December 2, 2016 / 1:47 PM / 8 months ago

Starbucks' CEO transition unlikely to stymie growth: analysts

4 Min Read

Howard Schultz, CEO of Starbucks, speaks during the company's annual shareholders meeting in Seattle, Washington March 19, 2014.David Ryder

(Reuters) - Starbucks Chief Executive Howard Schultz's decision to step down is unlikely to hamper growth at the world's biggest coffee chain as his successor Kevin Johnson is well suited to take the helm, analysts said.

Starbucks Corp (SBUX.O) said on Thursday that Schultz would step down as CEO on April 3 to focus on new high-end coffee shops, handing the top job to Chief Operating Officer Johnson, a long-time technology executive.

The company's shares were down 2.5 percent at $57.02 on Friday as investors worried that the exit of one of Wall Street's most regarded CEOs would spell trouble for the company.

Analysts, however, downplayed these concerns.

"Howard can't be in that position forever," Morningstar analyst R.J. Hottovy told Reuters.

Hottovy said the timing of the handoff made sense because the company had a strong management team and Johnson had more retail experience than the market was giving him credit for.

Johnson worked with Schultz for nearly two years and has been on Starbucks' board since 2009.

He also has a strong technology background, including stints at Microsoft Corp (MSFT.O) and Juniper Networks Inc (JNPR.N), which sets him up to lead Starbucks at a time when the company is looking to project itself as a pioneer in mobile payments technology.

"Johnson appears to have been an important behind-the-scenes contributor to Starbucks' post-recession turnaround, and his background in technology should position him well," Bernstein analyst Sara Senatore said in a research note.

To be sure, the last time Schultz stepped down as CEO - in 2000 - the company's shares had plunged.

Schultz returned to the top job in 2008. Since then the company's annual sales have more than doubled and its stock has risen six-fold.

"Unlike the period surrounding Mr. Schultz's previous departure, we believe the company is transitioning to a new CEO during a period of strength, with a solid macro-economic backdrop, a strong leadership team, and a robust pipeline of innovation in technology, food, beverages," RBC Capital Markets analyst David Palmer wrote in a note.

Starbucks was the first to push into mobile ordering and payments through its app, allowing customers to avoid standing in long lines and forcing rivals like Dunkin' Brands Group Inc (DNKN.O) and Panera Bread Co PNRA.O to follow suit.

The mobile payments strategy has proved hugely successful - a quarter of all transactions in Starbucks' latest quarter was through mobile phones.

Starbucks' quarterly revenue has risen at a pace of at least 7 percent since 2009, much faster than that of Dunkin' and McDonald's Corp (MCD.N).

Wells Fargo Securities analyst Bonnie Herzog said in a note that Schultz's plans to "premiumize" the Starbucks brand should allow the broader store network to continue to thrive.

The outgoing CEO said on Thursday that in his new role he would focus on building the ultra-premium Starbucks Reserve stores and showcase Roastery and Tasting Rooms around the world, which analysts said was a worthwhile endeavor.

Starbucks is trying to stave off competition from super-premium coffee rivals such as Blue Bottle and Intelligentsia.

The company opened its first Reserve Roastery and Tasting Room in 2014 in Seattle - Starbucks' birthplace - to roast and sell limited-supply Reserve coffees. It plans to open three more in Shanghai, New York and Tokyo.

Reporting by Sruthi Ramakrishnan in Bengaluru; Additional reporting by Gayathree Ganesan; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty

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