Jon Tower, a Citi analyst, believes that Brian Niccol is likely to opt for a massive rise in capital expenditures in order to position Starbucks Corp. (NASDAQ: SBUX), well for the long-term.
In an interview with CNBC on Wednesday, he said that a greater part of the investments would be devoted to technology, particularly around siren station redesigns, which could improve both throughput and employee experience.
Tower, however agreed that such a shift in strategy may have a negative impact on the beverage giant’s financials over the short term.
Niccol expects that it will take 12 to 24 months for his efforts at SBUX to bear fruit.
Investors are still convinced that Brian Niccol will be the executive Starbucks needs to fix its long-standing problems like higher prices and reduced traffic. This is because he had a stellar track record as CEO of Chipotle.
Starbucks stock rose nearly 25% on Tuesday after Brian Niccol was named as the new top boss – its best performance since it IPO’d in 1992.
Brian Niccol will optimize the menu at Starbucks
Jon Tower expects Brian Niccol will also add a few items to the Starbucks menu to optimize it.
He said today on “Squawk box” that menu optimization could drive more customers into the stores, and translate to better profits.
According to Citi analyst, Niccol will likely be more creative with promotions and announce new apps deals as SBUX’s chief executive.
All of this is similar to his work at Chipotle, which resulted in an almost 800% increase in shares of the chain of fast casual restaurants during his tenure between March 2018 and August 2024.
Tower said that Chipotle’s stock was in the red as of the time of this article. This is a good thing, considering Brian Niccol has built a “phenomenal” business and “an awesome bench” for the Newport Beach-based company.
SBUX partners with local operators to launch Niccol in China
Finally, Citi’s Tower is expecting Brian Niccol to form a joint-venture with a local operator.
If you can find local operators who are familiar with the local market and its politics, your business will be more profitable.
Analysts at Stifel upgraded Starbucks shares on Wednesday to “buy” and raised their target price to $110 indicating optimism about what the future holds for SBUX. The new price target represents a 20% increase from the current level.
The coffee chain pays a current dividend yield of 2.47 percent, which is another reason why you should have it in your portfolio.
This post, 3 things Brian Niccol would do to turn Starbucks around, may be updated as new information becomes available.
