Goodbye Chipotle, Hello Starbucks. Here’s what investors need to know after the recent CEO change.

Investors in Starbucks (SBUX 0.53%) and Chipotle (CMG -2.78%) were recently met with a bit of a shock when it was announced that Chipotle CEO Brian Niccol would be leaving the company and taking the reins at Starbucks after its CEO, Laxman Narasimhan, was ousted. Niccol was very successful at Chipotle, while Narasimhan was not so lucky in his tenure overseeing Starbucks.

The market reaction to the news could not be more different for the two companies’ share prices. Shares of Starbucks rose nearly 22% on the day, while shares of Chipotle fell more than 12%. So what does this mean for the future of the two companies? Let’s consider.

Chipotle investors still have reason to be optimistic

Any way you slice it, Niccol was a great CEO at Chipotle. During his tenure of less than seven years, the company saw its revenue more than double and its stock price gain 800%. Take a look at this chart, which shows the company’s revenue and earnings per share (EPS) growth since its acquisition in 2018.

CMG Revenue (TTM) data by YCharts

Chipotle is now a major player in fast food and the envy of many other companies in the industry. That McDonald’s struggles, posting a year-over-year decline in revenue for Q2 2024, Chipotle is thriving, posting over 18% revenue growth.

So it goes without saying that investors are nervous about Niccol’s departure. Who will step in and fill his shoes? For now, at least, it’s Scott Boatwright, the current COO. Boatwright was there even before Niccol arrived in 2018.

The company insists it’s business as usual, saying Boatwright “has been instrumental as part of the leadership team that created and executed the turnaround strategy that has delivered incredible results since it began in 2018” and that he “will continue to execute the strategic strategy of the company”. plan without interruption.”

The extent to which Boatwright was actually involved in creating the strategy is unclear, but as COO, he certainly had a huge hand in its execution. Now that Niccol has laid the extensive groundwork in creating a turnaround strategy and vision, implementing it, and sticking around long enough to make sure it’s successful, I don’t think Chipotle needs him to keep crushing it. Whether Boatwright stays on permanently or not, right now the company needs a manager more than a visionary. I don’t think he’ll have any trouble finding one.

Starbucks investors should be excited, but problems remain

Niccol seems to have made the transformations his thing. He did it at Taco Bell. He did it at Chipotle. Now, Starbucks hopes it can do it there, too. Mellody Hobson, chairman of Starbucks’ board of directors, had this to say in the company’s press release announcing the move, saying the board “believes he will be a transformative leader for our company, our people and everyone we serve all around the world”.

And they need it. The company’s revenue and EPS declined in both of the past two quarters, and before the announcement, its stock was down about 20% this year. Narasimhan was CEO for less than a year and a half before his ouster. Sales have been falling since shortly after he took over, particularly in the critical China market.

However, it’s hard to target all of them, especially this early in his tenure. The company has been relatively tight-lipped about exactly why Narasimhan got the boot and will likely continue to do so, but speculation isn’t all that helpful.

What we do know is that Niccol has a proven track record, and that’s reason to be optimistic. But let’s not get ahead of ourselves. It takes time to create and implement major changes, and the market forces Narasimhan was struggling with remain.