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Starbucks CEO transition plan gets muted reaction from Wall Street

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Laxman Narasimhan, April 13, 2018.
Guillermo Gutierrez | Bloomberg | Getty Images

Wall Street’s reaction to Starbucks’ new CEO was muted Friday morning, with shares down about 1% after the coffee company named restaurant industry outsider Laxman Narasimhan as its next leader.

Narasimhan will join the company in October before stepping into the top job in April, Starbucks announced late Thursday. He will succeed interim CEO Howard Schultz, who returned to the coffee giant for his third stint earlier this year. Schultz will stay on as an advisor and remain on the board. BTIG analyst Peter Saleh compared the structure to a co-CEO model in a note to clients.

Now, all eyes are on Starbucks’ investor day in Seattle on Sept. 13.

“Importantly, this hire removes a major overhang for [Starbucks] shares, with focus now shifting to the ’22 Investor Day,” Barclays analyst Jeffrey Bernstein wrote.

The company is expected to unveil a reinvention plan that will bring bold changes to the chain and its cafes. Schultz has crafted the strategy and will remain heavily involved with its implementation.

Previous Schultz departures have resulted in double-digit tumbles for Starbucks stock. When the company announced in late 2016 that then-Chief Operating Officer Kevin Johnson would replace Schultz, shares fell as much as 10% in extended trading. Johnson was a relative newcomer to the restaurant industry, joining Starbucks as COO after decades working in tech.

But Wall Street doesn’t seem very concerned about Starbucks’ latest transition plan. When the company announced its incoming CEO Thursday evening, the stock fell less than 1% in extended trading. In a demonstration of investors’ trust in Narasimhan, shares of his current employer, Lysol and Durex owner Reckitt, fell as much as 5.7% on Thursday after the surprise announcement of his departure later this month.

“Narasimhan joins from Reckitt where he has overseen a successful restructuring, likely invaluable experience for the reinvention Schultz clearly envisages for [Starbucks],” Atlantic Equities analyst Edward Lewis said in a Friday note.

Analysts focused on Narasimhan’s global experience, which could strengthen Starbucks’ sales in emerging markets. His previous roles included serving as head of PepsiCo’s Latin America, Europe and sub-Saharan Africa operations.

Narasimhan “brings the right kind of fresh perspective, leadership capabilities and energy” to take Starbucks to the next level, Jefferies analyst Andy Barish wrote.

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