Starbucks made a shocking announcement this morning, coming on the heels of the struggling coffee chain announcing that it would appoint Chipotle (CMG) Chairman and CEO Brian Niccol as its next CEO, effective September 9th.
Nicol takes over from Lux Narasimhan, who had been in the role for less than 18 months.
Yahoo Finance Editor-in-Chief Brian Sozzi gives you the inside scoop.
Starbucks is a symbol of what’s currently at stake. Don’t believe us? Let’s check the facts.
First, the company’s performance and stock price have been terrible.
In the most recent quarter, North American transactions fell 6% as consumers put off the chain’s high coffee prices and long wait times.
International sales fell 7%. Same-store sales in China plummeted 14% and executives said on the earnings call that they were considering strategic options for the business. Non-GAAP operating margin fell to 16.7% from 17.4%.
The company’s last quarter wasn’t very good either.
Starbucks shares had fallen 20% in the past five years before today’s surge. The S&P 500 is up 85%. Chipotle is up 201%.
“It can be resolved, but it will take time,” an insider with knowledge of the company’s many problems told me recently.
Moreover, executive leadership is clumsy and disorganized.
Howard Schultz, the billionaire Starbucks founder and hands-off presidential runner, all but undermined his authority a few months ago with his not-so-veiled criticism of his hand-picked successor, Narasimhan, in a LinkedIn post.
Narasimhan was then embarrassed live on air during an expert interview by my former boss at TheStreet, Jim Cramer.
Restaurant CEOs I’ve spoken to privately since then still can’t believe how woefully unprepared Narasimhan was for the interview, with some joking that he might not even be alive by 2025. And they were right!
One Wall Street analyst told me that Narasimhan’s strong performance on TV should have been expected, given that he’s essentially a consultant (he spent 19 years at McKinsey) masquerading as the CEO of a food retailer.
And finally, Starbucks is still dealing with a decline in trust among its store employees, which has led to efforts to unionize.
Niccol is the man who could help Starbucks sort all these crises out over time: Chipotle shares have soared 671% since Niccol took over as CEO, outperforming the S&P 500’s 100% and McDonald’s (MCD)’s 81%, according to Yahoo Finance data.
Starbucks’ crisis is about to end today. It won’t be easy for Nicole, but at least he’ll be joining the company with the background and mindset that Lux never had. This is more than a win.
Learn more about Nicole and his leadership here.
