Skip to main content

The Globe and Mail

Starbucks warns of lower full-year profit


Pascal Le Segretain/2004 Getty Images

Starbucks Corp., the world's largest coffee chain, expects rising coffee prices to hit profits more than it previously thought and forecast full-year earnings below analysts expectations.

That news sent its shares down more than 2 per cent, even as the company reported profits and U.S. sales that handily topped Wall Street's targets.

Rising prices for restaurant food ranging from coffee and milk to beef and bread are pressuring restaurant operators.

Story continues below advertisement

Earlier this week Starbucks rival McDonald's Corp. said it would raise prices "where it makes sense" to offset some, but not all, of the food cost increases.

Seattle-based Starbucks on Wednesday forecast earnings of $1.44 (U.S.) to $1.47 a share for fiscal year 2011, compared with the average analyst expectation of $1.49 a share. The company expects commodity costs to cut earnings by about 20 cents a year, compared with a forecast of 8 cents to 10 cents a share in November. Coffee represents 15 per cent to 20 per cent of Starbucks cost of sales, including occupancy.

The benchmark "C" arabica coffee futures contract trading on ICE Futures U.S. remains around levels last seen 13-1/2-years ago, after surging nearly 80 per cent in a rally that began in June, 2010.

Late last year the company raised drink prices in the United States and China due to surging prices for coffee and other commodities.

Chief financial officer Troy Alstead told Reuters that the company is "fully locked" for fiscal 2011 - meaning it has bought all the coffee it will need for this year.

"I don't think you'll see what I'll call a new round" of price increases, said Mr. Alstead, who noted that the previously announced round of coffee cost-related menu price hikes have not yet shown up in every market.

Starbucks' profit for the fiscal first quarter ended Jan. 2 jumped almost 44 per cent from the year-ago period to $346.6-million, or 45 cents a share. That easily topped analysts' average call for a profit of 39 cents per share for the latest quarter, according to Thomson Reuters I/B/E/S.

Story continues below advertisement

Sales at Starbucks cafes open at least 13 months were up 8 per cent in the United States and up 5 per cent internationally for the holiday quarter, which traditionally is Starbucks' biggest for revenue.

Starbucks shares fell 2.3 per cent to $32.30 in after-hours trading.

"There was a big beat in the quarter but they didn't raise guidance. I'm sure there is some digesting of that," William Blair & Co analyst Sharon Zackfia said of the share move.

Report an error
Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.