Starbucks Faces Looming Brazil Coffee Tariffs: Can It Absorb the Hit?

Starbucks Corporation SBUX is confronting intensifying macroeconomic headwinds as tariff-related pressures and commodity price volatility threaten its cost structure in the back half of fiscal 2025. A key concern is the impending 50% U.S. tariff on Brazilian coffee imports, set to take effect Aug. 1. Per a media report, the tariff could lift the company’s cost of goods sold by as much as 3.5%, potentially resulting in a 0.6% headwind to earnings.

In response, Starbucks has mobilized a cross-functional tariff mitigation team and accelerated nearshoring efforts to shift merchandise production out of China and other high-tariff regions. The company is also leveraging its global procurement footprint and long-standing hedging program to buffer commodity swings. In the second quarter of fiscal 2025, green coffee represented 10-15% of product and distribution costs.

Despite these pressures, Starbucks has reaffirmed its decision to hold prices steady through the remainder of fiscal 2025. This pricing discipline is a key component of its "Back to Starbucks" strategy, focused on regaining customer loyalty through value, operational efficiency and premium service delivery. Management emphasized that while earnings per share (EPS) and margins remain under pressure, early indicators of success — such as improved customer sentiment and supply chain resilience — support the company’s long-term approach.

Peer Comparison: KDP & SJM Take a Different Path

Starbucks’ pricing restraint sets it apart from competitors such as The J. M. Smucker Company SJM and Keurig Dr Pepper Inc. KDP, both of which have opted to offset rising input costs through price increases. Keurig Dr Pepper’s U.S. Coffee segment reported a 12.5% decline in first-quarter 2025 operating income due to green coffee inflation, while J.M. Smucker reported margin compression of approximately 50 basis points in its retail coffee division.

While Starbucks has chosen to absorb cost pressures through supply chain efficiency and pricing restraint, both Keurig Dr Pepper and J.M. Smucker have taken a more traditional approach, implementing price increases to protect margins. While this may offset near-term cost pressures, it introduces potential volume risk in a value-sensitive environment.

SBUX’s Price Performance, Valuation & Estimates

Shares of Starbucks have gained 13.5% in the past three months compared with the industry’s rise of 4.5%.

SBUX Three-Month Price Performance

From a valuation standpoint, Starbucks trades at a forward price-to-sales ratio of 2.71, below the industry’s average of 4.02.

The Zacks Consensus Estimate for SBUX’s fiscal 2025 EPS implies a decline of 25.1% year over year, while 2026 EPS indicates a rise of 19.5% year over year. The EPS estimates for fiscal 2025 and 2026 have declined in the past 30 days.

Starbucks stock currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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