Starbucks outlook shifts to negative, Moody’s affirms ratings
On April 30, 2025, Moody’s Ratings announced a change in Starbucks Corporation (NASDAQ:SBUX)’s outlook from stable to negative. Despite this, all ratings for the company, including the Baa1 senior unsecured notes ratings and Prime-2 commercial paper program rating, have been affirmed by the agency, News. Az reports citing Investing.
The change in Starbucks’ outlook is due to weakening profitability and credit metrics, a result of sales deleveraging and increased labor investments. These factors are part of Starbucks’ "Back to Starbucks" reinvention plan. Although the company showed sequential improvement in comparable store sales, the profitability has declined significantly. This has led to a rise in Moody’s adjusted debt/EBITDA to around 3.2x from approximately 2.9x as of fiscal September 2024.
Starbucks’ reinvention strategies are expected to increase costs in the near term. Implemented in a challenging consumer spending environment, these strategies could further risk near-term deterioration before the full implementation of the reinvention plan and subsequent recovery of performance.
The Baa1 senior unsecured notes ratings of Starbucks benefit from the company’s global brand strength, dominant position in the US specialty coffee segment, global diversification, and significant scale. The company’s innovative product offerings, diverse daily operations, popular loyalty program, and digital initiatives have historically resulted in strong and consistent operating earnings.
The ratings also reflect Starbucks’ good liquidity, which supports it in managing the current difficult global operating environment and near term debt maturities. Moody’s believes Starbucks will maintain a conservative financial policy regarding capital allocation. Despite expected earnings declines and rising leverage over the next twelve months, the company is anticipated to maintain its commitment to reduce leverage below its target. Consequently, share repurchases are expected to remain suspended for the rest of fiscal 2025.
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