1 00:00:00,080 --> 00:00:03,120 Well, the news is official. Brian Nickel, that guy right 2 00:00:03,120 --> 00:00:07,720 there is the new Starbucks CEO. As of September 9th, he's 3 00:00:07,720 --> 00:00:12,000 leaving Chipotle. Now, Brian Nickel, this guy is 4 00:00:12,000 --> 00:00:14,400 by far the best food CEO living today. 5 00:00:14,400 --> 00:00:17,320 He has the best track record. In fact, it's so good that the 6 00:00:17,320 --> 00:00:20,760 reaction to this move from leaving Chipotle to go to 7 00:00:20,760 --> 00:00:22,960 Starbucks cause Starbucks stock to go up. 8 00:00:22,960 --> 00:00:28,080 Currently 20 percent, 20% is one of the biggest days in Starbucks 9 00:00:28,080 --> 00:00:30,680 history. That's over 18, $1,000,000 in 10 00:00:30,680 --> 00:00:33,960 market cap for the company. So obviously Starbucks investors 11 00:00:33,960 --> 00:00:38,320 are excited as they should be, and Chipotle investors are not 12 00:00:38,400 --> 00:00:40,480 feeling good today. They're not feeling quite as 13 00:00:40,480 --> 00:00:43,920 good as Chipotle. Stock is down 10% on the same 14 00:00:43,920 --> 00:00:45,720 news that they're losing Brian Nickel. 15 00:00:46,320 --> 00:00:49,160 Now obviously there's a lot to dive into here. 16 00:00:49,400 --> 00:00:51,240 What is Brian Nickel actually worth? 17 00:00:51,240 --> 00:00:53,320 What does his track record actually look like? 18 00:00:53,440 --> 00:00:56,480 What did he do for Chipotle to turn the company around from? 19 00:00:56,480 --> 00:01:00,120 When he was at Chipotle the stock went U / 700%. 20 00:01:00,560 --> 00:01:02,120 But what can it mean for Starbucks? 21 00:01:02,200 --> 00:01:05,519 Starbucks faces a lot of unique challenges with China, same 22 00:01:05,519 --> 00:01:08,920 store sales growth in the US, we have the caffeine bubble, 23 00:01:09,080 --> 00:01:12,120 multiple competitors moving into Starbucks territory. 24 00:01:12,440 --> 00:01:16,080 Can Brian Nichol take on this challenge and is Starbucks a 25 00:01:16,080 --> 00:01:17,080 buy? Today? 26 00:01:17,560 --> 00:01:18,880 We're going to be diving into all of it. 27 00:01:18,880 --> 00:01:21,880 I'll be giving you an overview of what Brian Nicholas done for 28 00:01:21,880 --> 00:01:25,400 Chipotle, what he's likely to do for Starbucks, the type of 29 00:01:25,400 --> 00:01:28,280 things I'd look for as a Starbucks investor, and where 30 00:01:28,280 --> 00:01:32,360 this also leaves Chipotle now that the stock is down over 30% 31 00:01:32,360 --> 00:01:34,480 in the past couple of months. So we have a lot to get to on 32 00:01:34,480 --> 00:01:36,240 this main story. Plus we have some other news 33 00:01:36,240 --> 00:01:38,120 stories as well. We just had Home Depot's 34 00:01:38,120 --> 00:01:40,520 earnings report today. It wasn't great. 35 00:01:40,520 --> 00:01:42,840 They expect sales to weaken even more. 36 00:01:43,320 --> 00:01:44,840 But there is hope for Home Depot. 37 00:01:44,880 --> 00:01:47,680 Interest rates look like they're going down in the future. 38 00:01:48,000 --> 00:01:49,840 Does that mean it's time to buy this stock? 39 00:01:49,920 --> 00:01:53,080 And then finally, I've seen over and over again this type of 40 00:01:53,080 --> 00:01:57,080 headline Intel stock may have bottom at the tangible book 41 00:01:57,120 --> 00:01:59,080 value. There's other viral tweets 42 00:01:59,080 --> 00:02:02,000 pointing out the same thing. The patient investor says that 43 00:02:02,000 --> 00:02:05,120 Intel literally is trading at liquidation value. 44 00:02:05,120 --> 00:02:08,240 That's the tangible book value. Another tweet from Richard Jark 45 00:02:08,240 --> 00:02:10,440 this time says that this is crazy. 46 00:02:10,440 --> 00:02:13,760 Intel is so hated by the market right now that it is now trading 47 00:02:13,760 --> 00:02:16,960 at tangible book value. Tangible book value is normally 48 00:02:16,960 --> 00:02:19,840 what shareholders get if the company goes bankrupt. 49 00:02:19,840 --> 00:02:21,600 These make for popular viral tweets. 50 00:02:21,600 --> 00:02:24,440 But I'll be explaining why tangible book value is not an 51 00:02:24,440 --> 00:02:26,720 indicator of whether or not to buy a stock. 52 00:02:26,720 --> 00:02:29,000 So obviously, this is going to be a jam packed episode. 53 00:02:29,000 --> 00:02:30,240 We have a lot of news to get into. 54 00:02:30,240 --> 00:02:33,880 Let's go ahead and jump into this main story that Starbucks 55 00:02:33,880 --> 00:02:39,000 is replacing their CEO Laxman Nersenhum with Chipotle CEO 56 00:02:39,000 --> 00:02:41,280 Brian Nickel. Now, why is this happening? 57 00:02:41,280 --> 00:02:44,040 Well, first of all, this is the tale of two food companies. 58 00:02:44,400 --> 00:02:47,680 Starbucks is a company that has been struggling for well over a 59 00:02:47,680 --> 00:02:50,000 year. The company same store sales in 60 00:02:50,000 --> 00:02:53,960 the US have been in the decline for seven consecutive quarters. 61 00:02:54,240 --> 00:02:57,040 In fact, the most recent quarter, Starbucks had one of 62 00:02:57,040 --> 00:02:59,440 the worst earnings report I've ever seen. 63 00:02:59,760 --> 00:03:02,800 You could look it up. Every single metric, every KPI, 64 00:03:02,800 --> 00:03:06,080 everything that you can look for went in the wrong direction. 65 00:03:06,360 --> 00:03:09,600 Negative sales in China, negative sales in the US, same 66 00:03:09,600 --> 00:03:12,800 store sales decline, the app usage declining, the amount of 67 00:03:12,800 --> 00:03:15,920 new store openings declining, average unit volume declining. 68 00:03:16,280 --> 00:03:18,560 Everything was going down. It was one of the worst reports 69 00:03:18,560 --> 00:03:21,640 again, that I've ever seen. Then you contrast that with 70 00:03:21,640 --> 00:03:24,400 Chipotle. Chipotle has been so expertly 71 00:03:24,400 --> 00:03:27,560 ran and executed that it has outperformed basically every 72 00:03:27,560 --> 00:03:30,360 other food company aside from a few Wingstop. 73 00:03:30,480 --> 00:03:32,680 But Chipotle has been one of the top performers. 74 00:03:32,680 --> 00:03:34,880 The same store sales have increased consecutively for 75 00:03:34,880 --> 00:03:37,160 years. In fact, they continue to climb 76 00:03:37,160 --> 00:03:40,480 even as the most recent quarter. As every other food company has 77 00:03:40,480 --> 00:03:43,360 fallen off, Chipotle seems like one-of-a-kind. 78 00:03:43,560 --> 00:03:46,160 It just continues to grow. No matter the environment, no 79 00:03:46,160 --> 00:03:49,160 matter pushback from consumers, no matter online viral 80 00:03:49,160 --> 00:03:53,080 campaigns, Chipotle continues to execute and the stock has 81 00:03:53,080 --> 00:03:54,800 followed. It's been an incredible 82 00:03:54,800 --> 00:03:56,920 performing stock. I used to own it. 83 00:03:57,160 --> 00:03:59,280 I recently just sold it a month ago. 84 00:03:59,840 --> 00:04:03,920 Chipotle went up so fast, so quickly over the past year that 85 00:04:03,920 --> 00:04:05,960 I had so much gains in such a short amount of time. 86 00:04:06,240 --> 00:04:08,400 I decided to take my gains and run away. 87 00:04:08,720 --> 00:04:11,200 I made around $11,000 on that stock. 88 00:04:11,200 --> 00:04:14,320 So you see the difference here. Chipotle is in a situation where 89 00:04:14,320 --> 00:04:17,360 everything seems to be going about as good as it can. 90 00:04:17,760 --> 00:04:20,680 There's some minor complaints about portion sizes. 91 00:04:21,040 --> 00:04:24,040 That's minor stuff. The numbers show the true story. 92 00:04:24,360 --> 00:04:27,440 Chipotle is executing with extreme precision. 93 00:04:27,680 --> 00:04:30,040 The company has been well managed and Starbucks's 94 00:04:30,040 --> 00:04:32,640 execution at the same time has been miserable. 95 00:04:32,920 --> 00:04:34,880 And Starbucks shareholders are sick of it. 96 00:04:34,920 --> 00:04:37,960 Now, it's one thing to have poor performance from a company 97 00:04:37,960 --> 00:04:40,320 financially. Sometimes companies go through 98 00:04:40,320 --> 00:04:42,080 difficult times. Sometimes there's some 99 00:04:42,080 --> 00:04:44,960 cyclicality in the business. But it's another thing to have 100 00:04:44,960 --> 00:04:47,280 ACEO that you're not confident in. 101 00:04:47,800 --> 00:04:51,920 And the big thing that got this Starbucks CEO fired and replaced 102 00:04:51,920 --> 00:04:55,440 with Brian Nickel is the interview following last 103 00:04:55,440 --> 00:04:57,680 quarter's report. They released all these terrible 104 00:04:57,680 --> 00:04:59,960 metrics showing everything was moving in the wrong direction. 105 00:05:00,320 --> 00:05:03,240 And then you call upon the CEO to come and explain it, to give 106 00:05:03,240 --> 00:05:06,040 some context, to give some hope and some clarity into what's 107 00:05:06,040 --> 00:05:09,520 going on. And this was the interview that 108 00:05:09,520 --> 00:05:13,600 got the CEO fired. It was this moment, the worst 109 00:05:13,600 --> 00:05:16,480 part of the interview that I believe contributed to it the 110 00:05:16,480 --> 00:05:18,320 most. Let's go ahead and just look at 111 00:05:18,320 --> 00:05:21,040 this. We have Jim Cramer here, and he 112 00:05:21,040 --> 00:05:24,840 is grilling, skewering the CEO over these poor metrics. 113 00:05:25,160 --> 00:05:28,520 And he points out that the CEO is not really being transparent. 114 00:05:28,840 --> 00:05:31,120 He's not saying this is a terrible quarter and we're going 115 00:05:31,120 --> 00:05:33,520 to fix it. He's trying to put on a happy 116 00:05:33,520 --> 00:05:36,400 face and pretend like things are better than they are. 117 00:05:36,760 --> 00:05:40,280 So let's go ahead and just watch this as Jim Cramer calls out the 118 00:05:40,280 --> 00:05:42,480 CEO. You said it's not business as 119 00:05:42,480 --> 00:05:43,880 usual. And I want to make a point here, 120 00:05:43,880 --> 00:05:46,480 Sir. You are still expanding as if it 121 00:05:46,480 --> 00:05:49,040 is business as usual. You add, for instance, on the 122 00:05:49,040 --> 00:05:52,200 quarter, you talk about opening stores in Honduras and Ecuador. 123 00:05:52,480 --> 00:05:56,360 Is it not time to pause, Sir, and figure out what's really 124 00:05:56,360 --> 00:06:00,440 going wrong and spend a deep dive and making it so that this 125 00:06:00,600 --> 00:06:03,720 decline in comp store numbers does not continue because it is 126 00:06:03,720 --> 00:06:06,800 perilous to the actual existential existence of 127 00:06:06,800 --> 00:06:10,600 Starbucks? That is an excellent question 128 00:06:10,640 --> 00:06:13,000 from Jim Cramer. Why would they continue to 129 00:06:13,000 --> 00:06:15,680 expand all across the world when they're having consecutive 130 00:06:15,680 --> 00:06:19,240 decline in sales in the US? They obviously have some 131 00:06:19,240 --> 00:06:22,280 existential problem in the US and they're acting like they 132 00:06:22,280 --> 00:06:23,240 don't. They're just expanding 133 00:06:23,240 --> 00:06:24,880 everywhere. You want to figure out your 134 00:06:24,880 --> 00:06:27,160 business and what's wrong with it before you expand. 135 00:06:27,480 --> 00:06:30,960 So Jim here is asking excellent questions and listen to the 136 00:06:30,960 --> 00:06:34,320 answer he gives here. If you look at the US business 137 00:06:34,560 --> 00:06:37,760 and look at the fundamentals of the US business, we are holding 138 00:06:37,760 --> 00:06:41,840 share in the US We are still the largest player in out of home 139 00:06:41,840 --> 00:06:44,600 coffee if you look at some of the metrics that we have. 140 00:06:44,800 --> 00:06:47,720 Tim Horton said you are not holding share, Sir. 141 00:06:48,040 --> 00:06:51,600 I regard them as being Seminole companies that are just as good 142 00:06:51,600 --> 00:06:54,080 when it comes to quote McDonald's says you are losing 143 00:06:54,080 --> 00:06:56,160 share. I can't go against those three 144 00:06:56,160 --> 00:06:58,960 companies. They are too good and too honest 145 00:06:59,080 --> 00:07:03,520 and too big for me to dismiss. He says right there that they're 146 00:07:03,520 --> 00:07:08,440 holding share within the US and that is just blatantly not true. 147 00:07:08,840 --> 00:07:12,560 If you look at the share count as the amount of coffee like 148 00:07:12,560 --> 00:07:16,280 drinks being sold, it's abundantly clear that Starbucks 149 00:07:16,280 --> 00:07:18,320 is losing share. There's companies like Dutch 150 00:07:18,320 --> 00:07:21,560 Bros growing in that category. There's lots of alternatives to 151 00:07:21,560 --> 00:07:24,480 coffee growing in that category. Even look at Celsius. 152 00:07:24,480 --> 00:07:27,960 A lot of people view Celsius as a cheaper version of Starbucks. 153 00:07:28,400 --> 00:07:31,840 It's not entirely in the same exact bracket, but their share 154 00:07:31,840 --> 00:07:35,180 loss being had by multiple other competitors, including Tim 155 00:07:35,180 --> 00:07:38,040 horton's, including McDonald's, including other companies 156 00:07:38,040 --> 00:07:40,640 offering the same product. So the CEO here is directly 157 00:07:40,640 --> 00:07:42,880 called out for being misleading, saying that they're keeping 158 00:07:42,880 --> 00:07:45,240 share within the US, which they're clearly not. 159 00:07:45,480 --> 00:07:47,680 And other companies are saying that they're gaining share 160 00:07:47,680 --> 00:07:49,760 against Starbucks. And this is what creates a 161 00:07:49,760 --> 00:07:53,000 feeling in Starbucks shareholders as being helpless. 162 00:07:53,440 --> 00:07:56,080 When the company's going down and you don't have confidence in 163 00:07:56,080 --> 00:07:59,000 the company's leadership. You feel entirely helpless, like 164 00:07:59,000 --> 00:08:02,200 you need someone else to step in and get things under control. 165 00:08:02,200 --> 00:08:04,560 Now you may think that that interview was bad enough, but 166 00:08:04,560 --> 00:08:08,040 the Starbucks CEO just a month ago went on another interview 167 00:08:08,360 --> 00:08:12,040 where he openly states that he doesn't work beyond 6:00 PM. 168 00:08:12,120 --> 00:08:15,920 If there's anything after 6:00 PM and if I'm in town, it's got 169 00:08:15,920 --> 00:08:18,520 to be a pretty high bar to keep me away from the family. 170 00:08:18,720 --> 00:08:22,240 Anybody who gets a minute of time off of that better be sure 171 00:08:22,400 --> 00:08:24,720 that it's important. Now let me remind you, this is a 172 00:08:24,720 --> 00:08:28,680 guy that's being paid upwards of $28 million to run the company, 173 00:08:29,080 --> 00:08:32,360 a massive international company, and his attitude is that he 174 00:08:32,360 --> 00:08:34,440 won't work a minute after 6:00 PM. 175 00:08:34,919 --> 00:08:37,960 That's the attitude of an entry level employee that wants to go 176 00:08:37,960 --> 00:08:41,960 home and play Xbox after work. In fact, many entry level 177 00:08:41,960 --> 00:08:44,400 employees, many low skilled labor, right? 178 00:08:44,400 --> 00:08:47,320 The ones that are just getting trained new work beyond their 179 00:08:47,320 --> 00:08:50,080 mandatory shift to make sure things are running well. 180 00:08:50,280 --> 00:08:52,840 They might be shutting down a Starbucks restaurant and it may 181 00:08:52,840 --> 00:08:54,400 go a little bit longer than expected. 182 00:08:54,480 --> 00:08:57,160 They can't just instantly clock out and leave whenever they 183 00:08:57,160 --> 00:08:59,600 want. He has a worse attitude with 184 00:08:59,600 --> 00:09:02,440 this interview than most of the employees working at his 185 00:09:02,440 --> 00:09:04,360 company. So Starbucks shareholders were 186 00:09:04,360 --> 00:09:07,480 in a situation where they had no confidence in the leadership and 187 00:09:07,480 --> 00:09:09,400 the company was headed in the wrong direction. 188 00:09:09,760 --> 00:09:13,040 And this is what caused a lot of activist investors to step in. 189 00:09:13,120 --> 00:09:17,080 We had Trion Partners, we had Elliot step in and put pressure 190 00:09:17,080 --> 00:09:19,680 on Starbucks. We don't know all the backroom 191 00:09:19,680 --> 00:09:23,000 discussions, but we know that they're trying to invoke change, 192 00:09:23,240 --> 00:09:26,760 and change they did. The new CEO of Starbucks as of 193 00:09:26,760 --> 00:09:30,160 September 9th is Brian Nickel. Now, to give context of what 194 00:09:30,160 --> 00:09:33,440 Brian Nickel may be able to do for Starbucks, I think it's good 195 00:09:33,440 --> 00:09:36,560 to take a little review of what he's done for Chipotle. 196 00:09:36,560 --> 00:09:38,920 Let's go ahead and just take a look at some of the things he's 197 00:09:38,920 --> 00:09:41,640 accomplished over his six years at this company. 198 00:09:42,120 --> 00:09:45,080 If we look at Chipotle here, we can take a look at some of the 199 00:09:45,080 --> 00:09:47,960 key metrics of the company. We can look at the trailing 12 200 00:09:47,960 --> 00:09:52,960 months of revenue for Chipotle. He joined Q1 of 2018. 201 00:09:53,240 --> 00:09:58,480 So right here, Chipotle was making $4.56 billion in annual 202 00:09:58,480 --> 00:10:04,120 revenue. 4.56 The revenue has climbed to 10.66 and it's 203 00:10:04,120 --> 00:10:08,440 climbed basically every single quarter over that time period. 204 00:10:08,760 --> 00:10:11,760 In fact, I would say it's every quarter because the only 205 00:10:11,760 --> 00:10:15,400 quarters it went down, literally the only ones was COVID. 206 00:10:15,600 --> 00:10:17,600 That was it. It went down 1/4 and then 207 00:10:17,600 --> 00:10:19,960 quickly went back to its normal trend. 208 00:10:20,360 --> 00:10:24,480 So for all intents and purposes, if you rule out the impacts of 209 00:10:24,480 --> 00:10:27,880 COVID, he grew revenue every single quarter consistently 210 00:10:27,880 --> 00:10:29,480 during his tenure of this company. 211 00:10:30,080 --> 00:10:31,760 We can look at the free cash flow of the company. 212 00:10:32,040 --> 00:10:33,960 The free cash flow is even more incredible. 213 00:10:34,360 --> 00:10:36,480 Look at this on a trailing 12 month basis. 214 00:10:36,680 --> 00:10:40,760 In Q1 of 2018, it was doing $300 million in free cash flow. 215 00:10:41,280 --> 00:10:44,120 Now he used that money in free cash flow to do heavy CapEx 216 00:10:44,120 --> 00:10:46,520 investments to expand the amount of restaurants. 217 00:10:46,720 --> 00:10:49,840 So even though it didn't immediately grow, the company's 218 00:10:50,240 --> 00:10:53,640 earnings power was growing every single quarter since he took 219 00:10:53,640 --> 00:10:56,120 over. And then once they got to scale, 220 00:10:56,120 --> 00:10:58,120 the free cash flow really kicked in. 221 00:10:58,400 --> 00:11:01,360 Look at this massive free cash flow growth since 2020. 222 00:11:01,760 --> 00:11:04,600 We see the company growing like crazy as their new store counts 223 00:11:04,600 --> 00:11:07,480 and efficiencies kick in. He grew the free cash flow to 224 00:11:07,480 --> 00:11:11,000 now generating $1.3 billion per year. 225 00:11:11,520 --> 00:11:15,680 So from 300 million to 1.3 billion. 2018 the earnings per 226 00:11:15,680 --> 00:11:20,080 share were $0.13. That's for the entire year. 227 00:11:20,360 --> 00:11:24,160 Now it's a dollar heat out seven X the earnings per share in Q1 228 00:11:24,160 --> 00:11:27,440 of 2018. Chipotle at 2400 locations. 229 00:11:27,880 --> 00:11:33,000 Current day they have 3500, so we added on over 1000 locations 230 00:11:33,000 --> 00:11:35,560 to the company. Now more impressive than just 231 00:11:35,560 --> 00:11:39,040 doing that, adding more and more locations is growing the amount 232 00:11:39,040 --> 00:11:42,040 of volume each location is doing at the same time. 233 00:11:42,480 --> 00:11:46,000 And Q1 of 2018, Chipotle was doing just under $2,000,000 in 234 00:11:46,000 --> 00:11:49,440 revenue per location. It had a streak of losing 235 00:11:49,440 --> 00:11:52,680 revenue per location. So he entered into the company 236 00:11:52,680 --> 00:11:56,040 with declining revenue per location and then immediately 237 00:11:56,040 --> 00:11:59,760 the quarter after he joined, it started to trend upwards and it 238 00:11:59,760 --> 00:12:03,240 trended upwards every single quarter except for COVID. 239 00:12:03,480 --> 00:12:06,240 That was the only time period where it went down and only a 240 00:12:06,240 --> 00:12:08,680 little bit. It resumed its normal trajectory 241 00:12:08,680 --> 00:12:10,400 of going up every single quarter. 242 00:12:10,680 --> 00:12:13,680 This is the same store sales growth that you want to see. 243 00:12:13,720 --> 00:12:16,400 When Brian Nickel joined Chipotle, the stock price was 244 00:12:16,400 --> 00:12:20,800 under $7.00 per share. Now the stock price is above 245 00:12:20,800 --> 00:12:24,600 $50.00 and it's down $5 today on the news that he's leaving. 246 00:12:24,880 --> 00:12:28,800 So he's basically leaving with the stock price at $55 if you 247 00:12:28,800 --> 00:12:31,520 don't account for the sell off because he's leaving. 248 00:12:31,920 --> 00:12:35,880 So from under $7.00 to $55. Now, on top of all of these 249 00:12:35,880 --> 00:12:38,680 fundamental changes, which definitively prove that Chipotle 250 00:12:38,680 --> 00:12:41,400 is in a much better space today than it was when he first 251 00:12:41,400 --> 00:12:44,960 joined, there's also a lot of qualities, a lot of things that 252 00:12:44,960 --> 00:12:48,160 don't show up in the numbers, like Brian Nickel making 253 00:12:48,160 --> 00:12:51,600 Chipotle one of the most present companies. 254 00:12:52,000 --> 00:12:55,720 It's in the in crowd, it's on social media, it's memed, it's 255 00:12:55,920 --> 00:12:59,240 it's part of the in culture. That's something difficult to 256 00:12:59,240 --> 00:13:01,040 accomplish. Making it so that your company 257 00:13:01,040 --> 00:13:03,200 is something that other people want to go to. 258 00:13:03,200 --> 00:13:06,000 They want to eat at Chipotle because it's the cool thing to 259 00:13:06,000 --> 00:13:08,040 do. He accomplished that through the 260 00:13:08,040 --> 00:13:10,120 marketing and the focus on social media. 261 00:13:10,560 --> 00:13:13,280 He also grew a little bit of a culture with Chipotle. 262 00:13:13,560 --> 00:13:16,320 Working at quick service restaurants is difficult. 263 00:13:16,480 --> 00:13:19,200 It's not a fun job to do, but he made it a lot better for the 264 00:13:19,200 --> 00:13:22,440 employees, creating a consistent culture across the board. 265 00:13:22,560 --> 00:13:25,480 He also grew the digital app to 50 million users and made it so 266 00:13:25,480 --> 00:13:28,800 that roughly half the orders that Chipotle receives come from 267 00:13:28,800 --> 00:13:31,880 digital ordering. It was also under Brian Nickel 268 00:13:31,880 --> 00:13:34,200 that he came up with the Chipotle Lane. 269 00:13:34,520 --> 00:13:37,360 The idea of a drive through that's not technically a drive 270 00:13:37,360 --> 00:13:39,000 through. This makes it so you don't have 271 00:13:39,000 --> 00:13:41,960 a big billboard, you don't order with the speaker, there's no 272 00:13:41,960 --> 00:13:45,120 legislation against it. It's just a drive through where 273 00:13:45,120 --> 00:13:46,960 you can order with your app and pick it up. 274 00:13:47,080 --> 00:13:50,000 So there's no line. This is all stuff that happened 275 00:13:50,000 --> 00:13:52,400 under Brian Nickel. And of course, it's caused this 276 00:13:52,400 --> 00:13:54,440 excellent outcome in Chipotle stock. 277 00:13:54,440 --> 00:13:57,640 So obviously, there is valid reason for investors in Chipotle 278 00:13:57,640 --> 00:14:00,880 to be disappointed at his departure and for investors in 279 00:14:00,880 --> 00:14:03,640 Starbucks to be excited about him coming on. 280 00:14:03,720 --> 00:14:06,080 Now, if we look at how the stocks are reacting, Chipotle's 281 00:14:06,080 --> 00:14:09,160 currently down 10%. And to me that makes sense. 282 00:14:09,320 --> 00:14:12,200 When you have ACEO that good with that good of a track record 283 00:14:12,200 --> 00:14:15,360 that really knows a company that's running it well and they 284 00:14:15,360 --> 00:14:17,520 leave, it's just not a good feeling. 285 00:14:17,520 --> 00:14:20,720 Investors don't feel as excited about the stock. 286 00:14:21,080 --> 00:14:24,320 And frankly, there's nobody else in the industry with the track 287 00:14:24,320 --> 00:14:26,240 record of Brian Nickel. He's the best. 288 00:14:26,480 --> 00:14:29,320 So it's difficult to conceive of a situation where they bring on 289 00:14:29,320 --> 00:14:31,720 a better CEO. They may have ACEO that ends up 290 00:14:31,720 --> 00:14:34,840 doing as well, but they will be less proven and it's going to be 291 00:14:34,840 --> 00:14:38,440 difficult for CEO to come in and bring Chipotle stock up when 292 00:14:38,440 --> 00:14:42,480 it's already so high. Brian Nickel is timing this move 293 00:14:42,600 --> 00:14:45,080 perfectly. He's leaving his company at the 294 00:14:45,080 --> 00:14:47,400 very top. Everything's going about as 295 00:14:47,400 --> 00:14:50,280 perfect as it can. The stock is trading currently 296 00:14:50,440 --> 00:14:55,440 at a 55 Ford PE ratio, so he's leaving at the absolute top of 297 00:14:55,440 --> 00:14:58,600 Chipotle, the best situation possible, and moving into 298 00:14:58,600 --> 00:15:02,200 Starbucks when things are messy. That's a really good change for 299 00:15:02,200 --> 00:15:05,080 Brian Nickel, but that leaves Chipotle investors in a more 300 00:15:05,080 --> 00:15:07,920 difficult situation. You can ask any Chipotle 301 00:15:07,920 --> 00:15:10,520 investor today and they're not going to be excited about this 302 00:15:10,520 --> 00:15:11,960 news. Not a single one of them. 303 00:15:12,000 --> 00:15:14,640 Starbucks investors, on the other hand, should not just be 304 00:15:14,640 --> 00:15:17,640 enthused at the stock price is up, but they should be enthused 305 00:15:17,640 --> 00:15:21,120 at the CEO is so good that they have a new leader of the company 306 00:15:21,120 --> 00:15:24,440 that's competent. A lot of people may say, well, 307 00:15:24,440 --> 00:15:27,600 the CEO is good, but is he worth 20%? 308 00:15:28,000 --> 00:15:30,680 Is it really justified to have it go up 20%? 309 00:15:31,200 --> 00:15:34,000 I don't believe that, Brian Nicholas, the only reason that 310 00:15:34,000 --> 00:15:36,600 Starbucks is up 20%. Part of the reason is that 311 00:15:36,600 --> 00:15:40,880 Starbucks is current CEO. Laxman is leaving, so Starbucks 312 00:15:40,880 --> 00:15:43,400 investors feel like they're getting rid of a problem and 313 00:15:43,400 --> 00:15:46,960 getting a better solution. Laxman is out as of today. 314 00:15:47,200 --> 00:15:51,200 His firing was immediate even though the new CEO Brian 315 00:15:51,200 --> 00:15:52,800 Nicholas coming on September 9th. 316 00:15:53,160 --> 00:15:56,440 Starbucks CEO is out today. So he's gone and Starbucks 317 00:15:56,440 --> 00:15:59,720 investors are not only excited at his departure, but they're 318 00:15:59,720 --> 00:16:01,600 also excited at Brian Nichol coming on. 319 00:16:01,800 --> 00:16:04,280 The combination of which is a 20% bump. 320 00:16:04,360 --> 00:16:07,360 A lot of people may question what value ACEO brings to a 321 00:16:07,360 --> 00:16:11,120 company like this, but keep in mind Starbucks is not a very 322 00:16:11,120 --> 00:16:13,680 simple company to run. It's not one that you can just 323 00:16:13,680 --> 00:16:16,280 switch on to autopilot and it virtually runs itself. 324 00:16:16,560 --> 00:16:18,000 It's not a Visa and a MasterCard. 325 00:16:18,000 --> 00:16:21,000 It's not an S&P Global. Those companies are far more 326 00:16:21,040 --> 00:16:23,480 self running. Starbucks is a company that 327 00:16:23,480 --> 00:16:26,160 needs good leadership. It needs good judgement. 328 00:16:26,160 --> 00:16:29,600 Having the leverage of employees and capital and revenues and 329 00:16:29,600 --> 00:16:33,320 cash flow relying on the judgement of one person makes 330 00:16:33,320 --> 00:16:35,160 that judgement incredibly valuable. 331 00:16:35,560 --> 00:16:39,360 And with the CEO that has a demonstrated history of good 332 00:16:39,360 --> 00:16:41,520 judgement, it's worth paying up for. 333 00:16:41,560 --> 00:16:43,600 I think the move today is justified. 334 00:16:43,760 --> 00:16:46,680 I think the stock should move up dramatically because of Brian 335 00:16:46,680 --> 00:16:48,760 Nichols demonstrated history of good judgement. 336 00:16:48,880 --> 00:16:51,480 Good judgement is worth paying for when you have a company like 337 00:16:51,480 --> 00:16:54,680 Starbucks that is reliant on good judgement to run. 338 00:16:54,800 --> 00:16:57,480 Now, having said that, even with his great judgement, Brian 339 00:16:57,480 --> 00:17:00,760 Nichols going to face unique challenges operating Starbucks, 340 00:17:00,920 --> 00:17:03,720 ones that did not exist when he was operating Chipotle. 341 00:17:04,079 --> 00:17:06,800 I view Chipotle as a far more unique proposition. 342 00:17:07,040 --> 00:17:10,720 Having a unique burrito company that's large and scaled with the 343 00:17:10,720 --> 00:17:13,359 digital app presence is simply one-of-a-kind. 344 00:17:13,359 --> 00:17:15,599 There's not any other company at scale doing that. 345 00:17:15,800 --> 00:17:19,119 Chipotle is the only one, whereas Starbucks faces far more 346 00:17:19,119 --> 00:17:22,160 competitors that are similar to it than Chipotle does. 347 00:17:22,440 --> 00:17:25,440 Another unique attribute of Starbucks compared to Chipotle 348 00:17:25,880 --> 00:17:29,640 is Starbucks is huge in China, Thousands, 10s of thousands of 349 00:17:29,640 --> 00:17:32,640 restaurants in China where Chipotle has no exposure to 350 00:17:32,640 --> 00:17:34,280 China. So Brian Nichols going to have 351 00:17:34,280 --> 00:17:36,680 to deal with some unique challenges here, and I think 352 00:17:36,680 --> 00:17:39,480 this is what he'll end up doing with Starbucks. 353 00:17:40,040 --> 00:17:42,040 The first thing I think he's going to do is improve 354 00:17:42,040 --> 00:17:45,560 efficiencies of the company. This is a huge focus of him in 355 00:17:45,560 --> 00:17:48,440 Chipotle. By improving efficiencies, I 356 00:17:48,440 --> 00:17:51,640 mean improving throughput. Throughput is the name that 357 00:17:51,640 --> 00:17:55,280 these fast food companies give for basically making the line go 358 00:17:55,280 --> 00:17:58,640 faster, just making the line move along faster so people 359 00:17:58,640 --> 00:18:00,080 don't have to wait around for their food. 360 00:18:00,440 --> 00:18:03,320 Brian Nickel made it so that when you go into Chipotle, you 361 00:18:03,320 --> 00:18:05,960 get through the line quickly. You're not waiting in line for 362 00:18:05,960 --> 00:18:09,040 10 or 20 minutes. Improving throughput is proven 363 00:18:09,040 --> 00:18:11,960 to make it so that people will order more, they'll order more 364 00:18:11,960 --> 00:18:14,960 frequently, They won't bail on a restaurant because of the long 365 00:18:14,960 --> 00:18:16,640 line. So I think that's going to be a 366 00:18:16,640 --> 00:18:19,200 major focus that he has for Starbucks. 367 00:18:19,320 --> 00:18:22,000 The other thing that I think that Brian Nicholas likely to do 368 00:18:22,280 --> 00:18:25,920 is to separate Starbucks China from the rest of Starbucks. 369 00:18:26,400 --> 00:18:29,720 I think he will argue to the executive team, to the board, 370 00:18:30,160 --> 00:18:33,440 that Starbucks in China is an entirely different thing to 371 00:18:33,440 --> 00:18:35,880 manage. It's so different culturally, 372 00:18:36,040 --> 00:18:37,840 the people there, the government, everything. 373 00:18:37,840 --> 00:18:40,320 You have to take into account that it should be managed 374 00:18:40,320 --> 00:18:43,880 separately as a separate division or company from the 375 00:18:43,880 --> 00:18:46,600 rest of Starbucks. And by doing so, he can focus 376 00:18:46,600 --> 00:18:48,720 his effort on the rest of Starbucks. 377 00:18:49,080 --> 00:18:50,880 This has happened many times in the past. 378 00:18:51,240 --> 00:18:53,960 I think there's a good chance he'll do this with Starbucks. 379 00:18:54,000 --> 00:18:56,720 He's going to create more simplicity in the digital app 380 00:18:56,800 --> 00:18:59,720 and focus on more people ordering digitally, improving 381 00:18:59,720 --> 00:19:01,760 that process. And I also think he's going to 382 00:19:01,760 --> 00:19:04,240 focus on getting back to Starbucks's roots. 383 00:19:04,560 --> 00:19:07,360 He's a culture guy. He likes improving the culture 384 00:19:07,360 --> 00:19:10,000 of the company. He'll recognize that Starbucks's 385 00:19:10,000 --> 00:19:14,320 culture is about being the go to place to hang out, to plug in 386 00:19:14,320 --> 00:19:18,240 your MacBook, to have a coffee, to sit down, to just pass some 387 00:19:18,240 --> 00:19:20,880 time and have some drinks. He knows the culture of 388 00:19:20,880 --> 00:19:22,560 Starbucks and he's going to make that a focus. 389 00:19:22,560 --> 00:19:25,680 So overall, I'm very bullish on the changes that will be 390 00:19:25,680 --> 00:19:27,640 implemented to Starbucks over time. 391 00:19:27,920 --> 00:19:30,720 And I think that Brian Nicholas, the best thing this company can 392 00:19:30,720 --> 00:19:33,880 hope for. Now, again, having said that, 393 00:19:34,200 --> 00:19:37,720 when I look at Starbucks, I do view it as a very unique company 394 00:19:37,840 --> 00:19:40,040 from Chipotle. I don't view these as 395 00:19:40,040 --> 00:19:43,120 interchangeable. Chipotle is far more unique in 396 00:19:43,120 --> 00:19:45,520 its value proposition to customers than Starbucks. 397 00:19:45,840 --> 00:19:48,680 And I think ultimately the biggest challenge that Brian 398 00:19:48,680 --> 00:19:51,440 Nichols going to face is the challenge inherent in 399 00:19:51,440 --> 00:19:54,640 Starbucks's fundamentals, the competitive dynamics of the 400 00:19:54,640 --> 00:19:57,000 industry. I've gone over this many times 401 00:19:57,000 --> 00:19:59,440 in the past. I think there is a caffeine 402 00:19:59,440 --> 00:20:00,960 bubble. I think there's too many 403 00:20:00,960 --> 00:20:04,120 companies trying to sell too many highly caffeinated 404 00:20:04,120 --> 00:20:07,680 beverages and doing so causes pricing power to be limited. 405 00:20:07,960 --> 00:20:11,840 When pricing power is limited, same store sales decline and 406 00:20:11,840 --> 00:20:13,720 that's what you're seeing with Starbucks. 407 00:20:13,760 --> 00:20:17,120 The amount of large scale, powerful companies trying to 408 00:20:17,120 --> 00:20:19,840 push highly caffeinated beverages is incredible. 409 00:20:20,520 --> 00:20:24,880 You have Monster Energy Celsius. You have Pepsi with Rockstar. 410 00:20:25,160 --> 00:20:28,800 You have Coca-Cola selling their new energy drinks, You have 411 00:20:28,800 --> 00:20:31,400 McDonald's getting into energy drink, you have Dutch Bros. 412 00:20:31,400 --> 00:20:34,040 The latest is Taco Bell. Every company is trying to get 413 00:20:34,040 --> 00:20:36,320 into this category and when there's more and more direct 414 00:20:36,320 --> 00:20:39,400 competitors to Starbucks, it makes pricing power more and 415 00:20:39,400 --> 00:20:42,480 more difficult at the same time that the consumer slowing. 416 00:20:42,760 --> 00:20:45,600 I still think this is going to be very difficult for Brian 417 00:20:45,600 --> 00:20:47,800 Nickel. So even with Brian Nickel moving 418 00:20:47,800 --> 00:20:50,600 on to Starbucks, for me personally, I still don't like 419 00:20:50,600 --> 00:20:53,920 the competitive dynamics enough to buy into the company, but I 420 00:20:53,920 --> 00:20:56,240 don't blame you for holding on to the stock if you are. 421 00:20:56,320 --> 00:20:59,640 In terms of Chipotle right now, the stock is still very 422 00:20:59,640 --> 00:21:01,880 expensive even after this drop in price. 423 00:21:02,120 --> 00:21:05,280 It's trading back a little bit, but it's not falling enough for 424 00:21:05,280 --> 00:21:07,040 me to buy back into this company. 425 00:21:07,080 --> 00:21:09,720 It's nowhere close to where I first purchased into it and the 426 00:21:09,720 --> 00:21:13,360 PE ratio is still very high above A50 PE ratio. 427 00:21:13,440 --> 00:21:16,480 So right now Chipotle is still an expensive stock, but it lost 428 00:21:16,480 --> 00:21:18,840 its great CEO. Now moving on, Home Depot 429 00:21:18,840 --> 00:21:21,640 reported their earnings today. They reported a beat on the 430 00:21:21,640 --> 00:21:24,880 earnings per share, but they also forecast weaken consumer 431 00:21:24,880 --> 00:21:26,840 demand. The home improvement retailer 432 00:21:26,840 --> 00:21:30,240 said it now expects full year comparable sales to decline by 433 00:21:30,240 --> 00:21:33,320 three to 4%. And that is why the stock is 434 00:21:33,320 --> 00:21:36,440 flat all year long because the sales of the company are flat. 435 00:21:36,480 --> 00:21:39,480 Now, Home Depot's a stock that I haven't wanted to buy for well 436 00:21:39,480 --> 00:21:42,680 over a year and that is because of interest rates. 437 00:21:42,960 --> 00:21:45,840 Interest rates going up has a huge impact on any company 438 00:21:45,840 --> 00:21:49,320 reliant on financing. Now, it's true that the items 439 00:21:49,320 --> 00:21:52,160 you buy at Home Depot, you probably don't need financing 440 00:21:52,160 --> 00:21:56,120 for specifically those items. But most people finance large 441 00:21:56,120 --> 00:21:59,520 home improvement projects. So Home Depot and Lowe's, which 442 00:21:59,520 --> 00:22:03,320 rely on large home improvement projects or contractor work, 443 00:22:03,680 --> 00:22:06,280 rely on financing. With interest rates going up, 444 00:22:06,280 --> 00:22:08,280 that means financing is more expensive. 445 00:22:08,560 --> 00:22:11,160 Less people can afford it. The cost of capital goes up, 446 00:22:11,160 --> 00:22:14,560 meaning that Home Depot all of a sudden has a less affluent 447 00:22:14,560 --> 00:22:17,000 customer base. They can't afford the same 448 00:22:17,000 --> 00:22:18,640 things they could afford previously. 449 00:22:18,960 --> 00:22:22,320 So the stock of Home Depot and Lowe's has been flat for about a 450 00:22:22,320 --> 00:22:24,600 year. I've also used the same reason 451 00:22:24,600 --> 00:22:28,000 to sell out of any stock that had anything to do with 452 00:22:28,000 --> 00:22:30,160 financing. And even though interest rates 453 00:22:30,160 --> 00:22:33,480 are expected to go lower, I still don't see a lot of demand 454 00:22:33,480 --> 00:22:36,240 being created for companies like Home Depot and Lowe's. 455 00:22:36,240 --> 00:22:38,800 So I will not be buying into either of these companies. 456 00:22:38,800 --> 00:22:42,480 Now finally we get to Intel. Intel has been an unmitigated 457 00:22:42,480 --> 00:22:47,520 disaster this year, down 57% and the reports, the fundamentals, 458 00:22:47,520 --> 00:22:50,560 everything looks the same. It is a disaster. 459 00:22:50,680 --> 00:22:53,360 They're losing money every single quarter and the company's 460 00:22:53,360 --> 00:22:56,600 losing market share as well. So the stock is down big this 461 00:22:56,600 --> 00:22:58,800 year and it's down to a very low valuation. 462 00:22:59,080 --> 00:23:02,480 Investors in IT may notice that the price to book this ratio 463 00:23:02,480 --> 00:23:05,880 right here is normally high for different companies because 464 00:23:05,880 --> 00:23:08,640 companies are worth more than their tangible assets. 465 00:23:08,960 --> 00:23:10,840 They're worth more than just the factories. 466 00:23:11,120 --> 00:23:13,520 They also have customers and they have cash flows. 467 00:23:13,840 --> 00:23:16,960 So companies trade on a multiple of their price to book. 468 00:23:17,200 --> 00:23:20,120 For example, if we look up Netflix here and we take a look 469 00:23:20,120 --> 00:23:24,360 at the price to book of Netflix, it's at a 12.3, so it's 12 times 470 00:23:24,360 --> 00:23:26,800 its price to book. That's a relatively normal 471 00:23:26,800 --> 00:23:28,480 ratio. Some companies are higher, some 472 00:23:28,480 --> 00:23:30,640 are lower depending on their physical assets. 473 00:23:30,960 --> 00:23:34,240 But Intel is now priced at a point where it's trading below 474 00:23:34,240 --> 00:23:38,000 its price to book and even it's priced a tangible book, meaning 475 00:23:38,000 --> 00:23:41,000 even when you take out intangible assets, Intel is 476 00:23:41,000 --> 00:23:43,840 still trading below that. This has caused a flurry of 477 00:23:43,840 --> 00:23:48,040 headlines and tweets across social media with outlets like 478 00:23:48,040 --> 00:23:50,920 Barron's reporting the Intel stock may have bottomed at 479 00:23:50,920 --> 00:23:53,520 tangible book value. You have other super viral 480 00:23:53,520 --> 00:23:56,160 tweets like the patient investor saying Intel literally trading 481 00:23:56,160 --> 00:23:58,280 at liquidation value. You have Richard Jark saying 482 00:23:58,280 --> 00:24:00,840 that this is crazy. Intel is so hated by the market, 483 00:24:00,840 --> 00:24:03,080 it's now trading at tangible book value. 484 00:24:03,360 --> 00:24:06,040 Tangible book value is normally what shareholders get if the 485 00:24:06,040 --> 00:24:08,400 company goes bankrupt. These tweets have received 486 00:24:08,440 --> 00:24:10,920 thousands of likes, millions of views. 487 00:24:10,920 --> 00:24:13,840 In fact, there's so many people pointing this out how cheap 488 00:24:13,840 --> 00:24:17,120 Intel is, that I'm afraid some people are going to use this as 489 00:24:17,120 --> 00:24:19,680 a buy signal for the company. But investors should be well 490 00:24:19,680 --> 00:24:22,440 aware that even though this makes for a good headline and a 491 00:24:22,440 --> 00:24:26,480 good tweet, the truth is that a company trading below tangible 492 00:24:26,480 --> 00:24:30,520 book value or tangible asset value does not mean it's a buy 493 00:24:30,520 --> 00:24:33,880 signal, does not mean that the bottom is in for the company. 494 00:24:34,320 --> 00:24:37,680 And in fact, you can disprove this entire thesis almost 495 00:24:37,680 --> 00:24:40,400 immediately by bringing up this company right here. 496 00:24:41,160 --> 00:24:43,840 Nikola. Nikola is currently trading 497 00:24:43,840 --> 00:24:47,440 below tangible book value. It trades even cheaper than 498 00:24:47,440 --> 00:24:50,960 Intel at a .775 price to book value. 499 00:24:51,480 --> 00:24:54,920 It is continually traded below tangible book value as the stock 500 00:24:54,920 --> 00:24:57,680 price has plummeted 70% year to date. 501 00:24:57,720 --> 00:25:00,680 If it was a meaningful indicator that a company's trading below 502 00:25:00,680 --> 00:25:03,760 tangible book value, it would also be a meaningful indicator 503 00:25:03,760 --> 00:25:06,920 in the case of Nikola. But I don't see anyone citing 504 00:25:06,920 --> 00:25:10,440 that Nikola is now bottomed or that Nikola is now cheap. 505 00:25:10,600 --> 00:25:14,080 I only see that for Intel, and if I ask these investors to 506 00:25:14,080 --> 00:25:17,080 point out why they didn't bring up the tangible book value 507 00:25:17,080 --> 00:25:20,800 metric with Nikola, it's because they know Nikola is a bad 508 00:25:20,800 --> 00:25:23,760 company, so it doesn't matter how cheap the company goes, it's 509 00:25:23,760 --> 00:25:26,920 still a bad company destroying value every single day. 510 00:25:26,920 --> 00:25:29,880 So the question is not whether or not a company's trading above 511 00:25:29,880 --> 00:25:31,520 or below its tangible book value. 512 00:25:31,800 --> 00:25:34,440 The question is whether or not the company's good or the 513 00:25:34,440 --> 00:25:37,200 company's bad. In the case of Nikola, the 514 00:25:37,200 --> 00:25:40,680 company's bad, so investors inherently know not to buy it, 515 00:25:40,960 --> 00:25:44,440 even though it's trading at a cheap price with Intel. 516 00:25:44,520 --> 00:25:46,840 That's the debate. If you think that Intel is a 517 00:25:46,840 --> 00:25:49,720 good company that's going to create shareholder value in the 518 00:25:49,720 --> 00:25:53,040 future, that's going to generate positive free cash flow and 519 00:25:53,040 --> 00:25:56,400 decline share count and create free cash flow per share, then 520 00:25:56,400 --> 00:25:59,240 the companies a buy. If you think Intel is a value 521 00:25:59,240 --> 00:26:02,720 trap, a complex company with lots of difficulties that will 522 00:26:02,720 --> 00:26:04,960 continue to struggle and lose market share, then you should 523 00:26:04,960 --> 00:26:07,920 not buy it, even if it's trading below tangible book value. 524 00:26:08,040 --> 00:26:10,560 In any case, I don't consider either of these companies all 525 00:26:10,560 --> 00:26:12,760 that good, so I'm not going to be buying any of them. 526 00:26:13,360 --> 00:26:15,080 That's all for this episode. If you enjoy this type of 527 00:26:15,080 --> 00:26:16,560 content, you can check out the Patreon. 528 00:26:16,840 --> 00:26:19,000 Comes with a free trial, so you have nothing to lose. 529 00:26:19,240 --> 00:26:20,840 That's all for now, see you in the next one.