Starbucks isn’t just the
world’s largest coffee chain, it’s also a bellwether stock. It tells us a lot
about what’s happening in the US and global economy,
and what might be coming ahead in the future. So what is Starbucks telling us? Well, we’ve received
recently some disturbing and somewhat surprising
news from this company. They’re telling us
that they’re not going to be able to continue
growing at a fast rate into 2020. One of the biggest
factors in their success in the last couple of years
has been the Trump tax cuts. Those are running out. And so the company is struggling
to achieve the same kind of 10 per cent year on
year growth they had seen before in
earnings per share. What are they going to do now? Well, one of the things
that Starbucks is doing, which is very
indicative of a larger trend in corporate
America, is share buybacks. They are pulling forward a
large number of share buybacks that they were expecting to do
in 2020, in order to continue buoying those results. And this really
speaks to the fact that corporate
America has been doing a shell game in
the last two years of issuing debt – cheap debt
– debt load at Starbucks has increased threefold in
the last couple of years, and then using that debt to buy
back their own shares in order to buoy the price. Now, this always works
because they’re artificially reducing the number of
shares on the market, but a lot of people,
like me, feel that it doesn’t really represent
a buy into a growth story. Share buybacks are not done
best at the top of a market, but really at the
bottom of a market. Which really says to
me that this is not a bet on future
growth of a stock, but rather an attempt
to manufacture a story for the street. Right now we have
stocks as expensive as they’ve been in
the US for 150 years and yet companies
are still continuing this game of issuing debt,
buying back shares and trying to keep stocks up. Now, Starbucks tells us
that they think that the US consumer is still buoyant. That’s important because many
people, including the New York Fed chair, Rob Kaplan
at the Dallas Fed, believe that the US consumer
is the one thing standing between the US and recession. The question is how long
can that buoyancy continue? When is the US consumer
going to really feel that perhaps not all is
well in corporate America? Well, it could be that
one bad jobs report, one bit of bad economic news,
could topple that confidence. And this puts in
mind of something that founder Howard Schultz
told me a few years back. I interviewed him in 2015
when the company was actually announcing very good results. But he stood up in front of a
number of Wall Street analysts and said that the US
consumer is fragile. That, since the great
financial crisis, consumers have become skittish. The first sign of bad news they
will button up their wallets. All we can do is
hope for the sake of the US economy and
the global economy that Starbucks’s consumers
and American consumers have had their double shot.

Tagged : # # # # # # # # # # # # # # #

14 thoughts on “What Starbucks tells us about the US economy | Rana Report”

  1. Starbucks is chiefly telling us how much money Americans are willing to pay for a cup of coffeeish drink.

  2. Hey Britain,you are an island! How did that European garbage get in and put the yoke on you ? They succeeded where Hitler failed ! Nazi descendants?

  3. People around here used to make a loong line at starbucks store. But with the new arising local coffee shops, starbucks really struggling. Now they even have pay 1 get 2 event a lot of the times.

  4. We need to hear more from Foroohar. Shame of FT for interrupting her talk with stupid music. Her message is clear and concise. Fire your music director and lower subscription fees.

  5. When wages are stagnant or keep falling, there comes a time when there will be insufficient consumers to keep the circus going.

Leave a Reply

Your email address will not be published. Required fields are marked *