Investors in Starbucks (NASDAQ: SBUX) and Chipotle (NYSE: CMG) were met with a bit of a shock recently when it was announced that Chipotle CEO Brian Niccol would be leaving the company and taking the reins at Starbucks after its CEO, Laxman Narasimhan, was ousted. Niccol was highly successful at Chipotle, while Narasimhan was not so lucky in his tenure overseeing Starbucks.
The market's reaction to the news could not be more different for the two companies' share prices. Starbucks' stock jumped nearly 22% in a day while shares of Chipotle fell more than 12%. So what does this mean for the two companies' futures? Let's consider.
Chipotle investors still have reasons to be optimistic
Any way you slice it, Niccol was a great CEO at Chipotle. Under his tenure of fewer than seven years, the company saw its revenue more than double and its stock price gain 800%. Take a look at this chart, which shows the company's revenue and earnings-per-share (EPS) growth since he took over in 2018.
![https://img.particlenews.com/image.php?url=1ascIm_0v2MRsSE00](https://img.particlenews.com/image.php?type=thumbnail_580x000&url=1ascIm_0v2MRsSE00)
CMG Revenue (TTM) data by YCharts
Chipotle is now a major player in fast food and the envy of many other companies in the industry. As McDonald's struggles, posting a year-over-year drop in revenue for Q2 2024, Chipotle is thriving, posting a more than 18% jump in revenue.
So it stands to reason that investors are nervous about Niccol's departure. Who will step in and will they be able to fill his shoes? For the time being, at least, it's Scott Boatwright, the current COO. Boatwright has been there since right before Niccol arrived in 2018.
The company insists it's business as usual, saying Boatwright "played a critical role as part of the leadership team that created and executed the turnaround strategy that has delivered incredible results since it began in 2018" and that he "will continue to execute the company's strategic plan without interruption."
The extent to which Boatwright was actually involved in creating the strategy is unclear, but as COO, he definitely had an outsized hand in executing it. Now that Niccol has laid the extensive groundwork in creating a turnaround strategy and vision, implementing it, and sticking around long enough to make sure it's successful, I don't think Chipotle needs him to continue to crush it. Whether Boatwright stays on permanently or not, at this point the company needs a manager more than a visionary. I don't think it will have trouble finding one.
Starbucks investors should be excited, but issues remain
Niccol seems to have made transformations his thing. He did it at Taco Bell. He did it at Chipotle. Now, Starbucks is hoping he can do it there too. Mellody Hobson, chair of the board at Starbucks, said as much in the company's press release announcing the move, stating the board "believes he will be a transformative leader for our company, our people, and everyone we serve around the world."
And they do need it. The company's revenue and earnings per share EPS shrank in both of the last two quarters, and before the announcement its stock was down about 20% this year. Narasimhan was CEO for less than a year and a half before his ouster. Sales have declined since not long after he took over, especially in the critical market of China.
However, it's hard to pin that all on him, especially so soon into his tenure. The company has been relatively tight-lipped about the exact reasons Narasimhan got the boot and likely will continue to do so, but speculating isn't really all that useful.
What we do know is that Niccol has a proven track record, and that is reason to be optimistic. But let's not get ahead of ourselves. It takes time to create and implement major changes and the market forces Narasimhan was battling remain.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy .
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