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Longtime Starbucks chief Howard Schultz to step down as CEO

Last Updated Dec 1, 2016 7:30 PM EST

Starbucks Chairman and CEO Howard Schultz -- the expansion-minded Seattle espresso fanatic who turned a local coffee house into a global brand with 25,000 stores and $21 billion in sales -- announced Tuesday he will be stepping down as chief executive in the spring.

Schultz, 63, will be replaced as CEO by Kevin Johnson, the current president and chief operating officer, the company said in a statement. Schultz will remain executive chairman of the Starbucks board, the company added, noting that that no other executive changes are planned.

Johnson -- a technology executive at Juniper Networks and Microsoft before joining Starbucks -- has overseen the coffee giant’s global supply chain, its human resources department, and its marketing and technology efforts, including launches of digital and mobile sales platforms. He’s also been a member of the Starbucks board for seven years. According to Schulz, Johnson is better qualified than he is to lead the company. 

“This move ideally positions Starbucks to continue to profitably grow our business around the world,” Schulz said during a conference call with Wall Street analysts on Thursday, adding that the two years since Johson became President have been the best financially in the company’s history.  “Kevin deserves a tremendous amount of credit for those results.”

After he becomes Starbucks’ barista-in-chief, Johnson will certainly have his work cut out for him. Starbucks, once one of the fastest-growing and most profitable private enterprises in U.S. history, faces significant challenges to deliver the kind of growth investors have been used to from the Seattle-based company.

Shares plunged 3.3 percent to $56.57 in after-hours trading after the news was released. The company’s stock already had been down 3 percent so far this year on disappointing earnings that have raised concerns among many investors about future growth prospects. Meanwhile, rival Dunkin’ Brands (DNKN) has surged more than 27 percent so far this year.

Wall Street analysts are forecasting sales will hit $23 billion in 2016 and earnings of $2.14 per share. The sales growth represents a 9 percent gain, but that pales in comparison with the double-digit gains investors enjoyed in years past.

Schulz has left Starbucks before, in 2000, only to return 8 years later as the chain and the rest of the U.S. economy faced the fallout from the financial crisis. During the conference call, Schulz noted that the company’s circumstances are far different today than they were then. Moreover, Schulz is retaining his ties to Starbucks be keeping his board seat.

Under Schultz’s leadership, Starbucks has been moving even more upscale to boost its bottom line. It plans to open as many as 1,000 locations, double its earlier target, of its new “Reserve” chain that will offer premium coffees and food from its artisinal bakery partner, Italy-based Princi.  During the conference call, Schulz said he expects the Reseve stores to “deliver twice the unit economics of the typical Starbucks store.”   Starbucks also plans to open 20,000-square foot “Roasteries” where baristas will entertain customers as they prepare their beverages.

“I am personally as passionate about developing the Reserve brand and opening more Roasteries as I was about opening our first expresso bar more than 30 years ago in Seattle,” Schulz said.

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.