Starbucks Profits Raise

Starbucks Corp reported better-than-expected quarterly profit but global sales at established coffee shops fell short of analysts’ estimates due to weakness in Europe, sending its shares down five per cent in after-hours trade on Thursday.

Sales from cafes open at least 13 months fell 1 per cent in the Europe, the Middle East and Africa (EMEA) region during the latest quarter. Analysts polled by Consensus Metrix had expected a 2.2 per cent rise in EMEA same-store sales.

Executives attributed the drop to weakness in Europe, which suffered its first decline in same-store sales since 2009.

Sales fell in Ireland and Germany during the fiscal second quarter and were up just slightly in France and the United Kingdom, Starbucks chief financial officer Troy Alstead said.

Europe has been a weak spot for the world’s biggest coffee chain. The region is grappling with debt woes and austerity measures and last week Britain said its economy had fallen into its second recession since the financial crisis.

Turnaround

“The situation is very, very tough,” chief executive Howard Schultz said of Europe’s economy. “We will turn the Europe business around in the same way we turned the US business around,” Schultz told anal-ysts on a conference call.

Starbucks has tasked Michelle Gass, a veteran Starbucks executive who was a leader in the US turnaround, with reviving the Europe business.

While the Americas region accounts for most of Starbucks’ revenue and operating profit, EMEA contributes roughly 10 per cent of company revenue and in the latest quarter posted an operating loss of $5.5 million (Dh20.2 million).

Starbucks shares were down 4.9 per cent at $57.67 in extended trading.

While investors focused on Europe, results from the United States — which brews up most of the company’s business — remained on track. “The US consumer has been very strong for us,” Alstead told Reuters.

Net income at the world’s biggest coffee chain was up almost 19 per cent to $309.9 million, or 40 cents per share, for the second quarter ended April 1 — a penny better than analysts’ average estimate, according to Thomson Reuters I/B/E/S.

Total revenue rose 15 per cent to $3.2 billion.

Same-store sales were up 8 per cent in the Americas and 18 per cent in the China/Asia Pacific region — roughly in line with analysts’ estimates.

On the heels of its second-quarter profit beat, Starbucks raised its 2012 forecast for earnings of $1.81 to $1.84 per share, up from $1.78 to $1.82 per share, previously.

That forecast calls for third-quarter earnings of 45 cents to 46 cents per share.

Analysts, on average, expect a third-quarter profit of 46 cents per share, excluding items, and full-year profit of $1.86, according to Thomson Reuters I/B/E/S.

Although it raised its forecast, Starbucks said it does not expect to benefit from lower commodity costs until next year.

“It’s not the earnings tailwind that a lot of us thought. That’s not going to be well-received given where estimates are,” RBC Capital Markets analyst Larry Miller said.

Starbucks returned to profit growth in 2010 after a two-year restructuring that involved

Restructuring

Investors of Starbucks have seen shares of the company soar since the restructuring, rising from just under $10 in February 2009 to a close above $60 on Thursday.

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