Starbucks Hopes a Price Hike Perks Up Profit

Starbucks (SBUX Quote) is raising its prices in a move that may help keep its shares piping hot.

The coffee shop chain quietly announced on Monday that it will be increasing beverage prices at all company-owned stores next month, marking the first time the company has raised prices in more than four years.

Analysts expect the move to help boost sales. "I think they'll be able get away with the price increase without upsetting too many customers," said Carl Sibilski, who covers the company for Morningstar. "This is more of an efficiency issue for them. It's a way to squeeze more out of their existing stores." (Sibilski does not own shares of Starbucks and Morningstar does not do investment banking.)

Starbucks' stock is trading at about 50 times the company's earnings over the past 12 months, a fairly pricey multiple. The only way for investors to justify that valuation is if the company is able to maintain its rapid growth rates -- and its bottom line.

To date, much of Starbucks' revenue growth has come from opening new stores. Through the end of June, the company had opened some 1,378 company-owned and licensed shops over the previous year. That represented about a 20% increase in the company's store count from the previous year.

But there's some debate about how long the company can continue to augment its store base at that rate, particularly when cities like New York and San Francisco seem to have a Starbucks on every corner.

"They want to be able to point to the Street and say they've got 20% revenue growth," said Dennis Milton, who covers the company as an equity analyst for Standard & Poor's. That's fairly easy for a company to do if it is expanding its store count by 20% or more each year, Milton noted. "But their store base is getting so large that they're no longer getting 20% [store count] growth any more." (Milton has no position in Starbucks shares and Standard & Poor's does not do investment banking.)