Starbucks profit signals recovery

By Lisa Baertlein

LOS ANGELES (BestGrowthStock) – Starbucks Corp (SBUX.O: ), McDonald’s Corp (MCD.N: ) and other U.S. restaurant chains reported quarterly results showing the turnaround already priced into restaurant stocks is finally at hand.

Shares in the Dow Jones U.S. Restaurant and Bars index (.DJUSRU: ) are up 16.5 percent so far this year, double the gain seen by the S&P 500 (.SPX: ), largely on the expectation that the restaurant industry would return to growth.

But on Wednesday, expectations finally moved closer to reality as McDonald’s, Starbucks and Chipotle posted better-than-expected profits on accelerating sales at established restaurants — a closely watched industry performance gauge.

“I think it’s quite plausible that this is the turn,” said Bernstein Research analyst Sara Senatore, who added that the better results arrived later than improving U.S. economic trends would have suggested.

McDonald’s kicked off the day by reporting first-quarter earnings that outpaced analysts’ forecasts on better-than-expected March sales at established restaurants in the United States and Europe.

The fast-food giant said sales at U.S. restaurants open at least 13 months rose 4.2 percent in March, topping analysts’ call for a 1.6 percent rise.

McDonald’s U.S. same-restaurant sales fell almost 1 percent in January and rose almost 1 percent in February.

McDonald’s, which is stealing share from other fast-food chains and turning up the heat on Starbucks with drinks like its frappes, said its new breakfast Dollar Menu and coffee sales helped drive the quarterly earnings gains.

“They’re not getting it from us,” Starbucks Chief Executive Howard Schultz said on a conference call, referring to McDonald’s potentially gaining ground in coffee sales.

The cafe chain said customer visits to U.S. stores increased during the March quarter, the first quarterly rise in more than three years. That helped Starbucks post a 7 percent rise in U.S. same-restaurant sales and a profit that topped Wall Street’s view.

Based on that quarterly profit beat and other factors, Starbucks also raised its full-year profit view.

“Consumers are feeling a bit better and probably everybody in the industry is getting some benefit from that,” Starbucks Chief Financial Officer Troy Alstead told Reuters.

“We feel confident we’re seeing a recovery, I’d also caution that we also see unemployment remaining high. That’s going to weigh on the whole sector for a long time,” said Alstead, who added that it would likely be a long time before the industry makes a full return to health.

Meanwhile, shares in many restaurant chains have risen significantly, leaving little room for further gains. As a result, McDonald’s and Starbucks stocks barely budged after Wednesday’s upbeat results.

Year-to-date McDonald’s and Starbucks shares have gained 13 percent and 10 percent, respectively.

Chipotle Mexican Grill (CMG.N: ), whose stock is up 44 percent this year, said same-store sales were up 4.3 percent during the first quarter, more than double the rise in the prior quarter.

The Denver-based company, known for selling Mexican fare made with premium ingredients like naturally raised meats, said that increase fueled a 49 percent profit rise in the March quarter.

Even high-flying chains are seeing sales improve.

Late on Tuesday, Panera Bread Co (PNRA.O: ) raised targets for 2010 earnings after same-store sales at company-operated restaurants jumped 10 percent during the first quarter.

That was better than the prior quarter’s same-restaurant sales rise of over 7 percent.

Shares in St. Louis-based Panera, which is one of the top performing U.S. restaurant chains, are up 27 percent so far this year.

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(Reporting by Lisa Baertlein; Editing by Tim Dobbyn)

Starbucks profit signals recovery