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Starbucks sees dairy, fuel costs pressuring profit

By Lisa Baertlein

LOS ANGELES (Reuters) - Starbucks Corp <SBUX.O> warned that rising fuel and dairy costs will take a bigger chunk out of earnings than previously anticipated, and offered a full-year forecast that disappointed Wall Street.

Shares of the world's largest coffee chain slid 1.6 percent after hours to $36.61 despite a stronger-than-expected 7 percent jump in sales at established U.S. stores.

The Seattle company said on Wednesday that higher commodity costs will slash earnings by 22 cents a share this fiscal year, more than the 20 cents it originally forecast.

Starbucks forecast fiscal 2011 earnings of $1.46 to $1.48 a share, up marginally from $1.44 to $1.47 previously but below the $1.50 analysts had expected on average.

"There's an opportunity for Starbucks to beat (the Wall Street) consensus," William Blair & Co analyst Sharon Zackfia told Reuters.

Still, she said surpassing analysts' full-year profit estimates would be more difficult than it was in 2009 and 2010.

"The bar has been raised," she said.

The coffee chain restarted profit growth in 2010 after a two-year restructuring that involved slashing costs and shuttering almost 1,000 cafes globally. Since then, investors have enjoyed quarterly profits that often topped analysts' views. Starbucks shares also have risen around 60 percent since the beginning of 2010.

Late last year, Starbucks started raising drink prices in the United States and China due to surging prices for coffee and other commodities. The company already warned that high coffee prices would trim profits this year.

Starbucks Chief Financial Officer Troy Alstead told Reuters the company had finished its market-by-market price increases. While Starbucks plans to "keep adjusting from time to time, here and there", he said no big price hikes were in the works.

High gasoline prices have not had a discernible impact on customer spending, said Alstead, who noted that traffic in the latest quarter rose 6 percent in the United States Same-restaurant sales rose 4 percent internationally.

Alstead said Starbucks does not plan to offset all of its higher commodity costs with price increases.

Starbucks has roughly 11,000 cafes in the United States and another 6,000 elsewhere around the globe.

Now that its U.S. business has stabilized, Starbucks is putting greater emphasis on international expansion. In particular, it plans to have 1,500 cafes in mainland China by 2015 -- nearly four times the current level. It also plans to more than double the number of South Korea outlets to 700 in five years.

Starbucks also looking for global growth by expanding the number of products it sells through grocery stores and other retail outlets. Investors are particularly interested in the company's plans to start selling so-called for K-cups for Green Mountain Coffee Roaster's <GMCR.O> popular single-serving brewer this fall.

Net income for Starbucks' fiscal second quarter, ended April 3, rose 20 percent to $261.6 million, or 34 cents per share, matching analysts' average view, according to Thomson Reuters I/B/E/S.

Japan's earthquake and the bankruptcy of cafe partner Borders Group Inc <BGPIQ.PK> weighed on profits in the latest quarter.

(Reporting by Lisa Baertlein; Editing by Steve Orlofsky)

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