Starbucks second-quarter earnings rise 18.5 pct

LOS ANGELES, May 4 (Reuters) Starbucks Corp. reported an 18.5 percent rise in quarterly earnings on Thursday as a larger number of stores, a price increase and higher sales of food and music offset flat customer traffic in the United States.

The company also reported flat operating margins following three straight quarters of year-over-year declines and backed its 2007 earnings forecast, sending its shares up in extended trading.

The news was a welcome sign for investors, who have sent Starbucks shares down more than 10 percent this year on concerns about lagging margins and competition from fast-food companies such as McDonald's Corp.

''Starbucks reported a solid, in-line quarter and reaffirmed guidance which should be reassuring to investors,'' said Mike Koskuba, an analyst with Victory Capital Management. ''In the recent past, operating margins were lower than some investors had anticipated ... now, it appears that there should be improvement in margins as we move through the year.

Second-quarter net income was 0.8 million, or 19 cents per share, in-line with Wall Street analysts' average estimate, according to Reuters Estimates. In the same period last year, Starbucks earned 7.3 million, or 16 cents per share.

Revenue rose 19.6 percent to LOS ANGELES, May 4 (Reuters) Starbucks Corp. reported an 18.5 percent rise in quarterly earnings on Thursday as a larger number of stores, a price increase and higher sales of food and music offset flat customer traffic in the United States.

The company also reported flat operating margins following three straight quarters of year-over-year declines and backed its 2007 earnings forecast, sending its shares up in extended trading.

The news was a welcome sign for investors, who have sent Starbucks shares down more than 10 percent this year on concerns about lagging margins and competition from fast-food companies such as McDonald's Corp.

''Starbucks reported a solid, in-line quarter and reaffirmed guidance which should be reassuring to investors,'' said Mike Koskuba, an analyst with Victory Capital Management. ''In the recent past, operating margins were lower than some investors had anticipated ... now, it appears that there should be improvement in margins as we move through the year.

Second-quarter net income was $150.8 million, or 19 cents per share, in-line with Wall Street analysts' average estimate, according to Reuters Estimates. In the same period last year, Starbucks earned $127.3 million, or 16 cents per share.

Revenue rose 19.6 percent to $2.26 billion. Analysts were expecting about $2.3 billion, according to Reuters Estimates.

Same-store sales, a key retail measure that tracks sales at coffee shops open at least 13 months, rose 4 percent, in-line with the company's long-term goal.

FLAT TRAFFIC In the United States, same-store sales were up 3 percent as higher prices and increased food offerings drove up how much customers spent at the chain. The number of transactions, however, was unchanged, a factor executives blamed on the tough comparison against an 8 percent rise in customer traffic last year.

''I wouldn't extrapolate one (quarter) of flat transaction growth as the end point or conclusion that anyone should reach on this phone,'' Chairman Howard Schultz said. ''This is one quarter, one period.'' In Starbucks' international business, same-store sales rose 7 percent, mostly due to higher traffic. The company has been growing rapidly outside the United States, particularly in China, and has said its international business represents its biggest growth opportunity. Starbucks has about 3,900 stores outside the United States, including 500 in China.

Operating margin was 10.7 percent of total revenue, matching the margin the company recorded in the same period last year.

Executives expected margins to continue to improve from year-ago levels later this year, despite pressures such as higher dairy and real estate costs.

Starbucks, which is based in Seattle, opened 560 stores during the quarter and plans to open a total of 2,400 this year. It currently has about 13,700 coffee shops worldwide.

The company also announced a new share buyback authorization of 25 million shares.

Starbucks still expects to earn between 87 cents and 89 cents per share for the year. Analysts are expecting earnings of 89 cents a share, on average.

Starbucks shares were up 0.6 percent at $31.80 in after-hours trading after closing at $31.62 on Nasdaq. As of Thursday's close, the stock had dropped 10.7 percent so far this year, compared with a 5.9 percent rise in the Dow Jones U.S. restaurants and bars index .DJUSRU>.

In addition to concerns about margins and competition, Starbucks' stock has fallen this year in part due to a high-profile memo in which Chairman Howard Schultz warned of the 'commoditization'' of Starbucks' iconic brand.

The memo, leaked to the media in February, sparked worries the coffee shop chain might slow down growth and sent its share price tumbling. Management squashed that fear in March by backing its aggressive growth targets at the company's annual meeting. Still, Starbucks shares have gained less than 1 percent since the March 21 meeting.

REUTERS PBB BST0654 .26 billion. Analysts were expecting about LOS ANGELES, May 4 (Reuters) Starbucks Corp. reported an 18.5 percent rise in quarterly earnings on Thursday as a larger number of stores, a price increase and higher sales of food and music offset flat customer traffic in the United States.

The company also reported flat operating margins following three straight quarters of year-over-year declines and backed its 2007 earnings forecast, sending its shares up in extended trading.

The news was a welcome sign for investors, who have sent Starbucks shares down more than 10 percent this year on concerns about lagging margins and competition from fast-food companies such as McDonald's Corp.

''Starbucks reported a solid, in-line quarter and reaffirmed guidance which should be reassuring to investors,'' said Mike Koskuba, an analyst with Victory Capital Management. ''In the recent past, operating margins were lower than some investors had anticipated ... now, it appears that there should be improvement in margins as we move through the year.

Second-quarter net income was $150.8 million, or 19 cents per share, in-line with Wall Street analysts' average estimate, according to Reuters Estimates. In the same period last year, Starbucks earned $127.3 million, or 16 cents per share.

Revenue rose 19.6 percent to $2.26 billion. Analysts were expecting about $2.3 billion, according to Reuters Estimates.

Same-store sales, a key retail measure that tracks sales at coffee shops open at least 13 months, rose 4 percent, in-line with the company's long-term goal.

FLAT TRAFFIC In the United States, same-store sales were up 3 percent as higher prices and increased food offerings drove up how much customers spent at the chain. The number of transactions, however, was unchanged, a factor executives blamed on the tough comparison against an 8 percent rise in customer traffic last year.

''I wouldn't extrapolate one (quarter) of flat transaction growth as the end point or conclusion that anyone should reach on this phone,'' Chairman Howard Schultz said. ''This is one quarter, one period.'' In Starbucks' international business, same-store sales rose 7 percent, mostly due to higher traffic. The company has been growing rapidly outside the United States, particularly in China, and has said its international business represents its biggest growth opportunity. Starbucks has about 3,900 stores outside the United States, including 500 in China.

Operating margin was 10.7 percent of total revenue, matching the margin the company recorded in the same period last year.

Executives expected margins to continue to improve from year-ago levels later this year, despite pressures such as higher dairy and real estate costs.

Starbucks, which is based in Seattle, opened 560 stores during the quarter and plans to open a total of 2,400 this year. It currently has about 13,700 coffee shops worldwide.

The company also announced a new share buyback authorization of 25 million shares.

Starbucks still expects to earn between 87 cents and 89 cents per share for the year. Analysts are expecting earnings of 89 cents a share, on average.

Starbucks shares were up 0.6 percent at $31.80 in after-hours trading after closing at $31.62 on Nasdaq. As of Thursday's close, the stock had dropped 10.7 percent so far this year, compared with a 5.9 percent rise in the Dow Jones U.S. restaurants and bars index .DJUSRU>.

In addition to concerns about margins and competition, Starbucks' stock has fallen this year in part due to a high-profile memo in which Chairman Howard Schultz warned of the 'commoditization'' of Starbucks' iconic brand.

The memo, leaked to the media in February, sparked worries the coffee shop chain might slow down growth and sent its share price tumbling. Management squashed that fear in March by backing its aggressive growth targets at the company's annual meeting. Still, Starbucks shares have gained less than 1 percent since the March 21 meeting.

REUTERS PBB BST0654 .3 billion, according to Reuters Estimates.

Same-store sales, a key retail measure that tracks sales at coffee shops open at least 13 months, rose 4 percent, in-line with the company's long-term goal.

FLAT TRAFFIC In the United States, same-store sales were up 3 percent as higher prices and increased food offerings drove up how much customers spent at the chain. The number of transactions, however, was unchanged, a factor executives blamed on the tough comparison against an 8 percent rise in customer traffic last year.

''I wouldn't extrapolate one (quarter) of flat transaction growth as the end point or conclusion that anyone should reach on this phone,'' Chairman Howard Schultz said. ''This is one quarter, one period.'' In Starbucks' international business, same-store sales rose 7 percent, mostly due to higher traffic. The company has been growing rapidly outside the United States, particularly in China, and has said its international business represents its biggest growth opportunity. Starbucks has about 3,900 stores outside the United States, including 500 in China.

Operating margin was 10.7 percent of total revenue, matching the margin the company recorded in the same period last year.

Executives expected margins to continue to improve from year-ago levels later this year, despite pressures such as higher dairy and real estate costs.

Starbucks, which is based in Seattle, opened 560 stores during the quarter and plans to open a total of 2,400 this year. It currently has about 13,700 coffee shops worldwide.

The company also announced a new share buyback authorization of 25 million shares.

Starbucks still expects to earn between 87 cents and 89 cents per share for the year. Analysts are expecting earnings of 89 cents a share, on average.

Starbucks shares were up 0.6 percent at .80 in after-hours trading after closing at .62 on Nasdaq. As of Thursday's close, the stock had dropped 10.7 percent so far this year, compared with a 5.9 percent rise in the Dow Jones U.S. restaurants and bars index .DJUSRU>.

In addition to concerns about margins and competition, Starbucks' stock has fallen this year in part due to a high-profile memo in which Chairman Howard Schultz warned of the 'commoditization'' of Starbucks' iconic brand.

The memo, leaked to the media in February, sparked worries the coffee shop chain might slow down growth and sent its share price tumbling. Management squashed that fear in March by backing its aggressive growth targets at the company's annual meeting. Still, Starbucks shares have gained less than 1 percent since the March 21 meeting.

REUTERS PBB BST0654