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Starbucks investors nervously contemplate life post Schultz

UPDATED: Tue., June 5, 2018, 2:40 p.m.

In this Feb. 27, 2017, Starbucks CEO Howard Schultz smiles during an interview with the Associated Press at a Princi bakery in Milan, Italy. (Luca Bruno / Associated Press)
In this Feb. 27, 2017, Starbucks CEO Howard Schultz smiles during an interview with the Associated Press at a Princi bakery in Milan, Italy. (Luca Bruno / Associated Press)

Starbucks is losing its longtime visionary leader, and Wall Street isn’t confident of what’s ahead.

Although Howard Schultz had already transitioned away from running the coffee chain’s day-to-day operations, investors are concerned about the coffee behemoth, which largely defined what espresso means in America and around the world.

“The biggest challenge Starbucks has is they constantly have to figure out how to take care of the customer better,” said Bill Smead, chief executive officer of Smead Capital Management, which owns 346,113 shares of Starbucks. “How do you deliver the product to people in a way that they don’t mind the price going up?”

The shares fell as much as 3.1 percent in New York to $55.28 – the biggest intraday drop in a month – adding to this year’s decline. The stock was down 2.1 percent as of 10:28 a.m.

Schultz, 64, announced Monday he’d be stepping down from Starbucks later this month, fueling speculation that the billionaire may be mulling a presidential run in the age of celebrity leaders.

Craig Buffkin, managing partner at Buffkin Baker, said his departure could signal “that he’s not up to the challenge coming up” as Starbucks bets big on China as growth slows in the U.S. Veteran retailing executive Myron Ullman will take over as the new head of the board, the company said in a statement.

This year, Starbucks has faced slowing growth, especially in its home market. Chief Executive Officer Kevin Johnson, who took the helm last year, has largely pointed to a slowing afternoon business. In response, the company has changed labor scheduling during the post-lunch slump and is trying to entice diners with new iced drinks and foods.

In the U.S., Starbucks just added a strawberry Frappuccino and chicken chorizo egg bites to its permanent menu. It’s also expanding a new line of grab-and-go lunch options dubbed Mercato, and installing new digital menu boards. Earlier this year, Starbucks opened up its popular mobile-order-and-pay app to entice nonrewards members, too.

“It does leave a lot of questions about the future of the company,” said RJ Hottovy, an equity analyst at Morningstar Inc., “but I do think ultimately this company has a very deep bench, and this might give some of them a chance to shine.”


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