CEO Departure Doesn’t Diminish Our View of Starbucks

 Starbucks' (SBUX) announcement that Howard Schultz plans to transition to executive chairman in April and hand the CEO reins to president and COO Kevin Johnson is a surprise, but we believe the key takeaway for investors is that the management team is more dynamic than at any point in the company's history and our long-term investment thesis is fully intact. While Schultz's vision and attention to customer experience have been key reasons that Starbucks has developed one of the widest-moat and most reliable growth stories in our global consumer coverage universe, our Exemplary stewardship rating--which remains in place following the announcement--is founded on the fact that we view Starbucks to have one of the deepest benches in the consumer sector. As such, we expect that the company's key growth objectives will remain on track in the years to come. There is no immediate change to our $63 fair value estimate, and we continue to view Starbucks as an intriguing investment idea in the consumer sector.

While most of the focus is rightfully on new CEO Johnson and his extensive consumer technology background, we remind investors that Schultz will still be involved with the development of Starbucks' premium Roastery and Reserve stores and that the management bench still features key executives like chief strategy officer Matt Ryan, Siren retail head Cliff Burrows, core retail head John Culver, channel development head Michael Conway, and CFO Scott Maw, each of whom we'd place at the top of their respective areas of expertise based on our previous interactions. For this reason, we don't equate Schultz's transition to that of 2000, when he assumed the chairman role and appointed Jim Donald as CEO (before eventually returning as CEO in 2008 following disappointing sales figures and a "watering down of the Starbucks experience" as Schultz described in a February 2007 memo to Donald).

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