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Starbucks to accelerate growth in 2013

Company reported healthy increases in sales and traffic during its fourth quarter

Starbucks Corp. officials announced plans to accelerate growth in 2013 after reporting healthy increases in traffic around the globe — except in Europe — during its fourth quarter.

In a call with analysts Thursday following the release of the company's fourth-quarter and year-end results, Starbucks' chair and chief executive Howard Schultz said the company would accelerate goals for new openings next year with 1,300 new locations planned, including about 600 in the U.S. and another 600 in the China and Asia Pacific region. This year the company netted 1,063 new stores globally.

Schultz said the 18,066-unit chain, which is already in 61 countries, was on the way to reaching 20,000 units on six continents by 2014. He added that Starbucks is well positioned to navigate challenges ahead, despite a fragile economic environment, by appealing to consumers from "all walks of life."

Describing the brand as an "affordable luxury," he said, "We've been able to thread the needle to maintain and preserve and enhance our premium position as a premium brand while at the same time offering and creating value propositions for our customers that in no way dilute the equity of the brand, but reward our customers."

Starbucks also raised its earnings-per-share projection for 2013 to a range of $2.06 to $2.15, up from earlier projections of $2.04 to $2.14. The company also expects a benefit of $100 million, or 9 cents per share, in 2013 from declining commodity costs, mostly coffee.

Traffic-building efforts take hold

For the Sept. 30-ended quarter, the Seattle-based company reported net earnings of $359 million, or 46 cents per share, compared with $358.5 million, or 47 cents per share, a year ago, for an increase of 0.1 percent. However, adjusting for a 10-cent benefit from a non-routine gain last year, earnings per share increased 24 percent.

Total revenue rose 11 percent to $3.4 billion on a systemwide global same-store sales increase of 6 percent, driven by a 5-percent rise in traffic and a 1-percent increase in average ticket.

In the Americas region, which includes the U.S., Canada and Latin America, revenues grew 9 percent to $2.5 billion, with same-store sales rising 7 percent on a 5-percent increase in traffic.

During August and September, U.S. stores corrected traffic trends that were going soft in June and July.

Company officials credited traffic-building efforts like the relaunch of the "treat receipt," giving guest a discount if they return for a drink later the same day. They also credited social media promotions, the launch of new energy drinks and annual rollout of the popular pumpkin spice latte that took place in September.

Starbucks is also moving forward with its two other U.S. brands. The company will soon open its fourth Evolution Fresh location, and sales of its bottled juices rose 50 percent in the fourth quarter. The company is planning to open a new state-of-the-art juicing facility in Southern California in late 2013 with up to five times the production capability, Schultz said.

Next week, tests of the new La Boulange bakery products, including a line of pastries and muffins, is expanding beyond San Francisco to San Jose, and consumer response has been very positive, said Schultz. A rollout of La Boulange products across 2,500 Starbucks stores in the U.S. is scheduled for spring 2013.

During the fourth quarter, Starbucks' K-cup sales boosted channel development, or consumer packaged goods, revenues, which rose 32 percent to $318.5 million. Yearly revenue for CPG grew by 50 percent to $1.3 billion.

Schultz was optimistic that sales of the company's new Verismo single-cup brewing system would be brisk during the upcoming holiday season.

For the year, Starbucks' revenue increased 14 percent to $13.3 billion. Global same-store sales for the year rose 7 percent on a 6-percent increase in traffic. In the Americas, same-store sales rose 8 percent for the year, mostly as a result of increased traffic.

Europe struggles while Asia grows

The Europe, Middle East and Africa, or the EMEA region, remains a challenge. Same-store sales declined 1 percent, despite efforts for a turnaround there, said Michelle Gass, president of Starbucks EMEA.

Revenues for the region declined 2 percent during the quarter to $283.7 million. A slight increase in same-store sales in the U.K. was dampened by traffic declines during the summer Olympics and low consumer confidence.

With 1,900 locations in 36 countries in the EMEA region, Starbucks has struggled with high rents in certain markets. Seventeen units in Ireland were transferred to licensees during the quarter, and that will likely be a strategy in future, Gass said. Meanwhile, the company has been working on a turnaround by retraining baristas, doubling the amount of espresso in some drinks, launching loyalty programs to offer better value, improving customer service and remodels.

In China and the Asia Pacific, or CAP, however, same-store sales grew 10 percent on a 7-percent increase in traffic, and Schultz said it remains one of Starbucks' fastest-growing regions. The chain is on track to open 1,500 stores in China by 2015, he said, and sales in the region increased 52 percent this year over last. For the quarter, CAP reported revenues of $198 million, an increase of 23 percent over last year.

During the quarter, Starbucks also opened its first three stores in India in partnership with Tata Global Beverages Ltd. The brand will also soon be in Norway and Sweden in a partnership with Umoe Restaurant Group, and next year Starbucks will open its first location in Vietnam.

Contact Lisa Jennings at [email protected] [6].
Follow her on Twitter: @livetodineout [7]