Originally published November 3, 2011 at 1:34 PM | Page modified November 4, 2011 at 11:53 AM

Starbucks beats profit forecasts, boosts dividend, ramps up store openings

Starbucks' profit climbed nearly 29 percent to $358.5 million in the fourth quarter, on revenue that grew 7 percent to $3 billion. The company said it will raise its dividend from 13 cents to 17 cents a share.

Seattle Times business reporter

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Starbucks was full of good news Thursday afternoon with its profit up nearly 29 percent to $358.5 million for the fourth quarter ended Oct. 2, and revenue 7 percent higher at $3 billion.

It beat Wall Street's expectations with earnings of 47 cents a share, raised its dividend and began ramping up new-store openings to a level not seen in years.

CEO Howard Schultz says the Seattle-based chain is not returning to the bad old days of growth for growth's sake.

"We were humbled by what happened in the past, and ... we're not going to allow ever again at Starbucks for growth to cover up mistakes. We're not going to have unbridled growth that turns into a strategy as opposed to a purpose," he told analysts on a conference call Thursday.

Starbucks' cash position remains strong at $1.1 billion, and it will raise its dividend from 13 cents to 17 cents a share beginning Dec. 2 to shareholders of record on Nov. 17.

The company started paying dividends at 10 cents a share in April 2010.

Its same-store sales — a key gauge of how well stores that have been open more than a year are doing — rose 9 percent during the fourth quarter, the best performance all year. They were up 10 percent at U.S. stores — the highest in more than five years — and 6 percent at international stores, an improvement from recent quarters.

The world's largest coffee-shop chain reiterated that it plans to open 800 new stores — a quarter of them in the U.S. — during the fiscal year that just began.

It hasn't grown that fast in years and added only 145 stores during the fiscal year just ended — the net result of opening 489 stores in foreign countries and closing 344 locations in the U.S.

Starbucks also is expanding its product reach, including recently adding a new lighter roast coffee, creating single-serve K-Cups to fit in Green Mountain Coffee Roasters' popular Keurig coffee machines, selling its instant coffee in more countries and altering its food menu.

The company also recently restructured its upper leadership echelon and plans to remodel 1,700 U.S. stores over the next year, more than ever before.

One analyst asked Thursday how, with so many balls in the air, Starbucks can make sure one doesn't drop.

"Why not take maybe a more measured approach vs. all these great ideas at once?" asked Michael Kelter from Goldman Sachs.

Schultz called it an "appropriate question, and one that I think we have asked ourselves."

Many of the new products are in Starbucks' core coffee business, he said. And much of what it is doing is expanding and innovating on what came before.

"We don't view it as something new to us or more than any other time before. What we look at is opportunities that we have that we think are well within our reach in terms of the organizational talent and capabilities and market opportunities to do things that haven't been done before," he said.

Peter Fader, a marketing professor at the Wharton School of the University of Pennsylvania, said in an interview and his new book, "Customer Centricity: What It Is, What It Isn't, and Why It Matters," that Starbucks is focused on so many other things that it has not put enough attention into satisfying its most loyal customers.

Like Ritz-Carlton Hotels, he said, Starbucks should know all sorts of things about its best customers — especially their usual drinks.

"I don't get particular joy out of repeating it every time, that I want my grande iced coffee with no ice, skim milk and caramel," he said.

"You should be able to take your Starbucks loyalty card, which far too few people have, and walk into a Starbucks in Kansas City or Kuala Lumpur or Beijing, and the person at the counter should say, 'Would you like the usual, sir?' "

Shoppers return to because it has their credit card on file, and customers would go farther out of their way to frequent Starbucks if it had their preferences — and tailored recommendations — on file, he said.

That kind of "customer centricity" is particularly important for a company like Starbucks, which he said has a product and even an ambience that is becoming commoditized.

"Great service does not make you customer centric," Fader said. "To the contrary, knowing who your focal customers are and what their hot buttons might be, that's the key. Starbucks, with all due respect, hasn't really done that very well."

Starbucks' full-year profit rose 32 percent to $1.2 billion on revenues that climbed 9 percent to $11.7 billion.

Its stock gained 22 cents to $41.40 during regular trading on Thursday. The earnings news was released during after-hours trading, when shares climbed $1.27 to $42.67.

Melissa Allison: 206-464-3312 or

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