Starbucks’ stock is on the rise again. Check out how a CEO change drove a quick 21% price gain.
Shares of Starbucks (SBUX -0.91%) soared 21.3% higher in August 2024, according to data from S&P Global Market Intelligence. The giant coffee chain only had a single piece of game-changing news last month, but it was a big one. After 17 months on the job, CEO Laxman Narasimhan was pushed out to make room for a food service superstar. Starting on Sept. 9, former Chipotle Mexican Grill (CMG -0.34%) CEO Brian Niccol will take the reins as Starbucks’ CEO and chairman of the board.
Brian Niccol’s impressive track record
Niccol comes with an impeccable track record. He led a turnaround of Yum! Brands‘ (YUM 1.00%) Taco Bell division in the 2010s before moving to Chipotle in 2018. There, he lifted the upscale Mexican food chain’s annual sales from $4.48 billion to $10.66 billion in six years. Free cash flows multiplied from $251 million to $1.3 billion over the same span. Chipotle’s stock returned 733% under Niccol’s tenure.
At the same time, Starbucks underperformed the market with Narasimhan at the helm, with falling sales in the last two quarters. Analysts and investors were quick to embrace Niccol as the potential savior of a struggling brand, hoping to see a company culture revival similar to the ones he sparked in his last two CEO assignments.
Challenges facing Starbucks in 2024
Starbucks is in dire need of a turnaround, and Niccol looks like the best name for this job. That said, some of Narasimhan’s headwinds came from heated union talks and activist investor moves. The new boss must deal with these issues while installing a new business plan, presumably modeled after the experience-based operating plans he set up at Chipotle and Taco Bell. Niccol has a history of resisting worker unions, perhaps setting the stage for a difficult Starbucks term.
So Niccol may be facing a harder challenge than expected. That being said, his touch certainly worked wonders at Chipotle and Taco Bell. The same focus on customer experience and efficient operations should be an upgrade for Starbucks, too. And he gets to make this attempt from a surprisingly low-pressure starting point — Starbucks’ stock has underperformed the S&P 500 index recently, showing a 7% price drop over the last year while the market index rose by 22%.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
