Starbucks profit exceeds forecast but shares drop

New York: Starbucks reported a quarterly profit that topped Wall Street's view, but its shares fell as investors in the world's biggest coffee chain focused on softness in Europe rather than strength in the United States.

The company's shares, up roughly 45 per cent from a year ago and hovering near all-time highs, were off 2.2 per cent at $47.26 in extended trading on Thursday after closing at $48.34.

Starbucks and other top-performing restaurant chains like McDonald's Corp have been on a tear and their stocks often sell off on anything but absolutely pristine results.

Sales from cafes open at least 13 months were up just 2 per cent for the Europe, Middle East and Africa region (EMEA), versus the 9 per cent gain for the much larger America unit, chiefly from the United States.

Global sales at established Starbucks cafes jumped 9 per cent, helped by an increase in customer visits and spending per transaction. That beat the 7.7 per cent gain analysts, on average, expected, according to Thomson Reuters data.

Scorecard

Net income was $382.1 million (Dh1.4 billion), or 50 cents per share, for the quarter ended on January 1. That was up from $346.6 million, or 45 cents, in the year earlier period.

Operating margin for the EMEA unit was 6.5 per cent in the first quarter, down from 9.7 per cent a year earlier.

Starbucks said the margin contraction was primarily due to higher distribution costs related to moving to a consolidated distribution centre in its UK market.

Britain's recovery from the 2008-09 recession — the deepest since the depression-hit 1930s — has been sluggish.

Edward Jones analyst Jack Russo said results from Europe were weaker than expected, but that they needed to be seen in context.

"A 2 per cent comp is still pretty good considering what's going on over there," Russo said, referring to Europe's sales at established restaurants.

Based on its better-than-expected fiscal first-quarter results, the company raised the low end of its full-year profit forecast to a range of $1.78 to $1.82 per share from $1.75 to $1.82.

"They're being conservative. It's so early in the year," Lazard Capital Markets analyst Matthew DiFrisco said when asked about the company's revised fiscal 2012 forecast.