Starbucks caps a record year

by Monica Watrous
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SEATTLE — Starbucks Corp. is swapping foam for fizz in its newest non-coffee concept.

Figuring heavily into the java giant’s growth strategy lately have been the integrations of La Boulange bakery products, Teavana teas and Evolution Fresh cold-pressed juices. Now, the company wants a taste of the $100 billion global cold carbonation industry, by leveraging its customized beverage retail platform with handcrafted sodas.

“Carbonation, that is a new category for us,” said Howard Schultz, chairman, president and chief executive officer, during an Oct. 30 earnings call with financial analysts. “The test results in Austin (Texas) and Atlanta and in Japan and Singapore are very encouraging. We think it’s a significant opportunity, and again, we learned a lot over the last few years with our refreshment category, that we have other than coffee and the opportunity in coffee, we have an opportunity to provide a need state in the afternoon and the evening around refreshment.”

Juice, tea and food helped brew a banner year for the company, which reported a 24% increase in net earnings during fiscal 2013.

“Q4 capped off what was, without question, the best year in Starbucks 42-year history, driven by robust innovation and disciplined operating and financial performance across each of our business segments and virtually around the world,” Mr. Schultz said.

For the year ended Sept. 29, net earnings attributable to Starbucks rose to $1.7 million, equal to $2.26 per share on the common stock, compared with $1.4 million, or $1.79 per share, during fiscal 2012. Net revenues increased 12% to $14.9 million from $13.3 million last year.

Global comparable sales during the year grew 7%, driven by a 5% increase in traffic, with 7% comparable sales growth in the Americas, 9% comparable sales growth in China and Asia Pacific and flat comparable sales in Europe, Middle East and Africa.

During the fourth quarter, Starbucks continued its rollout of La Boulange bakery products to its coffee shops in Phoenix, Chicago, Boston and New York City.

“La Boulange, we are seeing incredible excitement around the new product,” said Cliff Burrows, group president for Americas, EMEA and Teavana. “It is showing up really well in the store, and we’ve achieved over the last 9 months what we didn’t achieve in the previous 20 years around food. So the quality — East coast, West coast, every market we’re launching in — we’re getting a real passion around it from our teams in stores, and the customer reaction is superb.”

With La Boulange bakery products now offered in 3,500 stores, Starbucks expects to complete the roll-out over the next 12 months.

“But wherever we’ve launched it and particularly around the pastries, the croissant, the chocolate croissant, we are seeing a huge difference in experience the customer is getting,” Mr. Burrows said. “We continue to refine the range, we continue to refine our operation in store, but it is elevating the whole experience, and it really is a testament to the investment we’ve made in La Boulange to help us grow a capability around food and we're really excited for the future.”

Almost a year after acquiring Teavana, Starbucks opened the first Teavana Fine Teas + Tea Bar in New York City in October.

“We are convinced that with Teavana, Starbucks can reinvent and do for tea just what we have done for coffee and that we can grow and expand the tea industry and the tea bar concept by introducing a wide, innovative array of handcrafted tea beverages, tea-inspired food, and world-class tea merchandise,” Mr. Schultz said. “And with tea being a larger opportunity than coffee outside of the U.S. and Canada, we see a future with Teavana stores across North America and around the world. In the quarters ahead, you will see how we are expanding and deepening the presence of high-quality Teavana-branded teas within Starbucks stores in order to leverage tea as a driver of additional customer occasions, creating wide recognition for the Teavana brand, and adding another layer of growth within Starbucks stores. The opportunity to innovate within the global tea category is significant and we are poised to bring an unparalleled retail experience to customers around the world.”

Also during the quarter, Starbucks opened a facility for its Evolution Fresh business to quadruple production of cold-press juices.

“We have already exceeded the aggressive growth plans we laid out for Evolution Fresh upon acquiring the business and brand in November 2011,” Mr. Schultz said. “A wide selection of fresh, healthy Evolution Fresh juices are now available in more than 8,000 Starbucks and grocery retailer cold cases and almost all Whole Foods locations nationwide.”

Net earnings attributable to Starbucks in the fourth quarter increased 34% to $481.1 million, or 63c per share, from $359 million, or 46c per share, during the same period of the prior year. Net revenues for the quarter climbed 13% to $3.8 million from $3.4 million last year.

Starbucks opened 1,701 new net units during the year, notching up its global total of 19,767 stores.

Starbucks said it expects 10% or greater revenue growth in fiscal 2014, driven by mid-single-digit comparable store sales growth, approximately 1,500 net new store openings, and continued growth in the Channel Development business. The company’s earnings per share is expected to fall in a range of $2.55 to $2.65.
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