Chipotle still in 'very good hands' following CEO departure

Shares of Chipotle Mexican Grill (CMG) are falling Tuesday morning following news that CEO Brian Niccol will take up the mantle of Starbucks (SBUX) chief executive and chairman in September. Starbucks CEO Laxman Narasimhan has stepped down in this surprising C-suite shakeup.

Wedbush Securities managing director Nick Setyan and AB Bernstein senior analyst Danilo Gargiulo come on Catalysts to talk about the direction of Chipotle's brand, especially as core leadership like CFO Jack Hartung has opted to stay onboard instead of retiring in March 2025.

"Think about the importance of the 'Chipotlanes' [drive-thru] that is tapping into the more convenient-oriented consumer. Well, those types of consumers are now much more familiar with the brand, and we are seeing that Chipotle is now working also in the small town, in university cities, areas where previously one would have never thought that Chipotle might be working," Gargiulo states. "And so right now we are talking about a potentially a cookie cutter approach that Chipotle will need to be deploying into more areas and expand the number of units..."

Setyan believes Chipotle to be "in a very good place" and "in very good hands" with Hartung and COO Scott Boatwright who will be acting as interim CEO.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Luke Carberry Mogan.

Video transcript

Clearly, we're seeing a lot of that excitement play out in Starbucks.

If you take a look at Chipotle shares are under a tremendous amount of pressure this morning.

Is that a bit of a surprise?

Given the fact that Jack Hartung, it sounds like the company saying that he's now going to be staying on indefinitely and maybe the shape or direction here of Chipotle might not change maybe to the degree that Wall Street seems to be nervous about here this morning.

Yeah, I will agree with your assessment.

I think it might have been a little bit of a surprise given the sudden change in Jack's role at Chipotle.

But at the same time, I think the brand has evolved itself from being just a CEO driven CEO L. And I think over time, it has proven itself that it's larger than its own management.

Now, they have really propelled this virtual cycle with the younger consumer base, you know, having tapped into, you know, new set of the population that previously was probably not um being considered for Chipotle.

Think about the importance of the Chipotle that is tapping into the um you know, more convenient oriented consumer.

Um Well, those type of of consumers are now much more familiar with the brand and we are seeing that Chipotle is now working also in a small town in university cities, you know, areas where previously one would have never thought that Chipotle might be working.

And so right now, we are talking about a potentially cookie cutter approach that Chipotle will need to be deploying into more areas and expand the number of units.

Which again why we, why we like, you know, Brian's leadership at Chipotle, I think the brand has evolved beyond this management.

Well, I think that's a really interesting point to, you know, and it points to even further confusion about the degree of the pressure that we're seeing on a stock this morning.

N I want to give you the final word on this, given the pressure that we are seeing the stock under.

What does Chipotle have to do moving forward?

Do you think it's just a continuation of the same?

And they'll have their say at the next earnings print?

Yeah, look, I think Chipo is in a very good place.

Uh And I think they're in very good hands, you know, both Jack and yeah, both, both gentlemen here uh that are taking over and I credit both of them with, with the turnaround as much as I, you know, credit Brian Nichol with.

So uh I think they're in very good hands.

Uh I think they're an autopilot frankly.

Uh and not much has to change.

Danilo.

I actually wanna get one more quickly on you.

I'm, I'm curious to what extent Starboard impacted the executive shake up that we're seeing today.

What's your take on that?

Um Hard to say.

Uh I would say, uh clearly the investors were uh disappointed with management.

Um Both, you know, current shareholders as well as one of the investors into Starbucks.

And I think they've aired their frustrations over a long period of time.

I think activists might have taken a uh you know, decisive role in to establishing the path forward for Starbucks.

I don't know if that means that Starbucks was necessarily the kind of the investor poaching Brian Nicol out of Chipotle.

I think it was probably indicative of the wider investment base being a little bit frustrated with current management at Starbucks.

You know, was it more so the second quarter earnings, the disappointment there, the fact that they hadn't really proved that turnaround story.

Could that also, I guess how much of how much of that do you think contributed to this change in the timing of it?

Yeah, I think the conversation with investors that we've had indicated that uh you know, investors were looking for upward trajectory into um into uh the po meaning um they were probably expecting to see some softness um in, in Starbucks, but at the same time, they were hoping to see some exit rate being higher indicative of the fact that the actions that management was taking were the appropriate ones were the ones that will be able to make Starbucks scale out of this situation of losing their, their customer base as well as being unable to tap into the new consumer base as Nick was saying before.

So I think the frustration was less about the amount of decline and much more about the lack of um you know, positive catalyst from here on and positive trajectory into uh into the uh uh uh performance.