Chiptle CEO Brian Nichol
Anjali Sundaram | CNBC
Wall Street believes Brian Niccol is the right man to rebuild Starbucks and transform it beyond the decades-long Howard Schultz era.
Starbucks On Tuesday, Niccol was named the new CEO and chairman. Niccol replaces Laxman Narasimhan, who was handpicked by former CEO Schultz and took over as CEO in March 2023. Starbucks reported a decline in comparable sales in the second quarter as its U.S. business slowed. When he takes over, Niccol will be tasked with reviving demand for the company’s coffee.
“In our view, Starbucks’ hiring of a Hall of Fame restaurant CEO and his appointment as Starbucks CEO and chairman signals the start of a new era,” TD Cowen analysts said. Andrew Charles stressed the importance of the combined roles of the two companies in a note to clients.
Investors are confident he can turn the company around. Starbucks shares rose 20% in afternoon trading on the news, putting the company on track for its best day since its 1992 IPO. Meanwhile, Chiptle shares fell 9% as shareholders lamented the loss of its longtime chief executive.
Piper Sandler, TD Cowen and Baird all upgraded Starbucks stock following the leadership change.
Other analysts have raved about Nicole, seeing her as the perfect fit to tackle Starbucks’ sluggish sales, which have been hit by a challenging consumer environment, worsening customer experience and increased competition from smaller coffee shops.
“We view this as a dream hire for SBUX, and we couldn’t think of a better leader to take a fresh look at SBUX’s operations, competitive position and overall strategy,” said Oppenheimer analyst Brian Bittner.
End of an era?
Nicole’s hiring could mean the end of Schultz’s enormous influence over the company he built into a global coffee giant.
“The point is that Brian is likely the only restaurateur with the gravitas to deal with founder Howard Schultz’s ‘residual stake,'” Evercore ISI analyst David Palmer wrote.
Schultz served as CEO from 1986 to 2000, from 2008 to 2017, and from 2022 to 2023, twice stepping in to save the company from declining sales. His last return raised concerns about the company’s succession.
As his last term came to an end, he vowed not to return as CEO, but his presence still has a big impact on the company. In May, after Starbucks’ brutal quarter, he wrote an open letter on LinkedIn about the company’s challenges and offered advice to leaders without naming Narasimhan.
Morgan Stanley analyst Brian Harbour wrote Tuesday that Schultz’s involvement with the company after his retirement remains a “questionable stock.” Mellody Hobson, who stepped down as Starbucks chairman and became a senior independent director as part of Tuesday’s leadership shakeup, told CNBC’s “Squawk Box” that Schultz had told her about his discussions with Niccol, keeping him in the loop even though he no longer has a formal role at the company.
Schultz remains a major shareholder in Starbucks, owning about 2 percent.
Schultz supported Nicole’s hiring in a press release announcing the reorganization. The chairman emeritus said in a statement that he believed Nicole was the leader the company needed at “a pivotal moment in its history.”
Some analysts believe that having Nicole, a seasoned restaurant CEO, in the driver’s seat means Schultz can finally move on. Nicole will also succeed Hobson as executive chairman, giving Schultz more freedom to make changes.
“This may be the last time investors care what he says, because Nicole is now behind the wheel and there is no more room in the back seat,” Gordon Haskett analyst Don Bilson wrote.
Nicole also has experience taking over founder-led brands and turning them into his own. When he joined Chipotle in 2018, he took over from founder Steve Ells, who had led the chain since 1993. Nicole moved the burrito chain’s headquarters from Denver to Newport Beach to attract other talent and, as Bernstein analyst Danilo Gargiulo noted in a memo, to evolve the founder-led brand.
Future tasks
Analysts generally welcomed Nicole’s appointment, but some were more cautious, noting that Starbucks is a larger and more complex business than Chipotle.
“Starbucks is a much more complex model than Chiptattle, with a mix of company-owned and licensed stores, domestic and international outlets, and a significant presence in struggling China,” BTIG analyst Peter Saleh wrote.
Chippot has few licensed outlets, aside from a few restaurants in airports, and has a relatively small international presence, but Nicole has been trying to expand outside the United States in recent years.
Starbucks, on the other hand, has more stores overseas than in the U.S. While investors have been paying attention to the chain’s recent domestic performance, its second-largest market, China, continues to struggle as competition intensifies and the country’s economy lags behind.
Narasimhan said on the company’s recent conference call that the company is exploring “strategic partnerships” for its China business, which could include joint ventures, technology partnerships or other options. Nicole’s appointment could mean Starbucks abandons that search, but he has experience with spinoffs during his tenure as CEO. Yam Brand’ Taco Bell. While he was there, the conglomerate spun off its Chinese operations. Yam China.
While demand for Chipotle’s burritos remains strong, consumers’ appetite for coffee has waned due to economic concerns, which could be a more difficult hurdle for Niccol than investors expect.
“His challenge is to connect with new customers,” said Wedbush analyst Nick Setyan. “Barring the power to change the direction of the macro headwinds, we view shareholder enthusiasm (as expressed in the stock price this morning) as premature.”
