Coupons, daily deals help Starbucks boost results

Starbucks Corp. SBUX +9.05%said its profit edged up in the latest quarter, beating estimates, as it took promotional measures to draw in customers.

In the previous quarter, Starbucks had disappointed investors with its performance, in part because same-store sales growth began to flag. Chief Executive Howard Schultz said Starbucks took several measures in response to that slowdown that helped improve performance in the latest quarter.

In August the company reintroduced its "treat receipt"—a receipt given to morning customers enabling them to get a discounted drink if they return in the afternoon—even though it hadn't planned to offer that this year.

Starbucks followed that with an offer on daily deals site LivingSocial in early September that allowed people to redeem a $5 coupon for $10 of products. In less than 24 hours, 1.5 million people bought the coupon, many of them new customers who then signed up for rewards cards and became repeat visitors, Starbucks said.

That helped the company post same-store sales growth of 7% in the U.S. in the fourth quarter, driven by an increase in customer visits.

"We were rewarded by our customers for providing them with a value offering," Mr. Schultz said in an interview.

Mr. Schultz conceded that the company has to be careful not to rely too heavily on discounts and promotions, which can lead to short-term boosts in customer visits while eating into profits.

"We have to be very disciplined about doing that," he said. "We can't go to that well too often."

But many consumers clearly remain hyper-conscious about price. McDonald's Corp. MCD +0.07%recently reported a 3.5% decline in third quarter revenue and said it is now planning to focus its advertising on $1 items, after trying to steer people to pricier items.

Mr. Schultz said stronger results in the U.S. also were helped by sales of Starbucks fall pumpkin spice latte drinks and its new Verismo single-serve espresso machines. Revenue grew 11% to $3.36 billion. Operating margin widened to 15.4% from 14.8% a year ago.

For the fiscal fourth quarter ended Sept. 30, the Seattle-based coffee giant reported net profit of $359 million, or 46 cents a share, edging up from a year-earlier profit of $358.5 million, or 47 cents a share, which included a one-time 10-cent gain. The per-share figure outpaced Starbucks' own guidance in July that it expected earnings of 44 cents to 45 cents a share in the fourth fiscal quarter.

Same-store sales growth was strong in other parts of the world, except Europe. Growth in the overall Americas segment, which also includes Canada and Latin America, rose 7%. Its China and Asia-Pacific business posted 10% same-store sales growth. But its European business, which the company has been trying to turn around, is still struggling, having posted a 1% decline in same-store sales.

For the full fiscal year, Starbucks reported a profit of $1.38 billion, or $1.79 a share, compared with a year-earlier profit of $1.25 billion, or $1.62 a share. Full year revenue rose 14% to $13.3 billion. Analysts were expecting earnings of $1.78 a share on $13.3 billion in revenue.

Starbucks raised its fiscal 2013 earnings per share target to a range of $2.06 to $2.15, up from its previous guidance of $2.04 to $2.14.

Starbucks shares closed up 1.6% in 4 p.m. trading on the Nasdaq Stock Market, NDAQ -0.58%before the results were announced. The shares rose more than 7% in after hours trading following the report, to around $50 each.

"Since McDonald's and Chipotle and other high-profile restaurant companies have reported weaker numbers, there were thoughts that the same thing might happen with Starbucks," said Jack Russo, an analyst with Edward Jones. "I think there's relief on the part of the Street that we don't have another high-growth restaurant company taking down guidance."