Starbucks Hikes Expansion Plans to 40,000 Stores

SEATTLE – Starbucks Corp. (SBUX) on Thursday raised its long-term expansion goal to 40,000 stores from 30,000 and said it was nowhere close to exhausting opportunities in North America, even as possibilities appear internationally.

The company, known for its ubiquity in parts of the United States, expects to have 20,000 outlets in the United States and 20,000 internationally, James Donald, chief executive, said in a meeting with analysts in Seattle.

He did not give a specific time-frame for that target. The previous target was also equally split between North America and international markets.

The world's largest coffee shop chain had 12,241 locations at the end of fiscal 2006, which ended October 1, and $7.8 billion in full-year revenue.

Starbucks said its customer base was broadening, with more Hispanics, females and less affluent and less highly-educated customers buying its coffee.

Donald forecast having 14,641 stores by the end of fiscal 2007.

"We don't believe that we are even 50 percent through to the unique opportunity we have in North America," founder and Chairman Howard Schultz said during the meeting.

"We are extremely pleased with the development of our international business and see it as a huge opportunity, but as we sit here today, we have never been more enthused and more aggressive about the unique opportunities we have to expand the footprint in existing cities across America."

Starbucks shares were up $2.52, or 7 percent, at $38.48 on Thursday afternoon on Nasdaq after the company on Wednesday afternoon posted a 6 percent increase in same-store sales for September, topping analysts' estimates.

NOT JUST JAVA

To drive sales momentum at its U.S. stores, Starbucks in recent years has added lunch items such as salads and sandwiches and has also boosted its entertainment offerings.

The company has parlayed successful sales of music compilation CDs into a small but profitable business that has included deals for exclusive content with musicians such as Alanis Morissette and Bob Dylan.

As part of that strategy, the company on Thursday said it struck a deal with Apple Computer Inc. (AAPL) to put "Starbucks Entertainment"-branded offerings on its popular iTunes digital music store.

The company did not pay a fee to become a part of iTunes, Chief Financial Officer Michael Casey said.

Starbucks, which has stores in 37 countries, has said it expects China, where it has more than 400 stores, to one day be its biggest market outside the United States. Chief Financial Officer Michael Casey said in August that the company could have as many as five or 10 times the number of stores there than it has today.

The company also mentioned Brazil, India and Russia as other major growth opportunities.

Starbucks this week raised drinks prices by 5 cents a cup in a bid to offset higher costs for fuel and labor. Analysts expect the move to boost its sales and earnings and do not expect customers to be spooked by paying an extra nickel for their morning cup of coffee.

But Starbucks also faces stepped-up competition from fast- food chains such as Dunkin' Donuts, which is rolling out a new store design that is more like Starbucks, and McDonald's Corp. (MCD), which now offers a stronger blend of coffee.