Starbucks Corp. SBUX has recently been in the news for its major management shake-up, with CEO Laxman Narasimhan being replaced by Brian Niccol, the CEO of Chipotle Mexican Grill CMG. The new leadership is expected to play a pivotal role in Starbucks’ turnaround, according to Jim Cramer.
What Happened: Cramer, in his show Mad Money, discussed the significance of the new CEO for Starbucks. He believes that Niccol will be instrumental in reviving the coffee giant, which has been facing challenges in its major markets, the U.S. and China, reported CNBC. Starbucks recently reported a decline in same-store sales for two consecutive quarters.
"Brian Niccol is the key to a new Starbucks, one that can reclaim its old mantle as the ‘third place' — you just need to know that this turnaround can't happen overnight," Cramer said. "But, I'm telling you, it's going to happen."
Cramer highlighted the importance of having a CEO with experience in the fast-food industry, which he believes Narasimhan lacked. He pointed out that Niccol’s successful tenure at Chipotle, where he improved food quality, store efficiency, and customer throughput, makes him a suitable fit for the role at Starbucks.
Starbucks’ stock surged by 24.5% following the CEO announcement, indicating investor confidence in the new leadership. Cramer emphasized the significance of this change, stating, “Today we got something very rare: A CEO was straight up fired, and in his place, we didn’t just get some stuffed shirt we didn’t care about. No, Starbucks brought in Brian Niccol, the man who almost singlehandedly turned around Chipotle, to run the business. They could not have picked a better guy.”
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Why It Matters: The appointment of Brian Niccol comes at a crucial time for Starbucks. The coffee giant has experienced a turbulent period, with its stock underperforming the market over the past year. The company’s recent third-quarter earnings report showed that while earnings met estimates, revenues lagged behind expectations.
Niccol’s move from Chipotle has had significant financial repercussions. Chipotle’s stock plummeted by around 10%, wiping out nearly $7 billion in market value.
Niccol’s appointment follows a series of strategic moves by activist investors, including Elliott Management and Starboard Value, who acquired stakes in Starbucks to push for a turnaround. Additionally, Trian Fund Management, led by billionaire activist Nelson Peltz, recently acquired and then sold a substantial stake in Starbucks.
Analysts have mixed opinions on Niccol’s appointment. While some, like Wedbush analyst Nick Setyan, maintain a neutral stance, others, such as Baird analyst David Tarantino, have upgraded their ratings, citing Niccol’s successful track record at Chipotle, where he led the stock to a 650% increase over six years.
Price Action: Starbucks’ stock closed at $95.90 on Tuesday, marking a significant increase of 24.50% for the day. In after-hours trading, the stock rose 0.021%. Year to date, Starbucks shares have gained 2.38%, according to data from Benzinga Pro.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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