Starbucks Profit Beats Estimates After Food Menu Boost Sales

Starbucks
Starbucks said earlier that it has already bought all of the coffee it needs for this fiscal year and about 40 percent for 2015. Photographer: Jason Alden/Bloomberg

July 24 (Bloomberg) -- Starbucks Corp., the world’s biggest coffee-shop chain, reported a 23 percent gain in fiscal third-quarter profit after selling more food in the U.S., topping analysts’ estimates.

Net income climbed to $512.6 million, or 67 cents a share, from $417.8 million, or 55 cents, a year earlier, the Seattle-based company said today in a statement. Analysts had predicted 66 cents on average, according to data compiled by Bloomberg. Revenue jumped 11 percent to $4.15 billion in the period, which ended June 29, also surpassing estimates.

Starbucks has been testing new lunch sandwiches at its U.S. locations to attract more customers after the morning rush. It’s also recently started selling Greek-yogurt smoothies and Fizzio sodas in some cafes and added bakery items and breakfast sandwiches. The food expansion contributed to a 6 percent gain in same-store sales for the Americas region. Analysts had estimated a 5.1 percent increase, according to Consensus Metrix.

“Food is very, very strong” in the U.S., Chief Operating Officer Troy Alstead said in a phone interview. “We have undertaken in the last 18 months a whole transformation of our food program.”

Starbucks’ shares rose 0.2 percent in late trading after closing at $80.45 today in New York. The stock has gained 2.6 percent this year, trailing the Standard & Poor’s 500 Index’s 7.6 percent rise.

Forecast Increased

The company raised its forecast for fiscal 2014 profit to as much as $2.72 a share, topping analyst projections. Revenue will grow at least 10 percent in fiscal 2015, with earnings per share climbing as much as 20 percent, Starbucks said.

In May, Starbucks began selling grilled cheese, beef brisket baguettes and grilled-chicken sandwiches in 178 of its cafes. The chain plans to introduce new lunch fare nationwide in fiscal 2015, which starts near the end of September.

The coffee chain revamped its U.S. breakfast lineup earlier this year to better compete in an increasingly crowded morning-food market. Taco Bell in March began selling breakfast fare, including waffle tacos. McDonald’s Corp., meanwhile, recently stepped up marketing of its morning menu and gave away free McCafe coffees.

Raising Prices

To cope with higher ingredient costs, Starbucks raised its cafe prices less than 1 percent and bagged coffee in grocery stores by 8 percent on average. A drought in Brazil had pushed up the price for coffee. Now heavy rains in the South American country, the world’s top coffee producer and exporter, may reduce 2015’s crop yield.

Starbucks said earlier that it has already bought all of the coffee it needs for this fiscal year and about 40 percent for 2015. Alstead said today that the amount has reached 50 percent. Dunkin’ Brands Group Inc. also has said recently it’s recommending a price increase to its franchisees based on the soaring cost for coffee.

Starbucks has been expanding abroad and this month opened its first cafe in Colombia, a three-story store made with local materials. Its Asian unit is also opening more locations in Vietnam, Japan and China.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Stephen West