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HomeMarketBig Spenders Helped Starbucks and Chipotle. That Bodes Well for These Retailers.

Big Spenders Helped Starbucks and Chipotle. That Bodes Well for These Retailers.

Chipotle Mexican Grill won’t need “to go chasing people with discounts.”

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Luke Sharrett/Bloomberg

Food prices have soared, but better-off Americans haven’t stopped indulging.

That’s evident from recent restaurant earnings, particularly higher-end eateries like
Starbucks
(ticker: SBUX) and
Chipotle Mexican Grill
(CMG), which said they have seen no evidence of the otherwise growing trend of customers trading down to cheaper products.

On this past Tuesday’s earnings conference call, Chipotle CEO Brian Niccol said that the burrito chain’s wealthiest diners were actually splurging, as those with annual incomes above $100,000 were purchasing more often. Business was strong enough that Nicholas said Chipotle wouldn’t need “to go chasing people with discounts” because consumer demand at the higher end held firm, and the company hasn’t “seen any meaningful resistance” to price increases.

Niccol wasn’t alone in these pronouncements. Earlier this month, Starbucks interim CEO Howard Schultz noted that the company saw its highest average order price in its history in December. “We don’t see ourselves in a situation where we need to discount heavily, and we don’t see a situation where our customers are trading down,” he said.

That contrasted with the more value-oriented
McDonald’s
(MCD). In late January, Mickey D’s noted that it was “seeing a little bit of a trade-down” and a small decrease in the number of items per transaction, though consumers were holding up better than it expected overall. It too said it wasn’t seeing resistance to inflation-fueled price hikes, but noted it had “to be very judicious” about their pace.

Intuitively, this makes sense: Food is a necessity for everyone, but the wealthy have a greater cushion to absorb rising costs, while lower earners are forced to cut back.

Strangely, the hungry high-earners at Chipotle and Starbucks didn’t help the stocks. Chipotle dropped more than 5% the trading day after its release, as earnings per share and comparable sales disappointed, while Starbucks dropped over 4% on concerns about its China business.

Still, if the spending trend holds, it could bode well for other upscale restaurants, and even for higher-end retailers. Results from casual-dining restaurant chains, like
Bloomin’ Brands
(BLMN) and
Texas Roadhouse
(TXRH), which report later this month, and
Darden Restaurants
(DRI), which reports in March, may be even more telling. Their higher prices mean they are most at risk of seeing consumers trade down to cheaper options.

But if people still have the cash for expensive coffees and extra guac, they also might have the money for the occasional steak.

Perhaps, then, Starbucks’ and Chipotle’s quarters could even mean some retailers will soon be posting merrier holiday results than expected. Investors have been worried about wealthier shoppers since
Nordstrom’s
(JWN) downbeat preannouncement in January. And while most releases won’t come until later this month, so far a few companies that have reported, such as
Estée Lauder
(EL),
Capri Holdings
(CPRI), and
Canada Goose Holdings
(GOOS), have been hit in part by the same weakness in China’s uneven reopening that hurt Starbucks.

However, if consumers, particularly in the U.S., are still buying baubles and burritos, that may lead to upside surprises from some retailers with less Asia exposure, like
Signet Jewelers
(SIG) and
Movado Group
(MOV), or those where expectations have fallen swiftly, like
Tapestry
(TPR).

Of course, a six-figure salary doesn’t go as far as it used to. Right now, though, it seems to go far enough.

Write to Teresa Rivas at teresa.rivas@barrons.com

Credit: marketwatch.com

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