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Starbucks profit soars; prices may rise

By Monica Soto Ouchi
Seattle Times business reporter

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The cost of a Starbucks latte might go up for the first time in nearly four years, but customers will have more places to get their caffeine fix.

The Seattle-based coffee retailer yesterday said it would likely raise drink prices at North American stores next fiscal year to keep up with costs, but it stopped short of saying how much and when.

The news came yesterday as Starbucks reported strong third-quarter results and raised its full-year earnings forecast for the second time this year — a feat some analysts attributed to getting more customers in the door and through the line more quickly.

Starbucks Chief Financial Officer Michael Casey told analysts the company wasn't announcing a price increase right now.

"However, as prudent managers, we have included the likelihood of a beverage price increase in North America as part of our planning for fiscal 2005," he said.

The company's quarterly profit rose 43.5 percent to $98.1 million, or 24 cents a share, beating analysts' estimates by 2 cents. Sales were $1.3 billion.

Quarterly sales climbed 11 percent at stores open at least a year, a key retail gauge known as same-store sales.

Meantime, the company said it expects a full-year profit of between 94 and 95 cents a share, roughly 10 cents above its original forecast.

Starbucks said it would step up the number of stores it opens next fiscal year to 1,500 — 300 more than it had forecast to open this fiscal year, which ends Oct. 3.

A third of the new, company-operated stores in the U.S. and Canada this year will include drive-through service.

"It's allowing them to enter new markets," WR Hambrecht senior analyst Kristine Koerber said of the plan to add more drive-through cafes and some stand-alone kiosks.

"They're able to go into more rural areas and get some of that off-the-highway traffic."

Starbucks this year began testing a CD-burning station at one of its Santa Monica, Calif., stores under a new Hear Music brand. It announced plans to install some stations at suburban stores in the fall.

Jim Donald, president of Starbucks North America, attributed growth to ideas such as the music station.

The summer Frappuccino drinks, three of which contain no coffee, also have brought new customers in the door.

Starbucks continued to receive a boost from its stored-value cards — 11 percent of revenue for the quarter.

In addition to opening more stores next fiscal year, the company said it expects full-year revenue to grow 20 percent and earnings per share of between $1.12 and $1.15.

McAdams Wright Ragen analyst Dan Geiman said the forecast for next year was well above his own. "In the case of Starbucks, it's just more of the same," he said. "They just keep driving those sales."

Starbucks' shares closed yesterday at $45.64, down 79 cents. Its stock hit a 52-week high earlier in the week.

Monica Soto Ouchi: 206-515-5632

Copyright © 2004 The Seattle Times Company

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