Coffee Business
6:36 pm
Wed January 26, 2011

Starbucks sales and earnings up again, shares down on outlook

Starbucks has done it again. The coffee giant says its global revenues reached a record: $3 billion in the first quarter. Profits were up 44 percent compared to a year ago, thanks in part to the chain's growing popularity with coffee drinkers around the world.

Those numbers handily beat analysts' expectations, but Starbuck's stock price fell on the company's outlook for the full fiscal year. The company trimmed its profit guidance to between $1.43 and $1.47 per share, well short of the $1.75 per share that 22 analysts who follow the company had expected.

CEO Howard Schultz told them in a conference call, the company has cut costs and is successfully using social-media campaigns on the internet and text messaging to get people into its stores. He also said customers are spending more. In the one year since their "My Starbucks Rewards" program launched, Schultz says they added nearly 2.5 million new accounts.

"At peak volume in Q1, we were selling, believe it or not, 42 cards per second, across the country,"  Schultz said on the call.

Schultz says the company is now applying the same discipline used to turn around its US business to get stronger performance from markets abroad. Starbucks is entering India for the first time this year and is growing rapidly in China. 

VIA big part of Starbucks success, hopes for future

Schultz also says the company's premium instant coffee line, VIA, is driving growth. They've been adding new flavors and Schultz says during the holiday season, Starbucks ran out of Christmas Blend Via two weeks before Christmas day. He says that was an unfortunate circumstance, but it points to what he thinks is one of the company's biggest opportunities for future growth.

"Let me once again remind you that this is a $24 billion-dollar category, most of which is outside of north America, and it is ripe for innovation.  And we believe strongly we've got the formula and we've cracked the code."     

He says in China they'll mark the Starbuck's 40th anniversary this April with the rollout of VIA there. Schultz says he's also excited about prospects for VIA sales in India, where they'll start opening stores this summer. 

And in the US, he says Starbucks will soon take over distribution of all of its packaged coffees, including VIA. In October, the company terminated a long-standing deal with Kraft Foods, effective March first.   Schultz says that will lead to even bigger profits. 

But Kraft, which makes Sanka and Maxwell House coffee, is fighting Starbucks in court.  Hearings begin this week in New York. According to The Seattle Times' Coffee City blogger, Melissa Allison, analysts expect Kraft's settlement to be at least a billion dollars.   The payout will be based on Starbuck's growth during the 12-year period of their agreement.