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Starbucks reports higher quarterly profit

Starbucks Corp. on Wednesday reported higher quarterly earnings due to more stores and an annual sale of coffee-making equipment, but April sales at established stores were toward the low end of Wall Street targets.
/ Source: Reuters

Starbucks Corp. Wednesday posted a 27 percent rise in quarterly earnings, beating Wall Street estimates, but April sales at established stores rose at the slowest rate in more than a year.

The coffee shop chain also forecast earnings for the rest of the year broadly in line with analysts’ targets.

Starbucks said April same-store sales, a key measure of sales at stores open at least 13 months and is known as ’comps’ in the industry, rose 6 percent, the smallest increase since March of last year. Three Wall Street analysts’ forecasts had ranged from increases of 6 percent to 9 percent.

“Short-term investors may view a 6 percent comp as a hiccup,” said ThinkEquity Partners analyst Nicole Miller, who has a “buy” rating on Starbucks shares and owns none. “We feel comfortable with that number.”

Starbucks Chairman Howard Schultz said in an interview that the April figure was “artificially low” because the company’s annual sale on brewing equipment happened in March this year and in April last year. That shift helped March results, when same-store sales rose 10 percent, he said.

Schultz added that he was pleased with April’s results, which were in line with Starbucks’ goal of posting monthly same-store sales increases of between 3 percent and 7 percent.

“If people are disappointed by 6 percent they really need to examine the underlying characteristics of the company,” he said.

Net income in the fiscal second quarter rose to $127 million, or 16 cents per share, from $100 million, or 12 cents per share, a year ago. Wall Street analysts, on average, had expected earnings of 14 cents per share, according to Reuters Estimates.

Starbucks Chief Financial Officer Michael Casey said he plans to retire within the next 18 months. The company is beginning a search for his replacement, and said Casey will assist in the transition once that person is named.

Starbucks Chief Executive Jim Donald said on a conference call with analysts that a new cinnamon-flavored latte, the brewing equipment sale, and a free coffee giveaway boosted sales during the second quarter.

Donald also said he expected Starbucks to benefit from the growing number of players entering the premium coffee market, including McDonald’s Corp., which introduced a new, stronger blend of coffee during the quarter.

“If Starbucks and others continue to generate awareness ... the category will continue to grow,” Donald said.

Starbucks, the world’s largest coffee shop chain, has been driving growth in its 8,000-store U.S. business by offering CDs as well as lunch items like sandwiches and salads.

Following the strong second-quarter results, Starbucks raised its full-year earnings target to a range of 71 cents to 72 cents per share from the prior range of 68 cents to 70 cents. Its fiscal third- and fourth-quarter targets of 17 cents and 16 to 17 cents a share, respectively, were broadly in line with Wall Street estimates.

Victory Capital Management portfolio manager Mike Koskuba called the forecast for the rest of the year “conservative.”

“The company is not necessarily going to go out on a limb,” Koskuba said.

Schultz agreed, saying “it’s always best to err on the conservative side.”