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Starbucks raises outlook as turnaround signs mount

Starbucks Corp raised its financial forecasts for 2010 in the latest sign a year-long turnaround effort is boosting margins and putting it back on track for growth, sending shares up almost 4%.

The company, which posted an expectations-topping fourth-quarter profit on Thursday, increased its target for fiscal 2010 growth in earnings before items to 15% to 20% from 13% to 18% previously.

After shuttering more than 900 cafes - mostly in the United States - and slashing overhead costs, the Seattle-based chain is throwing off significant cash. That has growth-hungry investors and analysts pushing for expansion in China and Europe.

Accelerating international growth plans “would reinforce that this is still a growth company,” said Jesup & Lamont analyst Greg Schroeder, who added that the United States accounts for less than 20% of global coffee consumption.

While the company has yet to make a decision on cash allocation, Chief Executive Howard Schultz said he saw the potential for thousands of stores in China, the world's No. 3 economy. Starbucks has nearly 700 cafes there now.

Starbucks current 2010 forecast calls for 100 net new stores in the United States and around 200 net new international cafes.

Starbucks also beat Wall Street's profit target in the fiscal third quarter, sending up the first signal that performance was improving at a company that had expanded at a frenetic pace -- just before the US economy turned.

Chief Financial Officer Troy Alstead told Reuters that more people are visiting Starbucks' cafes and spending a bit more money when they do, a trend that started in the third quarter and gained momentum toward the end of the fourth.

Starbucks' net income for its fiscal fourth quarter, ended September 27, was $150 million, or 20 cents per share. A year ago, its net income was $5.4 million, or 1 cent per share.

Excluding items, Starbucks earned 24 cents a share in the latest quarter, topping analysts' average forecast of 21 cents, according to Thomson Reuters I/B/E/S. (Reuters)