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    Starbucks, Hershey To Create High-End Treats

    Candy maker reports falling profits, c-store sales.

    Starbucks Corp. has signed a deal with The Hershey Co. to create a line of premium chocolate products to be sold in U.S. Starbucks and other retail outlets later this year.

    The Starbucks-branded high-end chocolate will be created in part by Artisan Confections Co., a subsidiary of the Hershey, Pa -based company. The brand will "translate Starbucks coffeehouse flavors into delicious and distinct chocolate products," the company said. The chocolates will be sold in a food, drug, mass merchandise and other stores.

    "Creating a new chocolate platform is another way for us to extend the Starbucks experience outside of our stores and enhances the coffeehouse experience," said Gerry Lopez, president, Starbucks global consumer products group, in a statement.

    In other Hershey news, the nation's largest candymaker profit dropped 96 percent during the quarter because of costs to transform production lines and lift flat sales.

    Hershey also gave a disappointing 2007 earnings forecast. Profit is expected to decline about 5 percent, instead of rising about 4 percent to 6 percent, as it had said earlier this year.

    "Between unexpected weakness in premium chocolate and convenience stores, continued pressure from higher input costs, and a new competitive problem in the mint and gum arena, recovery now seems to us a protracted process," Bear Stearn's Terry Bivens wrote in a client note, as reported by the Associated Press.

    Specifically, Bivens noted that sales of the company's products in convenience stores are deteriorating, while sales of dark and premium chocolate were soft in the quarter.

    "For the company that sells more dark chocolate than anyone else to have lost market share despite a major brand launch and advertising push is surely disappointing to management," Bivens wrote in a client note.

    "Results for the second quarter were in-line with the expectations that were communicated in May," Richard H. Lenny, chairman, president and CEO said in a statement.

    "Higher dairy prices and a slower than expected improvement in the U.S. business adversely impacted results for the second quarter. Focused investment behind Reese's, Hershey's and Kisses delivered a 4-percent gain in retail takeaway on these brands. In addition, retail sales of dark and premium chocolate, behind stronger programming, achieved sequentially higher growth. However, this performance was more than offset by lower velocities of some previously introduced new items and heightened competitive activity within the refreshment segment. As a result, total retail takeaway was down slightly, 0.4 percent, for the quarter."

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