What Are Starbuck's, McDonalds and UPS Telling Us About the Economy?

U.S. economic activity deterioriated more rapidly than expected during the quarter.

- Scott Davis, Chairman and CEO, United Parcel Service (UPS)

We see no signs of economic strengthening in the second quarter.

- Kurt Kuehn, CFO, UPS

Contributing to the softness in revenues for the quarter was a mid-single-digit decline in U.S. comparable store sales, driven by decreased traffic. Of note, the California and Florida markets, where consumers have been especially impacted by the effects of the downturn in the housing market, account for 32 percent of Starbucks U.S. retail revenues and 31 percent of its U.S. company-operated retail store portfolio.

- Starbucks (SBUX) Press Release, April 23

.... [US] comparable sales for March were slightly negative....

- McDonald’s (MCD) 1st Quarter Earnings Release

What did we learn this week? People are cutting back on lattes, they’re cutting back on Big Macs and they are shipping fewer packages.

To be more specific, on Tuesday, McDonald’s reported its first U.S. monthly same-store sales decline in years. To be fair, it did say that April would be up 2-2.5%. However, I still think this is notable.

On Wednesday, Starbucks said that U.S. same-store sales would decline into the mid-single-digits. That’s big. Last quarter the company reported its first ever decline in U.S. same-store sales of -1%. It seems like things are getting even worse. Some of this is company specific, but in my opinion, much of it is related to the economy.

On Wednesday, UPS also reported that average daily package volumes were down slightly in the U.S. year over year (from 13.29 million a day to 13.25 million a day).

In my opinion, these kinds of things are worth paying attention to. Do you eat at Starbucks and McDonald’s? Do you ship with UPS? These are bellwether companies that all of us use. If they’re struggling, it means consumers are pulling back and business activity is slowing.

Disclosure: Top Gun has no position in McDonald’s (MCD), Starbucks (SBUX) or UPS (UPS) shares.

Comments

[cheesecake]

i am jobless, so i hope everything crashes and more people join my ranks. we can all hang out in the park and drink 7-Eleven coffee there. Yum !

[Coelacanth]

Yep, consumers are definetly scaling back.

Although the fear of a systemic financial collapse has subsided (reflected in higher bond yields and stock in-flows) I don't think the market has priced in the pain to come from lack luster retail sales, rising unemployment and rising food and energy prices.

[Jacob Martin]

"Do you eat at Starbucks and McDonald’s? Do you ship with UPS?"

No, I don't eat at Starbucks(I did not know they had food). The one time I used Starbucks I have regret it to this day. I ordered tea but received warm colored water. People are actually still eating Big Macs, and the some that are not are sampling the Breakfast Menu. One month is not indicative of state of things.

Heck no I do not ship with UPS, I do not even allow people to ship to me using UPS. Our company does not even accept UPS packages. UPS has terrible Customer Services, even worse Customer Solutions procedures, not to mention horrible reliability.

One Last Thing. Why would Starbucks put so much of its stores in a market that does not fit the "Trend". Startbucks people typically live in apartments, not houses.