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Thursday, November 11, 2004 - Page updated at 12:00 A.M.
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Starbucks' profit for the year up 46%; big plans for growth

By Monica Soto Ouchi
Seattle Times retail reporter

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Starbucks likens its aggressive growth plans to a plane reaching a higher altitude: To climb, you have to pull the throttle.

After the specialty-coffee retailer reported its fourth-quarter results yesterday, Wall Street sent its shares down in after-hours trading based partly on this fear:

If Starbucks plans to soar higher, how much will it pay for fuel?

The specialty-coffee retailer — omnipresent in many downtown metropolitan cores — recently increased to 30,000 the number of stores it plans to open long-term. It believes it can reach a far more diverse audience than it had expected.

Starbucks plans to focus on opening stores in rural and smaller metropolitan areas and in off-highway locations that serve as natural stopping points for travelers. Up to half of all new stores will include drive-through service.

The company expects to open 1,500 stores by year's end, bringing its total store count to 10,000 worldwide. Long term, it expects 15,000 stores in the U.S. and 15,000 abroad.

Supporting such aggressive growth, however, costs money, and some analysts worry that less will trickle to the bottom line.

Store operating expenses as a percentage of sales rose 1.3 percent in the fourth quarter. The company said costs increased as it hired more assistant managers, who could become managers in new stores, and more staff to scout locations and develop stores.

"You have to make that investment before you can open the new stores at the higher rate," Chief Financial Officer Michael Casey said.

The company's fourth-quarter profit rose 48.5 percent compared with a year ago, and sales climbed 34.4 percent.
 
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For the year, Starbucks made $391.8 million profit, up 46 percent from 2003, on sales of $4.5 billion.

The company stuck to its 2005 guidance of $1.12 to $1.15 a share with sales growth of roughly 20 percent. Wall Street had forecast $1.16 a share.

McAdams Wright Ragen analyst said some analysts had adjusted their forecast to account for Starbucks' recent price increase.

The company raised prices for the first time in four years to offset rising health-care, dairy and green coffee costs. (In the fourth quarter, the company paid an average of 46 cents more a gallon for milk products and 6 cents more a pound of green coffee compared with a year ago.)

Chief Executive-designate Jim Donald said it was premature to adjust its forecast one month into the year.

"We've had an unbelievable year," Donald said. "That number we've established is a good number after the year that we've had."

The company's shares yesterday closed up 47 cents to $55.29 but fell $1.74 in after-hours trading. Starbucks reported its earnings after the bell.

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com

Copyright © 2004 The Seattle Times Company

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