Slideshow: Starbucks' refreshed image contributes to strong quarter
by Monica Watrous
SEATTLE – Starbucks Coffee Corp.’s quest to shed its identity as strictly a morning joe destination is paying off.
Click here for a slideshow highlighting Starbucks' evolution.
“For the first time in our history, we are bringing customers into our stores all around the world and across all day parts with complete offerings of innovative beverages and both indulgent and healthy foods to satisfy their evolving needs space,” said Howard Schultz, chairman, president and chief executive officer, during a July 25 call with financial analysts to discuss third-quarter results.
For the quarter ended June 30, the company had earnings of $417.8 million, equal to 55c per share on the common stock, up 25% from $333.1 million, or 43c per share, during the same quarter of the previous year. Revenue for the quarter was $3,741.7 million, up 13% from $3,303.6 million.
“Continued innovation in our core coffee and beverage portfolios, solid progress against a reinvention of our food platform and an increasing ability to leverage and translate Starbucks’ brands and strong U.S. revenue growth into revenue and profit in multiple markets and channels around the globe all contributed meaningfully to our record Q3 results,” Mr. Schultz said.
Beverage innovations and promotions for macchiatos, limited-time Frappuccinos and new Refreshers drinks, exceeded “even our most optimistic expectations” during the quarter, Mr. Schultz said.
“The good news is we are seeing increased comps on all day parts, and I think our innovation around beverages, particularly around Refreshers, gives us the opportunity to serve morning customers in the afternoon as Refreshers really does complement that afternoon day part,” said Cliff Burrows, group president of the Europe, Middle East and Africa region and Teavana division. “So, it is not only providing additional occasions for existing customers, but it is making these relevant to new customers in different day parts.”
A 7% increase in global traffic during the quarter resulted in part from Starbucks’ reinvented food platform, including expanded La Boulange bakery options. Starbucks said it is on track to bring La Boulange products to more than 2,500 stores by the end of September, with locations in New York, Chicago, Boston and Los Angeles.
And on July 23, Starbucks announced a multi-year partnership with Danone to develop a line of Greek yogurt parfait products under Starbucks’ acquired Evolution Fresh brand to be served in Starbucks stores beginning next spring.
Strategic development and integration of Starbucks’ recently acquired Teavana tea business also is taking shape, with plans to serve “unique, handcrafted Teavana beverages” in Starbucks stores, Mr. Schultz said.
“We firmly believe that innovation such as Evolution Fresh, such as Teavana coming into the stores, such as La Boulange and enhanced food program, all those things and many others are what allow us to speak with confidence about our ability to drive consistent healthy comp growth into the year ahead,” said Troy Alstead, chief financial officer and chief administrative officer.
In the grocery channel, Starbucks continues to strengthen its leadership position in the $8 billion premium single-cup category with the recent announcement of a long-term partnership agreement with Green Mountain Coffee Roasters to add more K-cup s.k.u.s (stock-keeping units). The company’s share of K-cup dollar sales in U.S. food, drug and mass channels reached an all-time high in the quarter at nearly 15%, and its sales growth of 51% outpaced the overall category growth of 46%, the company said.
“A number of fantastic things all came together in that quarter to contribute to that kind of level of comp growth,” Mr. Alstead said. “And so as we look at Q4, as we look at fiscal ’14, we expect very strong, very healthy, very consistent same-store sales growth more in line with what we saw the first half of the year.”
For the nine months ended June 30, the company posted earnings of $1,240.3 million, or $1.63 per share, up 21% from $1,025.1 million, or $1.33 per share, during the same period of the previous year. Total net revenue for the nine months was $11,097.2 million, up 12% from $9,935.4 million.