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Europe remains challenge for Starbucks

Danny Johnston/AP

Starbucks Corp. reported higher quarterly profit but global sales at established coffee shops fell short of analysts' estimates due to weakness in Europe.

Sales from cafes open at least 13 months fell 1 per cent in Europe, the Middle East and Africa (EMEA) during the quarter, but were up 8 per cent in the Americas and 18 per cent in the China-Asia Pacific region.

Analysts polled by Consensus Metrix were expecting same-stores sales to rise 2.2 per cent in EMEA, 8.1 per cent in the Americas, and 18.3 per cent in China-Asia Pacific.

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Starbucks chief financial officer Troy Alstead said the economy in Europe is "challenging."

Shares of Seattle-based Starbucks fell 4.9 per cent to $57.68 (U.S.) each in extended trading.

Same-store sales were down in Germany, which tends to be very sensitive to economic events, and rose just slightly in France and the United Kingdom, Mr. Alstead told Reuters in an interview.

Europe has been a weak spot for the world's biggest coffee chain. The region is grappling with debt woes and austerity measures and earlier this week, Britain said its economy had fallen into its second recession since the financial crisis.

Starbucks has dispatched an executive who was instrumental in its U.S. turnaround to revive its business in Europe.

The Americas account for most of Starbucks' revenue and operating profit, while the EMEA region contributes about 10 per cent of company revenue and just 2 per cent of operating profit.

Although EMEA brings in about twice as much revenue as Asia, it lags that region in operating profit because rent, labour and other costs are higher.

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While investors focused on Europe, results from the United States – which brews up most of the company's business – remained on track.

"The U.S. consumer has been very strong for us," Mr. Alstead said.

Net income at the world's biggest coffee chain was up almost 19 per cent to $309.9-million, or 40 cents per share, for the second quarter ended April 1.

Total revenue rose 15 per cent to $3.2-billion.

Starbucks returned to profit growth in 2010 after a two-year restructuring that involved slashing costs and closing nearly 1,000 cafes around the world.

Investors of Starbucks have seen shares of the company soar since the restructuring, rising from just under $10 in February, 2009, to a close above $60 on Thursday.

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