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Tuesday, July 27, 2010

Starbucks 3Q Profit Rises 37 Percent

Associated Press

Starbucks Corp.'s effort to rebuild itself is taking hold: The world's largest coffee chain said Wednesday that its third-quarter profit rose 37 percent as more customers visited its stores and spent more when they did.

The company sharply increased its dividend but offered a 2011 profit forecast in line with forecasts. And investors, hoping for a rosier outlook, sent shares down in electronic trading after hours.

But Wednesday's results were solid, including a 9 percent increase in the key performance measure of revenue in locations open at least a year.

For the three months that ended in late June, Starbucks earned $207.9 million, or 27 cents per share. That's compared with $151.5 million, or 20 cents per share, a year earlier, when it was stumbling under the weight of over-expansion.

Excluding one-time items, Starbucks earned 29 cents per share, meeting the average forecast of analysts surveyed by Thomson Reuters. Its revenue climbed nearly 9 percent to $2.61 billion, topping analysts' estimate of $2.55 billion.

CFO Troy Alstead said the company was both gaining new customers and getting more frequent visits from coffee lovers during the day as customers bought more of Starbucks' newly customizable Frappuccinos and its instant coffee, called Via.

"A lot of what we've done is bringing in new (customers) and people buying when they weren't before," he said. "It's really driving people back through the doors."

To reinvigorate its business, Starbucks closed hundreds of stores, cut scores of jobs and brought back founder Howard Schultz as CEO in its effort to rebound.

Now, it plans more measured growth and is working to relax its corporatized image by returning to its image as a place where people want to linger for hours sipping coffee. It plans to offer free, unlimited Wi-Fi in all company-run stores; it's letting customers tailor drinks even more, and it's opening stores with more community flavor. It's also focusing on expanding overseas and boosting sales of Starbucks-branded food that is sold in grocery stores.

During the third quarter, U.S. revenue climbed 7 percent, but operating income rose 55 percent to $290.8 million. Overseas revenue rose 15 percent while operation income for that business unit soared 65 percent to $56.8 million.

R.W. Baird analyst David Tarantino called the report "healthy" but said it might disappoint investors who hoped Starbucks would beat Wall Street forecasts.

The coffee maker boosted its forecast for fiscal 2010, saying it expects to earn $1.22 to $1.23 per share, excluding one-time items. It previously forecast adjusted net income of $1.19 to $1.22 per share. Analysts expect adjusted profit of $1.23 per share.

Morningstar analyst R.J. Hottovy said investors were likely hoping for a more robust forecast for fiscal 2011, when Starbucks estimates its adjusted profit will be $1.36 to $1.41 per share. Analysts expect $1.40 per share.

"A lot of people were fixated on fiscal year 2011, and that came in a little lighter than a lot of people were looking for," he said.