Starbucks CEO steps down to focus on high-end coffee, shares fall

Thu Dec 1, 2016 6:53pm EST
 
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By Lisa Baertlein and Gayathree Ganesan

(Reuters) - Starbucks Corp (SBUX.O: Quote) 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 relations.

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: Quote) CEO Ray Kroc, who turned a handful of hamburger stands into the world's biggest restaurant company.

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.   Continued...

 
Starbucks Chief Executive Howard Schultz speaks during the company's annual shareholder's meeting in Seattle, Washington March 18, 2015.  REUTERS/David Ryder