The stock was under heavy selling pressure in the after-hours session, though, after the company disclosed high commodity prices were taking their toll on costs and putting pressure on the bottom line.

Starbucks posted net income of $309.9 million, up 18.5% from a year ago.  In a per share basis, the Seattle, Washington-based company earned 40 cents, just a penny above the consensus estimate.  Operating income expanded 14% to $430.4 million while operating margin was flat at 13.5%.

For the quarter, Starbucks said Thursday that global revenue at cafes open at least a year increased by 7 percent, as a result of more customers and higher spending per visit. The figure is a key metric because it excludes the impact of newly opened or closed stores.

The gains were strongest in China and Asia Pacific, where the figure rose 18 percent. The region is a critical expansion area for Starbucks; by 2014, the company says China will become its second largest market behind the U.S.

Revenue at cafes open at least a year rose 8 percent in the Americas but slipped 1 percent in the region encompassing Europe, Middle East, Russia and Africa.

Chief Financial Officer Troy Alstead said the dip was largely the result of select regions of Europe that were hard hit by economic turmoil. He said the company is "not immune" from high unemployment and fragile consumer confidence in the region.

"It's not unlike what we experiences in the U.S. a few years ago," he noted.

Alstead said Starbucks is taking similar measures in those markets as it did when it was struggling in U.S., such as introducing loyalty programs and improving service to boost sales. The company is also focusing on adapting its offerings to local tastes. In France, for example, a second espresso option was added in response to consumer demand.

In a conference call with investors, CEO Howard Schultz expressed confidence that the measures would prove successful.

"I will tell you unequivocally that we will turn the European business around in the same way we turned the U.S. business around," Schultz said.

Still, he added that the situation is "very, very tough" and varies greatly by region.

For the three months ended April 1, the company said it earned $309.9 million, or 40 cents per share. That's compared with a profit of $261.6 million, or 34 cents per share, in the year-ago quarter.

Revenue for the latest quarter rose to $3.2 billion, up from $2.79 billion a year ago. Analysts on average expected a profit of 39 cents per share on revenue of $3.18 billion, according to FactSet.

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