On April 30, 2025, Moody’s Ratings revised the outlook for Starbucks Corporation (NASDAQ: SBUX) from stable to negative, while affirming all existing ratings for the company. This includes the Baa1 senior unsecured notes ratings and the Prime-2 commercial paper programme rating, as reported by News.Az citing Investing.
The shift in outlook reflects concerns over weakening profitability and credit metrics at Starbucks, driven primarily by sales deleveraging and increased investments in labour. These developments are linked to Starbucks’ ongoing "Back to Starbucks" reinvention plan, which is aimed at repositioning the company in a changing market environment. Despite a sequential improvement in comparable store sales, Starbucks has experienced a notable decline in profitability. Moody’s adjusted debt to EBITDA ratio has risen to about 3.2 times, up from approximately 2.9 times as of the fiscal year ending September 2024.
Starbucks’ reinvention strategy, which involves increased costs, is being implemented amid challenging consumer spending conditions. Moody’s notes that this could lead to further near-term deterioration in financial performance before the full benefits of the reinvention efforts are realised and performance recovers.
The Baa1 rating for Starbucks’ senior unsecured notes factors in the company’s strong global brand, dominant position in the United States specialty coffee market, extensive global presence, and significant scale of operations. Starbucks is recognised for its innovative product offerings, diverse daily operations, popular loyalty programme, and digital initiatives, which have historically contributed to consistent operating earnings.
Additionally, Moody’s highlights Starbucks’ solid liquidity position, which provides a cushion in managing the current challenging global operating environment and upcoming debt maturities. The ratings agency anticipates that Starbucks will maintain a conservative financial policy regarding capital allocation, despite forecasted earnings declines and increasing leverage over the next twelve months. As part of this approach, Starbucks is expected to keep share repurchases suspended through the remainder of fiscal 2025.
This development comes as Starbucks continues to navigate a competitive and evolving landscape in the coffee industry, balancing investments in new stores and labour with efforts to enhance profitability and maintain its market foothold.
Source: Noah Wire Services