I'm Jacob Sonenshine, filling in for TheStreet's executive editor, Brian Sozzi. And yes, I'm predicting a beat for Starbucks' (SBUX) next earnings report. It's not like the stock's 2% year-to-date dip is necessarily some huge buying opportunity, and it's true that the U.S. coffee market is only expected to grow at a compound annual growth rate of about 3% for the next few years. Not so exciting, right?
There's a little surprise in there that I'll hang my hat on, though, and it's not just expertly roasted espresso beans. Starbucks is a consumer discretionary stock, which tends to do well when there's wage inflation. Well, not only did we just see average hourly earnings for nonfarm payrolls rise 2.9% year over year last month - the fastest rate in nine years - but we also saw a weak CPI reading, at 2.7%. This sounds like buying power to me. People are going to be frequenting Starbucks locations a bit more, and none of this was baked into Starbucks' earnings guidance in July.
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Starbucks can't lift its prices; it won't. It needs to continue its health push and speed up the process in stores (the app does help big-time). But sales volumes are a different story. We're going to see better-than-expected sales on the back of stronger demand.
While Dunkin' Donuts (DNKN) is revamping its stores to be faster, and making drinks that - to my taste buds - match Starbucks, its store revamping project will take some time. For the next six months, I like Starbucks. You can apply this logic to other consumer discretionaries, but people really mosey into Starbucks stores. Now add higher consumer demand.
More global trade issues, of course, remain a risk to that demand.