Starbucks has seen its debt rating take a hit, with a recent update from Moody's Investors Service. The rating agency downgraded Starbucks' credit rating from A2 to A3, citing concerns over the company's increasing debt levels and declining profitability. This change reflects a higher credit risk for the company.
The downgrade is a result of Starbucks' increasing debt burden, which has risen significantly over the past few years. The company's total debt has grown from around $8.8 billion in 2018 to over $14.5 billion in 2022.
The downgrade will likely lead to higher interest rates for Starbucks, making it more expensive for the company to borrow money. This could impact Starbucks' ability to invest in new initiatives and expand its operations.
The rating agency's downgrade is a sign that investors are becoming increasingly concerned about Starbucks' financial health.
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Starbucks Debt Overview
Starbucks has a significant amount of debt, with a total of $29.7 billion in short and long-term debt as of the last reported period.
The company's net debt is even higher, at $25.9 billion, which is a significant portion of its overall debt.
Starbucks' short-term debt stands at $3.1 billion, while its long-term debt is a whopping $16.5 billion.
The company's long-term debt total is slightly lower, at $15.1 billion, which is still a substantial amount.
Starbucks' debt-to-equity ratio is a staggering 8.07, indicating that the company's debt is significantly higher than its equity.
Here's a breakdown of Starbucks' debt metrics:
Credit Rating Update
Starbucks Corp.'s credit rating was downgraded by ratings agency Moody's Investor Services due to the coffeehouse company's weaker performance and increased competitive pressures.
Moody's lowered the rating of Starbucks' $550 million senior unsecured notes one notch to Baa3, from Baa2, which indicates a "ranking in the lower end" of those with Baa ratings.
The downgrade reflects management's challenge of refocusing the business without significantly damaging the Starbucks brand.
Moody's senior analyst Bill Fahy stated that the downgrade also reflected continued weakness in consumer spending and increasing competitive pressures that would limit Starbucks' ability to significantly improve operating performance over the intermediate term.
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Starbucks has struggled for the past few quarters against slowed customer traffic and heavy charges for restructuring efforts.
The company has been working to build consumer traffic with various menu-pricing strategies, including breakfast pairings for $4, as well as beefed up marketing campaigns.
Starbucks generated $715 million in cash from operations and about $479 million in free cash flow for the first six months of its September-ending fiscal year.
The company also reduced short-term borrowings by $487 million, to $226 million, and expects to "substantially reduce" the outstanding balance during the remainder of the calendar year.
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