Starbucks stock soars after it ousts CEO Narasimhan, replacing him with Chipotle's Brian Niccol
Starbucks shares soared more than 20% on Tuesday after the coffee chain said it is ousting its current CEO, Laxman Narasimhan, and will replace him with Chipotle chief executive Brian Niccol. The move comes as Starbucks contends with activist investors, stagnant sales and a sinking stock price.
Starbucks shares gained $15.93, or 21%, to $92.96 in early afternoon trading, after soaring as much as 24% earlier in the day. Prior to today's stock jump, the company's shares had shed 18% of their value since January.
Starbucks said on Tuesday that Niccol will start in his new role on September 9. The company's chief financial officer, Rachel Ruggeri, will serve as interim CEO until that date, while Mellody Hobson, the board chair, will become Starbucks' lead independent director. Narasimhan, who spent a little more than a year leading Starbucks, is stepping down immediately.
The appointment comes as Starbucks is losing ground with consumers around the globe, leading to its first drop in quarterly revenue since 2020 earlier this year. Store traffic was down 3% in the January through March period compared with a year earlier, with some coffee drinkers complaining the drinks were too pricey at a time when many people are feeling a financial pinch from inflation.
"There is a sense that Starbucks has been on the back foot for too long and that it has lost sight of the basics. This has led to a poor performance, particularly in the U.S.," said Neil Saunders, managing director of GlobalData, in a Tuesday research note.
He added, "While some of the slowdown can be attributed to a more sluggish consumer cutting back, much is also the result of a worsening store experience and a lack of innovation in areas like food."
Activist investors
Narasimhan, a longtime PepsiCo executive who has also served as the CEO of Reckitt, a U.K. consumer health company, became Starbucks' CEO in March 2023. He succeeded Howard Schultz, the longtime Starbucks leader and chairman emeritus who came out of retirement in 2022 to serve as the company's interim CEO.
But investors and the company board quickly soured on Narasimhan as sales weakened and Starbucks dealt with multiple issues, including inroads by lower-cost competitors in China and boycotts in the Middle East and elsewhere related to the Israel-Hamas war.
Elliott Investment Management, an activist firm with a significant stake in Starbucks, said it began talking about a change in leadership with Starbucks' board two months ago. In a statement Tuesday, the firm called Niccol's appointment a "transformational step forward."
"We welcome the appointment of Brian Niccol and we look forward to continuing our engagement with the board as it works toward the realization of Starbucks' full potential," Elliott Managing Partner Jesse Cohn and Partner Marc Steinberg said in a joint statement.
Since Niccol became Chipotle's CEO in 2018, the burrito chain's revenue has doubled while profits have jumped almost 800%, Starbucks said. Chipotle's stock price has jumped 24% since January.
Chipotle's stock sank on the news of Niccol's departure, with the shares sinking $4.96, or 9%, to $50.91.
—With reporting by the Associated Press.