Starbucks just signalled a terrifying sign for the US economy

Starbucks’ same-store sales trends are magnifying Wall Street’s concerns about a restaurant recession.

The coffee chain is a bellwether for the restaurant industry, boasting more than six years of positive quarterly same-store sales at or above 5%.

But recently, growth has been stagnating.

Sales at stores open at least a year grew 4% in the fourth quarter, the company reported Thursday. Analysts had expected 4.9% growth.

That’s still pretty strong growth, but it’s not strong enough to quell fears about the restaurant industry as a whole, according to Deutsche Bank analyst Brett Levy.

In a note on Starbucks titled, “This restaurant landscape continues to give us jitters,” Levy said it’s concerning that even Starbucks has been unable to fend off challenging pressures facing the restaurant industry.

“The sales slowdowns have even reached Starbucks, a company that: 1) continues to execute on the product front (beverage/food), 2) is leading the retail charge in the digital revolution, and 3) successfully expanding its global foot print,” Levy wrote. “We believe these factors speak to the ongoing pressures across the restaurant landscape.”

He said analysts “cannot look past” Starbucks’ near-term sales slowdown or lowered earnings-per-share outlook.
“We view Starbucks as a best-in-class restaurant company, but we are cautious on the recent sales and earnings trends,” he wrote.

Analysts have been warning about a potential restaurant recession for months.

In a research note published in July, Stifel analysts argued that US restaurants were showing signs of heading toward a sector-wide recession.

More recently, Moody’s slashed its operating-profit growth forecast for the industry and revised its outlook to stable from positive.

“Consumers are wrestling with higher nondiscretionary spending needs, while restaurant companies face higher operating costs, predominantly labour and challenged traffic trends,” Moody’s analyst Bill Fahy wrote in a note.

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