Stock Story -
What Happened: Shares of coffeehouse chain Starbucks (NASDAQ:SBUX) jumped 23.4% in the morning session after the company announced that CEO and Director Laxman Narasimhan is stepping down effective immediately. Brian Niccol, the CEO of Chipotle, will replace him and resume his role on September 9, 2024. During Niccol's time at Chipotle, revenue nearly doubled, profits increased nearly sevenfold, and CMG's stock price increased by nearly 800%. Niccol's industry experience includes multiple leadership roles at Taco Bell before he became CEO of the company. He has also held executive roles at Pizza Hut, another division of Yum!
The market's reaction to the news suggests investors are positive about the prospect of the business under a new leadership following the recent quarters of earnings underperformance.
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What is the market telling us: Starbucks's shares are not very volatile than the market average and over the last year have had only 3 moves greater than 5%. Moves this big are very rare for Starbucks and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 17% on the news that the company reported first-quarter results. Its revenue and EPS unfortunately missed analysts' expectations as its same-store sales declined by 4% (driven by a 6% decline in volumes offset by a 2% increase in prices). Starbucks's demand in China was especially weak as its same-store sales fell 11%. Management highlighted its disappointment with the results and called out a challenging operating environment. Overall, this was a bad quarter for Starbucks.
Following the results, Deutsche Bank (ETR:DBKGn) analyst downgraded the stock's rating from Buy to Hold and lowered the price target from $108 to $89.
Starbucks is down 0.9% since the beginning of the year, and at $92.85 per share it is trading 13.4% below its 52-week high of $107.21 from November 2023. Investors who bought $1,000 worth of Starbucks's shares 5 years ago would now be looking at an investment worth $960.47.
