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Starbucks's Changes To Earnings Reports Highlight Growth In Asia

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   By Annie Gasparro 
   Of DOW JONES NEWSWIRES 
 

NEW YORK -(Dow Jones)- The changes to Starbucks Corp.'s (SBUX) earnings reports, starting later this month, will alter its look but enhance the coffee company's message: that its business in China and Asia is growing rapidly.

Beginning with the Jan. 26 release, Starbucks will report results separately for the China and Asia Pacific, or CAP, region; the Americas region; and Europe, Middle East, Russia and Africa, or the EMEA region. Previously, the company was organized as Starbucks U.S. and Starbucks Coffee International.

The new structure "will enable us to accelerate our global growth strategy," Chief Financial Officer Troy Alstead said on a conference call Friday. In addition, he said separating the underperforming EMEA will create added focus on that region, leading to a turnaround there.

Like McDonald's Corp. (MCD), Yum Brands Inc. (YUM) and other restaurant chains, Starbucks has made a big push in China and other emerging markets in recent years, where market growth has outpaced the U.S.

Starbucks said Friday that for the fiscal year ended Oct. 2, net revenue rose more than 35% in CAP, 6.8% in the Americas and nearly 10% in EMEA. While CAP is growing fastest, the Americas division remains the largest by far, representing 77% of Starbucks's consolidated revenue for fiscal 2011.

CAP contributed just 5% of consolidated revenue, but remains "a key focus area for our future growth," Alstead said.

Alstead said investors can expect to see the Americas' same-store sales relatively unchanged from that of the former U.S. segment, which was up 10% in the fourth quarter. Europe, in recent history, has been positive, but somewhat lower than that of the Americas and CAP, he added.

"At times, China by itself [saw same-store sales growth percentages] in the 20s and 30s. So that's very, very high, and so as a region, growth in that region is extremely high," Alstead said.

Over the past couple of years, Starbucks as a whole has topped the industry in sales. The company has been able to manage commodity inflation better than many of its competitors, through price increases and product innovation, both of which boost sales dollars.

Though Starbucks warned of higher commodity costs in fiscal 2012, in part due to locking in its coffee prices for the full year when they were higher, it also raised prices for brewed coffee in the Northeast and Sun Belt regions earlier this month to help make up for it.

In the coming report, Starbucks's smaller segments--the Consumer Packaged Goods division and "Other"--will remain relatively unchanged, except that much of the indirect overhead costs that were included in each region's operating income will be moved to the "Other" segment, as unallocated general and administrative expenses.

These include costs for indirect merchandising, manufacturing and back-office support teams, which "have become more global in nature and straddle the business as a whole" and thus "will now be managed at a corporate level," Alstead said.

The change will result in a $113 million increase to consolidated general and administrative expenses, with the increases in the "Other" segment directly offset by reductions in regional segment costs.

The direct costs for each region, such as salaries for the president of the division and his team, are still accounted for in the respective segments.

In July, Starbucks named its former international head, John Culver, as head of the China and Asia Pacific region. Cliff Burrows, who was president of the U.S. division, saw his role expanded to include Canada, Mexico and Latin America. Michelle Gass, who was president of the company's Seattle's Best Coffee, is overseeing the EMEA group.

Alstead says Gass's experience with Starbucks's turnaround in the U.S. in 2008 will help her to transform the EMEA business, which is traditionally a difficult region given its geographic and cultural breadth, as well as higher costs to do business.

Starbucks provided a recap of its previous three years' earnings reported in the new segmentation in a regulatory filing with the Securities and Exchange Commission on Thursday.

 

-By Annie Gasparro, Dow Jones Newswires; 212-416-2244; annie.gasparro@dowjones.com

 

(END) Dow Jones Newswires

January 13, 2012 16:43 ET (21:43 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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