Netflix, Chipotle results show consumer strength

Jeff Macke
Yahoo Finance

We've had an earnings deluge in the last 20 hours as two consumer growth studs and teo legacy giants all released their quarterly reports. If you know what to look for you already have all the information you need to assess the real condition of the economy. Let's put the pieces together.

First the news from the old guard hot off the wires. Coca-Cola (KO) came in more or less in line. Earnings were uninspiring and case volumes domestically were flat. The company immediately went on the defensive about its executive pay plan. Dead money.

McDonalds (MCD) missed by $0.04. Employee protests, tainted meat in China and beef prices. With their enormous breadth and status it's tempting to see MickeyD and Coke as important "tells" but it's wrong. They are old companies doing what old companies do best these days which is buy back stock and fight activists.

Now consider Netflix (NFLX) and Chipotle (CMG). Two wildly different businesses to be sure, but also growth companies at the bleeding edge of discretionary spending. Even better for our purposes they both raised prices last quarter. Netflix raised monthly fees by 12% and Chipotle took up prices by 6.5%. In a truly tough economy that would have hammered growth, if not the bottom line.

What happened was exactly the opposite. While McDonalds eked out flattish comps Chipotle saw 17% same store sales increase. They simply blew the doors off numbers on every metric. The worst that could be said was that they were cautious on this quarter, suggesting only mid-teens growth in their future.

Netflix was at least as good. Forget whining about the World Cup; Netflix added 570,000 U.S. subscribers and 1.12 million internationally. The company grew revenues by 25%. In terms of the shares Netflix was flat but the stock is up more than 70% in the last 12 months. Chipotle on the other hand is grilling up baby backed short sellers today, up more 10%.

Your take away is this: The American economy is strong enough to support price increases if you make something they want. It's that simple. What's it mean for stocks? Put it this way, if you're betting on Amazon Prime subscribers to defect because of the hike in price you're in trouble. If you think Apple customers are going to balk at new expensive phones good luck and God's speed.

This isn't an all-clear but things aren't as bad as you think. Beware of pat narratives and data when it comes to investing.

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