Starbucks reports strong first-quarter results as Via, international sales take off

Starbucks on Wednesday posted the best sales figures since January 2008, when Howard Schultz reclaimed the title of CEO and embarked on a turnaround that has included hundreds of store closures, thousands of layoffs and the introduction of instant coffee.

Almost half of the 4 percent increase in Starbucks' average U.S. customer purchase came from its new Via instant coffee, executives said during a conference call with analysts. The company plans to begin selling Via in grocery stores and more markets later this year.

Starbucks also has big hopes for its Seattle's Best Coffee brand, which recently became available in thousands of Subway stores nationwide, and is looking for other corporate and franchise partners.

"It's clear to us that SBC is just a hidden treasure for the company in terms of its mass appeal," Schultz said, partly because the flavor of its coffee is "more approachable."

He recently put Michelle Gass, a seasoned Starbucks executive known for turning in-store Frappuccino from an also-ran into a sought-after indulgence, in charge of SBC.

Overall, Starbucks' sales rose 4 percent to $2.7 billion for the first quarter ended Dec. 27, the highest in two years.

Profit more than tripled to $241.5 million, or 32 cents a share, partly because of $580 million in cost cuts made last year.

Cuts over the past couple of years included nearly 800 store closures and at least 18,000 job cuts.

The company continued to open stores at a slower pace, with a net new 71 stores in the fourth quarter.

The first-quarter results beat analyst expectations by 4 cents a share.

Before the earnings announcement, Starbucks shares fell 29 cents to $23.29. After the report, the stock climbed 64 cents to $23.93.

It has traded between $8.12 and $24 a share over the past year.

The performance star for the quarter was Starbucks' international business, which includes about 5,500 of its 16,700 stores. It posted a 19 percent increase in revenues, to $591 million.

It is dwarfed by Starbucks' U.S. operations, which posted a 1 percent sales gain, to $1.9 billion.

Starbucks' consumer-products unit, which sells items like bottled Frappuccino and whole-bean coffee in groceries, is the company's smallest. Until this quarter, it was also a better performer. But softness in the hospitality industry contributed to a 4 percent bite from its sales, which were $197 million.

Investors were heartened by the company's 4 percent increase in stores open at least a year. It's the first time in two years that measure has been positive.

They also liked Starbucks' improved earnings guidance, which now puts earnings for the year between $1.05 and $1.08 a share; the estimate had been less than a dollar.

"They're building on some of the work dating back a couple years and benefiting from the economy," said Dan Geiman, an analyst at McAdams Wright Ragen.

Sales of the instant coffee Via are helping, he said, as is Starbucks' renewed emphasis on coffee and price changes that began last year and include lower prices on simpler beverages and higher prices on more complex drinks.

Starbucks also said that, since launching a new rewards-card program for customers in late December, it has had double the number of cards registered from the same period a year earlier. It would not disclose the total.

And the company said it plans to spend about $30 million more on marketing for the last nine months of its fiscal year than it did during the same period a year earlier.

Traditionally, Starbucks has spent little on marketing, relying more on word-of-mouth and a brand glow that extended from newspaper articles to free placement in movies. Its strategy has changed in the past couple of years, and it began to buy billboards, print and TV advertising to reach customers.

Other publicly traded coffee companies have posted mixed results as the economy improves.

Green Mountain Coffee Roasters, which sells packaged coffee and last year bought the wholesale business of Seattle-based Tully's Coffee, saw a 17 percent sales gain for the quarter ended September 2009, and its profit was up 2 percent.

Sales at Peet's Coffee rose but its profit fell for the same quarter, and Caribou Coffee saw sales and profit declines.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Seattle Times researcher David Turim contributed to this report.