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Starbucks Sales Lag Estimate

Published on Oct 30 2014 9:06 PM in Restaurant

Starbucks Sales Lag Estimate

Starbucks Corp., the world’s biggest coffee-shop chain, posted fiscal fourth-quarter revenue that trailed analysts’ estimates as increased competition for breakfast diners’ dollars hurt US sales.

Revenue in the period ended 28 September rose 10 per cent to $4.18 billion, the Seattle-based company said today in a statement. Analysts projected $4.24 billion, on average.

Starbucks has been introducing new food and drinks to draw diners later in the day while competitors are pushing more breakfast fare. McDonald’s Corp. is advertising white-chocolate lattes and has been giving away free coffees, while Dunkin’ Donuts recently brought back its spicy smoked-sausage sandwich.

“The environment is getting competitive,” said Asit Sharma, a Raleigh, North Carolina-based analyst at the Motley Fool, who recommends buying the shares.

Same-store sales in Starbucks’ Americas region gained 5 per cent in the quarter, trailing the average estimate for a 6.2 per cent increase, according to Consensus Metrix. The shares fell 4.8 per cent to $73.60 at 4:36 pm in late trading in New York. Starbucks slid 1.4 per cent this year through today’s close, compared with a 7.9 per cent gain for the Standard & Poor’s 500 Index. Fourth-quarter net income was $587.9 million, or 77 cents a share. Excluding some items, profit was 74 cents a share, matching estimates. In the fourth quarter a year earlier, Starbucks posted a loss of $1.23 billion, or $1.64 a share, as it paid about $2.78 billion to resolve a dispute with Kraft Foods over its packaged-coffee business.

Forecast Trails

The company forecast fiscal 2015 profit excluding certain items of as much as $3.13 a share. Analysts estimate $3.16, on average.

Starbucks tested new grilled-cheese and brisket baguettes for lunch earlier in 2014 and plans to introduce a new lunch menu. It’s also starting to introduce mobile ordering in the US, and about 150 stores in the Portland, Oregon, area will have that capability this year.

The company is focused on selling holiday-themed drinks, which last year helped drive first-quarter sales to a record $4.24 billion. This year for the holiday season, Starbucks is introducing a chestnut praline latte to attract Americans.

“We are in the same kind of difficult retail traffic environment as our competitors are,” Chief Operating Officer Troy Alstead said in an interview. More people are shopping online instead of being out in brick-and-mortar stores, he said.

Starbucks, run by Chief Executive Officer Howard Schultz, got 74 per cent of revenue from its cafes in the US, Canada and Latin America in fiscal 2013.

European Sales

In Europe, the Middle East and Africa, sales at cafes open 13 months or longer rose 5 per cent, compared with analysts’ estimates of 3.3 per cent growth, according to Consensus Metrix, owned by Kaul Advisory Group in Wayne, New Jersey. Sales by that measure also climbed 5 per cent in China and Asia Pacific, trailing projections for a 7.4 per cent gain.

Last week, Dunkin’ Brands Group Inc., owner of Dunkin’ Donuts, said it will be a “challenge” to achieve the low-end of its US same-store sales forecast of 2 per cent to 3 per cent growth for this year. “We continued to feel the impact from an ongoing sluggish economy and a highly competitive quick-service restaurant breakfast and coffee environment,” CEO Nigel Travis said during a conference call on 23 October. Dunkin’ has about 7,900 US locations, while Starbucks has 11,700.

Bloomberg News, edited by Hospitality Ireland

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