Starbucks Corp. reported a quarterly profit that topped Wall Street’s view, but its shares fell as investors in the world’s biggest coffee chain focused on softness in Europe rather than strength in the United States.
The company’s shares, up roughly 45 per cent from a year ago and hovering near all-time highs, were off 2 per cent at $47.36 (U.S.) in extended trading after closing at $48.34.
Starbucks and other top-performing restaurant chains like McDonald’s Corp. have been on a tear and their stocks often sell off on anything but absolutely pristine results.
Sales from cafes open at least 13 months were up just 2 per cent for the Europe, Middle East and Africa region, against the 9 per cent gain for the much larger America unit, chiefly from the United States.
Chief financial officer Troy Alstead said on a webcast that Starbucks has been underperforming internal targets in Europe – where debt worries and high unemployment weigh heavily on consumers – and that the company has taken steps to improve results there.
Operating margin for the EMEA unit was 6.5 per cent in the first quarter, down from 9.7 per cent a year earlier.
Starbucks said the margin contraction was primarily due to higher distribution costs related to moving to a consolidated distribution centre in the UK.
Based on its better-than-expected fiscal first-quarter results, the company raised the low end of its full-year profit forecast to a range of $1.78 to $1.82 per share from $1.75 to $1.82.
“They’re being conservative. It’s so early in the year,” Lazard Capital Markets analyst Matthew DiFrisco said when asked about the company’s revised fiscal 2012 forecast.
When asked whether the company has noticed any evidence of softening consumer demand due to the still volatile economic conditions around the world, Mr. Alstead said: “We haven’t seen it.”
Global sales at established Starbucks cafes jumped 9 per cent, helped by an increase in customer visits and spending per transaction. That beat the 7.7 per cent gain analysts, on average, expected, according to Thomson Reuters data.
Net income was $382.1-million, or 50 cents per share, for the quarter ended Jan. 1. That was up from $346.6-million, or 45 cents, in the year earlier period.
Analysts, on average, were looking for a profit of 49 cents per share in the latest quarter, according to Thomson Reuters I/B/E/S.
Total revenue rose 16 per cent to $3.4-billion.
The Seattle-based company has been raising prices on some drinks to help offset higher costs for commodities like coffee and milk.
Starbucks expects new products to build sales as the year progresses.
In November it started selling its coffee and Tazo tea for Green Mountain Coffee Roasters Inc.’s popular Keurig machines, which control about 80 per cent of the fast-growing North American single-serve brewing segment.
It then expanded its coffee lineup in January with “Blonde,” the company’s lightest roast to date. That new coffee is widely seen as an answer to McDonald’s and Dunkin’ Donuts, which each brew lighter roasts than Starbucks. Those chains also have gone after Starbucks’ core business by introducing drinks such as lattes and frappes.
Starbucks, Chipotle Mexican Grill and Panera Bread Co. cater to relatively upscale consumers and have been outperforming the broader restaurant industry, whose overall sales are expected to lag population growth this decade.