Starbucks ups earnings, but cuts outlook
Starbucks ups earnings, but cuts outlook

Starbucks says net income in its fiscal third quarter rose 19 per cent from a year ago.

But Wall Street analysts expected more, and were further disappointed when the company cut its outlook for the current quarter because of a recent slowdown in US customer traffic and persisting challenges in hard-hit European regions.

Shares slumped 10 per cent in after-hours trading.

For the quarter, Starbucks said global revenue at cafes open at least a year rose six per cent. The increase was driven by a 12 per cent increase in China and Asia and a seven per cent increase in the Americas.

For the three months ended July 1, the company said it earned $US333.1 million, or 43 cents per share. That's compared with $US279.1 million, or 36 cents a share, a year ago.

Total revenue rose 13 per cent to $US3.3 billion.

Analysts on average expected a profit of 45 cents per share on revenue of $3.34 billion. The higher revenue was the result of increased customer traffic and customers spending more per visit, Starbucks said.

For the current quarter, Starbucks cut its profit outlook to 44 cents to 45 cents per share from a range of 46 cents to 47 cents per share. Analysts were predicting 48 cents per share.

Shares dropped $5.22 to $47.19 in after-hours trading. During the trading day, shares had gained $1.99, or 4 per cent, close at $52.40.

"Traffic trends are noticeably down in many parts of the US," said Troy Alstead, the company's chief financial officer, of the quarter that ended on July 1. That trend continued into July.

In the European market, where Starbucks is struggling to turn around its business, the sales figure was flat.

"Europe has been a challenge for us all year and continues to be," Mr Alstead said. He noted that the flat sales were an improvement from the previous quarter, however, when the figure slipped one per cent.

To perk up its business in the region, Starbucks has been instituting measures similar to those it took during the downturn in the US a few years ago, such as introducing loyalty programs and improving service.

It's also considering closing unprofitable stores in Europe, which could result in charges of up to $US20 million in the current quarter.

"We have great confidence that we are going to be able to turn Europe around," chief executive Howard Schultz said. Still, the company says its store expansions next year will be primarily in the US and the fast-growing China market.

A slowing global economy isn't the only concern for the company. As Starbucks faces increasing competition from fast-food chains offering specialty coffees, it has plans to expand into the fast growing premium juice and single-cup coffee markets.

The West Australian

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