Starbucks (SBUX) And The Recovery Of The Upper Classes

Starbucks (NASDAQ:SBUX) does not hand out information about the demographics of its customers, but they are not likely to be people who are poor, indigent, or even lower middle class. The coffee firm announced unexpectedly good earnings and offered a fairly optimistic forecast for its next fiscal year. For its quarter ending September 27, EPS grew from $.01 last year to $.20 and revenue dipped slightly to $2.4 billion.

It needs to be granted that much of the improvement in Starbucks’ bottom line was due to brutal cost cutting, but the tactic worked and that has helped the stock triple in less than a year.

The typical Starbucks customers is certainly someone who has a household income over $50,000 even though the firm has introduced some lower-priced products. Business people often use the company’s coffee shops which are filled with people using laptops and the Starbucks WiFi system. Stores are still places where customers can buy expensive coffee machines, DVDs, and copied of The New York Times.

The improvement in traffic that Starbucks says that it anticipates is a sign that the middle classes and perhaps the rich do not feel as poor as they did a quarter ago or certainly not as poor as they felt a year ago. A trip to Starbucks can still cost the price of a gallon of gas and $10 in coffee and food.

Because Starbucks is a fine indicator of the revival of retail activity among the middle classes, it will also be a good barometer of whether that revival continues Economists are still concerned about the chance of a double dip recession which would likely take down rich and poor alike . Rising unemployment could also take a renewed toll on Starbucks sales.

Starbucks is such an important bellwether for an important part of the economy that the government should ask it to start to release monthly same-store sales again.

Douglas A. McIntyre