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Starbucks Earnings Benefit From Lower Coffee Expenses

NEW YORK (TheStreet) -- Starbucks (SBUX - Get Report) posted in-line fiscal second-quarter earnings on Thursday, helped by lower coffee costs, but revenue fell short of Wall Street's estimates. Still the coffee chain bumped its EPS guidance for fiscal 2014.

The Seattle-based company said quarterly net income attributable to Starbucks rose 9.4% to $427 million, or 56 cents a share, for the March 30-ending quarter. That number excluded a 3-cent non-routine gain in 2013 related to the sale of the company's equity in its Mexico joint venture. Starbucks had guided in its first-quarter earnings for the second quarter EPS to be in the range of 54 to 55 cents a share. Analysts, according to Thomson Reuters, expected the company to report earnings of 56 cents a share, up 9% from last year.

However, revenue fell short of expectations. Starbucks posted revenue of $3.87 billion, up 9% from the year-earlier quarter compared to estimates of $3.96 billion. Operating margin for all of Starbucks reporting segments rose 130 basis points to a second-quarter record of 16.6% vs. 15.3% in last year's quarter, "primarily driven by lower commodity costs and sales leverage," the company said.

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That said, Starbucks same-store sales comps exceeded analysts' expectations. Starbucks as a whole saw comps rise 6% in the quarter, compared to consensus expectations of 5.4% by Consensus Metrix. Comps in the Americas also rose 6% in the quarter compared to an expectation for 5.4%. In emerging markets comps also rose 6% compared to a 4.5% estimate. The only geographic area where comps fell short of expectations was in China and Asia Pacific. Analysts were expecting comps of 8.4% but actual comps came in at 7%.

"Starbucks record operating performance in Q2 demonstrates that our focus on building a different kind of company -- performance driven, through the lens of humanity -- continues to drive profits and shareholder value," said Howard Schultz, chairman, president and CEO of Starbucks Coffee Company. "The innovation we are bringing to market through reinvention of our Teavana business and partnership with Oprah Winfrey, our reimagination of the Starbucks Experience through next-generation payment and loyalty programs and our continued investments in the over 200,000 Starbucks partners who wear the green apron every day continues to build equity in the Starbucks brand and strengthen our connection to customers in every market in which we operate."

Starbucks bumped its fiscal 2014 earnings guidance. It now expects annual EPS in the range of $2.62 to $2.68 a share. It had previously said it expected annual EPS in the range of $2.59 to $2.67 a share.

The company reaffirmed that global comps are expected to rise in the mid-single digits for the year. It also said third-quarter earnings would likely be in the range of 64 cents to 66 cents.

"Starbucks strong second quarter performance demonstrates the success of our ongoing efforts to drive industry-leading growth," CFO Scott Maw said in a statement. "While global comparable store sales growth of 6% was impressive, and squarely in line with our targets, even more significant is the fact that we delivered strong, and balanced, revenue and profit growth across all of our reportable segments. The strong momentum we have created in the first half of the year, combined with our robust pipeline of innovation, give us confidence in our ability to meet our fiscal 2014 growth targets."

Starbucks shares were rising 1.3% to $72.01 after the markets closed.

-- Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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