Starbucks Earnings: What to Expect

(Starbucks earnings preview updated with news of eGift card program and Seattle's Best coffee's iced canned lattes.)

SEATTLE ( TheStreet) -- Starbucks ( SBUX) is expected to post an 18% jump in fiscal first-quarter profits, and investors will look to the coffee chain for news on its plans for international expansion.

Starbucks is due to report its quarterly results after the closing bell Wednesday. Analysts' consensus call is for Starbucks to book first-quarter profits of $294.5 million, or 39 cents per share, on revenue of $2.93 billion. In the year-earlier fourth quarter Starbucks earned 33 cents per share on revenue of $2.72 billion.

As of Monday's closing price, Starbucks shares were 4.2% higher year-to-date after surging 39.3% in 2010.

Like food and beverage peers Yum! Brands ( YUM) and McDonald's ( MCD), Starbucks has been looking overseas for growth.

Earlier this month Starbucks announced plans to expand in India through a non-binding memorandum of understanding with India's Tata Coffee.

Under the terms of the deal the pair will collaborate on sourcing and roasting green coffee beans in Tata Coffee's Coorg, India-based facility, as well as jointly exploring "the development of Starbucks retail stores in associated retail outlets and hotels."

Starbucks-Tata is likely to start out by procuring green coffee beans from Tata's existing estates and roasting the beans in Tata's existing roasting facilities. Starbucks implied the pair will later look into investing additional facilities and roasting coffee for exports to other markets.

The announcement came a week after Starbucks unveiled a new wordless logo, a move CEO Howard Schultz said "gives us the freedom and flexibility to think beyond coffee."

A fair amount of consumer ire ensued, but a number of analysts have seen the change as a positive step for Starbucks as it looks to expand in global markets.



A Rice University study on consumer reaction to logos showed that Starbucks' new logo could prove beneficial in the long run as it expands in Asian markets. Vikas Mittal, a Rice professor of marketing and co-author of two studies on customers, logos and brand commitment, found that rounded logos are widely accepted in Asian countries such as India and China where interdependency and collectivism are cultural norms, as opposed to Western cultures which tend toward independency and individualism.

The professor said that while some loyal U.S. customers may feel alienated, Starbucks' new logo could drive new loyalties in strong emerging markets like China, India, Taiwan and Singapore.

In November Starbucks said it plans to open 500 stores this fiscal year, 400 of which will be outside the U.S. The company's China chief, Jinlong Wang, said Middle Kingdom customers can expect to choose from over 1,000 Starbucks locations in the "near future."

As in India, Starbucks also plans to grow coffee beans in China.

All its plans for international expansion led analysts from UBS to lift their price target on Starbucks shares, citing its global growth prospects.

UBS maintained a buy rating on Starbucks but lifted its price target by $5 to $37 citing higher earnings estimates for fiscal 2012 and beyond.

Analyst David Palmer noted that his new earnings estimates "reflect an acceleration of international unit growth, a reacceleration of U.S. unit growth, and the insourcing of the company's bagged coffee business in fiscal 2010."

Palmer's mention of Starbucks' expected insourcing of its bagged coffee business relates to the recent schism between Starbucks and its retail distribution partner, Kraft Foods ( KFT).


Other recent announcements from the coffee shop chain include Starbucks' planned roll out of the Trenta, a new 31-ounce beverage cup size meant for cold beverages like lemonades and iced teas and coffees, as well as nationwide rollout of a mobile payment option which allows customers to pay for in-store purchases with their BlackBerry smartphones, iPhone or iPod touch.

On Jan. 25, Starbucks debuted a new eGift program, an electronic form of its already-popular gift card program.

Starbucks said it sold more than $1.5 billion worth of Starbucks cards last year, a 21% increase year-over-year, and that one in five transactions at its stores are made using the cards.

The company hopes its eGift program will help it further tap into its more than 19 million Facebook fans and other potential customers online. The e-cards are customizable, with the option for personal messaging and scheduled delivery dates, and are sent directly to recipients' email accounts.

Separately, Starbucks said its Seattle's Best Coffee brand released a line of iced canned lattes following a successful test in certain West Coast markets last year. Starbucks hopes the new iced canned beverage line, which come in three coffee flavors, will help it expand into the $1.4 billion dollar U.S. ready-to-drink category.

Starbucks nearly doubled its share-buyback authorization program in the recent quarter which it attributed to its strong balance sheet and operating cash flow. In Nov. Starbucks said it added 10 million shares to the 10.1 million remaining on its authorization.

-- Written by Miriam Marcus Reimer in New York.

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