Starbucks' Earnings: Is the U.S. Growth Story Losing Steam?

How long can Starbucks (NASDAQ: SBUX  ) keep posting sales gains in its biggest and most mature market? For bears, the answer to that question is always "not much longer." However, judging by the stock's 13% rise this year, shareholders aren't very concerned.

But lately we've seen some solid evidence to feed that slowdown worry: Starbucks' customer traffic growth in the U.S. has fallen in each of the last three quarters. Transaction volume hit a massive 7% improvement a year ago but rose at the mere-mortal pace of just 2% last quarter.

Source: Company financial filings.

Still, it would be a mistake to bet on Starbucks' growth streak ending anytime soon. The company is likely to keep posting industry-thumping sales gains, despite those worrying short-term results. 

A boost from food
In fact, Starbucks probably got a lift this quarter from its latest push into food. That category hasn't posted exciting results recently, accounting for just 20% of sales last year and 19% in each of the prior three years.

Only one-third of customers typically buy any food along with their drinks at Starbucks, making it a beverage retailer above all else. But here's the good news for investors: That's starting to change. 

Management credited newly introduced La Boulange food products like breakfast sandwiches and baked treats with adding 2 percentage points to comparable-store sales growth last quarter. And that 2-point gain is likely just the start. Starbucks still has a significant percentage of its locations left to include in the La Boulange rollout, which should push breakfast transaction levels higher. 

And after that, management plans to switch its focus to the lunchtime hours, where the opportunity is arguably even bigger. Starbucks has already seen a boost from its panini sandwiches and Bistro Box products in the traditionally slower early-afternoon hours. Comps growth has been strongest in the 11 a.m.-1 p.m. time period, the company told investors last month.

Notably, that boost came before the effects of the La Boulange rollout or the upgraded lunch program that the company has planned for the quarters ahead. Starbucks' evenings program, which includes beer and wine sales in the later hours, could help too -- although it will only be scaling up to a small portion of the store base.

What to watch for
Analysts are expecting Starbucks to post an impressive 20% profit improvement when it announces earnings results on Thursday, July 24. Sales should rise by 11% and hit $4.1 billion. Beyond those headline numbers, investors should pay close attention to the growth in transaction volume and check average that Starbucks reports for its U.S. market. Those figures should both benefit from food initiatives that are drawing more customers into the cafes.

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