Coffeehouse giant Starbucks (Nasdaq:SBUX) continued its string of impressive quarterly growth with a 18% increase in profit in the fiscal second quarter ended April 1, 2012. During the quarter, Starbucks said it earned $309.9 million, or 40 cents per share versus a profit of $261.6 million, or 34 cents per share, in the year-ago quarter. Revenue during the latest quarter rose to $3.2 billion, up from $2.79 billion a year ago. Analysts on average expected a profit of 39 cents per share on revenue of $3.18 billion, respectively.

Europe Needs a Pick Me up

Despite the growth and numbers that beat expectations, Starbucks shares slid by over 5% on the earnings news. The stock decline even came after the company boosted its full year guidance. That's because the current European financial crisis hurt the company's European operations. Europeans consume a lot of coffee and current weakness in the regions has analysts concerned about the company's future results going forward. While overall global revenue at cafes open at least a year grew by 8%, sales in the Europe, Middle East, and Russia-region declined by 1%. But that overall decline was a result of significantly weaker results from Europe. Starbucks management alluded that the business conditions Starbucks is facing in Europe is similar to what was experienced in the U.S. in 2008 and 2009.

Saved by China

Like many other trendy brands, Starbucks benefited from strong results in China. Sales grew by 18% in the China and Asia Pacific regions, the company's strongest results. Last week, another iconic U.S brand, Apple (Nasdaq:AAPL), delivered smashing results thanks to immense demand in China for iPhones. Starbucks, however, is focused on improving operations in Europe and company CEO Howard Schultz pledged that the company will fix the European business just as it fixed the U.S. operations.

Investors are counting on it. Even after the share price decline, SBUX shares trade for 34 times this years earnings. That's certainly a valuation that views Starbucks as strong growth company. But the company's valuation is not out of line with other trendy food brands like Panera Bread (Nasdaq:PNRA) and Chipotle (NYSE:CMG). Investors continue to bet on the future growth of these businesses, as as each company's price continue to trade at or near all-time highs and very generous P/E multiples.

The Bottom Line
Starbucks too, is counting on that growth. With over 17,000 cafés worldwide, the company plans to add 1,000 new locations this year most of which will go in high growth region in Asia. That's a good thing for investors if shares are to continue perking up.

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Tickers in this Article: SBUX, AAPL, CMG, PNRA

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