Investors in Starbucks ( SBUX 0.53% ) and Chipotle ( CMG -2.78% ) There was some surprise in the industry when it was revealed that Chipotle CEO Brian Niccol would be departing the company to lead Starbucks, following the removal of Starbucks CEO Laxman Narasimhan. Niccol had a successful track record at Chipotle, whereas Narasimhan did not fare as well during his time at Starbucks.
The response of the market to the news had contrasting effects on the stock prices of the two companies. Starbucks’ shares surged by almost 22% within a day, whereas Chipotle’s shares dropped by over 12%. What implications does this have for the future of these two companies? Let’s analyze.
Investors in Chipotle can still find reasons to feel positive.
In every respect, Niccol was an exceptional CEO at Chipotle. During his leadership of less than seven years, the company experienced a revenue increase of over 100% and an 800% rise in its stock price. Refer to this graph illustrating the company’s revenue. Earnings per share (EPS) is a financial metric that represents the portion of a company’s profit allocated to each outstanding share of its common stock. There has been an increase in growth since he assumed control in 2018.
CMG Revenue (Trailing Twelve Months) data by YCharts
Chipotle has emerged as a significant competitor in the fast food sector and is admired by numerous other companies within the industry. McDonald’s Despite facing challenges and experiencing a decrease in revenue compared to the previous year in the second quarter of 2024, Chipotle is doing well, achieving an increase of over 18% in revenue.
It is understandable that investors are feeling uneasy following Niccol’s departure. The question arises as to who will take over his role and whether they will be able to meet the expectations set by him. Currently, Scott Boatwright, the COO, is temporarily stepping in. Boatwright has been with the company since just before Niccol joined in 2018.
The company affirms that operations are continuing normally, stating that Boatwright was a key member of the leadership team that developed and implemented the successful turnaround plan, leading to remarkable outcomes since its inception in 2018. They also mentioned that Boatwright will carry on with the implementation of the company’s strategic plan without any disruptions.
It is uncertain the level of Boatwright’s participation in developing the strategy, but as the COO, he played a significant role in carrying it out. With Niccol establishing a comprehensive plan for a turnaround and overseeing its implementation to ensure its success, it seems that Chipotle may no longer require him to excel. Whether Boatwright remains permanently or not, the company currently requires a competent manager rather than an innovator. The task of finding one should not be challenging.
Shareholders of Starbucks should feel optimistic, although there are still some concerns that need to be addressed.
Niccol has shown a knack for initiating changes in various places like Taco Bell and Chipotle. Starbucks is now looking to him to bring about similar changes in their company. Mellody Hobson, the chair of Starbucks’ board, expressed confidence in Niccol’s ability to lead the company in a transformative way, benefiting both the employees and customers worldwide.
They are indeed in need of assistance. The company experienced a decrease in revenue and earnings per share in the past two quarters. Prior to the announcement, its stock had dropped by approximately 20% this year. Narasimhan served as CEO for under a year and a half before being removed from the position. Sales have been decreasing since shortly after he assumed office, particularly in the important Chinese market.
Nevertheless, attributing all the blame to him is difficult, especially at this early stage of his leadership. The company has not disclosed specific reasons for Narasimhan’s dismissal and is likely to remain silent on the matter. Engaging in speculation is not particularly beneficial.
It is evident that Niccol has a successful history, providing a basis for optimism. However, it is important not to be overly optimistic. Making significant changes and dealing with the market challenges faced by Narasimhan will require time and effort.
