Well, the news is official. Brian Nickel, that guy right there is the new Starbucks CEO. As of September 9th, he's leaving Chipotle. Now, Brian Nickel, this guy is by far the best food CEO living today. He has the best track record. In fact, it's so good that the reaction to this move from leaving Chipotle to go to Starbucks cause Starbucks stock to go up. Currently 20 percent, 20% is one of the biggest days in Starbucks history. That's over 18, $1,000,000 in
market cap for the company. So obviously Starbucks investors are excited as they should be, and Chipotle investors are not feeling good today. They're not feeling quite as good as Chipotle. Stock is down 10% on the same news that they're losing Brian Nickel. Now obviously there's a lot to dive into here. What is Brian Nickel actually worth? What does his track record actually look like? What did he do for Chipotle to turn the company around from?
When he was at Chipotle the stock went U / 700%. But what can it mean for Starbucks? Starbucks faces a lot of unique challenges with China, same store sales growth in the US, we have the caffeine bubble, multiple competitors moving into Starbucks territory. Can Brian Nichol take on this challenge and is Starbucks a buy? Today? We're going to be diving into all of it.
I'll be giving you an overview of what Brian Nicholas done for Chipotle, what he's likely to do for Starbucks, the type of things I'd look for as a Starbucks investor, and where this also leaves Chipotle now that the stock is down over 30% in the past couple of months. So we have a lot to get to on this main story. Plus we have some other news stories as well. We just had Home Depot's earnings report today. It wasn't great. They expect sales to weaken even more.
But there is hope for Home Depot. Interest rates look like they're going down in the future. Does that mean it's time to buy this stock? And then finally, I've seen over and over again this type of headline Intel stock may have bottom at the tangible book value. There's other viral tweets pointing out the same thing. The patient investor says that Intel literally is trading at liquidation value.
That's the tangible book value. Another tweet from Richard Jark this time says that this is crazy. Intel is so hated by the market right now that it is now trading at tangible book value. Tangible book value is normally what shareholders get if the company goes bankrupt. These make for popular viral tweets. But I'll be explaining why tangible book value is not an indicator of whether or not to buy a stock. So obviously, this is going to be a jam packed episode.
We have a lot of news to get into. Let's go ahead and jump into this main story that Starbucks is replacing their CEO Laxman Nersenhum with Chipotle CEO Brian Nickel. Now, why is this happening? Well, first of all, this is the tale of two food companies. Starbucks is a company that has been struggling for well over a year. The company same store sales in the US have been in the decline for seven consecutive quarters.
In fact, the most recent quarter, Starbucks had one of the worst earnings report I've ever seen. You could look it up. Every single metric, every KPI, everything that you can look for went in the wrong direction. Negative sales in China, negative sales in the US, same store sales decline, the app usage declining, the amount of new store openings declining, average unit volume declining. Everything was going down. It was one of the worst reports
again, that I've ever seen. Then you contrast that with Chipotle. Chipotle has been so expertly ran and executed that it has outperformed basically every other food company aside from a few Wingstop. But Chipotle has been one of the top performers. The same store sales have increased consecutively for years. In fact, they continue to climb even as the most recent quarter. As every other food company has fallen off, Chipotle seems like one-of-a-kind.
It just continues to grow. No matter the environment, no matter pushback from consumers, no matter online viral campaigns, Chipotle continues to execute and the stock has followed. It's been an incredible performing stock. I used to own it. I recently just sold it a month ago. Chipotle went up so fast, so quickly over the past year that I had so much gains in such a short amount of time. I decided to take my gains and run away. I made around $11,000 on that stock.
So you see the difference here. Chipotle is in a situation where everything seems to be going about as good as it can. There's some minor complaints about portion sizes. That's minor stuff. The numbers show the true story. Chipotle is executing with extreme precision. The company has been well managed and Starbucks's execution at the same time has been miserable. And Starbucks shareholders are sick of it. Now, it's one thing to have poor performance from a company
financially. Sometimes companies go through difficult times. Sometimes there's some cyclicality in the business. But it's another thing to have ACEO that you're not confident in. And the big thing that got this Starbucks CEO fired and replaced with Brian Nickel is the interview following last quarter's report. They released all these terrible metrics showing everything was moving in the wrong direction.
And then you call upon the CEO to come and explain it, to give some context, to give some hope and some clarity into what's going on. And this was the interview that got the CEO fired. It was this moment, the worst part of the interview that I believe contributed to it the most. Let's go ahead and just look at this. We have Jim Cramer here, and he is grilling, skewering the CEO over these poor metrics. And he points out that the CEO is not really being transparent.
He's not saying this is a terrible quarter and we're going to fix it. He's trying to put on a happy face and pretend like things are better than they are. So let's go ahead and just watch this as Jim Cramer calls out the CEO. You said it's not business as usual. And I want to make a point here, Sir. You are still expanding as if it is business as usual. You add, for instance, on the quarter, you talk about opening stores in Honduras and Ecuador.
Is it not time to pause, Sir, and figure out what's really going wrong and spend a deep dive and making it so that this decline in comp store numbers does not continue because it is perilous to the actual existential existence of Starbucks? That is an excellent question from Jim Cramer. Why would they continue to expand all across the world when they're having consecutive decline in sales in the US? They obviously have some existential problem in the US and they're acting like they
don't. They're just expanding everywhere. You want to figure out your business and what's wrong with it before you expand. So Jim here is asking excellent questions and listen to the answer he gives here. If you look at the US business and look at the fundamentals of the US business, we are holding share in the US We are still the largest player in out of home coffee if you look at some of the metrics that we have. Tim Horton said you are not holding share, Sir.
I regard them as being Seminole companies that are just as good when it comes to quote McDonald's says you are losing share. I can't go against those three companies. They are too good and too honest and too big for me to dismiss. He says right there that they're holding share within the US and that is just blatantly not true. If you look at the share count as the amount of coffee like drinks being sold, it's abundantly clear that Starbucks is losing share. There's companies like Dutch
Bros growing in that category. There's lots of alternatives to coffee growing in that category. Even look at Celsius. A lot of people view Celsius as a cheaper version of Starbucks. It's not entirely in the same exact bracket, but their share loss being had by multiple other competitors, including Tim horton's, including McDonald's, including other companies
offering the same product. So the CEO here is directly called out for being misleading, saying that they're keeping share within the US, which they're clearly not. And other companies are saying that they're gaining share against Starbucks. And this is what creates a feeling in Starbucks shareholders as being helpless. When the company's going down and you don't have confidence in
the company's leadership. You feel entirely helpless, like you need someone else to step in and get things under control. Now you may think that that interview was bad enough, but the Starbucks CEO just a month ago went on another interview where he openly states that he doesn't work beyond 6:00 PM. If there's anything after 6:00 PM and if I'm in town, it's got to be a pretty high bar to keep me away from the family. Anybody who gets a minute of time off of that better be sure
that it's important. Now let me remind you, this is a guy that's being paid upwards of $28 million to run the company, a massive international company, and his attitude is that he won't work a minute after 6:00 PM. That's the attitude of an entry level employee that wants to go home and play Xbox after work. In fact, many entry level employees, many low skilled labor, right? The ones that are just getting trained new work beyond their mandatory shift to make sure things are running well.
They might be shutting down a Starbucks restaurant and it may go a little bit longer than expected. They can't just instantly clock out and leave whenever they want. He has a worse attitude with this interview than most of the employees working at his company. So Starbucks shareholders were in a situation where they had no confidence in the leadership and the company was headed in the wrong direction. And this is what caused a lot of activist investors to step in.
We had Trion Partners, we had Elliot step in and put pressure on Starbucks. We don't know all the backroom discussions, but we know that they're trying to invoke change, and change they did. The new CEO of Starbucks as of September 9th is Brian Nickel. Now, to give context of what Brian Nickel may be able to do for Starbucks, I think it's good to take a little review of what he's done for Chipotle.
Let's go ahead and just take a look at some of the things he's accomplished over his six years at this company. If we look at Chipotle here, we can take a look at some of the key metrics of the company. We can look at the trailing 12 months of revenue for Chipotle. He joined Q1 of 2018. So right here, Chipotle was making $4.56 billion in annual revenue. 4.56 The revenue has climbed to 10.66 and it's climbed basically every single quarter over that time period.
In fact, I would say it's every quarter because the only quarters it went down, literally the only ones was COVID. That was it. It went down 1/4 and then quickly went back to its normal trend. So for all intents and purposes, if you rule out the impacts of COVID, he grew revenue every single quarter consistently during his tenure of this company. We can look at the free cash flow of the company. The free cash flow is even more incredible. Look at this on a trailing 12 month basis.
In Q1 of 2018, it was doing $300 million in free cash flow. Now he used that money in free cash flow to do heavy CapEx investments to expand the amount of restaurants. So even though it didn't immediately grow, the company's earnings power was growing every single quarter since he took over. And then once they got to scale, the free cash flow really kicked in. Look at this massive free cash flow growth since 2020.
We see the company growing like crazy as their new store counts and efficiencies kick in. He grew the free cash flow to now generating $1.3 billion per year. So from 300 million to 1.3 billion. 2018 the earnings per share were $0.13. That's for the entire year. Now it's a dollar heat out seven X the earnings per share in Q1 of 2018. Chipotle at 2400 locations. Current day they have 3500, so we added on over 1000 locations
to the company. Now more impressive than just doing that, adding more and more locations is growing the amount of volume each location is doing at the same time. And Q1 of 2018, Chipotle was doing just under $2,000,000 in revenue per location. It had a streak of losing
revenue per location. So he entered into the company with declining revenue per location and then immediately the quarter after he joined, it started to trend upwards and it trended upwards every single quarter except for COVID. That was the only time period where it went down and only a little bit. It resumed its normal trajectory of going up every single quarter. This is the same store sales growth that you want to see. When Brian Nickel joined Chipotle, the stock price was
under $7.00 per share. Now the stock price is above $50.00 and it's down $5 today on the news that he's leaving. So he's basically leaving with the stock price at $55 if you don't account for the sell off because he's leaving.
So from under $7.00 to $55. Now, on top of all of these fundamental changes, which definitively prove that Chipotle is in a much better space today than it was when he first joined, there's also a lot of qualities, a lot of things that don't show up in the numbers, like Brian Nickel making Chipotle one of the most present companies. It's in the in crowd, it's on social media, it's memed, it's it's part of the in culture. That's something difficult to
accomplish. Making it so that your company is something that other people want to go to. They want to eat at Chipotle because it's the cool thing to do. He accomplished that through the marketing and the focus on social media. He also grew a little bit of a culture with Chipotle. Working at quick service restaurants is difficult. It's not a fun job to do, but he made it a lot better for the employees, creating a consistent culture across the board.
He also grew the digital app to 50 million users and made it so that roughly half the orders that Chipotle receives come from digital ordering. It was also under Brian Nickel that he came up with the Chipotle Lane. The idea of a drive through that's not technically a drive through. This makes it so you don't have a big billboard, you don't order with the speaker, there's no legislation against it. It's just a drive through where you can order with your app and pick it up.
So there's no line. This is all stuff that happened under Brian Nickel. And of course, it's caused this excellent outcome in Chipotle stock. So obviously, there is valid reason for investors in Chipotle to be disappointed at his departure and for investors in Starbucks to be excited about him coming on. Now, if we look at how the stocks are reacting, Chipotle's currently down 10%. And to me that makes sense.
When you have ACEO that good with that good of a track record that really knows a company that's running it well and they leave, it's just not a good feeling. Investors don't feel as excited about the stock. And frankly, there's nobody else in the industry with the track record of Brian Nickel. He's the best. So it's difficult to conceive of a situation where they bring on
a better CEO. They may have ACEO that ends up doing as well, but they will be less proven and it's going to be difficult for CEO to come in and bring Chipotle stock up when it's already so high. Brian Nickel is timing this move perfectly. He's leaving his company at the very top. Everything's going about as perfect as it can. The stock is trading currently at a 55 Ford PE ratio, so he's leaving at the absolute top of Chipotle, the best situation possible, and moving into
Starbucks when things are messy. That's a really good change for Brian Nickel, but that leaves Chipotle investors in a more difficult situation. You can ask any Chipotle investor today and they're not going to be excited about this news. Not a single one of them. Starbucks investors, on the other hand, should not just be enthused at the stock price is up, but they should be enthused at the CEO is so good that they have a new leader of the company
that's competent. A lot of people may say, well, the CEO is good, but is he worth 20%? Is it really justified to have it go up 20%? I don't believe that, Brian Nicholas, the only reason that Starbucks is up 20%. Part of the reason is that Starbucks is current CEO. Laxman is leaving, so Starbucks investors feel like they're getting rid of a problem and getting a better solution. Laxman is out as of today.
His firing was immediate even though the new CEO Brian Nicholas coming on September 9th. Starbucks CEO is out today. So he's gone and Starbucks investors are not only excited at his departure, but they're also excited at Brian Nichol coming on. The combination of which is a 20% bump. A lot of people may question what value ACEO brings to a company like this, but keep in mind Starbucks is not a very
simple company to run. It's not one that you can just switch on to autopilot and it virtually runs itself. It's not a Visa and a MasterCard. It's not an S&P Global. Those companies are far more self running. Starbucks is a company that needs good leadership. It needs good judgement. Having the leverage of employees and capital and revenues and cash flow relying on the judgement of one person makes that judgement incredibly valuable.
And with the CEO that has a demonstrated history of good judgement, it's worth paying up for. I think the move today is justified. I think the stock should move up dramatically because of Brian Nichols demonstrated history of good judgement. Good judgement is worth paying for when you have a company like Starbucks that is reliant on good judgement to run.
Now, having said that, even with his great judgement, Brian Nichols going to face unique challenges operating Starbucks, ones that did not exist when he was operating Chipotle. I view Chipotle as a far more unique proposition. Having a unique burrito company that's large and scaled with the digital app presence is simply one-of-a-kind. There's not any other company at scale doing that.
Chipotle is the only one, whereas Starbucks faces far more competitors that are similar to it than Chipotle does. Another unique attribute of Starbucks compared to Chipotle is Starbucks is huge in China, Thousands, 10s of thousands of restaurants in China where Chipotle has no exposure to China. So Brian Nichols going to have to deal with some unique challenges here, and I think this is what he'll end up doing with Starbucks. The first thing I think he's going to do is improve
efficiencies of the company. This is a huge focus of him in Chipotle. By improving efficiencies, I mean improving throughput. Throughput is the name that these fast food companies give for basically making the line go faster, just making the line move along faster so people don't have to wait around for their food. Brian Nickel made it so that when you go into Chipotle, you get through the line quickly. You're not waiting in line for
10 or 20 minutes. Improving throughput is proven to make it so that people will order more, they'll order more frequently, They won't bail on a restaurant because of the long line. So I think that's going to be a major focus that he has for Starbucks. The other thing that I think that Brian Nicholas likely to do is to separate Starbucks China from the rest of Starbucks. I think he will argue to the executive team, to the board, that Starbucks in China is an entirely different thing to
manage. It's so different culturally, the people there, the government, everything. You have to take into account that it should be managed separately as a separate division or company from the rest of Starbucks. And by doing so, he can focus his effort on the rest of Starbucks. This has happened many times in the past. I think there's a good chance he'll do this with Starbucks.
He's going to create more simplicity in the digital app and focus on more people ordering digitally, improving that process. And I also think he's going to focus on getting back to Starbucks's roots. He's a culture guy. He likes improving the culture of the company. He'll recognize that Starbucks's culture is about being the go to place to hang out, to plug in your MacBook, to have a coffee, to sit down, to just pass some
time and have some drinks. He knows the culture of Starbucks and he's going to make that a focus. So overall, I'm very bullish on the changes that will be implemented to Starbucks over time. And I think that Brian Nicholas, the best thing this company can hope for. Now, again, having said that, when I look at Starbucks, I do view it as a very unique company from Chipotle. I don't view these as
interchangeable. Chipotle is far more unique in its value proposition to customers than Starbucks. And I think ultimately the biggest challenge that Brian Nichols going to face is the challenge inherent in Starbucks's fundamentals, the competitive dynamics of the industry. I've gone over this many times in the past. I think there is a caffeine bubble. I think there's too many companies trying to sell too many highly caffeinated beverages and doing so causes pricing power to be limited.
When pricing power is limited, same store sales decline and that's what you're seeing with Starbucks. The amount of large scale, powerful companies trying to push highly caffeinated beverages is incredible. You have Monster Energy Celsius. You have Pepsi with Rockstar. You have Coca-Cola selling their new energy drinks, You have McDonald's getting into energy drink, you have Dutch Bros.
The latest is Taco Bell. Every company is trying to get into this category and when there's more and more direct competitors to Starbucks, it makes pricing power more and more difficult at the same time that the consumer slowing.
I still think this is going to be very difficult for Brian Nickel. So even with Brian Nickel moving on to Starbucks, for me personally, I still don't like the competitive dynamics enough to buy into the company, but I don't blame you for holding on to the stock if you are. In terms of Chipotle right now, the stock is still very expensive even after this drop in price. It's trading back a little bit, but it's not falling enough for me to buy back into this company.
It's nowhere close to where I first purchased into it and the PE ratio is still very high above A50 PE ratio. So right now Chipotle is still an expensive stock, but it lost its great CEO. Now moving on, Home Depot reported their earnings today. They reported a beat on the earnings per share, but they also forecast weaken consumer
demand. The home improvement retailer said it now expects full year comparable sales to decline by three to 4%. And that is why the stock is flat all year long because the sales of the company are flat. Now, Home Depot's a stock that I haven't wanted to buy for well over a year and that is because of interest rates. Interest rates going up has a huge impact on any company reliant on financing. Now, it's true that the items you buy at Home Depot, you probably don't need financing
for specifically those items. But most people finance large home improvement projects. So Home Depot and Lowe's, which rely on large home improvement projects or contractor work, rely on financing. With interest rates going up, that means financing is more expensive. Less people can afford it. The cost of capital goes up, meaning that Home Depot all of a sudden has a less affluent customer base. They can't afford the same things they could afford previously.
So the stock of Home Depot and Lowe's has been flat for about a year. I've also used the same reason to sell out of any stock that had anything to do with financing. And even though interest rates are expected to go lower, I still don't see a lot of demand being created for companies like Home Depot and Lowe's. So I will not be buying into either of these companies. Now finally we get to Intel. Intel has been an unmitigated disaster this year, down 57% and the reports, the fundamentals,
everything looks the same. It is a disaster. They're losing money every single quarter and the company's losing market share as well. So the stock is down big this year and it's down to a very low valuation. Investors in IT may notice that the price to book this ratio right here is normally high for different companies because companies are worth more than their tangible assets. They're worth more than just the factories. They also have customers and they have cash flows.
So companies trade on a multiple of their price to book. For example, if we look up Netflix here and we take a look at the price to book of Netflix, it's at a 12.3, so it's 12 times its price to book. That's a relatively normal ratio. Some companies are higher, some are lower depending on their physical assets. But Intel is now priced at a point where it's trading below its price to book and even it's priced a tangible book, meaning even when you take out intangible assets, Intel is
still trading below that. This has caused a flurry of headlines and tweets across social media with outlets like Barron's reporting the Intel stock may have bottomed at tangible book value. You have other super viral tweets like the patient investor saying Intel literally trading at liquidation value. You have Richard Jark saying that this is crazy. Intel is so hated by the market, it's now trading at tangible book value. Tangible book value is normally what shareholders get if the
company goes bankrupt. These tweets have received thousands of likes, millions of views. In fact, there's so many people pointing this out how cheap Intel is, that I'm afraid some people are going to use this as
a buy signal for the company. But investors should be well aware that even though this makes for a good headline and a good tweet, the truth is that a company trading below tangible book value or tangible asset value does not mean it's a buy signal, does not mean that the bottom is in for the company. And in fact, you can disprove this entire thesis almost immediately by bringing up this company right here. Nikola. Nikola is currently trading
below tangible book value. It trades even cheaper than Intel at a .775 price to book value. It is continually traded below tangible book value as the stock price has plummeted 70% year to date. If it was a meaningful indicator that a company's trading below tangible book value, it would also be a meaningful indicator in the case of Nikola. But I don't see anyone citing that Nikola is now bottomed or that Nikola is now cheap.
I only see that for Intel, and if I ask these investors to point out why they didn't bring up the tangible book value metric with Nikola, it's because they know Nikola is a bad company, so it doesn't matter how cheap the company goes, it's still a bad company destroying value every single day. So the question is not whether or not a company's trading above or below its tangible book value. The question is whether or not the company's good or the
company's bad. In the case of Nikola, the company's bad, so investors inherently know not to buy it, even though it's trading at a cheap price with Intel. That's the debate. If you think that Intel is a good company that's going to create shareholder value in the future, that's going to generate positive free cash flow and decline share count and create free cash flow per share, then
the companies a buy. If you think Intel is a value trap, a complex company with lots of difficulties that will continue to struggle and lose market share, then you should not buy it, even if it's trading below tangible book value. In any case, I don't consider either of these companies all that good, so I'm not going to be buying any of them. That's all for this episode. If you enjoy this type of content, you can check out the Patreon.
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