said it will raise prices to offset rising commodity costs.
Starbucks said late Wednesday it would implement targeted price increases "on certain beverages in certain markets" in response to the recent jump in the price of green arabica coffee, which it said was close to a 13-year high. It also noted volatility in the cost of other key ingredients, such as sugar, dairy products and cocoa, as a factor in its decision.
The company left open the chance that it could make further adjustments to its pricing, saying it would continue to monitor green coffee prices closely and that it "could not rule out the possibility" of lifting the price of its packaged coffee products in the next few months.
The move echoes that of fast-food operator
Wendy's Arby's Group
, which said earlier this month that rising commodity costs will hit its restaurants in the third and fourth quarters. Wendy's expects a 2% to 3% commodity increase for fiscal 2010. Higher raw food costs would likely undermine profit margins as fast-food restaurants are hesitant to raise prices in a weak economy, according to CFO Stephen E. Hare.
In a show of confidence that these moves would be enough to offset the higher ingredient costs, Starbucks reaffirmed its outlook for earnings of $1.36 to $1.41 per share in its fiscal 2011, which ends in September of next year.
Howard Schultz, Starbucks's president and CEO, said it had become "untenable" for the company to absorb the expense of the surge in green coffee prices any longer in a statement.
The company's plan calls for it to "maintain or lower the price of some of its most popular beverages, including certain espresso beverages; and, in most markets, its popular $1.50 tall brewed coffee; and to raise prices of labor-intensive and larger-sized beverages."
The current outlook of analysts polled by
is for Starbucks to post earnings of $1.43 per share in fiscal 2011.
Fourth-quarter and full-year results for fiscal 2010 are slated for Nov. 11 with Wall Street anticipating profits per share of 32 cents and $1.23 in the respective periods.
The stock closed Wednesday's session at $25.93, down 23 cents. The shares are up 13.4% year-to-date, but have pulled back 9% since hitting a 52-week high of $28.50 on June 21. Of the 19 analysts covering Starbucks, eight rate it at hold, five at buy and six at strong buy. The current median 12-month price target is $29.50.
Shares of Starbucks were 0.2% lower in morning trading Thursday.
Elsewhere in the food-service space,
, which competes with Starbucks for market share in coffee sales, announced early Thursday a 10.9% jump in its quarterly dividend.
The Golden Arches will now pay a quarterly dividend of 61 cents per share, up from its prior payout of 55 cents per share.
The new dividend will be available Dec. 15 to shareholders of record as of Dec. 1.
KFC and Taco Bell operator
also upped its shareholder payout recently.
to 25 cents per share this month. Yum! will pay the higher dividend Nov. 5 to shareholders of record on Oct. 15.
-- Written by Miriam Marcus Reimer in New York.
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