Sector Wrap: Specialty Coffee

Analyst David Tarantino said in a note to investors that Starbucks Corp., Peet's Coffee & Tea Inc. and Caribou Coffee Co. should all report customer traffic similar to first-quarter levels, which would put earnings in line with his--and Wall Street's--expectations.

Tarantino said even though pressure from gas prices may have dampened sales, the chains may have seen some benefit from the economic stimulus payments pouring into bank accounts and mailboxes starting in late April.

He added that the specialty coffee industry may be more insulated from declines in discretionary spending since most specialty coffee customers are in a high-income bracket and the costs are relatively low in comparison to a dinner out. The drinks cost between $2 and $4 each on average.

For Starbucks, which is in the middle of closing 600 underperforming locations, Tarantino said same-store sales, or sales at stores open at least a year, may decline by mid-single-digits due to increased competition, a heavy concentration of locations in weak housing markets and other company-specific issues.

But he added he has been "encouraged by many of the steps that management is taking to improve shareholder value," including the decision to close the 600 stores.

Starbucks shares fell 18 cents to $14.16 in afternoon trading.

Tarantino said Peet's may benefit from growth in its grocery store business. He forecasts a revenue rise of 17 percent overall.

At Caribou, meanwhile, Tarantino said revenue may fall more than 2 percent with same-store sales also dipping 2 percent.

Peet's shares fell 3 cents to $21.22 while shares of Caribou rose 8 cents, or 4.4 percent, to $1.90.