Starbucks CEO steps down to focus on high-end coffee, shares fall
Starbucks Chief Executive Howard Schultz speaks during the company's annual
shareholder's meeting in Seattle, Washington March 18, 2015.REUTERS/David Ryder
By Lisa Baertlein http://www.reuters.com/journalists/lisa-baertlein and
Gayathree Ganesan http://www.reuters.com/journalists/gayathree-ganesan
Starbucks Corp (SBUX.O
http://www.reuters.com/finance/stocks/overview?symbol=SBUX.O) co-founder Howard
Schultz will step down as chief executive to focus on new high-end coffee
shops, handing the top job to Chief Operating Officer Kevin Johnson, a
long-time technology executive.
Schultz, who will become executive chairman in April 2017, said he would focus
on building ultra-premium Reserve stores and showcase Roastery and Tasting
Rooms around the world as well as setting the brand's "social impact agenda"
that includes sending employees to college and recruiting veterans.
Starbucks had signaled the change in July, but its shares fell 3.6 percent to
$56.41 in extended trading on Thursday, as investors recalled the company's
decline after Schultz handed over the reins in 2000. He returned in 2008.
"Having him step down as CEO raised the anxiety level," said Stephens analyst
Will Slabaugh, who said that Schultz is the heart and soul of the brand, its
entrepreneurial leader and its savior.
"We're in a much better position on every level," said Schultz, who returned
for his second stint as CEO in the depths of the "Great Recession," when
Starbucks' stock was trading below $10. Late last year, it hit an all-time high
above $60. Schultz has put Starbucks in the national spotlight, asking
customers not to bring guns into stores and urging conversations on race
Many of the campaigns have generated controversy, but analysts have not seen a
hit to financial results and the efforts have raised the profile of the coffee
company and cemented Schultz's status as a national figure.
"The idea that he's replaceable, I think that's erroneous," said Bill Smead,
CEO of Smead Capital Management in Seattle, which owns Starbucks shares. He
compared the change to the retirement of long-time McDonald's Corp (MCD.N
http://www.reuters.com/finance/stocks/overview?symbol=MCD.N) CEO Ray Kroc, who
turned a handful of hamburger stands into the world's biggest restaurant
The announcement on Thursday also came as investors worry about the restaurant
industry's stubborn traffic declines. Starbucks has held up better than most,
but it has not been immune.
Johnson is a former technology executive who became president and chief
operating officer at Starbucks in March 2015.
Johnson has been on the Starbucks board since 2009 but most of his career was
in the technology industry. He was the chief executive of Juniper Networks Inc
(JNPR.N http://www.reuters.com/finance/stocks/overview?symbol=JNPR.N) from
September 2008 to January 2014 and prior to that held several senior positions
at Microsoft Corp (MSFT.O
On a conference call after the announcement, analysts pressed the company on
timing and whether, with Schultz stepping aside, senior management still had
the "merchant gene."
"Not having retail experience could be a problem over time," said Howard
Penney, an analyst at Hedgeye Risk Management.
"I'm not leaving the company and I'm here every day," said Schultz, whose
office is connected to Johnson's.
Traffic at established Starbucks cafes fell in the last quarter, which Johnson
has attributed to a change in the company's loyalty program, and Starbucks
forecast a mid-single-digit rise in 2017 same-store sales.
The company dismissed speculation that Schultz could be preparing for a new
career in politics.
"He has no plans to run for political office, as he has said many times, and
will remain with the company as Starbucks executive chairman, focusing on
premium coffee," a spokeswoman said.
(Reporting by Gayathree Ganesan and Siddharth Cavale in Bengaluru; additional
writing by Peter Henderson; Editing by Bill Rigby and Jonathan Oatis)