Starbucks Boasts Profit Gains of 25% In Third Fiscal Quarter

By Sam Lewis

Coffee mogul’s recent pursuit into foods is starting to pay off

Within the last few months, Starbucks, the Seattle-based coffee chain with 19,000+ stores worldwide, has begun introducing new menu items, including a revamped line of sandwiches and new salad bowls. Furthering its push into food, Starbucks plans on adding LaBoulange baked goods in U.S. locations. Last week, the company announced a partnership with Danone SA, parent company of The Dannon Company, Inc. — a name synonymous with yogurt — to develop and sell Greek yogurt branded with the name Evolution Fresh in Starbucks, as well as in supermarkets. Starbucks currently sells Evolution Fresh juice — which they purchased in 2011 — in supermarkets, and eventually plans on selling Teavana brand teas —which it purchased on New Year’s Eve, 2012 — within grocers’ walls, also.

Apparently Starbucks’ strategies are paying off, with fiscal third-quarter net income increasing 25 percent to $417.8 million — 55 cents per share, up from $333.1 million — 43 cents per share, in the same quarter of 2012. Starbucks exceeded many experts’ projections of 53 cents per share, the average of 28 estimates assembled by Bloomberg. Sales in stores that have been open at least 13 months gained 9 percent in North America, topping the 6 percent average of 22 analysts’ estimates compiled by Consensus Metrix. Starbucks has projected itself to have 2014 earnings per share in the range of $2.55 to $2.65 — showing growth of 18 to 22 percent. “Foods have been phenomenal for us,” CFO Troy Alstead said during an interview. “Refreshers, energy drinks, and macchiato espresso coffees also helped U.S. sales during the quarter.”

This revamped and repackaged food line comes with an increase in cost to the consumer, which also may have contributed to Starbucks earnings this quarter. For instance, the new egg salad sandwich, complete with its new packaging, is priced at $5.25, compared to $5.15 prior to the makeover, and the new salad bowls are priced at $7. Starbucks has also recently increased prices on some of its drinks in U.S. cafes, some of which have not seen a price increase in almost two years. However, this markup is an increase that most consumers fail to notice — or at least don’t complain about — as Starbucks has positioned itself, and will continue to market itself, as an affordable luxury.