💎 Fed’s first rate cut since 2020 set to trigger market. Find undervalued gems with Fair ValueSee Undervalued Stocks

Higher U.S. prices seen boosting Starbucks Q2 sales

Published 04/27/2011, 12:02 AM
Updated 04/27/2011, 12:08 AM
SBUX
-

* Analysts expect Q2 EPS of 34 cents

* Price increases expected to boost sales

* Japan disasters, Borders bankruptcy to hit EPS

* Risks include rising coffee costs, higher gas prices

By Lisa Baertlein

LOS ANGELES, April 27 (Reuters) - Starbucks Corp , the world's biggest coffee chain, is likely to report that higher prices for its prepared coffee drinks boosted sales at its core U.S. business this past quarter -- even as higher food and gasoline costs cut into consumers' disposable income.

The Seattle company, which reports fiscal second-quarter results on Wednesday, looks to the United states for 70 percent of overall revenue, money that funds expansion in key growth markets like China.

Investors particularly focus on Starbucks' sales at established U.S. cafes, a key gauge of performance.

Those sales were up 8 percent in the first quarter, when more customers came in and also spent more money per visit.

Analysts, on average, expect U.S. sales at Starbucks cafes open at least 13 months to be up about 5 percent for the second quarter.

"I think the sense is that they're far stronger than that," said RBC Capital Markets analyst Larry Miller.

Indeed, some analysts expect an increase in second-quarter U.S. same-restaurant sales of as much as 7 percent.

Starbucks has been rolling out price increases to various markets since last year to offset a spike in coffee costs. Those higher prices should again help boost the same-restaurant sales results, Miller said.

Consumer-focused companies generally had healthy results for the March quarter, led by stores that cater to customers in higher-income brackets, William Blair & Co analyst Sharon Zackfia said.

Starbucks appeals to more affluent consumers and its cafes are packed, Zackfia said. "I think the trade-up is on again."

Starbucks ended a long-time grocery distribution deal with Kraft Foods on March 1 and investors are standing by to see how much the company will have to pay Kraft as a result of that decision. [ID:nN25130983]

Shortly after ending the Kraft deal, it also raised the price of packaged coffee sold in grocery stores by an average of 12 percent. [ID:nN18111123]

Starbucks Chief Financial Officer Troy Alstead said in late March that the chain would take a 1-cent to 2-cent charge related to the earthquake and tsunami in Japan and to the bankruptcy of cafe partner Borders Group Inc [ID:nN16268041].

Japan is one of Starbucks largest markets and the natural disasters there resulted in some store closures.

While Alstead repeated Starbucks' prior call for second-quarter earnings of 32 cents or 33 cents per share, he said, "these unusual events have likely removed earnings upside in this quarter beyond that level."

Analysts, on average, expect a second-quarter profit of 34 cents a share, according to Thomson Reuters I/B/E/S. (Editing by Steve Orlofsky) (Created by Dhara Ranasinghe)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.