Starbucks Corp. (SBUX) said Thursday after the markets closed that its fourth quarter profit rose sharply from last year, as its cost cutting initiatives helped improve margins. The company's quarterly earnings per share, excluding items, also came in above analysts' expectations. At the same time, the company raised its earnings outlook for the fiscal year 2010.
The world's largest specialty coffee retailer reported GAAP net income for the fourth quarter of $150.0 million or $0.20 per share, compared to $5.4 million or $0.01 per share for the year-ago quarter.
Excluding restructuring charges, non-GAAP net income for the fourth quarter was $184.1 million or $0.24 per share, compared to $71.0 million or $0.10 per share in the prior year quarter.
On average, 18 analysts polled by Thomson Reuters expected the company to earn $0.21 per share for the fourth quarter. Analysts' estimates typically exclude special items.
GAAP operating margin for the quarter improved to 8.2% from 0.6% a year ago, while non-GAAP operating margin increased to 10.4% from 4.7% last year. The improvement was driven by cost savings initiatives, majority of which are the result of in-store operating improvements focused on labor efficiencies and reduced product waste, and lower non-store support costs.
The Seattle, Washington-based company said revenue for the fourth quarter fell 4% to $2.42 billion from $2.52 billion in the same quarter last year. Fifteen analysts had a consensus revenue estimate of $2.39 billion for the fourth quarter.
The company attributed the revenue decline mainly to the the impact of a stronger U.S. dollar relative to the British pound and Canadian dollar, 385 net fewer company-operated stores open in the quarter as compared to a year ago and a 1% decline in consolidated same-store sales.
The company's U.S. revenue for the fourth quarter fell 4% to $1.72 billion from $1.79 billion a year earlier due to lower revenues from fewer company-operated retail stores. U.S. same-store sales for the quarter declined 1%, due to a decrease in the number of transactions.
International revenue for the quarter fell 4% to $513.6 million from $533.6 million in the prior year quarter, hurt by the impact of a stronger U.S. dollar relative to the British pound and Canadian dollar.
Global Consumer Products Group revenue for the fourth quarter declined 2% to $188.1 million from $191.1 million in the year-ago quarter, due to lower foodservice revenues caused by continued softness in the hospitality industry, partially offset by higher revenues from packaged coffee.
"Starbucks strong performance in Q4 and fiscal 2009 overall is the result of our successful efforts to improve our customer and partner experiences, the initiatives and innovations we have introduced over the past 18 months and the significant, permanent changes we have made to our cost structure," said Howard Schultz, chairman, president and CEO.
For the fiscal year 2009, reported GAAP net income of $390.8 million or $0.52 per share, compared to $315.5 million or $0.43 per share for the fiscal year 2008.
Non-GAAP net income for the fiscal year 2009 was $598.2 million or $0.80 per share, compared to $525.8 million or $0.71 per share in the prior fiscal year.
Revenue for the fiscal year 2009 fell 5.9% to $9.77 billion from $10.38 billion last year.
Analysts expected the company to earn $0.76 per share on revenue of $9.74 billion for the fiscal year 2009.
Based on improving same store sales trends and the increasing impact of its cost savings efforts, Starbucks raised its earnings outlook for the fiscal year 2010. The company said it now expects fiscal 2010 non-GAAP EPS to grow in the range of 15% to 20%, compared to its previous guidance of 13% to 18% growth. The 15% to 20% growth implies fiscal 2010 non-GAAP EPS in the range of $0.92 to $0.96 per share. Analysts currently expect the company to earn $0.92 per share for the fiscal year 2010.
The company said it expects fiscal 2010 revenue to grow in the low-to-mid single digits, driven by modestly positive same-store sales, an extra week and about 300 planned net new stores.
For fiscal 2010, Starbucks targets about 100 net new stores in the U.S. and about 200 net new stores in International markets. Both the U.S. and International net new additions are expected to be mainly licensed stores.
To rationalize its global store portfolio, Starbucks has planned the closure of about 800 company-operated stores in the U.S., restructure its Australian business , and close about 100 other company-operated stores internationally. To this end, Starbucks said Thursday that nearly all of the about 800 U.S. stores, 61 stores in Australia and 40 stores in other international markets had been closed at the end of fiscal 2009. The remaining international store closures are expected to be completed by the end of fiscal 2010.
Starbucks had been struggling with poor U.S. sales growth due to slowing traffic and weakening demand amid the economic downturn. Competitors like Dunkin' Donuts and fast-food giant McDonald's Corp. (MCD) cut into Starbucks' customer base by launching their own lines of gourmet coffee. However, Starbucks seems to be turning around after closing stores and cutting costs.
Last year, Howard Schultz, who was the company's CEO from 1987 to 2000, returned to CEO role, replacing Jim Donald. Schultz' agenda included streamlining the company's management, improving the state of its U.S. business, slowing the pace of store openings and closing underperforming stores in the U.S.
"We are seeing broad-based improvement across our global business, and are cautiously optimistic about the upcoming holiday period," Schultz said Thursday.
Starbucks shares, which have traded in a range of $7.06 to $21.11 over the past year, closed Thursday's regular trading session at $19.70, up 49 cents or 2.55%. the stock is currently gaining 66 cents or 3.35% in after hours trading.
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