Starbucks Third-Quarter Profit Rises 37% on Via, Frappuccinos By Burt Helm - Jul 21, 2010
Howard Schultz, Starbucks CEO, poses during a promotional event for the company's VIA Coffee Essence instant coffee. Photographer: Tomohiro Ohsumi/Bloomberg Starbucks Corp., the world’s largest coffee-shop chain, said third-quarter profit rose 37 percent on sales of instant coffee and Frappuccino frozen drinks.
Net income increased to $207.9 million, or 27 cents a share, Seattle-based Starbucks said today in a statement. Sales in the quarter ended June 27 rose 8.7 percent to $2.61 billion. Excluding some items, earnings were in line with analysts’ estimates.
A promotion that allowed customers to add free syrups and toppings to their Frappuccinos boosted comparable-store sales by 2 percentage points, said Chief Financial Officer Troy Alstead. The company also started offering Via instant coffee in grocery stores and last year began selling Seattle’s Best coffee in fast-food chains like Subway to accelerate growth.
“We’re building Via as a growth platform over the next five years,” Alstead said in a telephone interview. Starbucks plans to increase its advertising spending by 2 cents a share in the current quarter to push products including Via, he said.
The company raised its forecast for earnings this year to as much as $1.23 a share and said that amount would increase to as much as $1.41 in fiscal 2011. Analysts on average project earnings of $1.42 for 2011, according to estimates compiled by Bloomberg.
Starbucks fell 52 cents, or 2.1 percent, to $24.65 at 4:45 p.m. The shares have increased 9.2 percent this year in Nasdaq Stock Market trading.
‘However You Want It’
After closing almost 900 locations since 2008, Starbucks also introduced free Wi-Fi service in remaining shops during the quarter and sought to revive its coffee shop business.
The company’s “However-You-Want-It Frappuccino” promotion, started in May, has helped ward off competition from McDonald’s Corp.’s new, less expensive frozen Frappe drinks, said Tom Forte, restaurant analyst with New York-based Telsey Advisory Group. The free additions make the drinks seem like a better deal, he said.
“We haven’t seen any impact on our business at all” from the McDonald’s frappe drinks, Alstead said.
Sales at Starbucks stores open more than a year rose 9 percent in the third quarter, beating the 7 percent average estimate in a Bloomberg survey of 7 analysts.
Net income in the year-earlier period totaled $151.5 million, or 20 cents a share.
Starbucks, which declared its first dividend in March, raised its quarterly dividend to 13 cents a share from 10 cents today.
(Starbucks plans a conference call at 5 p.m. New York time. To listen, visit at 5 p.m. New York time. To listen, visit http://investor.starbucks.com/.)
To contact the reporter on this story: Burt Helm in New York at bhelm3@bloomberg.net.