Starbucks tax woes give Costa extra shot

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  • Costa reported a 6.9 per cent increase in sales from its owned UK stores open at least one year
  • In its most recent financial year, FTSE 100 company Whitbread paid £84.4m of UK corporation tax

The public backlash over Starbucks' skinny UK corporation tax payments and a new range of festive drinks have helped rival Costa buoy third-quarter revenues at the Whitbread-owned coffee shop chain.

Costa on Tuesday reported a 6.9 per cent increase in sales from its owned UK stores open at least one year, boosted by changes to its menus, a new Christmas range and the woes of its US rival.

"It is difficult to define the impact of [the Starbucks tax issues] into the figures, but we remain the UK taxman's favourite coffee shop . . . Starbucks has taken a bit of a knock," said Andy Harrison, Whitbread chief executive.

Seattle-based Starbucks' 760-strong portfolio of UK stores has become a lightning rod for criticism and suggestions of a boycott since Reuters revealed in October that the coffee shop chain had paid no UK corporation tax in the past three years.

Last week, Starbucks caved in to public pressure and pledged to pay £10m in UK corporate tax in each of the next two years.

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In its most recent financial year, FTSE 100 company Whitbread paid £84.4m of UK corporation tax, with Costa's share some £18m of that.

"Costa's performance is likely to have received a boost from the negative publicity around Starbucks' tax affairs, although it has consistently reported this level of like-for-like sales growth over the past 18 months," said Simon French, analyst at Panmure Gordon.

    Mr Harrison said that Costa's UK stores had just experienced their busiest week in the company's history, with 3.8m customers contributing to record weekly sales of £10m.

    However, Whitbread on Tuesday cautioned that Costa's expansion into China had slowed over the year.

    "Our Chinese growth was 19 per cent in the first half, so when we say it has been a bit softer in the third quarter, we still mean double-digit growth," said Mr Harrison.

    The chain has plans for 330 net new stores worldwide and about 1,300 smaller Costa Express units in the financial year to March.

    In the 13 weeks to November 29, Whitbread reported total sales up 14.4 per cent compared with the same period last year.

    At Whitbread's Premier Inn division, like-for-like sales rose 2.5 per cent, as budget conscious travellers continued to opt for the group's mid-priced hotel rooms.

    However, a 0.7 per cent increase in revenue per room -- a key industry sales measure known as revpar -- was less than half the 1.5 per cent expected by analysts and down from 1.9 per cent in the first half.

    "On a like-for-like basis revpar actually declined during the third quarter, although it was still a clear outperformance compared with the market," noted analysts at Barclays Equity Research.

    The FTSE 100 group's restaurant unit, which operates the Beefeater and Brewers Fayre chains, reported sales up 1.9 per cent compared with last year, but again slower than the 3.4 per cent growth reported in the first half.

    Whitbread shares rose 3 per cent to £25.01 in early trading.

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