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Starbucks' 1Q profit soars as sales rise

SEATTLE Starbucks Corp. gave credit to brisk holiday business and the launch of its new instant coffee as it reported first-quarter profit that nearly quadrupled from a year ago and posted its first same-store sales increase in two years.

For the quarter ended Dec. 27, the Seattle-based coffeehouse giant reported Wednesday a same-store sales increase of 4 percent globally, driven by a 1-percent increase in traffic and a 4-percent increase in average check.

“Continued innovation, the successful enhancement of the customer experience and a transformed, more-efficient cost structure have brought Starbucks to a significant milestone — a return to profitable growth,” said Howard Schultz, Starbucks' chairman, president and chief executive.


In the United States, where Starbucks operates or licenses 11,181 stores, a same-store sales increase of 4 percent was entirely a result of an increase in the average value per transaction, partially offset by the closure of 369 underperforming company-operated stores over the past year.

Officials credited the success of Via, Starbucks’ attempt to tap into the $21 billion instant coffee market, as well as holiday drinks such as the Caramel Brulee Latte.

Are-engineering of pricing, which included raising the price of complex drinks and lowering the price of simple brewed coffee, also contributed to the average check increase, Starbucks said.

Net income in the first quarter was $241.5 million, or 32 cents per share, compared with year-ago profit of $64.3 million, or 9 cents per share. Excluding restructuring charges, per-share earnings rose to 33 cents from 15 cents.

First quarter revenue rose 4 percent, to $2.7 billion, Starbucks reported..

In a call to analysts, company officials raised the company’s earnings guidance for the year to between $1.05 and $1.08 per share. Starbucks posted adjusted earnings of 80 cents per share in 2009.

The company said it plans to add about 100 stores in the United States and 200 internationally in fiscal 2010, though most will be licensed.

Schultz has spent the past two years working to turn around slumping sales against what he described as “a backdrop of economic crisis” and increased competition from big players like McDonald’s, which last year launched its own gourmet coffee line.

In addition to closing hundreds of underperforming stores and tinkering with prices, the chain eliminated thousands of jobs, cut costs and invested in national advertising — the latter an effort that will increase in 2010, particularly in the second and third quarters.

This year, Starbucks said it would apply the “same rigor” to the chain’s roughly 5,500 international locations.

Schultz noted that the company’s secondary Seattle’s Best brand also offered opportunities in both the franchising of retail stores and foodservice distribution.

“Seattle’s Best is a hidden treasure in terms of its mass appeal,” said Schultz, referring to the coffee’s “more approachable flavor profile.”

Seattle’s Best coffee is served in an estimated 9,000 Subway stores, and he said the company is talking to other quick-service operators. The company also recently launched new Seattle’s Best drinks, available in cans in grocery and retail stores.

Via will be available in retail stores such as Target and Costco later this year, probably in the third quarter, officials said.

Contact Lisa Jennings at [email protected].

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