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Starbucks' forecast misses estimates after labour costs climb

Starbucks Corp, the world's biggest coffee-shop chain, delivered a first-quarter forecast that missed analysts' estimates, hurt by mounting costs for labor and technology.

[CHICAGO] Starbucks Corp, the world's biggest coffee-shop chain, delivered a first-quarter forecast that missed analysts' estimates, hurt by mounting costs for labour and technology.

Earnings in the period will be 44 US cents to 45 US cents a share, the Seattle-based company said in a statement Thursday. Analysts estimated 47 US cents on average for the quarter, which ends in December.

Chief executive officer Howard Schultz has been focused on improving the company's technology, aiming to speed up service and attract more customers. It rolled out mobile ordering in the US in September and then brought the program to Canada this month. Starbucks also has been spending more money on employees, doling out college-tuition benefits and a wage boost.

"We know that these investments are paying off - they're critical to the business," Chief financial officer Scott Maw said in an interview. The company will increase its spending on employees and technology next year by between US$100 million and US$125 million, he said. The costs totaled about US$145 million in fiscal 2015.

The shares fell 0.8 per cent to US$61.99 at 5:54 pm in late trading in New York. Through Thursday's close, Starbucks had gained 52 per cent this year.

Starbucks' mobile-payments system, which lets customers pay with their smartphones, now makes up about 21 per cent of US store transactions. The company also is rolling out mobile ordering to locations in the UK.

"Technology is what's driving their business, so they need to continue to invest in it," said Peter Saleh, an analyst at BTIG. "I think that's hands down a great investment." Fourth-quarter profit was 43 US cents a share, excluding some items, matching analysts' average estimate. Net income rose 11 per cent to US$652.5 million, and sales increased 18 per cent to US$4.91 billion, just beating analysts' US$4.9 billion average projection.

Starbucks has been trying to improve the quality and selection of its food to help increase sales domestically. It recently introduced seasonal items, such as apple pound cake, and new lunch items, including a peanut butter and jelly box, as well as a barbecue beef brisket sandwich.

The moves helped same-store sales in the Americas region climb 8 per cent in the quarter ended Sept 27. Analysts estimated a 6.9 per cent gain, according to Consensus Metrix. Global same-store sales also increased 8 per cent, beating the 6.9 per cent projection.

Declining coffee prices also have been helping Starbucks' profit. Arabica coffee prices have tumbled 28 per cent this year as better crop yields are expected from some of the world's biggest growing regions.

Comparable-store sales rose 5 percent in the company's Europe, Middle East and Africa division and increased 6 percent in China and Asia Pacific.

Excluding some items, profit in the current fiscal year will be US$1.87 to US$1.89 a share, the company said. Analysts have estimated US$1.88.