Starbucks profit up, reiterates 2007 outlook

NEW YORK (CNNMoney.com) -- Starbucks Corp. on Wednesday posted third-quarter profit and sales that met Wall Street's estimates.

The Seattle-based No. 1 seller of gourmet coffee drinks logged earnings per share of 21 cents, compared with 18 cents per share a year ago, and in-line with analysts' forecasts.

Revenue rose 20 percent to $2.36 billion, also in-line with estimates from analysts polled by Thomson Financial.

Sales at Starbucks (Charts, Fortune 500) locations open at least a year - a key measure of retail performance known as same-store sales - rose 4 percent in the quarter, fueled by purchases of its food and espresso-based drinks.

The company also reiterated its full-year 2007 profit guidance of 87 cents to 89 cents per share and said it expects same-store sales to increase 3 to 7 percent for the year.

Starbucks shares jumped almost 5 percent in after-hours trading on the Nasdaq. The stock rose 52 cents during regular trading to close at $27.20 on Wednesday.

"Despite the difficult operating environment of rising expenses, particularly higher dairy costs, we continued to execute on our growth strategy," Jim Donald, Starbucks president and CEO, said in a statement.

"We will strive to mitigate the impact of these cost pressures, while remaining focused on delivering service to our customers," he added.

The company last month raised U.S. prices for its coffee drinks by an average of 9 cents to offset rising costs for labor, milk and other commodities.

In a conference call with analysts to discuss Starbucks' results, Starbucks chief financial officer Michael Casey said higher dairy costs combined with higher rents and store operating expenses would modestly impact store traffic in the United States.

"We're not expecting a significant traffic decline but acknowledge the possibility that the price increases might have short-term negative impact on traffic," he said.

What's more, Donald said Starbucks was facing increased competition for market share.

"We're seeing super-premium coffee being offered in more locations than ever before," Donald said during the call.

To his point, fast-food chain McDonald's (Charts, Fortune 500) indicated last week that the company would aggressively dive into the gourmet coffee market as a new growth opportunity for the company.

McDonald's premium coffee sales rose 20 percent in its previous quarter. The company said it is also testing both hot and cold drip coffee and hot and iced espresso beverages.

Even so, Starbucks executives they're not feeling too threatened yet.

"The coffee category is still in its infant stages. We have less than 10 percent share of the total coffee consumption in North America and less than 1 percent internationally," Starbucks' chief operating officer Martin Coles, said during the call.

"The equity of the Starbucks brand is defined by the experience. As long as we continue to drive experience and differentiation from al others, we will continue to be the leader," he said.

For 2008, Starbucks forecast its earnings per share to grow 20 to 22 percent, revenue to grow 18 percent and same-store sales to rise from 3 percent to 7 percent.

Starbucks opened a record 668 new locations in the third quarter to a total of about 14,4000 locations worldwide. The coffee chain expects to open at least 2,400 new stores this year and another 2,600 locations next year.

The company said it would accelerate its international openings by 200 stores in 2008.

Donald told analysts during the call that he was confident that the company's U.S. business "has a solid foundation for future growth" which should allow it to open about 1,700 stores a year in its domestic market.