Starbucks got a new CEO and the Ack Man bought some Nike
Starbucks got a new CEO and the Ack Man bought some Nike
Also, the RBNZ cut, but you knew that already
RBNZ
RBNZ cut. We wrote they would, and they did — hardly mind-blowing stuff, and remember that 25 bps is largely psychological — it doesn’t make naught of a difference from a monetary perspective (that kicks in at 50 bps and more) but it feels good, and people like a feel good moment.
I enjoyed RMac’s commentary re: the RBNZ’s twisty policy phrasing. Quoting it in full:
Take for example, these lines in its August 2024 Monetary Policy Statement: "Global growth remains below trend across advanced economies". Note the underhand "below trend" sneakily inserted. In fact, global growth is far outstripping NZ and no economist even knows exactly what is "trend" line growth since calculating trends is subject to huge statistical debates. The RBNZ slings off at China, saying its "Growth has been softer than expected, due to a depressed property market & weak consumer demand". China is growing at 5%, leaving us in its wake. The Reserve Bank then puts down the US economy with more weasel words, saying it shows "emerging weakness" and there's "nervousness about US economic prospects". Since Covid broke at the start of 2020 until now, the US share-market is up by 37%. NZ's stock market has barely changed - up by a tiny 4% over that 4-5 year period - and down big-time in real terms, accounting for inflation. Business has been hammered. Why can't the RBNZ call a spade a spade? Why twist the truth in ways that would even make a Propaganda Chief of a Third World Dictator blush with embarrassment?
Wop wop wop…
Starbies get a new CEO
I wrote to you about Starbucks not long ago — two days ago, maybe? And the thrust of it was: Starbucks needs a new CEO. Well — obviously I was not the only one thinking this — Lo and behold Lax is out, Brian Niccol is in. Brian Niccol is not just any Tom Dick or Harry. Brian Niccol is, until the end of the month, the current CEO of Chipotle. In a sense Niccol is Mr. Chipotle — he came into Chipotle in 2018, when the chain was in the toilet following a Norovirus outbreak (130 people were affected — a PR disaster). Since then Chipotle has gone from strength to strength — revenues have almost doubled. Profit is up something like 600%.
In short, the lesson is — don’t hire a CEO from a consumer goods company (Reckitt) — they don’t understand the hallowed green apron! Hire a CEO who did a remarkable turnaround at a company with similar touch points. This should be obvious — you can’t diagnose a problem and say oh well, we will cut costs, and I guess boost sales?! This doesn’t work. People buy Starbucks out of emotional connection — logic does not work there. I predict Niccol will be on the floor, serving coffee, working how it ticks. You know, former CEO Laxmann claimed he never worked past 6pm. This is, perhaps, not the impression you want to give when your company’s stock is in the toilet.
We’re still long Starbucks from here — it’s a model portfolio component and we’ve benefited from the +25% relating in the stock (as I keep saying, you make all your money in the buying). There’s obviously less juice in the buying at 26x earnings rather than 21; sad! Niccol still has to turn around the company — the +20bn to the company’s market cap on the news of his appointment leaves him with a lot to prove.
Now, the other element here that I haven’t talked about here is Howard Schultz, who is kind of like Dad of Starbucks. He still retains an office, board observation rights, and a carpark. Technically he is answerable to the board and shareholders, but not really? I mean — if he wants to go in and be CEO of Starbucks for a fourth time he can — nobody is going to stop him. Technically, I guess, bigger institutional holders could vote and say “no Howard you cannot be CEO again. Bad Howard! Down Howard! Bad boy!” — but realistically this is not going to happen. So the issue you have with anyone becoming CEO, including Niccol, is that Schultz could effectively throw his toys and say “well actually, Starbucks is MY best fren, and I no like you ne more!”
This is sort of what happened with Laxman (Schultz started posting on LinkedIn about how they weren’t best frens) but I think it is less likely to happen with Niccol, because he seems cut from the same cloth as Schultz. Also, Niccol is both chairman and CEO — in theory he’s more empowered than a “mere” CEO. But there’s always Schultz, in the background, who could throw the apple cart — if he wants to.
Nike
I’ve been writing about Nike for a while — since I’ve been covering the stock the company has gone from a beast in every metric (ROIC, buybacks, margins) to being a kind of laggard — the d2c stuff slowed down, China slowed down, inventories stacked up and as I have been joking-but-not-joking about — the company lacks a dad shoe. You got to have a dad shoe, folks!
Now the Ack man has purchased a +$200mn stake. Ackman, when he is not writing 10,000 word rants on Twitter (I’m not calling it X), is a fine analyst. The investment case for Nike is pretty strong — trading at a +5 yr low, at 20x earnings, fortress balance sheet, etc. On paper it makes sense. Operationally, though, the company is in deep waters — as often is the case, evil McKinsey is partially responsible for the shift in company culture (a stray thought — whoever is hiring McKinsey these days must need their head looking at … few firms have caused so much damage to the world). Per Lauren’s great newsletter, Line Sheet, on the current woes of Nike:
…Employees were often managed in a unique way. One former executive called it the “love ’em up” method, or the belief that constant positive reinforcement creates fertile ground for success. Those who performed better when they received praise thrived. If praise makes you lazy, you wouldn’t last.
That’s why I was so intrigued when Giunco mentioned in his LinkedIn rant that much of the Donahoe-era restructuring was advised by McKinsey, which is paid millions to decidedly not love up employee bases. Now, though, Donahoe has little choice but to build everyone back up—and fast. He’s asked for a do-over on direct-to-consumer and gendered strategies. He’s also lured back some longtime executives, like current C.M.O. Nicole Hubbard Graham, who worked at the company for 18 years prior to founding a creative agency in 2021. And he’s tackling the innovation problem, moving up the launch of the new Pegasus sneaker by one year as a message to the market that Nike is still with it.
But check the Nike tag on Highsnobiety or Hypebeast, and you’ll find news of dozens of sneaker drops offering minor tweaks on old styles—a new upper there, a novel colorway there. Boring. Then there’s the stagnant collaboration strategy, which does nothing for the bottom line at a company like Nike. There’s also extreme discounting and promotion that Donahoe resorted to in order to keep sales fairly steady. Pull back on that, and sales will dip even further.
That’s the problem! If you have crude levers, like discounting and promoting, then your margins are only going to go one way — down! Hiring back people like Nicole Hubbard Graham, though, is a positive sign — my gut tells me that CEO Donahoe will be out on the streets before long.
The question here is — will Ackman go activist? He has, famously, not been activist in recent years. His portfolio is actually pretty simple and relatively inactive — and it’s done better than his “activist” days, which included duds like his big Herbalife short. Here is his current portfolio (note Chipotle, run by his mate Niccols, i.e. the new Starbucks CEO):
It’s a relatively small holding. It’s a minnow compared to his biggest holding — Hilton Hotels. But I’m unsure if Nike can revive itself without a little activist pressure — remember, back in 2016 Ackman was still an activist — at Chipotle.
I’ve been preoccupied with the old Nike ads. See below. Often I think the biggest issue with new marketers is a fixation of data and SEO — I think this is a misstep. The old Nike ads are a thing of wonder — it’s a reminder that you are not selling a product, you’re selling an idea. Great consumer companies understand this; bad ones don’t.
Nike’s revival comes at a time of more competition. On Running, the Federer-backed shoe brand, continues to take market share — notably signing Zendaya as an ambassador. And then there’s New Balance (privately owned by Jim Davis) — if you are walking around a farmers market or a well-to-do boutique you will note that the best dressed people are wearing New Balance (not Nike).
Cartier Crash: the million dollar watch
Luxury Wine…still the most collected “alternative” asset
