I’m an unabashed fan of Starbucks Corporation (NASDAQ:SBUX) Executive Chairman and former CEO Howard Schultz. I’ve liked both the company and Starbucks stock for a long time.
Here’s what I said about SBUX back in July 2013:
“Howard Schultz made the mistake of getting complacent once before, and Starbucks paid the price. He’s not going to do it again. It’s full speed ahead until he finds someone who can deliver the same passion for the business.
“Should you own Starbucks stock? You’d better believe it.”
For those unaware, Schultz left the CEO role in 2000 after 14 growth-filled years in the top job to enjoy life, only to return eight years later, dissatisfied with the state of affairs at the company he created from a vision he originally got on a trip to Italy.
Of course, long-time owners of Starbucks stock know what Schultz has meant to their pocketbooks — SBUX achieved a 19.6% annualized total return between January 7, 2008, the day Schultz returned, to April 3, 2017, the day he stepped down as CEO — so it’s easy to understand how it’s hard to let him go.
But let him go, you must.
A business can’t be successful no matter the size if it’s entirely dependent on one person, albeit an incredibly thoughtful and customer-oriented one.
No one knows that better than Schultz himself.
Starbucks Will be Fine
CNBC recently published an article that suggested the man who took over from Schultz a year ago still has a lot to prove.
I beg to differ.
First, it’s important to remember that Schultz is still executive chairman of Starbucks.
Although he’s working on its higher-end coffee concepts as well as some big-picture ideas — such as paying women the same wages as men for similar work and other crazy ideas like treating employees right — his office is connected to Kevin Johnson’s. They talk every day.
More importantly, the two leaders created the company’s five-year plan together, which they released in December 2016.
You don’t write a five-year plan and then put the person you wrote it with on the clock. It’s called bad management. Schultz knows you sometimes have to take a step back to take two forward.
Analysts ought to remember that Johnson’s been on the Starbucks board since 2009. It’s not as if he just came into the business. He understands the Starbucks experience and will use his technology background to make it even more efficient while maintaining a quality product and service.
Starbucks Stock: The Glass is Half Full
InvestorPlace’s Luke Lango believes Starbucks stock will continue to move sideways.
“SBUX is staring at a new era of substantially slower growth over the next 5 years thanks to the rise of indie coffee shops and a more equal playing field in the retail coffee game,” Lango stated March 21. “But SBUX stock still trades at 23-times forward earnings, which is largely in-line with its historical average.
“That doesn’t make sense. Valuation is out of whack with the 5-year growth outlook. Therefore, SBUX stock could very likely continue its sideways run.”
I’ve likely visited Starbucks more than 5,000 times over the past ten years and can literally count on one hand the bad experiences I’ve had.
Starbucks has a premium valuation because it’s a premium company. Indie shops are great but they’re not the reason Starbucks same-store sales are lower. Like all retail, sales are cyclical. But even if comps are slowing, Starbucks has plenty of new stuff on the go to generate buzz for the brand.
At the end of the day, Schultz created the company’s five-year plan to give Johnson a runway to shoot for as he replaced an iconic figure in American business.
If things still look bleak in three years time, maybe investors should be concerned, but from where I sit, Johnson’s in the second inning of a nine-inning game.
Life without Howard is happening. Get over it.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.