Starbucks shares plunge 14%
July same-store sales, word of higher costs hurts stock
By William Spain, MarketWatch
Last Update: 9:37 AM ET Aug 3, 2006
CHICAGO (MarketWatch) - Starbucks Corp. shares plummeted as much as 14% early Thursday after it reported disappointing same-stores sales growth in July and projected an increase in capital expenditures for new store openings.
SBUX ) was down $4.28 to $29.02 shortly after the opening bell.
New outlets, along with same-store sales gains, helped Starbucks Corp. push its fiscal third-quarter profit up nearly 16%, while revenue jumped 23%.
After the close of trading Wednesday, Starbucks said it earned $145 million, or 18 cents a share in the quarter, up from $125.5 million, or 16 cents, in the year-ago period. The latest per-share figure was boosted a penny by a one-time tax benefit. Revenue at the Seattle-based coffee chain rose 23% to $1.96 billion while same-store sales rose 6%.
The average estimate of analysts polled by Thomson First Call had been for Starbucks to earn 17 cents a share on revenue of $1.96 billion.
Starbucks also said it expects to earn 72 cents to 73 cents a share for the full year, up from 61 cents in fiscal 2005 and in-line with analyst estimates. Revenue growth of for the year will be about 20%, it added, with same store sales up 3% to 7%.
Starbucks added that its July revenue climbed 20% to $596 million on a same-store sales increase of 4%, vs. a Wall Street expectation of 6.4% and a 7% bounce in July of 2005.
For the quarter, company-operated retail revenues rose 22% to $1.7 billion, largely on the back of 955 new stores and same-store sales growth, which represents a 4% increase in the number of customer transactions and a 2% nudge in the average value of each.
At the same time, cost of sales was 41%, up from 40.6% of total net revenue, mostly due to higher coffee costs.
Starbucks also said it expects to open at least 2,000 net new stores on a global basis in fiscal 2006, an increase of 200 new stores, 200 more than its previous target. That led it to boost its estimate of capital expenditures to $800 million from a previous $750 to $775 million.
While the company would have to go back more than four years to find a same-store sales growth number of less than 5%, CEO Howard Schultz noted in a call with reporters that the company has posted more than 170 consecutive months of growth in that key retail metric.
While he did not pin the blame on the blast-furnace heat that has gripped much of the nation, he said there was an increased demand for cold drinks the company has had trouble meeting.
"We have never seen this kind of demand for cold blended beverages in the morning," he said.
Shares of Starbucks End of Story
William Spain is a MarketWatch staff writer in Chicago.
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