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Will Schultz's Exit Be a Major Loss for Starbucks (SBUX)?

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Starbucks Corporation (SBUX - Free Report) slipped 0.7% in after-market trading on Jun 5 after it announced that executive chairman Howard Schultz will step down. Schultz will be succeeded by former J.C. Penney chief executive Myron E. "Mike" Ullman. Schultz will resign from the board and be named chairman emeritus on Jun 26, the company said.

The visionary steadily built the world's largest coffee business, which now boasts 28,000 stores across 77 countries. The company’s stock has come a long way since the initial 1992 public offering, scaling a massive 19,000%. Schultz joined Starbucks in the 1980s and had resigned from the company’s top position in 2000. This dampened investor sentiments to an extent that the stock lost a whopping 28% over seven weeks. Schultz returned to his position in 2008 when the coffee giant was grappling with the challenges posed by the 2008 financial crisis.

Schultz resigned as CEO for the second time at Starbucks last year to focus on innovation and social-impact projects as executive chairman. Following his departure at the end of June, Schultz will oversee the opening of the Starbucks Reserve Roasteries in Milan and New York City. He is also writing a book on the company’s social impact work.

Schultz had endorsed Hillary Clinton in the 2016 presidential election and is rumored to be making a run for the position in 2020. Schultz, at 64, is considering "a range of options for myself, from philanthropy to public service."


A Look at Starbucks’ Performance

Starbucks’ shares lost more than 11% in the past year, comparing unfavorably with its industry’s decline of 0.9%. Shares of the company were also down 0.7% so far this year.

Meanwhile, incumbent CEO Kevin Johnson faces a range of challenges, starting from subdued growth in the dominant U.S. market and intense competition from rivals to a huge expansion project in China.

That said, the company’s fundamentals remain strong as is evident from the 3-5 year expected EPS growth rate of 14%. In the last reported second-quarter fiscal 2018, Starbucks’ adjusted earnings per share of 53 cents showed an improvement of 17.8% year over year. The results benefited from improved performance in the Americas (mainly in the United States), the ongoing positive momentum in China (following the takeover of East China) and strongest comps growth in Japan in five quarters.

Importantly, Starbucks and Swiss-based food giant Nestle SA recently teamed up to revitalize their coffee domains. Starbucks and Nestle announced a global marketing deal that gives the latter "perpetual rights" to market Starbucks’ products globally. This alliance will expand the global reach of Starbucks brands in the consumer packaged goods and foodservice categories to nearly 190 countries from the present count of 28.

Again, as marketplaces across the globe are changing radically, the increasing use of Mobile Order and Pay has been a key propeller for Starbucks. The company’s mobile app is also undoubtedly one of the most widely used mobile payment app in the United States. Mobile payments represented 12% of U.S. transactions in the fiscal second quarter, reflecting an increase from 8% a year ago.

Additionally, factors like better job prospects and increasing consumer confidence are likely to play an important role in boosting the restaurant industry, to which this Zacks Rank #3 (Hold) stock belongs.

Other Key Picks

Some better-ranked stocks in the same space are Wingstop Inc. (WING - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Dine Brands Global, Inc. (DIN - Free Report) and Denny's Corporation (DENN - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Wingstop has a 3-5 years expected EPS growth rate of 19.5%.

Dine Brands is likely to witness 23.1% earnings growth in 2018.

Denny's 2018 earnings are expected to grow 12.1%.

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