How is Starbucks Navigating Tariffs and Price Volatility in FY25?

Core Insights - Starbucks Corporation (SBUX) is facing challenges from rising input costs and changing trade dynamics in fiscal 2025, particularly due to heightened tariff exposure and commodity inflation, leading to a 450-basis-point year-over-year decline in consolidated operating margin in Q2 FY25 [1][8] Group 1: Company Response - In response to cost pressures, Starbucks is implementing measures such as deploying a cross-functional team to manage tariff-related risks and shifting production for key merchandise to alternate sites ahead of the holiday season [2] - The company is localizing and relocating certain supply-chain functions to further reduce exposure, while benefiting from its global procurement footprint and hedging strategy in coffee sourcing [2] Group 2: Pricing Strategy - Starbucks intends to hold prices steady through fiscal 2025 to reinforce its value proposition amid economic uncertainty, and plans to enhance pricing clarity through app updates [3] Group 3: Industry Context - Other coffee brands like J. M. Smucker Company (SJM) and Keurig Dr Pepper Inc. (KDP) are also managing similar cost pressures, with J.M. Smucker reporting a 9% year-over-year decline in adjusted gross profit in Q4 FY25 and Keurig Dr Pepper experiencing a 3.7% decline in U.S. Coffee revenues in Q1 FY25 [4][5][6] Group 4: Financial Performance - Starbucks shares have gained 20.9% over the past year, outperforming the industry's 12% growth [7] - The Zacks Consensus Estimate for SBUX's fiscal 2025 earnings per share has decreased recently, with current estimates at $2.48 for the current year and $2.99 for the next year [10] - SBUX is currently trading at a forward 12-month price-to-earnings ratio of 32.03, compared to the industry's 25.99 [12]