Image: Starbucks coffee shop
Kevork Djansezian  /  AP file
Starbucks Corp., the world’s largest coffee shop chain, reported higher quarterly earnings, helped by strong sales of espresso beverages and summer drinks like Banana Coconut Frappuccinos.
updated 8/2/2006 7:38:23 PM ET 2006-08-02T23:38:23

Starbucks Corp. said Wednesday that its fiscal third-quarter profits jumped 16 percent as it opened a record number of coffee houses. The company also boosted its target for new store openings in the coming years and announced plans to expand into Brazil, India and Russia.

But a dip in sales growth for July sent the stock down more than 9 percent in after-hours trading.

The Seattle-based coffee retailer said its comparable-store sales — those at stores open at least a year— rose 4 percent in July, down from 7 percent a year earlier.

Executives blamed the slide on longer lines amid higher-than-expected demand for Frappuccinos and other frozen blended beverages early in the day, when baristas generally crank out more hot espresso drinks.

Starbucks executives said the company was working to solve the problem by having more barristas work the morning peak hours.

“While this is an issue, and we’re working on it, and we’re going to get it solved, it perhaps doesn’t quite deserve the focus it’s been getting in the last couple of hours,” Casey said.

Chief Financial Officer Michael Casey noted Starbucks expects comparable-store sales to range from 3 percent to 7 percent for the remainder of fiscal 2006 and 2007.

For the 13 weeks ended July 2, Starbucks posted net earnings of $145.5 million, or 18 cents per share, up from $125.5 million, or 16 cents a share, in the same period a year earlier. Revenue for the latest quarter increased to $1.96 billion, up from $1.6 billion last year.

The results, released after the market closed, beat the consensus forecast of analysts surveyed by Thomson Financial — 17 cents per share on revenue of $1.96 billion — but only because of a one-time tax benefit of a penny per share.

Sharon Zackfia, an analyst with William Blair & Co. LLC, suggested the stock slide was a market overreaction to Starbucks’ comparable-store sales figures. “There wasn’t really anything else you could pick at,” she said. “I think the market is skittish, period, when it comes to retail stocks right now.”

The company held fast to its previous guidance for earnings of 16 to 17 cents a share for its fourth fiscal quarter and 71 to 72 cents per share for fiscal 2006.

The company said it plans to open 2,000 new stores worldwide in fiscal 2006, up from 1,800 it had previously forecast, and 2,400 in fiscal 2007.

As of July 2, Starbucks had 11,784 stores in 37 countries. It opened 559 stores in the latest quarter, 395 of them in the United States and 164 internationally.

It plans to expand into Brazil during the current fiscal year, which ends in October, and into India and Russia next year.

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