Bakery, lunch and tea help lift Starbucks to record revenues
Starbucks’ growing ability to draw people into the store for items other than a latte brought in record quarterly revenues and higher-than-expected profit.
Seattle Times business reporter
Starbucks’ growing ability to draw people into the store for things other than a latte brought in record quarterly revenues and higher-than-expected profit.
The coffee giant said that in the U.S., sales at stores that were open a year ago grew by 6 percent, although the frequency of transactions rose only by 2 percent.
The majority of the bump came from people buying La Boulange bakery items, a new rollout of breakfast and lunch sandwiches, as well as novel drinks such as Teavana iced tea.
Teavana Oprah chai, a tea blend designed by the television star and loudly trumpeted at Starbucks’ annual meeting in March, also helped drive growth, Chief Operating Officer Troy Alstead said in an earnings call with analysts. The Oprah blend launched in late April.
The strongest growth in customer visits took place in the middle of the day and in the afternoon, a sign that Starbucks is fulfilling its long-standing goal of squeezing more revenue out of its existing footprint.
“We’re increasingly seeing more traffic and more spending,” Alstead said in an interview.
Booming third-quarter sales in the U.S. and other markets, including Asia, led Starbucks to post profit of $512.6 million, or 67 cents per share, beating Wall Street expectations and its own guidance, and 22 percent above the same period last year.
Revenues topped $4.15 billion, up 11 percent and a record for the company.
The results indicate Starbucks is having some success with its biggest challenge: how to keep growing at the breakneck speed investors are accustomed to.
It can grow by adding new stores — and it is doing so both in the relatively saturated U.S. market and internationally. But it is also offering more diverse products and capturing more dollars at its existing stores, and by enticing customers with a loyalty program that extends to grocery aisles.
That is why it keeps coming up with new ventures, including tea, says Efraim Levy, an equity analyst with S&P Capital IQ. It is especially important at a time when other restaurants are increasingly delving into Starbucks’ core business of coffee.
“The company keeps growing. Where does it come from next? The new stuff they’re working on,” Levy said.
Among the innovations Starbucks is pushing out are sodas, which it launched late in the quarter. It also plans to offer in September the first high-end coffee produced in the company’s own farm in Costa Rica, CEO Howard Schultz said.
He also said the company opened its first 24-hour store, in Beijing, and customers have responded well. That gives executives the confidence that Starbucks can introduce similar stores elsewhere, Schultz said.
The quarterly results led Starbucks to raise its 2014 per-share earnings guidance from $2.62 to $2.68 to a range of $2.65 to $2.67, a figure that excludes a 5 cent-per-share benefit from one-time transactions.
Starbucks also projected an encore performance for its fiscal 2015 year, which starts in September, with revenue growth of 10 percent or more. It expects 15 to 20 percent growth in earnings per share, which is a reinstatement of its long-term goal.
But Chief Financial Officer Scott Maw warned that the final earnings-per-share figure may trend toward the lower end of that range, as the company might lose the “tail wind” provided by the relatively cheap commodity costs of recent years.
The prices of green coffee and dairy have risen recently, so that advantage might disappear or turn into a slight headwind, Maw said.
Starbucks’ growth sets it apart from many brick-and-mortar retailers, which are suffering as more customers migrate to online shopping.
“We know it’s a very tough environment for many in retail and we’re not experiencing that at all,” Alstead said in the interview.