Sat, Nov 17, 2007 page10

• Starbucks' fiscal Q4 earnings rise 35%

  OVERSATURATION The company said it would slow the pace of US store openings to help it choose the right markets following the fall in US traffic at its coffee houses

  • AP
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  Starbucks Corp said its fiscal fourth-quarter profit jumped 35 percent, despite a slight slowdown in store openings and a drop in US traffic.

  Shares plummeted in after-hours trading on Thursday.

  The company said it plans to open 100 fewer stores in fiscal 2008 than originally forecast, but brushed aside suggestions that it has oversaturated some markets.

  

  Starbucks chairman Howard Schultz delivers a speech during Starbucks' Ready-to-Drink Coffee product launch on Nov. 1 in Shanghai, China.

  PHOTO: AP

  Executives promised to sharpen the company's focus on improving store operations in the US, where its rapid expansion, a sagging economy, higher dairy prices and competition from fast-food chains diving into the espresso business have posed challenges.

  The company will offer more training to new baristas, give field managers more time in stores and introduce new drinks less frequently, Martin Coles, Starbucks' chief operating officer, said in a conference call with analysts.

  The company also plans a television advertising campaign aimed at luring in new business.

  For the 13 weeks ended Sept. 30, the world's largest chain of coffee houses posted net earnings of US$158.5 million, or US$0.21 a share, compared with US$117.3 million, or US$0.15 a share for the same period last year.

  Quarterly revenue was US$2.44 billion, up from US$2 billion last year.

  Analysts surveyed by Thomson Financial were projecting earnings of US$0.21 a share on US$2.43 billion in revenue.

  Starbucks shares closed down US$0.15 at US$24.10, then tumbled another US$2.01 in extending trading. The stock has fallen more than 40 percent over the past year as the company faced challenges and economic woes appeared to have forced customers to pare back on fancy drinks.

  Same-store sales, a key measure of a retailer's health, increased 4 percent worldwide in the latest quarter, toward the low end of the company's guidance of 3 percent to 7 percent.

  In the US, sales at stores open at least 13 months rose on a 5 percent increase in transaction value, which partially offset a 1 percent drop in traffic -- the first decrease since the company started releasing those numbers three years ago.

  Starbucks chief executive Jim Donald dismissed suggestions that the company might be oversaturating certain markets. He said that even in its hometown of Seattle, it's been experiencing steady success with new store openings.

  Slowing the pace of US store openings will help the company choose the right markets, he said.

  "It gives us a little bit of breathing time to make sure that -- maybe we don't need that other store in Columbus, Ohio, but maybe there's one extra one in Vermont that we could put up," he said.

  Business in overseas stores was healthier, with traffic rising 5 percent and average transaction value increasing 1 percent.

  International revenue rose 31 percent to US$472 million.

  Starbucks lowered the upper end of its same-store sales guidance for the next fiscal year, saying it expects growth of 3 percent to 5 percent. For the first fiscal quarter next year, it projects earnings of US$0.28 per share and full-year earnings of US$1.02 to US$1.05.

  Starbucks opened 615 stores in the latest quarter and 2,571 in fiscal 2007, boosting its worldwide store count to 15,011. In the fourth quarter of last fiscal year, the company opened 656 stores. The company plans to open 2,500 stores next fiscal year, 1,600 of them in the US.

  Chairman Howard Schultz said coffee drinkers who try out cheaper competitors would upgrade to Starbucks.

  "Those consumers over time are going to trade up. They're going to trade up because they are not going to be satisfied with the commoditized experience or the flavor," he said.

  For the full fiscal year, Starbucks earned US$672.6 million, or US$0.87 a share, compared with US$564.3 million, or US$0.71 a share last fiscal year. Revenue this fiscal year was US$$9.4 billion, compared with US$7.8 billion last year.

  The company had targeted earnings per share of US$0.87 cents to US$0.89 for the year, although it warned it would be difficult to meet the upper end of that range because of rising dairy costs and soft growth in US business.
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