Starbucks to Open 500 New Stores

SEATTLE ( TheStreet) -- Starbucks ( SBUX) said the global economic recovery is prompting it to open an average of more than one store each day before the end of its current fiscal year.

"Our ability to navigate through the financial crisis and come out much stronger gives us reason to start growing the company again," CEO Howard Schultz told Bloomberg in an interview in China's Yunnan province.
Starbucks

Shultz told the news outlet that Starbucks plans to open 500 stores this fiscal year, 400 of which will be outside the U.S.

China will be the coffee shop chain's biggest growth market over the next two years, the report said, and Middle Kingdom consumers can expect to choose from over 1,000 Starbucks locations in the country in the "near future," according to the company's China chief, Jinlong Wang.

Shultz did not say how many of the new stores would be opened in China, but said "I think the opportunity that we have in China -- we've underestimated it in terms of the number of stores and the reach that Starbucks is going to have."

In 2008, Starbucks closed 600 stores in the U.S. it said were not profitable, many of which had been open just a few years, ending a period of rapid expansion.

In the same year, the company opened 1,669 stores, according to its website. In fiscal 2009, Starbucks closed 45 stores, and then opened 223 in fiscal 2010, which ended Oct. 3.

There are around 800 Starbucks stores in the Greater China region, Bloomberg reported, half of which are in mainland China, excluding Hong Kong, Macau and Taiwan.

Earlier this week, Starbucks shares garnered a wave of broker action following the coffee chain giant's better-than-expected quarterly report .

>>Starbucks Brews Higher Expectations

Equities research analysts from UBS, Barclays Capital , RBC Capital Markets and McAdams Wright Ragen raised their price target on Starbucks shares.

UBS reiterated a buy rating on the stock, and raised its price target by $2 to $33. Barclays maintained an equal weight rating and upped its price target by $4 to $30. RBC reiterated a sector perform rating on Starbucks shares, and set a new price target of $30, up $3 from its prior target. McAdams Wright Ragen reiterated a buy rating and raised its price target by $5 to $36.

Starbucks posted better-than-expected top- and bottom-line results for the third quarter last week. Quarterly profits jumped 8.9% to $278.9 million, or 37 cents per share. Revenue grew 17.2% to $2.8 billion.

>>Starbucks Percolates on Earnings Beat

Global comparable same-store sales, or sales at stores open at least one year, grew 8%. Global traffic increased 5%. Operating margins pushed sharply higher to 17.3% in the U.S. and 13.8% internationally in the quarter.

Starbucks reiterated its fiscal 2011 targets introduced over the summer for net new store growth of 500 -- including 100 in the U.S. and 400 internationally, the majority of which are expected to be licensed stores. It also targeted mid-to-high single-digit revenue growth based on a 52-week comparable year, driven by low-to-mid single-digit comparable store sales growth.

The coffee chain raised its fiscal 2011 EPS guidance to a range of $1.41 to $1.47 per share.

Starbucks maintained its 13-cent dividend , to be paid next on Dec. 3 to shareholders of record on Nov. 18.

S&P restaurant analyst Erik Kolb upgraded his rating on Starbucks shares to hold, from sell, following the earnings beat, noting its better-than-expected earnings and growth in comparable same-store sales, driven by higher traffic and average ticket price.

" Fiscal 2011 guidance gives us greater confidence in the viability of SBUX's turnaround efforts," he noted. "We now see 500 new store openings and slightly higher operating margins leading to continued EPS growth. However, currency is likely to remain a headwind."

The analyst raised his fiscal 2011 earnings per share estimate by 3 cents to $1.45, and lifted his 12-month target price to $32, from $20, on his updated peer price-to-earnings analysis.

In other Starbucks news, TheStreet recently reported that, likely as part of an overall strategy to differentiate itself further from the increasingly popular McCafe offerings at McDonald's ( MCD), Starbucks wants its baristas to slow down, preparing just two drinks at a time at most, and to take more care in preparing each beverage.

>>McDonald's Comps Grow 6.5% in October

In a separate endeavor, Starbucks is looking to start selling regional wine and beer, and a selection of local cheeses served on China tableware .

>>Starbucks Tests Alcohol, Cheese Offerings

Starbucks also recently announced that it would raise prices on some of its menu offerings to offset rising commodity costs .

The Seattle-based chain said the increases would be targeted to "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.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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