Starbucks (SBUX) Earnings Report: Q2 2016 Conference · PDF fileCompany Name: Starbucks Corp Company Ticker: SBUX Sector: Services Industry: Leisure Event Description: Q2 2016 Earnings

CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure

EventDescription:Q22016EarningsCallMarketCapasofEventDate:89.44BPriceasofEventDate:57.22

©2014TheStreet,Inc.Al l R ightsReserved Page1of25

Starbucks(SBUX)EarningsReport:Q22016ConferenceCallTranscriptThefollowingStarbucksconferencecalltookplaceonApril21,2016,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

DurgaDoraisamy;StarbucksCorporation;IRHowardSchultz;StarbucksCorporation;Chairman,CEOKevinJohnson;StarbucksCorporation;President,COOScottMaw;StarbucksCorporation;EVP,CFOJohnCulver;StarbucksCorporation;GroupPresidentChina/Asia-Pacific,ChannelDevelopment&EmergingBrandsCliffBurrows;StarbucksCorporation;GroupPresidentUS,AmericasAdamBrotman;StarbucksCorporation;EVP,ChiefDigitalOfficerMattRyan;StarbucksCorporation;EVP,GlobalChiefStrategyOfficer

OtherPart icipants

DavidPalmer;RBCCapitalMarkets;AnalystJohnIvankoe;JPMorgan;AnalystJoeBuckley;BoAMerrillLynch;AnalystKeithSiegner;UBS;AnalystJohnGlass;MorganStanley;AnalystAndrewCharles;CowenandCompany;AnalystNicoleMiller;PiperJaffray&Co.;AnalystJeffreyBernstein;BarclaysCapital;AnalystDavidTarantino;RobertW.Baird&Company,Inc.;AnalystJasonWest;CreditSuisse;AnalystAndyBarish;JefferiesLLC;AnalystKarenHolthouse;GoldmanSachs;AnalystMatthewDiFrisco;GuggenheimSecuritiesLLC;AnalystR.J.Hottovy;Morningstar;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,IwouldliketowelcomeeveryonetoStarbucksCoffeeCompany'ssecond-quarterfiscal-year2016earningsconferencecall.

(OperatorInstructions)

Thankyou.Ms.Doraisamy,youmaybeginyourconference.

DurgaDoraisamy(IR):

Goodafternoon,everyone.ThisisDurgaDoraisamy,DirectorofInvestorRelationsforStarbucksCoffeeCompany.




Thankyouforjoiningustodaytodiscussoursecond-quarter2016results,whichwillbeledbyHowardSchultz,ChairmanandCEO;KevinJohnson,PresidentandCOO;andScottMaw,CFO.JoiningusforQ&AareCliffBurrows,GroupPresident,USandAmericas;JohnCulver,GroupPresident,China/Asia-Pacific,ChannelDevelopment,andEmergingBrands;MattRyan,GlobalChiefStrategyOfficer;andAdamBrotman,GlobalChiefDigitalOfficer.

Thisconferencecallwillincludeforward-lookingstatements,whicharesubjecttovariousrisksanduncertaintiesthatcouldcauseouractualresultstodiffermateriallyfromthesestatements.AnysuchstatementsshouldbeconsideredinconjunctionwithcautionarystatementsinourearningsreleaseandriskfactordiscussionsinourfilingswiththeSEC,includingourlastannualreportonForm10-K.Starbucksassumesnoobligationtoupdateanyoftheseforward-lookingstatementsorinformation.

Pleaserefertoourwebsiteatinvestor.starbucks.comtofindareconciliationofnon-GAAPfinancialmeasuresreferencedintoday'scallwiththeircorrespondingGAAPmeasures.

Thisconferencecallisbeingwebcastandanarchiveofthewebcastwillbeavailableonourwebsiteatinvestor.starbucks.com.

IwillnowturnthecallovertoHoward.Howard?

HowardSchultz (Chairman,CEO):

Thankyou,Durga.Welcome,everyone.

ItapedmyconversationtodaybeforeheadingtoJohannesburgwhereearliertodayweopenedthefirstofapproximately150storesinSouthAfrica,Starbucks'71stinternationalmarket.

InQ2,Starbucks'powerful24,000-storeglobalretailoperationagaindroverecordfinancialandoperatingperformance,includingrecordrevenues,recordprofits,a7%increaseincomp-storesalesintheUS,a6%increaseincomp-storesalesglobally,our25thconsecutivequarterofcomp-storegrowthatorabove5%,andastunningincreaseof5%intransactiongrowthand18%inrevenuegrowthinChina.

Andweremainonplantoendfiscal2016withapproximately25,000storesglobally.Ourrecentclassesofnewandremodeledretailstorescontinuetodefyestablishedconsumertrendsawayfromtraditionalbricks-and-mortarretailinganddeliverrecord-breakingunitsales,uniteconomics,andreturnoninvestment,verystrongperformancemetricsthatunderscoretheincreasingpowerandrelevanceoftheStarbucksbrandaroundtheworld.

Inlightoftwoveryfavorablerecentdevelopments,Iwouldliketotakeafewmomentstoframeforyoutheenormityofthenear-andlong-termglobalsingle-serveopportunitythatliesaheadforStarbucks.Asmanyofyouknow,overthelastfiveyearsStarbuckshasbuiltapowerful,sustainablepremiumsingle-servebusinessoperatingontheKeurigK-Cup[rails],andtodayStarbuckshastheleadingUSmarketshareofbothpremiumsingleserveandpremiumroastandgroundandistheleadingbrandontheK-Cupplatform.

For2016,wewillsellapproximately1.5billionStarbucksK-Cups,upalmost20%overlastyearandrepresentingmultiplesofK-Cupcategorygrowthoverall.Lastmonth,weextendedourrelationshipwithKeurigonhighlyfavorabletermsthatprovideuswithimprovedeconomicsandincreasedoperatingflexibility,includingtheabilitytoselldirectlyintoofficeandothercomplementary,highlyprofitablechannelsofdistribution.

ButStarbuckssingle-serveaspirationsdonotendwithNorthAmerica,nordotheyendwithK-Cup.Andnowwehavecapabilityinaclearlineofsightonasecondequallyattractivesingle-serveopportunity,becausewhileKeurighasthedominantshareofsingle-servebrewersinNorthAmerica,ithasvirtuallyno




shareorrelevantbrewerproductanywherebeyondNorthAmerica.

OutsideofNorthAmericaisNestle'sNespressounitthathastheleadingshareofpremiumsingleservewitharapidlygrowinginstalledbaseofwhatweestimatetobeover25millionlargelyespresso-basedbrewersinhomesaroundtheworld.Nespressoalsohasastrongpresenceinglobal,awayfromhome,andhospitalitychannels,utilizingthesamecapsuledesignitusesforathome.

Sohereistheopportunityanditisbig.Foryears,customershavebeenaskingustoproduceStarbucks-brandedNespresso-compatiblecapsulessotheycouldenjoyStarbucksqualityinNespressovarietalsthroughtheirNespressomachines,justastheydothroughtheirK-CupbrewersinNorthAmerica.

Wecouldnotsatisfythatdemandbecausewehadnotyetcrackedthecodeonroasting,grinding,andpackingStarbuckscoffeeinordertodeliverStarbucksqualityinacupthroughaStarbucks-designedNespresso-compatiblecapsule,butnowwehave.Andasweannouncedatourannualshareholders'meetinglastmonth,startingthisfallwewillbeginleveragingourretail,CPG,e-commerce,digital,andloyaltyassetsinordertomarketStarbucksespressovarietalsdirectlytoNespresso'sinstalledcustomerbase.

WearestartingwithEurope,Nespresso'slargestmarketandwhere,insomecountries,singleserverepresentsover40%ofallcoffeeconsumedand50%ofourbestStarbuckscustomersownaNespressomachineathome.Andinthefuture,wewillbeginsellingStarbucksbrandinNespresso-compatiblepodsinadditionalStarbucksretailmarketsaroundtheworld.

ImprovedeconomicsandincreasedflexibilitywithKeuriginNorthAmericawillcombinewiththenewglobalopportunitypresentedbyStarbucksNespressocompatiblestoenableustosubstantiallyincreasethesizeandprofitabilityofoursingle-servebusinessoverallandtoaddsignificantshareholdervalueinthequartersandyearsahead.

Wealsohavebiglong-termplansforsingleserveacrosscatandinChina.Astheonlytrulyglobalpremiumcoffeebrand,particularlyinChina,weareideallypositionedtoleverageourdeepconnectiontoourcustomersandouruniqueretailstorefootprinttobeintheforefrontofsingleserveinallcatmarketsasthemorningandat-homecoffeeritualevolves.

LetmeturntoChina.StarbucksiscommittedtoChina,andwenowhaveover2,000storesin100citiesinChinaandareaddingover10newstoreseveryweek.OurbusinessinChinaremainsverystrongandIpersonallyhavenodoubtthattheChinesegovernment'scommitmenttotrueeconomicreformisgenuineandthatitsplantodouble2010per-capitaincomeby2021,resultinginamiddleclassinChinaapproaching600millionpeople,almosttwicethesizeoftheentirecurrentUSpopulation,isachievable.

We'rebuildingourbusinessinChinathroughthelensandwiththelearningsofthesuccessofourbusinessintheUS.We'rebuildingtrustintheStarbucksbrandanddeepauthenticconnectionsbetweenourcustomersandourpartners.Wearecontinuingtodeliveranelevatedin-storeexperienceforourcustomers,we'reincreasinglyestablishedStarbucksasathirdplacebetweenhomeandwork,andwe'regivingbacktothecommunitiesweserve,allofwhichareenablingustostrengthentheequityoftheStarbucksbrandanddevelopandexpandourretail,licensed,andCPGbusinessesandpartnerships.

OurpartnershipwithTingyithatwillprovideuswithover1millionpointsofready-to-drinkFrappuccinodistributioninChinabeginninglaterthisquarterisjustonenotableexample,andtherewillbemanythatwillfollow.Today,notonlyarewebuildingourbrandandagreatretailstorebusinessinChina,butwearebuildingauniqueretailingcapabilitythatseparatesusfromallotherretailersandconsumerbrandsandthatwewillleveragetocontinuegrowingourChinabusinesslongintothefuture.

AndonJune16,wewillopeninChinawhatwillinallprobabilitybecometheStarbuckshighestgrossing




retailstoreintheworldvirtuallyovernight.ItisastunningnewStarbucksstoreatthemainentranceofthenewShanghaiDisneyland,adestinationthatmaywellbecomethenumberonetouristattractioninAsia.OurnewShanghaiDisneylandstorewillshowcasetheStarbucksexperienceinallitsgloryandourpremiumcoffeepositionandonceagainunderscorethepowerandtherelevanceoftheStarbucksbrandinChinaandinCAPoverall.

We'rehonoredthatTheDisneyCompanychoseStarbuckstosoprominentlygreetitsguestsattheentranceofthenewpark.IammoreconvincedthaneverthatStarbucksisjustgettingstartedinChinaandIamequallyconvincedthataswefullyrolloutournewpartnershipswiththeleadingdigitalcompaniesandbrandsinChinaandleverageouruniquedigital,mobile,card,gifting,andloyaltyprogramsacrossourbusinessinChinalaterthisyearandultimatelyacrossCAPoverall,wewillperformatevenhigherlevelsofsuccessandprofitabilityinthefuturethanwedotoday.

Starbuckscontinuestoredefinethecustomer-facingmobileandretailexperienceofthefuture.Kevinwillbetakingyouthroughhowwearecombiningproprietarytechnologies,digitalengagement,andcustomerloyaltytocreateandleverageadynamicintegrateddigitalandmobileecosystemthatwillcontinueto(inaudible)businessandpropelitforward,includingprovidingadditionaldetailsaroundourStarsEverywhereinitiative,theuniqueandhighlyopportunisticpartnershipwerecentlyannouncedwithJPMorganChaseandVisa,andourbreakthroughinitiativesaroundpersonalizationthatareenablingustodeliverhighlytargetedandhighlyprofitableone-to-onemarketingprogramsforourcustomers,wherevertheymaybe.

IamparticularlyproudtoreportthatwegrewourMSRloyaltyprogram8%byaddingapproximately1millionnewmembersinQ2aloneandthatwenowhaveover12millionactiveMyStarbucksRewardsmembersintheUS.

AndtheMSRprogramchangesthattookeffectonApril12will,forthefirsttime,rewardbothcustomerfrequencyandoverallspend,resultinginincreasedRewardsforourbestcustomersatthesametimeasitenhancesin-storeefficiency,speedofservice,andourcustomerexperienceoverall.

IwouldliketospeakforamomentabouttheexcitementwehaveabouttheRoasteryinthecontextofStarbucks'overallbrandarchitecture.OurSeattleRoasterycontinuestodelightourcustomersandperformwellaheadoforiginalexpectations.Basedonexperiencetodate,ourcurrentviewisthatwewillultimatelyopenbetweensevenand10full-scaleroasteriesaroundtheworldinkeyglobalcities.

OursecondRoasterywillbeopeninginNewYork'sMeatpackingDistrictonthecornerofNinthAvenueand15thStreet,nexttotheheavilytraffickedChelseaMarket,directlyacrossthestreetfromGoogle'sheadquartersandadjacenttoApple'sdowntownstorein2018.Andsoon,wewillbeannouncingdetailsofourthirdRoastery,whichwillbeinCAP.

InadditiontoprovidinganimmersivecustomerexperiencewiththeRoasteryandthroughthedisciplineandtheopportunityofsegmentation,wehavebeenbuildinganewpremiumbrand,StarbucksReserve.StarbucksReserveareultra-premium,microlot,single-varietalcoffeesthatarebeingsoldatpremiumpricesthroughselectStarbucksstoresaroundtheworld,creatingbothincreasedprofitabilityandfurtherseparationfromourcompetitors.

AndwewillcontinuetoopencoffeeforwardStarbucksstoreswithelevatedreservebeverageandwholebeanproducts,likethoseinWilliamsburg,Brooklyn,Chelsea,London,andacrossAsia.

Nowfollowingthesuccessandthelearningsfromthesestores,wewillbeopeninganewclassofReservestoresbeginninginfiscal2017.WebelievewehavesignificantrunwaytogrowanddevelopourStarbucksReservebrandonaglobalbasis.




Starbucks'performanceinQ2demonstratesthecontinuedsuccessofourcommitmentstodeliveringanelevatedStarbucksexperiencetoourcustomersandworld-leadingfinancialandoperatingperformanceandlong-term,sustainable,profitablegrowthtoourshareholders.Withhumility,ourperformanceinQ2isparticularlygratifyinginthatitwasachievedinthefaceofverychallengingconsumer,geopolitical,andeconomicenvironments.

Andwiththat,fromSouthAfrica,IturnthecallovertoKevin.Kevin?

KevinJohnson (President,COO):

Thankyou,Howard.Goodafternoon,everyone.

Howardtoucheduponseveralhighlightsfromthequarter.Iwilladdadditionalcoloronourperformanceandprovidefurtherevidencethatourstrategiesforgrowthareworking.AndIwillagaindemonstratehowwearebeingdeliberateandfocusedinconnectionwiththeinvestmentswearemakingforourfuture.

Let'sstartwiththeAmericassegment.Wenowhaveover15,000storesthroughouttheAmericasbusiness,comprisedofnearly9,000Company-operatedandover6,000licensedstores.OurAmericasbusinesscontinueditstrackrecordofdeliveringconsistent,profitablegrowth,withrevenueup10%overlastyearandrecordoperatingmargins.Americascompsalesincludeda3%increaseintransactionsanda5%increaseinticket,roundingtoa7%increaseincomp(technicaldifficulty).

Ourstore(technicaldifficulty)strategyisenablingtheintroductionofnewstoreformatsandfasterandmoreefficientdrive-thrus,expressstores,andbeautifulrenovationsthatprovideourcustomersnotonlywithincreasedconvenience,butamoreinvitingandcomfortablethird-placeenvironment.Thisapproachisenablingrecord-settingunitvolumeinournewstores.

Themorningdaypart,onceagainourfastest-growingdaypart,grew13%yearonyear,drivenbyMobileOrder&Pay,strongperformancefromourcorebrewedandespressoproductlineup,andbreakfastsandwiches.FlatWhiteandColdBrewbothcontinuetogaintractionandcustomeracceptanceanddrivefoodattach.

Inadditiontoourhotbeveragelineup,ourexpandedicedbeveragebusinessisresonatingwithcustomers.Ourteabusinessinparticularhaditsstrongestquarterinoverayear,up17%yearonyearandcontributing1pointofcomp,fueledbyanacceleratingsalesofTeavanahandcraftedteabeveragesinStarbucksretailstores.

Creatingnewcustomeroccasionsanddrivingincreasedattacharekeyprioritiesforourfoodprograms,andwemadegreatprogresswithourfoodbusinessthisquarter,growingrevenues16%yearonyearandcontributingover2pointstoourcomp,witheverydaypartcontributingtothisincrease.

Breakfastsandwichescontinuetobeastrongdriverofthebusiness,deliveringnearly30%revenuegrowthanddrivingbothtrafficandincreasedattachinthemorningdaypart.Ourinnovativenewlineupoflunchofferingsdeliveredan18%year-on-yearincreaseinfoodrevenueduringthelunchdaypart,andwecontinuetotestandlearnasweshapeoureveningsprogram.

Forthefirsttimeever,foodrepresentedmorethan20%ofrevenueintheUS.OurAmericassegmenthadanoutstandingQ2.

Let'snowmoveontotheCAPsegment.TheChina/Asia-Pacificbusinessdeliveredanothersolidquarter,withrevenuesincreasing14%andoperatingincomeup15%overQ2ayearago.Noteworthyisthatthisisthefirstfullquarterinwhichour1,100-storeJapanretailbusinesswasfullyincludedinbothourCAPcompandrevenuebase,resultinginCAPcompgrowthof2%intrafficand2%inticket,roundingto3%overall.




Wenowoperateover5,900storesinCAP,includingover2,000inmainlandChinainmorethan100cities.DespitemoderatingGDPgrowthinChina,StarbucksChinagrewrevenues18%andtransactions5%inthequarter.WesawparticularlystrongtransactiongrowthinthelargestcitiesandournewestChinastorescontinuetodeliverrecord-breakingvolumeandprofit,onceagaindemonstratingtheincreasingstrengthandrelevanceoftheStarbucksbrandintheChinamarket.

AsHowardmentioned,wewillleverageourloyaltyanddigitalflywheelinChinawiththerolloutofcertainfeaturesthisyearandfulldigitalcapabilitiesovertime.OurChina/Asia-Pacificbusinesscontinuestoperformextremelywell,reinforcingourconfidenceinthelong-termgrowthpotentialofthismarket.WhileStarbucksisnotimmunetocyclicalchangesintheChineseeconomy,ourlong-termoutlookremainsstrong.Andwearecommittedtoincreasingourstorecounttoover3,400inChinaandtoover10,000inCAPoverallbytheendof2019--fiscal2019.

Let'smoveontoEMEA.Wecontinuetobuildour2,500-storeEMEAbusinessbyincreasingourstorecount;enteringnewcountries,includingLuxembourginQ2,withSouthAfrica,Slovakia,andAndorraopeningthisquarter;andintroducingnewfoodandbeverageofferings.Overall,weadded47netnewstoresinEMEA,allinconjunctionwithlicenseepartnersathigh-trafficvenues,suchastrainstations,airports,supermarkets,andthroughgeographiclicensees,suchasAlshayaintheMiddleEast.

Wecontinuetoseestrongaffinitywiththebrand,asevidencedbytheopeningofourfirstStarbucksstoreinStrasbourg,France,wherehundredsofenergizedcustomerslineduptobeamongthefirstinthemarkettoenjoytheStarbucksexperience.

Company-operatedEMEAstoresdelivereda1%compsalesincreaseinthequarter,the12thconsecutivequarterofpositivecompgrowth.With72%ofEMEAstoresnowlicensedorfranchised,totalsystemcompsarebecomingincreasinglyrelevant.AdjustingforcontinuedmixshiftfromCompany-ownedtolicensedandforeign-exchangeheadwinds,whichtogetherimpactedrevenuegrowthby11points,EMEAonanadjustedrevenuebasiswoulddelivergrowthof7%andsystemcompgrowthof4%,aswellasincreasingoperatingincomeinthequarter.Thiswasinanextremelychallengingconsumer,economic,geopoliticalenvironmentacrosstheregionandreinforcesthestrengthandresilienceoftheStarbucksbrandinEMEA.

Lookingahead,weexpecttoseeacontinuedmixshifttolicensedstoresinEMEA,whereyesterdayweannouncedenteringintoanagreementtolicenseall144ofourstoresinGermanytoanexistinglicenseepartner,AmRestHoldings.Thisstrategysupportsourfocusonstoregrowthandexpandedoperatingincome.

Let'smoveontochanneldevelopment.OurchanneldevelopmentsegmentplaysakeyroleinelevatingtheStarbucksbrandoutsideofourretailstores.Channeldevelopmenthasbecomeoursecondmostprofitablebusinesssegmentandonceagaindeliveredrecordrevenueandrecordoperatingincome,growing8%and17%,respectively.StarbuckshastheleadingUSmarketshareofpremiumsingleserveontheK-Cupplatformandpremiumroastandground,andthisquarterweexpandedourmarket-sharepositioninbothofthosecategories.

OurnewpartnershipagreementwithKeurigprovidesuswithbothimprovedeconomicsandincreasedoperatingflexibility,includingtheabilitytoselldirectlyintocomplementary,profitablechannelsofdistribution,suchashospitality,college/university,andoffice,whereweconsistentlygrowourbusinessat2to3timestheindustryrate.

OursuccessinsingleserveintheUSprovidesthefoundationforalargeraspirationaroundthesingle-serveopportunityglobally.Laterthisyear,wewillintroducetheNespresso-compatibleStarbuckscapsulesinEuropeasonesteptowardbuildingabusinessthatonedaymayrivalthesizeandprofitabilityofoursingle-servebusinessinNorthAmerica.




Ourready-to-drinkbusinessinNorthAmericacontinuedtoseeverystrongperformanceinthequarter,drivenbynewbeverageinnovation,includingicedblackcoffee,Refresherswithcoconutwater,andproductlineextensionsforFrappuccinoanddoubleshotenergydrinks.

OutsideofNorthAmerica,wecontinuetomakemeaningfulprogressbuildingourglobalCPGfootprint.OurpartnershipwithTingyiisontracktolaunchthissummer,wherewewillmovetoanationalpresencewithdistributioninnearlyeverymajorcityinChina.

ThroughournewagreementwithPepsiCoLatinAmerica,weareenablingdistributionintheLatinAmericanmarketinthesecondhalfofthisyear.Starbucks'channeldevelopmentsegmentcontinuestoperformextremelywellandplaysakeyroleinelevatingourbrandglobally.

Let'snowmoveontotheprogresswearemakingonourloyaltyanddigitalinitiatives.Loyaltyremainsthecornerstoneofourdigitalflywheel,andinlateFebruary,weannouncedchangestoourStarbucksRewardsprogramthatbenefitourmostloyalcustomers,bylevelingtheplayingfieldandrewardingbothtransactionfrequencyandtotalspend.Withthesechanges,wealsolaidthefoundationforcustomerstoEarnStarsEverywhere,whichacceleratesthepaceatwhichcustomersearnRewardsredeemableonlyatStarbucks.

Rewardsmembershiphasaccelerated.Justlastweekalone,weaddedmorethan280,000newRewardsmembers.EngagingwiththesenewRewardsmemberswillenableustoaccelerategrowthofouractiveStarbucksRewardscustomerbase.Besidesbringingusnewcustomers,theprogramalsoaddressesanoperationalchallengewhere,undertheoldprogram,customerswouldaskbaristastoringupeachitemindividuallyinordertogetmultiplestars,atime-consumingprocessthatcreatedadditionalworkforourbaristas,slowedservice,andlengthenedlines.

Bycompletelyeliminatinganyincentivetoordersplit,wewillimprovein-storeoperationsandefficiencyandincreaselinespeed.

IwanttotakeamomenttounderscorethatthechangesinourRewardsprogramwillbeaccretivetocompsovertime.AswementionedduringourFebruaryStarbucksRewardsconferencecall,asaresultofthechangestotheprogramweanticipateashiftofabout1pointofcompbetweentransactionandticket.Also,wemayseesomenoiseinQ3compsascustomersreacttothenewchangesoftheprogram.Scottwillspeaktothisfurtherinamoment.

Attheendofthequarter,wehad12millionactiveStarbucksRewardscustomersintheUS,withtotalprogramspendgrowthof22%yearonyear.WehaveseenadditionalgrowthinactiveRewardscustomerssincethelaunchofthenewprogramlastweek.Ournewmobileappcontinuestobeverywellreceived,wheretodayover80(technicaldifficulty)[76]%ofouriPhonecustomersand(technicaldifficulty)percentofourAndroidcustomershavealreadyupgradedtothenewversionoftheStarbucksmobileappthatreleasedjustlastweek,andwenowhavealmost19millionusersofourmobileappintheUSalone.

Mobilepaymentrepresented24%oftotalUStenderinQ2andMobileOrder&Paycontinuestobeincreasinglyembracedbyourcustomers.Itaddsincrementality,especiallyatpeak.MobileOrder&Paytransactionsrepresentedapproximately4%oftotaltransactionsinthequarter,whichwasa40%increasesequentially.WearejustbeginningtoseethefullbenefitofMobileOrder&Paybeyondthespeedandconvenienceitaffordstobothourcustomersandpartners.

Considerthis.Thoughstillinitsinfancy,in300ofourbusiesturbanstoresMobileOrder&Payrepresentsover10%oftransactions,andinthosesamestoresatpeak,MobileOrder&Payrepresentsnearly20%oftransactions.InPortland,wherewefirstintroducedMobileOrder&PayinDecember2014,MobileOrder&PaytransactionvolumeinMarchwasupapproximately150%fromMarchoflastyear.




ThenewStarbucksRewardsprogramandStarbucksmobileapphavepositionedusfortwoveryexcitinginitiativesthatyouwillseeunfoldlaterthisyear.Thefirstinitiative,throughapartnershipwithJPMorganChaseandVisa,istrulyafirst-of-its-kind,aStarbucksgeneral-purposeprepaidVisacardthatwillenableStarbucksRewardscustomerstoearnstarseverywhereVisaisaccepted.That's40millionmerchantsworldwideandwhereallstarsearnedcanonlyberedeemedatStarbucks.Wethinkthisisabigwinforourcustomers.

IntheUS,totalannualspendingoncreditanddebitcardstotalsaround$9trillionannually,roughlyhalfoncreditandhalfondebitcards.WhilethemajorityofcreditcardsinusetodayofferRewardsorpoints,typicallywithanannualfee,thereisnomeaningfuldebit-basedrewardscardprogramoutthere.Thatmeansthatonmorethan$4trillionofannualconsumerspending,virtuallynooneusingadebitcardisgettingrewards.

Notanymore.ThisnewStarbucksgeneral-purpose,prepaid,reloadabledebitcardisunique,andnotonlyisitawinforcustomers,itisalsoawinforStarbucksbystrengtheningourcustomerengagementandprovidinguswithadirectfinancialrewardforeverycustomerwesignupandleadingtoattractiveinterchangerates.Staytunedformoredetailsaboutthecardandsign-upinformationlaterthisyear.

Thesecondexcitinginitiativeevolvesaroundtheworkwearedoingtoenablereal-timepersonalization.Letmeframethisforyou.AmajorcontributortothesuccessofourRewardsprogramhasbeenthetargetedoffersthatwehavemadetocustomersviaemail.Sincelaunchingourtargetedofferprogramin2013,wehavebeenprovidingwaysforcustomerstoearnextrastarsforpurchasingcertainitemsormakingadditionalvisitstoourstores.

However,existingtechnologyhadconstrainedourabilitytolasertarget,respondinthemoment,andvaryourdigitalcontentbasedonwhatweknowtobeanindividualcustomer'spreferencesandbehaviors.Allthatischangingaswebegintointroducetrue,real-timepersonalizationacrossourentiredigitalecosystem.

Followingthesuccessfulimplementationofthefirstwaveofthisnewtechnology,wecannowsendsignificantlyimprovedtargetedcommunicationstoindividualcustomersbasedonwhatweknowabouttheirspecifictastesandinterests,enablingustobecomeevenmorerelevanttothem.Overtime,wewillexpandthiscapabilitytoamorerobustmobileapp-centricmodelthatenablesusattheverymomentacustomerorderstoproviderelevantsuggestionsandrecommendationsand,whenappropriate,incentivizeofferstodelightourcustomers.

Asyoucansee,wearemanagingasignificantnumberofaccretivechangesrelatedtoloyalty,digital,andStarsEverywhere.

Afewwordsonthesuccessoftheinvestmentswecontinuetomakeinourpartnersandtheworkwearedoingtoimprovethepartnerexperienceoverall.CreatinganenhancedStarbucksexperienceforourcustomersandanauthenticandpersonalconnectionbetweenourcustomersandourpartnersiscoretotheStarbucksexperience.Lastyear,webeganrollingoutanumberofsignificantinvestmentsinsupportofourin-storepartnersthatincludedincreasedbaristaandshiftsupervisorpayrates,additionalperformance-basedrecognition,updatestoourdresscode,anewfoodbenefit,aswellasenhancementstoourcollegeachievementprogram.

Theseinvestmentsarepayingoff.Wecontinuetoseeincreasesinpartnerretention,whichisenablingbettercustomerconnections,andcustomerconnectionisakeydriverofourrecordQ2performance.Asyoucansee,ourresultsprovidepowerfulevidencethatourstrategiesandfocusedinvestmentsarepayingofftodayandsettingusupforcontinuedgrowthinthefuture.

Withthat,IwillturnthecallovertoourCFO,ScottMaw.Scott?




Scott Maw(EVP,CFO):

Thanks,Kevin.Goodafternoon,everyone.

StarbucksonceagaindeliveredverystrongoperatingandfinancialperformanceinQ2,withrecordQ2performanceacrossvirtuallyallofouroperatingandprofitabilitymeasures,includingrevenue,operatingincome,operatingmargin,andEPS.NoteworthyisthatourrevenuesinQ2werethehighestofanynonholidayquarterinourhistory.

EPS,bothGAAPandnon-GAAP,increased18%to$0.39inQ2,thetopendofourguidancerange.Non-GAAPoperatingincomeincreased11%overQ2lastyearto$887million,whilenon-GAAPoperatingmarginexpanded30basispointsto17.6%.

MarginimprovementinQ2wasdrivenbysalesleveragethatmorethanoffsettheimpactofongoinginvestments,particularlyinourpartnersandourdigitalplatforms.Itisimportanttonotethisquarterthatourconsolidatedoperatingmarginalsoreflectsdilutionfromamulti-yearemploymenttaxauditaccrual.Morespecifically,our30basis-pointincreaseinoperatingmarginwouldhavebeen40basispointshigher,or70basispointsintotal,andouroperatingincomegrowthwouldhavebeen240basispointshigherthanthereported11%,or14%withrounding.

TheimpactofthisG&A-relatedaccrualwaslargelyoffsetbelowtheoperatingincomelineinQ2incometaxesandisexpectedtobeentirelyoffsetinfederalincometaxexpensebyfiscalyear-end,resultinginnoimpacttoearningsforfull-year2016.

YoumayrecallthatourinvestordayinDecember2014,wediscussedtheimportanceofreversingthenegativeleveragewewereseeingoncostofgoodssoldandG&A.Iampleasedtoreportthattheplansweputinplacetodosoareworking,andthatontopofthesignificantprogresswemadeonthatfrontlastyear,sofarthisyearweareseeinganadditional60basispointsofCOGSandoccupancyleverage,drivenmostlybyCOGS,and40basispointsofG&Aleverage.

Returnoninvestedcapitalexpandedbyover100basispointsinthefirsthalfof2016,comparedtotheprioryear,onceagainreflectingexcellentreturnsonourcorebusinessesanddemonstratingtheoutsizedreturnwearegeneratingonmanyofoursignificantnewerinvestments.

AndourreportedrecordQ2resultsbecameevenmorenoteworthyinlightofthefactthatforeign-currencytranslationshavedafull1pointoffrevenueand2pointsoffoperatingincomegrowthinthequarter.

IwillnowtakeyouthroughhoweachofourmajoroperatingsegmentsperformedinQ2.InQ2,ourAmericassegmentoperatingmarginexpanded80basispointsoverQ2lastyearto23.5%,primarilydrivenbysalesleverageandfavorablecommoditycosts,partiallyoffsetbyongoingstorepartneranddigitalplatforminvestmentsthattogetheradverselyimpactedoperatingmarginby100basispointsinthequarter.

Noteworthyagain,aswementionedlastquarter,isthatwecontinuetoseeessentiallynonetcannibalizationofexistingstoresasweexpandourstorefootprintintheAmericasandleverageourfullportfolioofnewandexistingstoreformats.Forthefullfiscalyear,wecontinuetoexpecttheAmericassegmenttodelivermoderatemarginexpansionoverprioryear.

Let'smoveontoourChina/Asia-Pacificsegment.InQ2onaGAAPbasis,CAPoperatingincomegrew15%overlastyeartoaQ2record$129millionandoperatingmarginexpanded20basispointsto19.1%,drivenprimarilybystrongsalesleverageandhigherincomefromourjointventureoperations,partiallyoffsetbytheimpactofforeign-currencytranslationandtheimpactofincreasedcompensationand




benefitcostsinstoreoperatingexpenses.

Excludingthe90basis-pointimpactofforeignexchange,CAPmarginsexpandedby110basispointsinthequarter.ProfitabilityofourJapanandChinastoreportfoliocontinuestoincrease,withourprofitability(technicaldifficulty)storeclassupnicelyfromthepreviousageclass,andasKevinmentioned,returnsonournewstoresinthesetwoimportantmarketsareamongthehighestStarbucksisgeneratinganywhereintheworld.

Forthefullfiscal-year2016,weexpectCAPrevenuegrowthtobewithinourpreviouslystatedmid-teenstargetrangeandCAPmarginsarenowexpectedtoberoughlyflatcomparedto2015levels.

WealsostillexpectCAPcompsfortheyeartobeinthemid-singledigits,despitefallingjustbelowthatthresholdforthecurrentquarter,somewhatimpactedbytheadditionofourJapanbusinessintotheCAPcompcalculation.JapanisthelargestcomponentoftheCAPcompbasewithaweightingofjustover50%ofthetotal.

TurningtoEMEA,EMEA'soperatingmargindeclined10basispointsinQ2relativetolastyearto10.3%,largelyduetocertaingainsintheprioryearrelatedtothesaleofassetsasweshiftedmorestoresfromCompanyoperatedtoourlicensedmodel.ExcludingthesegainsandtheimpactofFXheadwinds,EMEA'soperatingmarginexpandedslightlyinQ2.

AsKevinmentioned,ourlicensedstoresinEMEAshowedstrongcompandprofitabilitygrowthinQ2,andincomefromlicenseesnowrepresentsroughly60%ofthetotaloperatingincomewegeneratefromEMEA.Despitechallengingmacroeconomic,geopolitical,andconsumerenvironmentsthatpersistacrosstheEMEAregion,weremainconfidentthatEMEA'soperatingmarginswillapproach15%infiscal2016,onceagainupnicelyovertheprioryear.

OurchanneldevelopmentsegmenthadanotherverystrongquarterinQ2.Operatingmarginincreased300basispointsinthequarterto39.5%andoperatingincomereachedanewquarterlyrecordof$182million,up17%overlastyear,drivenprimarilybycostofsalesleverage,favorablecoffeecosts,andhigherincomefromourNorthAmericancoffeepartnershipwithPepsi.

Forthefullfiscalyear,weexpectchanneldevelopmenttoincreaserevenuesbyapproximately10%yearoveryear,withthebackhalfoftheyeargrowinginthehighsingledigits,followingthe12%growthratewesawinthefirstsixmonths.Channeldevelopment'srecord-breakingQ1performance,verystrongQ2results,andpositiveoutlookforthebalanceoftheyearhasusconfidentthatthesegmentwillpostmoderatemarginexpansioninfiscal2016overlastyear.

Giventhemomentumweareseeinginthebusiness,wearealsoexpectingstrongoperatingleverageoverthenexttwoquarters.

GiventheexcellentperformanceacrosstheCompanyyeartodate,wearemovingthebottomendofourfiscal-year2016EPSrangeupslightlyfromourpreviousguidance,whileretainingthetopend.GAAPEPSisexpectedtobeintherangeof$1.85to$1.86andnon-GAAPEPSintherangeof$1.88to$1.89,includingthe53rdweek,whichbyourroughestimateaddsapproximately$0.06toQ4.

ForQ3,weareexpectingGAAPEPSintherangeof$0.47to$0.48andnon-GAAPEPSintherangeof$0.48to$0.49.Forthefullyear,foreignexchangeisnowexpectedtonegativelyimpactrevenuegrowthby1to2pointsandoperatingincomegrowthby2to3points.Wecontinuetoexpecttogrowrevenuesby10%orgreaterona52-weekbasis,withthe53rdweekaddingapproximately2pointstothefullfiscal-yearfigure.

Andweremainconfidentinourabilitytodelivercompsalesgrowthsomewhatabovemid-singledigitsfor




thefullfiscal-year2016.ButasKevinindicated,thereexiststhepotentialforsomebumpinessinQ3asaresultoftheStarbucksRewardsprogramchangesthattookeffectearlierthismonth.AndaswementionedonourFebruaryStarbucksRewardsconferencecall,goingforwardweexpecttosee1pointorsoofmovementbetweentrafficandticketwithincompineachofthenextfourquartersasourcustomersadapttothechanges.

Noteworthyisthatgiventhesignificantvalueandbenefitsconferredonourcustomersinthenewprogram,wefullyexpectthechangestobeaccretivetoeachofcomps,revenue,andprofitabilityovertime.

Investmentinourpartneranddigitalinitiativesgloballywilltotalbetween$275millionand$300millioninfiscal2016,comparedtoapproximately$145millioninfiscal2015,andthebenefitsandthereturnswearerealizingfromtheseinvestmentsarebecomingincreasinglyapparent.

Wecontinuetoexpectconsolidatedoperatingmarginforfiscal2016toincreaseslightlyrelativeto2015onbothGAAPandnon-GAAPbases,reflectingstrongrevenuegrowth,salesleverage,andincreasedoperatingefficiencyandperformance,partiallyoffsetbytheimpactofincreasedpartneranddigitalinvestments.

Movingontocommodities,with2016coffeeneedsfullypriced,weexpectaslightlyfavorableimpactfortheyear.Wewillcontinuetotakecarefuladvantageoflowercoffeeprices,whileensuringthatwesourceonlythehighestqualitycoffeeandprovidefaireconomicstocoffeegrowersaroundtheglobe.

Weexpecttoaddapproximately1,800netnewstoresgloballyinfiscal2016,700inAmericas,900inChina/Asia-Pacific,and200inEMEA.

Theoutlookforoureffectivetaxrateisnowexpectedtobeapproximately34%.Andwestillexpectcapitalexpendituresof$1.4billionforfiscal2016.

Finally,withthestrongcashflowsdrivenbyourrecord-breakingholidayperiod,wetookadvantageofrecentequitymarketvolatilityandsignificantlyincreasedoursharebuybackactivitysincetheendofQ1.Wereturned$1.6billiontoshareholdersinQ2alone,thehighestamountinanysinglequarterinour24-yearhistoryasapubliclytradedcompany,withsharerepurchasesinthequarternearlyequaltobuybackactivityinallof2015.Andasweannouncedtoday,ourBoardofDirectorsrecentlyincreasedoursharebuybackauthoritybyanadditional100millionshares.

AsImentionedattheoutset,Q2wasanotherquarterofstronggrowthandexcellentfinancial,operating,andprofitperformanceforStarbucks,andonceagain,thecreditgoestoourpartnersaroundtheworldwhocontinuetodeliveranelevatedStarbucksexperiencetoourcustomerseveryday.

Thetremendousmomentumwehavecreatedoverthefirsthalfoffiscal2016ideallypositionsustobenefitfromtheinvestmentswearemakinginourpartners,inourstores,andingroundbreakinginnovationandtocontinuedeliveringworld-classreturnstoourshareholders,andwewilldosodespitetoday'schallengingglobaleconomicandgeopoliticallandscape.

NowIwillturnthecallbacktotheoperatorforQ&A.Operator?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

DavidPalmer.




DavidPalmer (Analyst-RBCCapitalMarkets):

WithregardtotheRewardsswitchthatyoujustmentionedandthatnoisethatyoumentioned,thattrade-offof1to2points,isthereanetdragtooverallsame-storesalesthatyouareseeingsofaroristhissimplyjustanexaggeratedversionofthetrafficversuschecktrade-offyouexpectedearlier?

Scott Maw(EVP,CFO):

Yes,thanks,David.We'renottryingtosignalanytrendsthatweareseeingearlyinthequarterorpost-launch,andinfact,asKevinreferenced,wehaveseenanincreaseinaccountactivityandcustomeracceptancepost-launch.

Allwearetryingtosayisthisisabigchange.Itisaverypositivechange.We'rebullishonitinthelongterm,butit'sabigchangeincustomers.Wehavegotanumberofplansinplacetoleveragethenewprogramandwewillkeepaneyeonthingsasthequartermoveson,butyounoticewehaven'tchangedourguidancefortheyearandwe'renottryingtosignalanythingaboutintra-quartertrends.

Operator :

JohnIvankoe.

JohnIvankoe (Analyst-JPMorgan):

TherehasbeenalotoffocusongettingCOGSleverageandG&Aleverageoverthepastcoupleofyears.Sothequestionisreallyonthelaborexpenseatthestore,whereyouhavebeenmakingsignificantinvestmentsoverthelastfourquartersorso.Soaswethinkaboutoverthenextyear,dothoseincreasesinlaborcostsbegintoslowandisthereanythingthatStarbuckscandotobegintogetmoreefficiencyoutofthatline,whichhasbeendeleveraging?

Scott Maw(EVP,CFO):

Right.WhatIwouldsay,John,isweexpecttocontinuetomakethosepartneranddigitalinvestmentsaswemovethroughtime.

Weknowthattheyaredrivingcomps.WehavetalkedbeforeaboutthetiebetweenthechangeswemadeaboutayearagoinpayforourUSstorepartnersandtheincreaseincompsthatstartedatthesametime,andinfact,whatweseeisatthestoresthathavethelowestturnover,theyhavethehighestcomp,andwehaveseenturnovertickdownsincewehavemadethosechanges,soitisalltiedtogether.Itishighlyaccretiveandhighlyprofitable.

Sowewillcontinuetomakethoseinvestments,andaswegointoeachyear,wewilltalkalittlebitaboutthesizeofthoseinvestments,theimpactonleverage,butthereareotherplacesintheP&LthatwecangotocontinuetogrowEPSat15%to20%,whichisourlong-termrange,G&AandCOGSjustbeingtwoofthem.Andthen(technicaldifficulty)andtheteamhavedoneanicejobdrivingproductivityinthestores.

AndMobileOrder&Payhasbeenakeyaspectofthattohelpuswiththroughputatpeak,andasKevinsaid,peakwasonceagainourfastest-growingdaypartinthisquarter.Lastquarter,itwasourfastest-growingdaypartinoverfiveyears.Andasyouknow,lastquarteristhefirstquarterwehadMobileOrder&Payfullyrolledout,andwhatweareseeing,baseduponthenumbersthatKevinshowed,isinthosebusieststoresatpeakMobileOrder&Payisdrivingsignificantproductivityandthroughput.

SothoseareallplaceselsewhereintheP&Lwecangotofundtheinvestmentsweneedtodrivegrowth.




Operator :

JoeBuckley,BankofAmericaMerrillLynch.

JoeBuckley(Analyst-BoAMerrillLynch):

IwaswonderingintheCAPsegmentifyoucouldbealittlebitmorespecificonthesame-storeperformanceinbothJapanandChina.

JohnCulver (GroupPresidentChina/Asia-Pacific,ChannelDevelopment&EmergingBrands):

Yes,Joe,thisisJohn.Firstoff,obviouslyfromaCAPperspective,thecompositionofcomphaschangeddramaticallyoverthepastyearwiththeweightingofJapancomingin.Ifyougobackayearagosequentially,Japanwasnotincludedinthecompbaseatallin2015anditwasonlypartiallyincludedinQ1,andnowwehaveitfullyincludedinQ2.

Whenyoulookatthetotalcompgrowthfortheregion,wecameinataroundingbasisof3%.2%ofthatwastransactionsand2%wasticket.Moreimportantly,whenyougointoChinaandyoudigunderneathChina,wedelivereda5%transactiongrowthrateacrossthecountry.Andwhenyoudigevendeeperintothat,inourtier1andtier2cities,wherewehaveover65%ofourstores,weoutpacedthat5%transactiongrowthratesignificantly.

Soforus,wehavegreatoptimismaroundtheopportunitythatexistsforusinChina,aswellasinJapan.Wecontinuetoseeverystrongnew-storeperformance,asScotthighlighted,inbothChinaandJapanwithrecordrevenuesandrecordsalesresultsandsignificantreturnoninvestment.Soforus,weremainverybullishontheopportunitythatexistsnotonlyinChina,butthenalsoacrosstheentiresegment.

Scott Maw(EVP,CFO):

AndIwouldaddinthoselargercities,that'swherewehavemostofournew-storegrowthtargeted,andsothat'swhyyouseerevenuegrowthat18%intheoverallCAPsegmentcontinuingtodrivetheprofitabilityandrevenuegrowththatweexpect.

Operator :

KeithSiegner.

KeithSiegner (Analyst-UBS):

Justtwoquickquestionsonchanneldevelopment.Thefirstone,itsoundslikethereissomuchgoodstuffcominglaterthisyear,neweconomicswithK-Cups.WehavegotNespresso-compatiblepods.Wehavegotready-to-drinkoptionsexpanding.Thereisalotofmovingpiecesthatsoundverybeneficial,butyetyoumentionedlowerrevenuegrowthinthesecondhalf.Maybeyoucouldtalkthroughwhy.

Andthen,thesecondpartofitwouldbeagainstthefive-yearoperatingprofittargetsthatyoulaidoutinDecember2014,oneofthemwasdoublingchanneldevelopment.Withallofthesenewannouncementsthatyoumade,arewestillwithinthattarget?Couldthisactuallyoutpacethattarget?Whereareweagainstthatfive-yearplan?Thanks.


Yes,Keith,thisisJohn.Letmetakethefirstpartofthequestion,thenIwillturnthesecondpieceovertoScott.

Clearly,channeldevelopmentcontinuestoperformvery,verystrongforusasacompanywiththe8%




revenueand17%incomegrowthinthequarter.Wearegainingshareacrossallcategoriesthatweoperatein,whetherit'stheroastandgroundcategory,premiumcoffee,orK-Cups.

Thiswasour17thconsecutivequarterofsharegrowthinthechanneldevelopmentbusinessacrossallcategories.Andinthequarter,wegrew5timesthecategoryaverageandoursharesincreasedover100basispoints.Roastandground,wenowhavea25.3%sharegrowth,andK-Cupssharenow,asitsits,at16.3%.

Andwhenyoulookatthesuccessthatwearehavinginchannels,acoupleofthingsaredrivingit.First,itistheexecutionthatweareseeinginthestoresandthemerchandisingthatwe'redoingandthefactthatwearewinningdowntheaisle.Itisthefactthatweareincreasingourpointsofdistribution.Wehaveseensignificantsuccesswiththelargerpacksizethatwe'veintroduced,andclearlythathasbeendrivingoursharegainsacrossallourmajorcategories.

Inaddition,wehavetakentheMyStarbucksRewardsprogramandintroducedthatdowntheaisleaswell,whereinthequarterwesawan18%increaseinthenumberofcodesthatwereredeemed,andtodaywehaveover20millioncodesenteredbyover2millionMSRcustomersintheCPGsegment.

Soforus,weareveryencouragedbytheresultsthatweareseeinginthecategoryandinthesegmentandweareverybullishoncontinuingtodeliverthatdouble-digitgrowthfortheentireyearaswelooktofinishouttheyearstrong.

Scott Maw(EVP,CFO):

Yes,andKeith,onyoursecondquestion,whatIwouldsayisintheneartermthenewGreenMountainagreementdoesn'tgointoplaceuntillaterthisquarter,sonot--alittlebitmorethanaquarterimpactinthisyear'searnings.

Overthelongterm,therecouldbeupsidetotherangethatwegavebackatinvestorday,andIthinkoneofthekeypiecestothatisalloftheinternationalopportunitiesthatKevinandJohnlaidout.Andso,IthinkasyoulookatinternationalCPGgrowth,particularlyoverthemediumterm,outacouple,threeyearsoncethepartnershipsgetupandrunningandwegetproductrollingoffthelines,ifthosethingsgoaswellasweexpectit,therecouldbesomeupsidethere.


Yes,Keith,andjustoneotherthingIwouldjustaddontheK-Cupopportunity.WhenyoulookatK-Cups,wegrewmorethan3timestherateofthecategorythispastquarter,andthenewKeurigagreementgivesusanopportunitytoextendtheagreement,numberone,onveryfavorableterms.Wehaveimprovedeconomicscomingin,asScotthighlighted,butmoreimportantlywehavegreateroperatingflexibilityintermsofbeingabletodrivemoreinnovationintotheK-Cupcategory,additionalSKUsandnewpackaging.

AndwealsohavetheopportunitytonowselltheK-Cupsdirectlyintooffice,intofoodservice,collegeanduniversities,hotels,andc-stores.So,weareontrackthisyeartodoabout1.5billionK-Cupsandweexpectthiscategorytopushnearthe20%growthratefortheentireyearforus,soveryoptimisticontheopportunitythatK-Cupshas.

Operator :

JohnGlass.

JohnGlass (Analyst-MorganStanley):




Thanksverymuch.IjustwanttogobacktotheAmericastrafficof3%.Youseemverypleasedwiththethroughput,givenmobileordering.Isthereotherconstraintsinotherpartsofthebusiness?The5%andthe3%don'taddup--theyaddupto8%to7%,sooneofthoseorbothofthoseareprobablyalittlelessthanthewholenumber.

Andjustasarelatedquestion,inmyobservation,doesthenewchipcreditcards,hasthatslowedtransactionsdown,forexample?Arethereobviousbottlenecks,ormaybejustalittlecoloraroundthatingeneral,please?

Clif f Burrows (GroupPresidentUS,Americas):

Thanks,John.IhavetosayIamreallypleasedwiththetrafficweareseeing.The3%ontrafficandthe5%onticket,asyousay,roundingtoa7%.Itisour25thconsecutivequarterof5%orbettercompgrowthintheAmericas.

Atthesametime,weareseeingvery,verystronggrowthinournewstoresandtheyareaddingintotal4%toourrevenuegrowth.So,thingsarevery,veryhealthyandweareseeinggreatprogressthere.MobileOrder&Payjustgetsbetterandbetterasitbecomesanormalpartofdoingourbusiness,andasyouheardearlier,thestrengthinthehighervolumestoresatpeakgivesusconfidencewecankeepgrowingourcapacityandourcompthroughthestores.

Ithinktheotherthingjusttoaddisdaypart.Weareseeinggrowthacrossalldaypartsbeingledbythemorning,sowearevery,verypleasedwithit.

AndtheEMVortheChipandPINisnegligibleatthemoment.Weareintheearlyphasesofrollingitoutandwe'rejustworkingthroughthewaysthatthatwillbeimplementedacrossthesystem,andweareplanningforitnottohaveanyimpactontransactionspeedoverall.

Scott Maw(EVP,CFO):

AndAdam,whatdon'tyoutalkalittlebitmoreaboutMobileOrder&Payandwhatweareseeing?

AdamBrotman (EVP,ChiefDigitalOfficer):

Yes,thanks,thisisAdam.So,firstofall,aswementionedintheremarksearlier,overallaveragenumberof[trinitive]transactionsforMobileOrder&Payis4%acrossallstores,alldayparts,allstoretypesintheUS.

Butthat'sjustthebeginningofthestorywithMobileOrder&Pay.Firstofall,asKevinmentionedinhisremarks,over10%ofallordersatourbusiest300storesaremobileorders,andifyounoted,weareseeingmobileorderscomprise7%ofallordersatourbusiest1,200stores.

Sowhenyoureallylookatourbusieststores,MobileOrder&Payisveryimportant.Anddrillingintothatfurther,whenyoulookatthebusiest(technicaldifficulty)peakforthose300busieststores,forexample,mobileordersarealreadyapproaching20%oftransactionsatthosepeakhours.

So,youarereallyseeingourMobileOrder&Paybenefitingallcustomers.Itisbenefitingtheoverallstoreperformanceinallthesestoresbecauseoftheincrementalityofthroughputunlock.Ofcourse,MobileOrder&Payisallowingcustomersconveniencesotheycanhavethatincrementalvisit,anincrementaloccasiontheywouldn'tnormallyhavetimefor,butitisalsodrivinghugecapacityunlockbecauseoftheprogram.

Youtake20%oftransactionsatpeakoutoftheline,outofPOS,andyouseeitbenefitallstoresandallowcustomerstobenefitfromlesspeopleinline.It'llallowpartnersandcustomerstobenefitfromthe




factthatnowourpartnerscanconcentratemoreoftheirenergyonmakingfoodandbeverage,onconnectingwithcustomers,andthat'sabigcapacityandthroughputunlock.Andasaresult,weareseeingMobileOrder&Paymeetorbeatallofourexpectationsandgrow,aswementioned,inawaythatisverypleasingtous.

Scott Maw(EVP,CFO):

AndJohn,IwouldjustalsoremindyouthatCliff'sbusinesshasnearly9,000stores.Itisgoingtoapproach$15billioninrevenuethisyearanditisroundingdownthisquarterto7%compswith3%transactions.ThosearereallysignificantnumbersandI'djustremindeveryoneofthat.

Operator :

AndrewCharles.

AndrewCharles (Analyst-CowenandCompany):

Onethingwedidn'ttouchoniswiththefullquarterofdeliverynowunderway,justwascuriousaboutyourearlylearningsfromthat.Yourcustomersusingitprimarilyinthemorningsorisitmorebalancedoverthecourseofthedayrelativetoin-storetransactions?Andalso,whatwouldleadyoutoexpandthegreenaprondeliverytomorestores?Whatdoyouneedtoseebeforeyoudothat?Thanks.


Thankyou,Andrew.ThisisAdam.Itisstillveryearlyondelivery,sotheheadlineisthatwearecontinuingtolearn.Yes,theordersareinthemorning,likeweareseeinginotherexamples,but,frankly,wearecontinuingtolearnhowdoesthisintegratewithourtechnology?Whatisthecustomerbehavior?Whatisworkingwell?

Andso,wearenotpreparedtotalktoomuchaboutdeliveryyetwhilewearestillinthelearningphase,butstaytunedformoreinthefuture.

Operator :

NicoleMiller,PiperJaffray.

NicoleMiller (Analyst-PiperJaffray&Co.):

Justonequestion,twoquickclarifications,ifImay.Backonthechanneldevelopmentquestionearlier,becauseIthinkit'sanimportantone,ifIrecallright,lowercoffeepriceswouldbesharedwiththeconsumerinchanneldevelopment,moresothanaretailstore,andmaybethat'swhat'sdrivinghighsingle-digitgrowthbecausethereisdiscounting.Yougivebackwhencoffeepricesgodown,whereasunderlyingbusinessisstill--whenyounormalizethatgrowingdoubledigit.Ijustwantedtoseeifgutcheckisright.

Andthen,didEasterhaveanyshift--anyimpact,theearlyEaster,thatyouwouldcallout?Thanksandcongratsonanothergreatquarter.

Scott Maw(EVP,CFO):

Nicole,IthinkwhatIwouldsayiswecontinuedtogrowvolumesignificantlyindependentofprice.

IwillsaythatbothinK-Cupsandroastandground,itiscompetitive.Wecontinuetogainshareinthatcompetitiveenvironment.Wecontinuetooutgrowinfoodservicebymanytimestheindustry,soweareabletoworkthroughthatpricing,butweareseeingvolumegrowthsomewhataboverevenuegrowth.So




Ithinkthatlinesupwithyouroverallpricingcomment.


Yes,Nicole,thisisJohn.IwouldagreewithwhatScottsaid.Thevolumes--whenyoutakepricingoutandyoujustlookattotalpoundssold,ourpoundsareoutpacingaswell.So,wefeelveryconfidentthatthebusinessagainisveryhealthydowntheaisle,thatwecontinuetotakeshare,andthatwearepricedappropriatelyfortheconsumer.Andwe'renotonlytakingitfromotherpremiumretailers,butyouareseeingthemainstreamcustomersalsotradingupintothepremiumsegmentandtradingintoStarbucks,frankly.

Scott Maw(EVP,CFO):

AnyimpactfromEaster,John?


NosequentialimpacttoEaster.WedidhaveaverygoodEasterholiday,aswedidlastyear.


I'mnotsure,Nicole,whetheryouwerecommentingonEasterasitreferstotheretailbusiness,buthereintheUS,earlyEasterdidnothaveamaterialimpact.Itobviouslydoeschangespringbreaks,butallinall,itisnotsignificanttothequarter.

Operator :

JeffreyBernstein,Barclays.

Jef f reyBernstein (Analyst-BarclaysCapital):

MaybejusttworelatedquestionsontheUScomps.Just,first,itwouldseemlikethecomparesnow--well,theyhavebeengrowingincreasinglydifficultaswemovethroughthiswholeyear,soIamjustwonderingwhetheritwouldbefairtoexpectthecompdecelerationatleastonaone-yearbasisfromthecurrent7%,justbasedpurelyonacomparison.

Andasafollow-up,Iamjustwonderingwhethertheoffsetonthat--orwhattheoffsetonthatcouldbe?AnditwouldseemlikeMobileOrder&Paywouldbethebiggestnear-termopportunitytobuckthattrend.Itseemslikeyou'retalkingquitefavorablyabouttheorderandpaysignupandwhatnot.Justwonderingwhetheryoucanperhapsframeforuswhereitcouldgo,andIthinkyousaiditisnow8milliontransactionsamonth.Ithinkthenumberwas6millionjustlastquarterandIknowwe'reinveryearlyramp-upmode,soI'mjustwonderingifyouhadanyinsightintowherethatnumbercouldgooverthenext12months.Thanks.

Scott Maw(EVP,CFO):

IthinkI'mgoingtohaveAdamstartwiththeMobileOrderquestion,IwilltalkaboutUScompguidance,andCliffcanjumpinontheoperationalthingswehavegoing.


Yes,Jeffrey,thisisAdam.SojustintermsofthegrowthinMobileOrder&Pay,letmetouchonacoupleofthings.Oneisthatyouareright,sowehad8millionMobileOrder&Paytransactionspermonthrunrateonthisquarter,upfromthe6millionthepreviousquarter.Andso,yougetthe40%sequentialgrowththatKevinmentioned.




Youalsohavethefactthatweareseeingahugenumberofnewcapabilitiesthatwe'regoingtobeaddingtothis,whichwillcontinuetogrowthatmomentumandaccelerateit.SooneofthemisthatweaddedtheabilityforcustomerstoredeemtheirRewardsintheMobileOrder&Payflowjust10daysago.We'reseeingagreatcustomerexcitementaboutthat.

AndasIsaidbefore,we'regoingtocontinuetoaddalargenumberofnewfeaturesforMobileOrder&Pay,includingfavoritestores,favoriteorders,andrecommendationsintheflow,allofwhichwillcontributetothegrowingaccelerationofMobileOrder&Payaswemoveovertime.

Scott Maw(EVP,CFO):

Andthenonguidance,what(technicaldifficulty),Jeffrey,iswe'restillsayingsomewhataboutmid-singledigitsfortheyear.ThatobviouslyreliesongoodperformanceintheUSbusinessandIwillletClifftalktosomeofthethingswehavelinedupforthebackhalfoftheyear.ItexpectsgoodperformanceinCAPaswelookatthebacksixmonthsandsomerecoveryinEMEA.

Butaswelookforward,wehaveanumberofthingsineachofthosegeographiesasthesummercomesuptodriveadditionaltransaction,additionalcomps,andadditionalprofitability,andIwillletCliffspeaktothe(multiplespeakers)


Yes,thanks,Scott.Itreallydoes[start]MobileOrder&Pay.WehavegotournewStarbucksRewards,andwe'rereallyexcitedbytheearlysign-upandcontributionthatisgoingtocomefromthat.Wehaveafantasticseasonaheadofus,buildingonthestrengthoflastyear,whetheritisFrappuccinoorlateroninthesummerwithourcoldbrewedcoffees,ouricedcoffees,andourrecentintroductionofNitrointoselectstores,andweareintheearlyphaseofthat.

AndIthinkourTeavanaicedteasaresetforafantasticseason.AndallofthatisgoingtobecomplementedbythecontinuedgrowthweareseeinginourfoodintheUSnow,wherewe'reupto20%contributioncomingfromfoodandthat'sthefirsttimewehaveseenitthere,andwecontinuetoseegrowthinourcoldbeverages,sowehavegotagreatseasonahead.

Scott Maw(EVP,CFO):

Matt,maybetalkalittlebitaboutthenewRewardsprogram.

MattRyan (EVP,GlobalChiefStrategyOfficer):

Sure,andletmecomment,firstofall,thatwe'realittleoveraweekoutfromlaunchhere,sotheseareveryearlydays,buttheyareveryencouragingnonetheless.

Inadditiontothesign-upsweareseeing,thenewpeopleraisingtheirhandstojoin,weareseeingacoupleotherveryencouragingthings.Spendpermemberisupacrosstheboard,andIknowsomebodyisgoingtoaskthisquestion,soletmetrytogetaheadofithere.WedoobviouslytrackallcohortsofpeopleinourRewardsprogramandtheyarethepeoplewhoaregoingtobebetteroffbythenewrules.TheyaregoingtobethemajorityofpeoplewhoaremoreorlessthesameandasmallminorityofpeoplewhowillearnRewardsalittlebitslower.

Allthreeofthosecohortsareupintermsofspendsofar,andweseeabsolutelynodifferenceinthepercentageamongthosethreecohorts.Sowearenotseeinganyofthenoisethathasbeenspeculatedoncomingtobear.Soveryencouragingnewsthere,andwewillbekeepingaverycloseeyeonitandobviouslythere'salotofunlockedthatcomeswiththenewRewardsprogramaswell,too.Itisenablingthestarsascurrencyinitiativesbecauseoftheloweringofthedenominationofthestar.Wehavealotof




runwayaheadwiththisandweareveryexcitedaboutwhatitwilldointhelongterm.

Operator :

DavidTarantino,Baird.

DavidT arantino (Analyst-RobertW.Baird&Company,Inc.):

Myquestionactuallyyoujustansweredontheloyaltyprogram,butIguessasafollow-uptothat,thenewpartnershipthatyouhavewiththeprepaiddebitcard,Iamcurioustoknowhowyouareplanningtosupportthatandhowthatwillworkintermsofstarsbeingearnedandjustwhatthepaceofthatrolloutanddevelopmentofthatstrategymightbe?

Andthen,isthat--wasthattheprimarymotivationforreducingthevalueofthestarsorarethereotherinitiativesthathaveyettobeannouncedthatareontheway?


Sure,itisamultiplepartquestion.LetmeseeifIcanrememberallofthemandgetthroughit.Withtheprogram,thetimetablefortheactualproductfacingforwardtocustomerswillbelatethisyear.Theproduct,obviously,willworkjustlikethecurrentproductworks,exceptitwillbeartheVisamarkonitanditwillbeageneral-purposestored-valuecardthatworkseverywhere.

Wewillbeannouncingallthedetailsabouthowtosignupandtheexactvaluepropositionaswegetcloserandhaveawayforcustomerstosignup,butweareontracktodoitthisyear.

Withregardtowhetherornotthatwastheprimarymotivation,theanswerisno.Thereareanumberofdifferentthingswe'regoingtobe--abletodoasaresultofloweringthedenominationofastar.Soyoucanexpectthistobethefirstofanumberofpartnershipsthatyouwillseedowntheroadinthefuture.

Operator :

JasonWest.

JasonWest (Analyst-CreditSuisse):

Sorrytocirclebackonthisagain,but,Scott,IamjuststillconfusedaboutthemessageyouguysaresendingaroundtheRewardschange.Itsoundslikesign-upsareup,youareveryhappywiththeoverallprogram,butyou'reusingthewordnoiseandbumpiness.SoIamjusttryingtounderstand.Areyousayingthattherehasbeensomecustomerpushbackonthechangesanditisgoingtotaketimeforpeopletogetusedtothenewsystem?Orareyousayingtherehasactuallybeenastrengtheningintheprogram?Thatwouldbehelpful,thanks.

Scott Maw(EVP,CFO):

Yes,Ijustwanttoremind.Welauncheditaweekago,andsothefirst-weekmetricsthatMatttalkedaboutareencouraging.Butthereisobviouslyalotofcustomerspendingandbehaviorthatwillhappenoverthecomingweeks,andgiventheimportanceoftheMSRprogramandthesignificanceofthechanges,wethinkbroadlybeneficial,buttosomecustomers,theymaynotfeelsobenefited,wewanttojustmakesurewecommunicatetoyouguysthattherecouldbesomenoise.

Wearenotseeingityet.Wewillseehowthequarterplaysout.So,nothingintheearlyresults,butthisisabigdealforusandwewanttomakesurewegetitright.





Scott,canIaddsomethingfromSouthAfricaaboutthat?

Scott Maw(EVP,CFO):

Yes.


Firstofall,Ihavebeenveryquietonthephonebecauseyouguysaredoingsuchagreatjob,butitisveryoddsittinghereinSouthAfricalisteningtothis.

ButIthinktheanswertothequestioniswithgreattransparencywejustwanttomakesurethateveryoneunderstandsthisisacomplicatedchangeforourcustomers,lotsoftrainingforourpeople,andIthinkthebetterpartofvalorisjusttosaytoyouupfrontthattherecouldbesomenoiseinthequarter.

We'renotsignalinganything,butasMattsaid,we'rebuildingsomethingsosignificantoverthelongtermthatIwouldn'tbesoconcernedaboutnoiseinthequarter,ifthereissome,becausewhatishappeninghereiswe'rebuildingsomethingsoenduringandsouniquethatIthinkitisgoingtobeoneofthemostsignificantchangestotheequityofthebrand,customerexperience.AndasKevinsaidearlier,theopportunityforStarsEverywhereintermsoftheubiquityofpeopleusingthatdebitcardandtheonlywaytheycanbringbackstarsandgetRewardstoStarbucksisgoingtobeasignificantflywheeleffectonouroverallbusiness.

So,Ithinkwejustwantedtobeopenwithyouaboutthecomplicationandthedegreeofthissignificantchange,butthelong-termissobeneficialtoourcustomersandobviouslytoourshareholders.

Scott Maw(EVP,CFO):

Thanks,Howard.

Operator :

AndyBarish,Jefferies.

AndyBarish (Analyst-JefferiesLLC):

Iwanttocirclebackonchanneldevelopment,moreontheprofitabilityside.Margin-wise,you'reup250basispointsinthefirsthalf,yetjustguidingtomoderateimprovementfortheyear.SowhatarethecostimplicationsoraretherethingsgoingonwiththenewNespressorolloutinthebackhalfoftheyearwithwhomeveryouareusing?Andactually,whoareyouusingtomanufacturethose,ifyoucaretoshare?

Scott Maw(EVP,CFO):

Iwilltakethefirstpartofthequestion.Ithinkyoucanexpecttoseemarginexpansioninthatsamerangethatyousawinthefirsthalf,whichisobviouslyverystrongat250basispoints.Iguessit'sjustthedefinitionofmoderate.

Wecontinuetoseerevenuegrowthopportunities,wecontinuetotakeshare,andwecontinuetodothatathighlyprofitableoverallmargins.Andso,weseethatcontinuingthroughouttherestofthisyear.AndalthoughtheGreenMountainchangedoesn'timpactustoomuchthisyear,justbecauseofthetimingofit,thathasachancetohelpusaswelookforwardintonextyear.AndIwillletJohnanswerthemanufacturingquestion,correct?


Andy,Iamnotgoingtodisclosewhoweareworkingwithfromamanufacturingstandpoint,onlytosay




thatweareinapositionnowtolaunchtheNespresso-compatiblepodsinbothourretailstores,aswellasthroughtheCPGchannelsacrosstheUKandFrancelaterthisyear.

WearefocusingfirstandforemostonEuropebecausethereis25millionmachinesofNespressomachinesthatareinstalledthere.ItisaverysimilarsizerightnowincomparisontothenumberofinstalledbaseonKeurighereintheUS,andwefeelthereisasignificantopportunitytobuildthiscapsulebusinesssimilartothewaywe'vebuilttheK-CupbusinesshereintheUS.

AndasHowardhighlightedonhiscomments,singleserverepresents40%ofthecoffeeconsumedinhomeinEuropeandnearly50%ofourStarbuckscustomershaveNespressomachinesintheirhomes.Andso,weseethisasbeingabigopportunity.

BeyondEurope,thebigsizeoftheprizeisgoingtobeinCAPandmoreimportantlyinChina.Andwearegoingtocontinuetolookathowweexpandthesingle-serveopportunityastheonlytrulyleadingglobalpremiumcoffeebrandinAsiaacrossourstorefootprintandreallygoafterthisopportunityaswell.

So,lookingforwardtothegrowthopportunitiesthatexistbothinEurope,aswellasinAsia,aroundthesingle-serveopportunity.

Operator :

KarenHolthouse.

KarenHolthouse (Analyst-GoldmanSachs):

Thanksfortakingthequestion.SoIhaveaquestionabitmoreontherollingoutofabettertargetingsolution.I'mcuriouswhattheendgameofthisis.IsitsomethingthatyouthinkyouwillbeabletobettercontrolexactlywhatpercentageofRewardsareredeemed?Doesitultimatelyleadtomoreredemptionsperpersonormoretrafficperpersononthebackendofit?

AndImight'vemisseditinthepreparedremarks,butwasthere--isitsomethingthatisrollingoutnoworsomethingthatiscominglaterthisyear?Thanks.


Sure,MattRyanhere.We'reintheprocessofrollingthatoutandyouwillseethatacrosstheremainderofthisyear.

Whatwearetalkingaboutdoingisbasicallysteppingupourgamewithregardtohowwecommunicatewithcustomersandthereareacoupleofkeycomponentstoitrightnow.Todate,wehavereallycommunicatedinatargetedwayviaemail,andasweprogressthroughtheyear,you'regoingtobegintoseethetargetedcommunicationemergewithinourdigitalplatforms,specificallyourapp,withrecommendations.

So,wedon'tcatchpeopleinthemomentrightnow.Wewillbecatchingpeopleinthemomentastimegoeson,sothat'saveryimportantpiece.

Wealsoaregoingtobeabletousetriggersandtotargetmuchmoreindividuallythanwecurrentlydo.Wehavelimitationsbecauseofthetechnologyrightnowinhowmanydifferentmessageswecanputout.Thoselimitationsgoawaywiththeinvestmentsintechnologythatwehavealreadymade.Soyouwillseefromacustomerperspectivemorerelevance,moretargetedmessages,someofwhichwillbeoffers,andthatwillallowustobasicallymanagethosemoreeconomicallyinthefuture.

Operator :




MatthewDiFrisco,GuggenheimSecurities.

MatthewDiFrisco (Analyst-GuggenheimSecuritiesLLC):

Ithinkyoumayhaveansweredthisquestioninadifferentway,butIjustwantedtomakesure.Therewasspecificmentionofhowyou'regoingto--youlookedattheMobileOrder&Paytransitionandalsothecombinationofswitchingovertothenewloyaltyprogramasbeingaccretivetobothmarginsandtothetoplineovertime.Iwonder,wasthatpurposelysaidtosayovertime?

Isthereanyinvestmentwhenyouswitchoverintheloyaltyprogramthatyoumightdothatmightbeupfrontloadedtoholdontothatlowerticketcustomerthatmightlookatthisashisrewardprogramisbeingdevaluedalittlebit,theguywhospendslessthan$5pertransaction?Iwasjustcuriousifthatwaspurposelysaidovertime,meaningtheremightbesomeupfrontinvestmenttodiscountthatguyorgivehimextraRewardsandtargethimsoyoudon't--soyoukeephimthinkingheisgettingbigRewards.

Scott Maw(EVP,CFO):

Thanks,Matt.No,thereisnobigupfrontinvestmentfromatechnologystandpointorfromanycustomerstandpoint.

WhatIwillsayisweareobviouslyinvestinginmarketingandin-storetrainingforpartnersandmessagingforcustomers,justtomakesureeveryoneiscrystalclearontheprogram.AndthenaswetalkedaboutinourFebruarycall,wehaveanumberofcontingencyplansandthingsthatwecandowithsomeofthepersonalizationcapabilitiesthatMattjusttalkedabouttotargetanycohortsofcustomersthatmaybedisplayinglowerfrequencyordifferenttypesofbehavior.

Butthosewon'tbeexpensive.Theywon'tbeabigimpactinthequarter.Ithinktheonlyreasonwesaidovertimeisobviouslyweexpectthemomentumtobuildwiththisprogram.Customerswillbecomefamiliarwithit.Theywillgetusedearningmorestars.We'lllayerintheChaseopportunityandsomeoftheotherStarsEverywhereopportunitiesandthosewillreallybuild.Butitwillbeprofitableimmediatelyandbuildovertime.


IfIcouldaddtothat.Oneofthethingswhenyousignupnewmembers,youdon'tnecessarilyseeallthevalueinthefirstfewweeksorevenfirstfewmonthsofsomebodysigningup.Itissomethingthatlastsovertime.SoasyoubuildthemembershipofStarbucksRewards,thatisabenefitthatkeepsonshowingupintheresultsfornotjustmonths,butyears,tocome.

Operator :

DavidPalmer.

DavidPalmer (Analyst-RBCCapitalMarkets):

Thanksforthefollow-up.Justaquickoneonbreakfastsandwiches.Yourcheckgrowthhasbeenup5%andIthinkyousaidbreakfastsandwichesareup30%.Thatmightbethemajorityofthecheckgrowth,ifI'mdoingtherightmath.Iguessthequestionis,howareyoudoingit?Doyouthinkyoucankeepitgoingwithregardtothatsaleslayer?Thanks.


Wesaidthatbreakfastsandwicheswereupnearly30%inthequarteryearonyear.Foodoverallwasup16%.Lunchcontributedan18%growth,soyouareabsolutelyrightwe'regettingsomeupliftonticket,plusbetterattachfromfood,butbynomeansisthataccountingforallofourgrowth.




Wecontinuetofocusonpricegivingusbetween1%and2%,andtherestisfromeithertheswiftmovementtoahigherticketproductorincreasedattach,andweareseeingamixofallthreeofthose.

Scott Maw(EVP,CFO):

AndDavid,Iwouldjustaddinthemorningdaypart,thebreakfastsandwichisameaningfulcontributor,butreallyitisallthreeofthoseitemsthatCliffoutlined,abitofprice,premiumizationorupleveling,andattachatmorningandatlunchbothverystrong.

Operator :

R.J.Hottovy.

R.J.Hottovy(Analyst-Morningstar):

Ihadaquickfollow-upquestiononthesingle-servebusinessandIwasparticularlystruckbyHoward'scommentsaboutthefutureopportunityinCAPwiththesingle-serveproduct.Iwasjusthopingyoucouldgiveusapreliminaryroadmapastohowyouseethisbusinessevolvingoverthenextcoupleyears,andinparticularifthereisanyparticularhurdlesthatyouhavetoovercometoreallyacceleratethatbusiness.Thanks.


Yes,thanks,R.J.ThisisJohn.


John,canIjust--

R.J.Hottovy(Analyst-Morningstar):

Sure,goahead,Howard.


John,canIleadwiththatandjustgiveitrightbacktoyou?


Sure.


IthinkJohnshouldanswerthequestionspecifically,butthethingthatIwouldmentionisthroughoutAsiaandspecificallyJapanandChinawehaveavery,verylargestrategicadvantageinthatdistributionintermsofeducatingtheconsumer,demonstratingtheproduct,andreally,Ithink,leveragingourabilitytoeducatethecustomerthewaywehavejustwithregardtoourbasiccoffeebusiness.

We'reinauniquepositiontoleveragethenationalfootprintwehaveinJapan,inKorea,andobviouslyinChina.Anditwillbeverydifficultforthesingle-servecompanieswhoareinthemachinebusinesstoreallycreatenationaldistribution.

So,ourabilitytoleveragetheequityofthebrand,thein-storeexperience,putsusinaleadposition,andIthinkthat,asJohnsaidinhiscomments,thereisnoglobalsuperpremiumbrandofcoffeespecificallythatdoesn'texistatallinAsia,otherthanStarbucks.Sowe'reinaveryuniquepositionaswehavetotrainthecustomer,educatethemonallthingscoffee,andasthecategoryevolves,anditcertainlywill,




thebiggestprizeforsingleserveultimatelyisgoingtobeChina.Andourstorebaseisgoingtogiveusatremendousadvantage,notif,butwhenthatmarketemerges.

John,goahead.


Yes,andtheonlythingIwouldadd,Howard,tothatisthefactthatthesingle-servebusinessisreally--doesnotexistinChina,norinAsia,toanysignificantdegree.Sothisisallwhitespace.

AndasHowardsaid,wearetrulytheonlyglobalpremiumcoffeebrandbothinJapan,Korea,China,ortherestofAsiathatisgoingtobeabletoleveragearetailfootprintandanawarenessandatrustlevelwithourconsumersoneducatingthemaboutin-homeconsumptionofsingle-servecoffee.

So,wearebuildingplansasitrelatestogoingafterthisopportunityandwewillfollowupwithyouonwhatthoseplansaregoingtolooklikeinfuturecalls.

Scott Maw(EVP,CFO):

Beforeweendthecall(multiplespeakers)


Itwasn'ttoolongagothatthe--goahead.Iamsorry.I'msorry.Iwasjustgoingtosayitwasn'tthatmanyyearsagowherepeoplewouldnotwalkinthestreetholdingaStarbuckscup,becausetheymightlosefaceinAsia.Now,obviously,throughoutAsia,specificallyJapanandChina,thatisexactlywhatisgoingon.

Itwasn'tthatmanyyearsagowheretheirmorningritualdidnotexistinmanyofthosecountries,andotherthanChina,thatnowexistsandwe'rebeginningtoseeitinChina.Sosingleserveisgoingtobeamajorbusinessthroughouttheregionandwe'regoingtobeinthewinningpositiontotakeadvantageofit.

Scott Maw(EVP,CFO):

Howard,Ithoughtbeforeweendedthecallwe'djustturnitbacktoyoutoseeifyouhadanyfinalcomments.


IwouldjustsaynowthatwehaveopenedhereinSouthAfrica,thisisour71stcountryandmarket,Ijustwishthatthepeoplelisteningtothecallcouldwitnessfirsthandwhatwehaveseennowthroughouttheworld.AndthatistheuniversalacceptanceofStarbucksCoffeeCompanyandwhatwearedoinginstore,therelationshipwehavewithourpartners,therelationshipwehavewithourcustomers,andIhavesaidformany,manyyearsthesearestilltheearlydaysofthegrowthanddevelopmentoftheCompany,anddespitewith24,000storesglobally,Ihaveneverbeenmoreenthused,especiallysittingheresofarawayfromourhomeinSeattleandseeingexactlywhatwestartedintheearlyyears,andthatisStarbucksbeingthethirdplacebetweenhomeandworkanddeliveringanextraordinarycupofcoffee.

Anditisjustawonderfulopportunityforusonceagaintoopenupanewmarket,especiallyhereinSouthAfrica.

Scott Maw(EVP,CFO):

Thankyou.




Operator :

ThisconcludesStarbucksCoffeeCompany'ssecond-quarterfiscal-year2016earningsconferencecall.

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Starbucks (SBUX) Earnings Report: Q2 2016 Conference · PDF fileCompany Name: Starbucks Corp Company Ticker: SBUX Sector: Services Industry: Leisure Event Description: Q2 2016 Earnings