How is Starbucks Navigating Tariffs and Price Volatility in FY25?

Starbucks Corporation SBUX is facing a challenging mix of rising input costs and shifting trade dynamics in fiscal 2025. Heightened tariff exposure—especially on merchandise from China and imported beverage components—has pressured the company’s cost structure. At the same time, commodity inflation, including coffee, remains a headwind. These factors are weighing on financial performance, as reflected in a 450-basis-point year-over-year decline in the consolidated operating margin during the second quarter of fiscal 2025.

In response, the company is implementing several countermeasures to stabilize its cost base. A cross-functional team has been deployed to manage tariff-related risks, while production for key merchandise has already been shifted to alternate sites ahead of the holiday season. To further reduce exposure, Starbucks is localizing and relocating certain supply-chain functions as needed. In terms of coffee sourcing, the company continues to benefit from its global procurement footprint and hedging strategy. Coffee typically represents just 10–15% of product and distribution costs, allowing some insulation from market swings.

Looking ahead, Starbucks has signaled its intention to hold prices steady through fiscal 2025, reinforcing its value proposition amid economic uncertainty. The company also plans to improve transparency through app updates that enhance pricing clarity. While cost headwinds remain, Starbucks appears committed to navigating them with operational agility and supply-chain discipline, positioning the business for long-term resilience.

Other Coffee Brands Navigating Similar Cost Pressures

The J. M. Smucker Company SJM and Keurig Dr Pepper Inc. KDP are among the coffee companies also working to manage rising input costs and tariff-driven supply-chain challenges.

J.M. Smucker is experiencing margin pressure due to elevated costs and softer volumes. In the fourth quarter of fiscal 2025, the company reported a 9% year-over-year decline in adjusted gross profit, primarily due to cost inflation, unfavorable volume/mix and the impact of recent divestitures. Adjusted operating income also fell 8% year over year. Looking ahead, J.M. Smucker expects its fiscal 2026 adjusted gross profit margin to range between 35.5% and 36%, reflecting continued headwinds from commodities, manufacturing costs and a roughly 50-basis-point unfavorable impact from tariffs, particularly within its U.S. Retail Coffee segment.

Keurig Dr Pepper is also dealing with weak performance in its coffee segment. In the first quarter of 2025, U.S. Coffee revenues declined 3.7% year over year, while operating income dropped 12.5%, due to lower volumes and green coffee cost inflation. Going forward, Keurig Dr Pepper expects that pressure will likely persist through 2025, though it may implement additional pricing to manage margin impacts from tariffs and commodity costs.

SBUX’s Price Performance, Valuation and Estimates

Starbucks’ shares have gained 20.9% in the past year, outperforming the industry’s 12% growth.

In terms of its forward 12-month price-to-earnings ratio, SBUX is trading at 32.03, up from the industry’s 25.99.

The Zacks Consensus Estimate for SBUX’s fiscal 2025 earnings per share has decreased in the past 30 days, as shown in the chart below.

SBUX 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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