Now That's Good Coffee! Will Starbucks Profits Predict Economic Recovery?
Do you remember a few months back when I wrote about the Starbucks Index? The basic gist was this: “In his February 19, 2009 editorial entitled 'Starbucks becomes a harbinger of the economy,' Jonathan Last of the Philadelphia Inquirer explained it best: 'Plot Starbucks’ stock price against the Dow Jones industrial average and you see that over the last four years, Starbucks has anticipated the market at nearly every turn.'”
During this weeks rash of second quarter coporate earnings, The Wall Street Journal reported, “Starbuck's posted a 37 percent gain in profit. Its sales rose, same-store sales jumped 9 percent, customer visits increased, and it hiked its dividend 30 percent.”
This is all great news. But, all this positive territory wasn't without effort, Starbucks had to reinvent itself in the face of this new economy. Via, the coffee giant's instant coffee invention has made a huge splash into the market place and is also readily available at grocery stores across the country. I think we can also attribute the shift in Americans' need to get back to normalcy. The plague of unemployment and dour economic sentiment has gone on for such a long time that the near $3.00 it costs to buy that venti bold pick-of-the-day, is burning a hole in our collective pockets. Americans want to start spending again.
Taking a look at Starbuck's performance (SBUX) over the last two years, the company is up 66 percent and the trend seems to be consistently moving in an upward position.
If I were going to wage my Grande Caramel Macchiato on the likelihood of a double dip recession, I would come in on the side of the bulls. We certainly aren't looking at the quick fix “V” shaped recovery everyone was banking on, but a more slow and steady approach. But come on guys, the “V” was too good to be true—typical instant gratification mentality. As the old adage goes—if it's too good to be true, then it probably is—except when your talking about the flavor of a perfectly brewed cup of coffee in the morning. Keep your eye on SBUX, let's hope that Main streets indicator of economic health is on the mark. Now that's good coffee—black as midnight on a moonless night.