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What to Expect from Starbucks

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Recent strategic changes should boost its bottom line.

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The coffee king will provide a window into the consumer's mind when it announces earnings later today. Analysts expect Starbucks (SBUX) to report fourth-quarter earnings of about $0.21 per share on revenue of $2.4 billion compared with earnings of a penny per share on revenue of $2.5 billion for the same period a year ago.

The expected higher earnings are attributed to the company's decision to cut prices on easy-to-make beverages while boosting prices on more complicated drinks. Look for same-store sales to show improvement as the recession eases and the company's cost-cutting efforts to begin to pay off. Earnings estimates range from $0.19 to $0.22 per share.

Keep an eye on sales of Starbucks' new instant coffee, Via Ready Brew. Starbucks announced the product September 29 in a national television ad campaign, an unusual move for the company.

Other recent developments at the coffee chain include plans to end the use of artificial flavors in its baked goods in an effort to make them more "wholesome" and appealing to customers.

Starbucks also plans to end its year-old "Gold" loyalty program that offered members a 10% in-store discount. The plan required a $25 fee and will be replaced by a free My Starbucks Rewards program on December 26. Participants will receive a star each time they use a Starbucks card to pay for a drink. The goal: increase payments with the Starbucks card and end the 10% discounts. Rewards come in three levels and include a free birthday beverage, free wi-fi access for two hours a day, and free brewed coffee refills.

Starbucks has closed stores and cut staff in response to the recession, but it provided a bit of good news when it said it will keep open 27 stores out of the 800 that had been scheduled to close. The decision came after a second look at those outlets' income statements.

The company said it plans to take control of its locations in France. Starbucks and Spain's Sigla SA each had a 50% stake in the operations in France, Spain and Portugal prior to the deal that calls for Starbucks to take control of the operations in France while Sigla SA focuses on Spain and Portugal. Starbucks didn't release terms of the deal.

In the US, Starbucks has 7,087 company-operated stores and 4,081 licensed stores in 50 states and the District of Columbia. Starbucks' competitors include Caribou Coffee (CBOU), the second-largest non-franchised coffee chain in the US with 414 company-owned stores and 97 franchised locations, Peet's Coffee & Tea (PEET), McDonald's (MCD), and Dunkin' Donuts.

The Associated Press contributed to this report.

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Copyright 2009* [Minyanville]. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.

No positions in stocks mentioned.
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