Filed under: Consumer experience, Starbucks (SBUX), Marketing and advertising

One of the key features of any Starbucks Corp. (NASDAQ: SBUX) location is the pungent aroma that emanates from its stores. That smell, the trademark scent of coffee beans being roasted, is a main reason customers flock to Starbucks locations instead of the competition. Okay, make that the only reason; well, in my view.

In the last year, Starbucks began serving breakfast sandwiches and other non-coffee fare in its U.S. stores under former (and short-lived) CEO Jim Donald. Founder Howard Schultz has made it a point that opening a plethora of new stores and offering a bunch of new items was a reason for falling sales and disappointing performance for the company last year.

As such, Donald was pushed out and Schultz returned to the CEO spot just recently. His main reason: Starbucks was not the company he founded. The “experience” had been lost and the coffee retailer was in contention to become yet another ordinary coffee shop. Donald was following short-term Wall Street greed; Schultz could care less about that and said he will return focus to the consumer experience (which will bring its own returns).

Schultz, over and over, makes the point that Starbucks needs ambiance, including that trademark roasting smell, if it is to become successful again. He’s right — the smell and the quiet, homely atmosphere are its largest marketing pitches, more than store openings and new product offerings. Schultz plainly said it, “In short, the scent of the warm sandwiches interferes with the coffee aroma in our stores.” He then then announced that breakfast sandwiches are going away permanently and that the chain will also close 100 under-performing U.S. locations in order to slow down what he calls the “dilution” of the Starbuck’s brand. Again, he is correct. The chain should be exclusive to each area it serves, not plowing down the landscape with so many locations that the brand itself loses its luster.

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Filed under: Earnings reports, Consumer experience, Competitive strategy, Marketing and advertising, Procter and Gamble (PG)

Consumer products maker Procter & Gamble Co. (NYSE: PG) reported this morning a rise of 14% in its fiscal second-quarter profit, helped by higher sales and cost-cutting measures.

Strength in emerging markets that offset slower growth in North America and Western Europe made the company’s quarterly profit rise up to $3.27 billion, or 98 cents per share. P&G had reported a profit of $2.86 billion, or 84 cents per share, in the same period a year ago. Analysts, on average, expected Procter & Gamble show earnings of 97 cents per share.

The company’s results also show a 9% jump in revenue to $21.58 billion, up from $19.73 billion a year earlier. P&G said its increase in revenue reflects double-digit sales gains in such products as Head & Shoulders hair-care line and Duracell batteries. Analysts had forecast $21.25 billion in revenue, according to Thomson Financial.

Based on its strong earnings numbers, Procter & Gamble also lifted its full year earnings outlook. The company now anticipates earnings between $3.46 to $3.50 per share, compared with its previous forecast for earnings of $3.46 to $3.49. For the third-quarter, P&G also predicted earnings between 79 cents per share and 81 cents per share. Analysts had forecast quarterly profit of 83 cents per share and fiscal 2008 earnings of $3.49 per share.

As one of its competitive strategies, Procter & Gamble plans to split its coffee business into an independent company later this year. P&G said in its press release it believes “the transaction will be good for the coffee business as the business will get greater priority and attention as a standalone company.”

Folgers Coffee Co. , which had sales of $1.6 billion last year, will be headquartered along with P&G in Cincinnati. The company prefers a split-off transaction than a spin-off one for Folgers because in such a situation its shareholders wouldn’t have to pay any taxes. A split-off also will bring lower annual earnings dilution.

Regardless of the strong fourth quarter, I’d anticipate some selling in the stock this day as a result of its earnings outlook. Wall Street has definitely been weary of an economic slowdown, so any forward looking statements that don’t exceed Wall Street estimates are going to result in some selling. By forecasting 79 to 81 cents earnings per share for its third quarter (as opposed to the 83 cents Wall Street had been expecting), Wall Street might pounce on the stock, despite the company’s strong second quarter results.

The market is looking for a weak open this morning, as concerns over the slowing American economy have resurfaced yet again. Yesterday’s 50 basis point cut by the Federal Reserve does not appear to be having the immediate impact that many traders had been hoping to see. Perhaps the market had already priced in a possible 50 basis point cut and were actually hoping to see another 75 basis point cut.

PG looks to be set to open the day down a little under 1% according to premarket indications.

Eliza Popescu is a financial writer for the online investment advisory service Investor’s Observer.

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Filed under: Products and services, Consumer experience, Rants and raves, Marketing and advertising

The buzz in the music world lately has been about Paul McGuinness, the manager for Irish rock band U2, and his call for World wide web Service Providers to immediately disconnect users for downloading music illegally and for governments to enforce those new policies. Though the plea is rooted in good business for artists, each interpretation of it and reporting about it seems to focus on the money and paints music artists as greedy. More ominously, it makes it seem that artists and the managers who promote them have lost faith in their core support system: the fans.

McGuinness called for an end to ISP negligence by urging artists to fight against the “shoddy, careless and downright dishonest way they’ve been treated in the digital age.” He placed the blame on the record companies as well, due to the “lack of foresight and planning” that has “allowed a range of industries” to rise and give people the chance to steal music. He also pointed to computer companies for creating new methods of stealing and governments for allowing ISP’s to wash their hands of the illegal trading done via their services.

It’s important to see that this call for ISP’s to take a stance and do something is growing in popularity, but too often the calls just come out in the wrong manner. As the record industry and the music labels work to transition into new models of making the digital business work, even though they’re severely late in doing so, this call won’t stop illegal music trading. Just because consumers and fans use the internet to trade now does not mean it is a new phenomenon. Bootlegging has been around as long as the record industry and still continues outside the file-sharing problems. It might not be as big as it once was, but indicates that consumers will find alternate methods to trade music outside the legal system.

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MasterCard profit up on card use abroad
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Filed under: Marketing and advertising

Haute Couture icon Louis Vuitton will be entering uncharted waters with its first television ad campaign, a 90-second travel-themed commercial shot in France, Spain, India and Japan.

The company is calling it “the first ever on-screen corporate campaign by a luxury house.”

It’s a bold move by a company looking to expand its footprint in fast-growing markets like China, even though the ad will air worldwide. But I’m not sure if it’s the right move.

Just a few days ago, I wrote on WalletPop, our new personal finance blog, about the cooling demand for designer handbags. The reason? Fashion-forward consumers are concerned that the tops bags from the top designers have become all-too ubiquitous in current years, and no longer project an image of class and exclusivity.

A TV ad campaign could further turn off these consumers and do considerable damage to the brand’s cache. There’s a reason that Louis has opted not to do commercials in all its years as a top fashion home, and the abrupt shift raises questions.

Louis Vuitton is a division of LVMH Moet Hennessey L.V. (ADR) (OTC: LVMUY), publicly traded under an ADR under the symbol LVMUY on the Pink Sheets.

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Filed under: Products and services, Marketing and advertising

As investors from around the world gear up for some Super Bowl fun and excitement, one firm is hoping to score a touchdown from the hype surrounding the world’s most watched football

E*Trade (NASDAQ: ETFC), the beleaguered online broker, plans to spend as much as $4 million for two ads airing during this weekend’s Super Bowl.

Is this just some more post-boom, sock puppet lunacy?

Maybe, but today’s Wall Street Journal article doesn’t think so. As the troubled broker tries to re-cement its image and reputation, the article claims that “the Super Bowl distraction couldn’t come at a superior time.”

As I wrote recently, billion-dollar losses due to exposure to investments-gone-bad in mortgages and home equity loans have prompted the firm to seriously turnaround the company. After receiving an infusion of cash from a leading hedge fund and ousting its CEO, investors are betting the company can turn itself around. The stock is up 18% since the company reported earnings last week.

Who are you betting wins the Super Bowl?

Could be that E*Trade is the true winner.

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

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Filed under: Earnings reports, Forecasts, Competitive strategy, Marketing and advertising, Toyota Motor Corp. (TM)

Despite a shaky economy where recession concerns deepen each day, car demand is booming for at least one major auto maker. It looks like even in a recession people continue to need vehicles, and the good times are rolling for vehicle maker Honda Motor Ltd. (NYSE: HMC), which reported that its profit rose 38.1% in the third-quarter. For this period, Japan’s second-biggest automakers counted strong sales for its fuel-efficient models in the U.S., Europe and Asia.

Honda’s third quarter profit climbed to 200 billion yen ($1.87 billion), compared with 144.8 billion yen in the same period last year year. Cost-cutting also made the automaker post a record gain in its earnings numbers during the fiscal third quarter.

One of Honda’s best competitive advantages is its strong reputation for providing more fuel-efficient cars. Thus, the current surge in oil prices helped Honda’s sales to jump 10% to 3.045 trillion yen ($28.52 billion).

Analysts saw the company’s quarterly earnings as “spectacular,” but there are still some concerns about Honda’s future gains. One analyst at Credit Suisse, Koji Endo, expressed worries about the auto maker’s fiscal year that starts in April, citing a weak U.S. dollar.

A strong yen also could dampen Honda’s earnings by reducing the value of overseas earnings. According to the Japanese automaker, the dollar is expected to trade at 105 yen in the January-March period, which Endo sees as “tough even for Honda.”

On the other hand, the analyst believes North American automobile sales will continue to gain moderate growth, even during a subprime mortgage crisis.

Looking ahead, Honda anticipates a rise for its global sales. The company now anticipates a profit of 690 billion yen ($6.46 billion) for the fiscal year ending March 31, which is up 16.5% from fiscal 2006. For its sales number, the automaker forecasts an increase of 9.6% from the previous year, but it cut its fiscal year sales outlook to 12.150 trillion yen ($113.82 billion) from an earlier 12.300 trillion yen.

For the next year, Honda intends to create a new hybrid model that runs on gas and electricity, and its sales are expected to reach 200,000 automobiles a year. The company’s strategy based more on hybrid offerings should help Honda to face strong competition from rivals such as Toyota Motor Corp. (NYSE: TM). Honda also expects its sales will grow in South America, and it is planning to expand its production in Brazil and Argentina.

Honda shares are rising 2.9% in early morning trading.

Eliza Popescu is a financial writer for the on the web investment advisory service Investor’s Observer.

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Filed under: Earnings reports, Bad news, Yahoo! (YHOO), Marketing and advertising

Yahoo Inc. (NASDAQ: YHOO) Chief Executive Jerry Yang today promised good things to patient investors. Wall Street, though, wanted more immediate gratification from the fourth-quarter results and sent shares slumping in after-hours trading.

“While we will continue to face headwinds this year, we believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash flow growth in 2009,” stated Yang, who replaced Terry Semel last year, in the earnings release.

Results in the latest quarter were, as expected, pretty bad. Net income was $206 million, or 15 cents per share, compared with $269 million, or 19 cents, a year earlier. The results beat the 11-cent average estimate of analysts surveyed by Thomson Financial. Revenue excluding so-called traffic acquisition costs rose 14% to $1.4 billion, a tad below analysts’ estimates of $1.41 billion.

Once again, Yahoo is promising that things will get better. “We still have a tremendous amount of work to do, but we’re confident we have the ability to substantially improve our users’ experiences and achieve meaningful incremental monetization opportunities for Yahoo!’s own ad inventory and that of our partners,” stated the company’s well-regarded President Sue Decker.

Wall Street has heard this story before.

Yahoo now must walk the walk as well as it speaks the talk.

See the full transcript of the conference call.

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Filed under: Earnings reports, Google (GOOG), Yahoo! (YHOO), Marketing and advertising

Yahoo! Inc. (NASDAQ: YHOO) Chief Executive Jerry Yang is going to have to convince investors that the company he helped found in 1995 still matters when it reports fourth quarter results later this day. It’s not going to be easy.

The most visited Web site is expected to report its eighth straight quarter of declining profit. according to Bloomberg News. Analysts surveyed by Thomson Financial are anticipating an average profit of 11 cents on revenue of $1.41 billion. Expectations, to put it kindly, are real low.

The view of Sanford Bernstein analyst Jeffrey Lindsay quoted by Bloomberg that Yahoo “just isn’t generating anything like the resources they need to really stay in the game” is typical. Yahoo shares have plunged more than 27% over the past year.

Unfortunately, Google Inc. (NASDAQ: GOOG) isn’t the only company taking a bite out of Yahoo which trails the search engine giant in each conceivable metric. Social networking sites such as Facebook continue to siphon away young users coveted by advertisers as are smaller niche sites, forcing Yahoo to offer rate discounts to advertisers.

But there are a few reasons to remain optimistic.

Yahoo continues to attract a large audience which advertisers can’t ignore. In an economic downturn, advertisers might shift dollars away from traditional media to the portal because it is so cost effective. Any improvement in its search market share would help its bottom line even if it continues to fall short of Google. Yahoo also is in the midst of trimming costs including layoffs.

Maybe, a leaner more focused Yahoo will emerge once the dust settles. Then again, investors have waited for a Yahoo turnaround for a long time and their patience is wearing thin.

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