CEO Swap: Starbucks Surges 22% on Hiring New CEO From Chipotle

Key Points

• Starbucks announced it appointed Chipotle CEO Brian Niccol as its new permanent CEO starting on Sept. 9, 2024.
• Starbucks’ gain is considered Chipotle’s loss as SBUX shares rise 22% while CMG shares fall 13%
• Activist investors Elliott Management and Starboard took stakes in Starbucks prior to the announcement and are believed to have played a hand in the CEO swap.

Global coffeehouse chain and coffee supplier Starbucks Co. NASDAQ: SBUX made a bombshell announcement that it is replacing current CEO Laxman Narasimhan with the current CEO of Chipotle Mexican Grill Inc. NYSE: CMG Brian Niccol. The news caused Starbucks shares to surge by 22% in premarket trading, while Chipotle shares fell 13% as traders engaged in a pairs trade strategy.

Starbucks CFO Rachel Ruggeri will take the helm as interim CEO effectively immediately. Niccol will leave Chipotle on Aug. 31, 2024, and commence the CEO role at Starbucks on Sept. 9, 2024. Chipotle COO Scott Boatwright will assume the role of interim CEO at Chipotle on Sept. 1, 2024. Chipotle President of Strategy, Finance and Supply Chain Jack Hartung will remain on board, rescinding his earlier retirement plans for early 2025. 

Starbucks operates in the retail/wholesale sector, competing with Dutch Bros. NYSE: BROS, Luckin Coffee Inc. OTCMKTS: LKNCY, and privately owned Dunkin Donuts.   

Starbuck’s Gets a Much Needed Jolt

Starbucks has been struggling, with shares trading down 19.77% prior to the new CEO announcement. The company missed consensus analyst revenue estimates by $135 million for its third quarter of 2024 as revenue fell 0.7% YoY. Most concerning was the global comparable store sales falling 3%, driven by a 5% drop in comparable transactions. In North America, comparable sales dropped 2%, driven by a 6% drop in comparable transactions.

Contrast this to Chipotle's most recent earnings, which posted 18% YoY revenue growth, beating consensus estimates by $32.5 million. Chipotle also posted an impressive 11.1% restaurant-level comparable sales growth, driven by 8.7% transaction growth as average check size grew 2.4% YoY. Chipotle also managed to grow restaurant-level margins to 28.9%, surpassing the 27.5% consensus estimates.

Is Chipotle’s Loss Starbuck’s Gain?

Chipotle CEO Brian Niccol was largely credited for Chipotle’s success since he took the top role in March 2018. Niccol spearheaded the digitization efforts, tepid store count growth, food quality improvement, international growth efforts and the addition of drive-thru Chipotlanes. Chipotle also executed a record 50-to-1 stock split under his tenure, which opened the door to a new generation of investors who could finally afford the stock.

Frictionless and Seamless Engagements

Under Niccol's leadership, Chipotle has enhanced customer interactions and transactions, significantly contributing to the industry-leading 11.1% YoY growth in same-store sales. Chipotlanes underscores the frictionless model as customers place their orders in the Chipotle mobile app and pick them up seamlessly through the drive-thru without having to park. Customers can only place their drive-through orders through the Chipotle app, which helps to keep traffic flowing, rather than having customers place orders through a window and wait to be completed.

Incidentally, long wait times have been a major pain point with Starbucks, especially during the morning rush. The company has admitted that 17% of its mobile orders don't complete the checkout because customers can't handle the wait times. The company claimed it was a product of their success as their popularity is what drives the traffic. The company has been working on ways to improve order turnaround times. One distinction between the two brands is that Chipotle owns 100% of its stores. Starbucks also owns its stores but licenses an estimated 40% of them.

SBUX Stock Completes the Gap Fill

The daily candlestick chart for SBUX formed a gap fill through the $87.19 level on the morning gap and continued to gap and go. The 94.14 weekly upper Bollinger Bands and the $98.36 are the next upside resistance level to watch. The daily relative strength index (RSI) has surged to the $96-band. Pullback support levels are at $90.66, $87.18 gap fill, $84.42, and $81.48.

Starbucks analyst ratings and price targets are at MarketBeat. There are 26 Wall Street analyst ratings on SBUX stock, comprised of 11 Buys and 15 Holds.