Starbucks (NASDAQ:SBUX) is off to a good start this week. The leading coffee retailer has confirmed it is seeking to replace interim CEO Howard Schultz with an external candidate. Schultz explained the decision by stating the company needs a different type of leadership. SBUX stock has been rising steadily since the announcement.
What’s Happening with SBUX Stock
Schultz’s pending departure has been excellent for SBUX stock so far. Shares jumped almost 2% in pre-market trading today and they continue to rise steadily.
Within the first hour of trading, SBUX stock popped 1.3% and shows no signs of slowing down. It has managed to stay in the green for the week despite its union accusing the company of illicit conduct.
Starbucks also reported some good news last week when it announced the reopening of its Shanghai cafes. However, today’s gains are largely driven by the latest update regarding its future CEO. Let’s take a closer look.
New Leadership Needed
Howard Schultz has freely admitted he isn’t the best person to lead Starbucks. In a recent interview with the Wall Street Journal, he laid out why the decision makes sense. “For the future of the company, we need a domain of experience and expertise in a number of disciplines that we don’t have now,” he noted. “It requires a different type of leader.”
Schultz added, though, that he is the “candidate for a smooth, healthy transition,” emphasizing that he is fully committed to doing what is best for the company. He stepped down as CEO in 2017, then returned to replace former CEO Kevin Johnson on an interim basis. After transitioning out of the role, Schultz plans to remain on Starbucks’ board of directors.
The need for a change in leadership comes as the company adapts to a changing economy. Starbucks is known for sit-down cafes in which people drink hot coffee and enjoy pastries. When he took over as CEO in 1987, Schultz envisioned coffee-centric cafes similar to those in Italy.
That mentality served him well as he shaped the company into what it is today and transformed the ways in which Americans consume coffee. But as a result of the Covid-19 pandemic, the majority of the company’s sales are driven by on-the-go orders, often purchased digitally by busy professionals on their way to the office.
It has becoming increasingly clear that change is needed for Starbucks to continue to thrive. Over the past six months, SBUX stock has shed nearly 30% of its value as the company struggled to adapt. The upcoming shift in leadership signals the change Starbucks needs is finally coming.
What Comes Next for SBUX Stock?
Two months ago, the Wall Street Journal posed an important question: “Starbucks Is Having an Identity Crisis. Can Howard Schultz Fix It?” Now, Wall Street knows he isn’t going to attempt to do so. Schultz has recognized what is best for the company and implemented it, and Starbucks has stated it has “several viable CEO candidates under consideration.” This is exactly what investors wanted to see.
InvestorPlace contributor Nicolas Chahine sees SBUX stock as having an upside of at least 50%. Additionally, Schultz recently purchased $14 billion in SBUX shares, indicating he remains bullish on the company’s future. His reasoning is now clear: he knows the company can succeed under new leadership.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
