Starbucks reports higher profit but growth slows; lower coffee costs boost results

Photo by Adam Smith / Wikimedia Commons

NEW YORK—Starbucks says its quarterly profit rose by 25 per cent as it benefited from lower coffee costs and stronger sales around the world.

The Seattle-based coffee company says global sales rose 5 per cent at established locations.

That was slower than the increase in the previous quarter, however, and total sales were shy of Wall Street expectations.

Troy Alstead, the company’s chief financial officer, said in a phone interview that the slower growth for the final three months of the year was the result of the shift toward online shopping during the holiday shopping season, rather than heading out to stores.

“The impact to us is that there are fewer people out and about in the weeks leading up to Christmas,” Alstead said.

But in a conference call with analysts, CEO Howard Schultz downplayed the impact that trend would have on sales growth going forward, saying that the advantage of Starbucks is that its offerings can’t be replicated online and that its loyalty card business is growing.

Starbucks in the meantime has been employing a variety of strategies to drive up sales at its ubiquitous cafes, such as revamping its sandwiches and baked goods so people are more likely to get something to eat when they come in for a drink. Alstead said during the call that croissant sales doubled at locations where new recipes were rolled out.

New options such as boxed salads are intended to get people to visit throughout the day, not just during the morning rush hour.

Starbucks, which has about 20,000 locations around the world, is also eyeing a new front: tea. The company last year opened its first tea cafe in New York City, saying it plans to popularize tea culture in the U.S. the way it did with coffee culture.

For the quarter, sales at established locations rose 5 per cent in both the U.

S. and the region encompassing Europe, where Starbucks had been struggling.

In the China and Asia Pacific region, the figure rose 8 per cent.

For the three months ended Dec. 29, it earned $540.7 million, or 71 cents per share. That was more than the 69 cents per share analysts expected.

A year ago, it earned $432.2 million, or 57 cents per share.

Revenue rose to $4.24 billion, shy of the $4.3 billion Wall Street expected.

The company stood by its guidance of for sales at established locations to grow in the mid-single digits globally in the year ahead. Earnings per share are expected to be in the range of $2.59 to $2.67, up from the previous $2.55 to $2.65.

Shares of Starbucks edged up 38 cents to $73.77.