Starbucks 2nd-quarter profit rises as food offerings become a bigger driver to cafes

NEW YORK, N.Y. – Starbucks said Thursday its revamped breakfast sandwiches and other food offerings helped boost sales at its U.S. cafes.

The Seattle-based coffee chain posted a higher quarterly profit, as sales rose in regions around the world. In its flagship U.S. market, sales at established cafes increased 7 per cent. Earlier in the day, Dunkin’ Donuts had reported a disappointing increase of just 1.8 per cent, with executives citing intensifying competition in the breakfast category.

In a conference call with analysts, Starbucks CEO Howard Schultz said food has become a strength and drives traffic to cafes, and that the company was just getting started in its efforts in improving its lineup.

“Food at Starbucks, I think we can all admit, for many, many years was a weakness and a challenge for us,” Schultz said.

Starbucks, like Dunkin’ Donuts, is trying to convince more customers to get something to eat when they come in for a drink. It’s also trying to draw people into its cafes later in the day, when stores are typically less busy after the morning rush. The push has included the introduction of new salad boxes, and more recently two new lunch sandwiches, including a grilled cheese variety.

Troy Alstead, chief operating officer for Starbucks, said in a phone interview that sales of breakfast sandwiches are up 40 per cent from a year ago. Starbucks has also been rolling out new baked goods in its cafes, although the change has run into hiccups. After customers complained about the new shape and size of its cake loaves, Starbucks brought back sliced varieties.

During the quarter, Starbucks also introduced its “Oprah Chai,” a version of chai tea marketed with Oprah Winfrey. To boost the beverage business in the later parts of the day, the company also introduced its “Fizzio” sodas in cafes throughout the Sunbelt. Alstead said the Fizzio offering should be expanded throughout much of the U.S. by next summer.

Globally, Starbucks said sales at established locations rose 6 per cent for the quarter. That also included a 7 per cent increase in the Asia region. The unit encompassing Europe, the Middle East and Africa saw a 3 per cent increase.

The company now expects to earn $2.70 to $2.72 per share this year. It previously said it expects to earn $2.62 to $2.68 per share.

For its fiscal 2015, Starbucks said it expects global comparable sales to increase in the “mid-single digits.” Earnings per share are expected to grow 15 to 20 per cent from its core earnings for fiscal 2014.

For the quarter, Starbucks Corp. earned $512.6 million, or 67 cents per share, a penny more than analysts expected.

A year ago, it earned $417.8 million, or 55 cents per share.

Revenue rose to $4.15 billion, above the $4.14 billion Wall Street expected, according to FactSet.