星巴克 (SBUX) 2013 Q1 法說會逐字稿

Good afternoon. My name is Mike and I will be your conference operator today. At this time. I would like to welcome everyone to the Starbucks Coffee Company's first quarter fiscal year 2013 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. Ms. DeGrande, you may begin your conference call.

Thanks, Mike. Good afternoon. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Joining me on the call today from New York is Howard Schultz, Chairman and President and CEO, and with me in Seattle are Jeff Hansberry, President of our Channel Development and Emerging Brands Businesses and Troy Alstead, CFO. Also available for the Q &A session are Cliff Burrows, President of Americas, here in Seattle with us, and joining us from London is Michelle Goss, President of EMEA, and from Tokyo, John Culver, President of China Asia Pacific. This conference call will include forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.

Any such statement should be considered in conjunction with cautionary statements in our earnings release and the risk factors discussions in our filings with the SEC, including our last annual report on Form 10K. Starbucks assumes no obligation to update any of these forward-looking statements or information. This conference call is being webcast, and an archive of the webcast will also be available on our website. Before I turn the call over to Howard, let me cover a few housekeeping matters.

Today we filed an 8-K that outlined a few reporting changes, including the shift of certain G&A expenses from other to our four reporting segments. The results we've reported today reflect these changes. We have also recapped full-year results for fiscal 2010 and 2012 -- excuse me through 2012, and have posted the recapped financials on our website. They should be there shortly.

Additionally, Starbucks 2013 annual meeting of shareholders will be held in Seattle at 10.00 am Pacific time on Wednesday, March 20, that meeting will be available via webcast as well. With that, let me turn the call over to the Howard Schultz. Howard.

JoAnn thank you, and good afternoon to everyone on today's call. I am very pleased to report a record first quarter fiscal year 2013 results Starbucks announced today. Strong global comp store sales growth with comps up 7% in the US and in the Americas, record quarterly revenues of $3.8 billion, an increase in our total Company operating margin to 16.6%, and a record earnings of $0.57 per share, the highest quarterly EPS in Starbucks history.

Noteworthy is that Starbucks' record Q1 results was delivered against a backdrop of weak consumer confidence in an overall weak global economy. With nearly 70 million customers visiting our more than 18,000 stores on seven continents in 61 countries each week, Starbucks' Q1 results demonstrate the strength, unique resilience, and increasingly relevant of our global business and brand. And the momentum we have built coming into Q2 ideally positions us to kick our growth plans into high gear and to deliver increased profits to our shareholders in 2013 and beyond. As we continue to execute against our blueprint for profitable growth and plans for adding thousands of net new stores, over the next five years.

Not evident from record operating results alone are the facts that in Q1 we also drove significant relevant product and beverage innovation and provided an enhanced in-store experience to customers around the world and implemented strategic operating improvements throughout the organization to streamline the business and deliver increased operating efficiencies into the future, all while delivering the strongest holiday performance in Starbucks 42-year history. I'll touch on a few years of these developments, and then turn over the call to Jeff Hansberry, President of Channel Development and Emerging Brands, and then onto Troy.

As I've said many times over the years, core to Starbucks' success are our store partners, our ability to attract, develop, and retain the very best people in our industry, and our ability to create inspired moments for our customers. I am delighted to report that our US partners achieved record levels of productivity in Q1, an extraordinary accomplishment given the high volume of customer traffic and thousands of Verismo demonstrations in our stores during the holiday season. To my partners around the world, I say thank you for all you do to bring the Starbucks experience to life in our stores and for our customers every day, and particularly if your hard work and effort that enabled us to deliver the results we announced today.

On a personal note, I also could not be more proud of the fact that last week Starbucks was recognized for the 15th year by Fortune Magazine as one of the most 100 best companies to work for. Despite what for many retailers was a lackluster holiday season, Starbucks holiday exceeded our own expectations with successful promotions, including the 12 Days of Gifting, the return of Christmas blend, and a fresh take on gifting, with our well-received lines of limited edition holiday merchandise. This season, and for the first time, a Starbucks card was perhaps the nation's single most frequently given holiday gift, with 1 in 10 US adults receiving a Starbucks card, and $2 million worth of our exclusive first-ever Steel Starbucks card selling out on Internet luxury goods retail dealer gilt.com in only, believe it or not, six minutes.

The Americas segment comp store sales increased 7%, driven by a 4% increase in traffic. Within the American segment, our US business delivered revenue growth of 9%, and an outstanding comp growth of 7%, driven largely by increased food and beverage sales and robust holiday activity driven by significant robust traffic. The US remains a market rife with growth opportunity for Starbucks, and we will profitably capitalize on this opportunity by adding 1,500 new stores in the US market and renovating thousands of existing stores in locally relevant, energy-efficient and environmentally responsible way over the next five years.

Roughly 60% of our new US stores will be drive-thru locations. Drive-thrus create incremental revenues and profits compared to traditional stores and represent a fast growing, highly profitable format for Starbucks, comprising just over one-third of our US Company-operated stores, but contributing nearly 45% of our US retail profit. We are investing in this high margin store format with innovations that will further elevate the customer experience, our brand, by enhancing drive-thru efficiency and consistency of service.

Since our acquisition of La Boulange, we've been testing in our San Francisco Bay Area, and we continue to exceed an opportunity to exceed, plan, and drive incremental food sales and attachment. With the 40 Starbucks test stores currently carrying the La Boulange Bakery assortment we are experiencing a lift in both pastry and total food sales. And we are on plan to introduce the La Boulange Bakery assortment to the Starbucks stores throughout the Bay Area and in Seattle, Los Angeles, Chicago, and New York City in fiscal 2013.

Starbucks China and Asia-Pacific segment now stands 12 countries that by the end of fiscal 2013 will grow to nearly 4,000 stores, Including 1,000 stores in Japan and 500 in Korea. And China Asia Pacific continued to deliver in Q1 with a strong 11% increase in comp store sales, marking our 12th consecutive quarter of double-digit comps in that region. We started our journey in China with our first store in Beijing in 1999, and in Q1 we celebrated the opening of our 100th store in that extraordinary city.

China remains Starbucks most significant market opportunity in the region, and is well on its way to becoming our second largest global market in 2014. Today we are proud to operate over 700 stores in the mainland China, and we are on plan to have 1,500 Starbucks stores in over 70 cities across China in 2015. In India, we continue to be awed by the overwhelming customer response to our first four stores in Mumbai, and are eagerly anticipating the opening of our first store in Delhi next month. And in early February we will open our first Vietnam store in Ho Chi Minh City.

I was in the region last week and saw firsthand the execution against the turnaround of our EMEA segment, and it is well underway. We are driving increased customer and brand relevancy, and at the same time we are updating our growth model for this segment, and we are beginning to see tangible benefits of these initiatives. In fact, despite the worst economic retail climate in decades, and one that has been disproportionately impacting high-end retailers, I'm proud to share with you that Starbucks retail transactions in the EMEA region increased in Q1 compared to Q1 of fiscal 2012. Building connections and providing our customers with a meaningful value proposition also continued to be among our top priorities across this region.

Towards those ends, in Q1 we successfully launched a Starbucks card and the Starbucks rewards loyalty program in Germany, and introduce promotions including our holiday beverage lineup and 12 Days of Gifting throughout the region. All of which were well-received and contributed to our success in the quarter. Licensing will be the centerpiece of our approach to growth and long-term profitability in EMEA, and in Q1 we continue to see this strategy play out successfully. At quarter's end, we had over 1,000 licensed stores in the region, up 12% from a year ago, and we are seeing fantastic customer response and increasing customer demand and acceptance as we extend our retail footprint beyond the High Street.

Starbucks business outside of the UK and continental Europe, where we currently operate nearly 500 stores, continued to thrive in Q1 with strong comp growth in key markets including the Middle East, Turkey, and Russia, with our long-term 15-year partner Alsea. We opened a stunning new 4,500 square foot flagship store in the Kuwait Avenues Mall that celebrates local design culture and offers a truly unique premium coffee experience in the regions first Clover and Starbucks Reserve coffee selection. In Russia, we entered St. Petersburg, our first city outside of Moscow, and the stores are performing ahead of plan, demonstrating once again the strength, the relevancy, and unique appeal of the Starbucks brand across the region.

We remain committed to creating a long-term sustainable and profitable business across EMEA, and our solid performance in Q1 gives us confidence that we are very much on track to fulfilling that commitment. Our Channel Development and Emerging Brands team is bringing significant innovation to the coffee, tea, and health and wellness categories. Jeff will be joining us later in the call to discuss several exciting developments in this segment in detail, so I will just touch on a few highlights.

In September, as you well know, we launched the revolutionary Verismo system by Starbucks online, and in October we extended distribution to include nearly 2,000 specialty retailers and over 4,000 Starbucks stores in the US. We intentionally limited distribution to a select subset of specialty retailers to establish the brand at the high-end in the marketplace. Going forward, we will drive adoption through a combination of pod and machine innovation and selective retail expansion throughout 2013. To-date, well over 1 million customers have had the opportunity to sample a high-quality Starbucks latte or brewed coffee made with the Verismo machine at one of our many product demonstrations at either a specialty retailer or a Starbucks store.

With more than 150,000 Verismo machines sold since launch, Verismo is up to exceptional start as we build, enhance, and expand what we are confident will be a multi-billion dollar premium single-serve platform in the months and years ahead. At the same time, single-serve and VIA sales in Q1 were fueled by a number of popular new introductions, including Starbucks Peppermint Mocha VIA, Pumpkin Spice VIA, and VIA Refreshers, as well as Anniversary Blend K-Cups and Christmas Blends K-Cup. Jeff will speak more about momentum and opportunities in our single-serve business in a moment.

On December 31, we closed our highly strategic acquisition of premium tea brand, Teavana, making Teavana a wholly-owned subsidiary of Starbucks and the newest addition to our Emerging Brands portfolio. Together with our new partner at Teavana, Starbucks will apply and leverage our deep knowledge of retail operations, beverage development and preparation, and our social and digital media loyalty card and mobile expertise to attract more customers to Teavana stores. And we will expand Teavana's current 300 store footprint from largely mall-based stores to urban street locations, where Starbucks obviously has very strong capabilities, and ultimately we will reinvent the tea category, just as we did the coffee category 40 years ago.

Teavana is the perfect complement to Starbucks current $1 billion-plus Tazo brand, and will enable us to further extend our leadership position in the $40 billion global tea market. Earlier this quarter, we opened our first Tazo retail store in Seattle to serve as a learning laboratory and help us understand everything from what types of handcrafted tea beverages customers want to see from us, to help us to create a meaningful and differentiated retail tea experience for customers. Our plans are to apply all of these learnings to our Teavana rollout in terms of the success and enduring opportunities we have for that company.

In the health and wellness space, Evolution Fresh is leading innovation and development of the cold-crafted juice category. Since our acquisition of Evolution Fresh, we have redesigned the packaging, strengthened the brand positioning, and created for-retail conceptual stores. And today we're seeing growth in our Evolution Fresh business across the board. Coffee will always be at the very core of Starbucks business, and our commitment to innovating and growing our share of the global coffee market is unwavering.

Starbucks Blonde Roast is an example of this commitment. In response to customer demand for a super premium coffee with the lighter note, we introduced Blonde Roast one year ago, and today Blonde is driving growth across all channels, and Starbucks has emerged as the leader in the $1 billion light coffee segment. Sales of packaged Blonde Roast were 70% incremental at Starbucks retail stores and 79% incremental in grocery channels in the last year. And we are continuing to find new ways to reach customers who prefer a lighter roast with Vanilla Blonde, our first handcrafted brewed coffee offering in our retail stores as we speak today.

In response to strong customer demand, we are also continue to expand availability of our rare and exotic Starbucks Reserve Coffees, and are on track to increase the number of stores offering Starbucks Reserve by approximately 200 in fiscal 2013. Our customers love our Reserve Starbucks offerings, as demonstrated by the fact that a very rare Costa Rica Geisha Reserve coffee, offered online in early December at $40 per 0.5 pound sold completely out in 24 hours. We look forward to adding more rare and exotic coffees to our unique Starbucks Reserve lineup for our customers to savor in the months ahead, as we reaffirm day in and day out our leadership position in all things coffee.

Another very significant Q1 highlight was the continued growth and success of our digital business and mobile initiatives. Starbucks digital strategy is and will remain a key driver of our increasingly global business as we leverage all of our proprietary capabilities and connect with more customers all around the world in the future. Our Starbucks card is more popular than ever today, accounting for 25% of US tender, and an increasing portion of Starbucks card transaction themselves are being paid for using our mobile payment app, with mobile payment now accounting for nearly 20% of overall card transactions. Over 7 million customers now use one of our mobile payment apps, translating into 2.1 million mobile payment transactions each week, with hundreds of thousands of additional Starbucks mobile app downloads each week.

In terms of what happened in holiday in Starbucks card, I must say it was stunning and almost unbelievable. Our Starbucks card had its best holiday season in history, as measured by any metric with more than $1 billion loaded during Q1, the most ever loaded onto any kind of Starbucks card. Mobile e-gifting also delivered record holiday results, with the most popular days for e-gifting being Christmas Eve and Christmas Day, with performance enhanced by the integration of our mobile strategies and our unique ability to send messages directly to our customers' mobile inboxes. And our e-commerce sales also broke holiday records as revenues doubled and we offered online sales in Canada, the UK, Germany, and France for the first time.

We are very excited about the strong customer response and tremendous future opportunities presented by the integration of our mobile, web, card, and loyalty program strategies. The combination of these capabilities enabled us to accelerate growth in our My Starbucks Rewards program, and this is another unique fact in which we added 1.4 million members in Q1 of 2013, an 86% increase over the 778,000 new members we added in Q1 of last year. I'm very pleased that our My Starbucks Rewards program was recently named the mobile program of the year by Mobile Marketer, an award that reflects Starbucks' focus on innovation and driving customer engagement.

As our Q1 results demonstrate the momentum we have built throughout 2012 carried through holiday and into Q1 and 2013, but we are just getting started and only beginning to see the benefits of the convergence of our retail, CPG, and social and digital media initiatives. Think about this. We had an 86% more customers sign up for My Starbucks Rewards card in the first quarter of 2013 then in the first quarter of 2012. And it is not that these new card customers didn't know where to find us last year. It is that we are more deeply connected and even more relevant to them then any other time in our history, and we can very accurately anticipate the increased traffic and revenue that will flow from the accelerating card acceptance and activity which we've already seen in calendar Q1.

We remain committed to attaining leadership in the single-serve category, and I can tell you today that with Verismo we are in the nascent stage of building a multi-billion dollar platform for Starbucks over the long-term, and we are in it for the long-term. We will achieve our goals around single-serve by leveraging the full power of the Starbucks brand and our unique partner, digital, and global store footprint assets in continuing to expand our distribution channels. But more importantly, we will continue to innovate and to transform the premium single-serve category while continuing to surprise and delight our customers along the way. Look for some very exciting innovations to come this very year.

I'll now turn the call over to Jeff Hansberry who will take you through the Q1 results of our Channel Development segment and share additional detail around what is to come in this dynamic growth area for our Company. Jeff?

Thank you Howard, and good afternoon everyone. I'm pleased to join you on the call today to discuss Q1 results for Channel Development and Emerging Brands. As well as give you some additional insight into what is coming in the quarters and years ahead. Channel Development revenue in our first fiscal quarter grew 13% to $380 million. It was the highest revenue quarter we've ever had, led by continued growth of K-Cup, the first stages of launching our Verismo platform, and continued growth in roasted ground coffee. Our top to bottom line translation was also very good in Q1. We grew profit twice as fast as sales in the quarter, even after a significant investment in Verismo. Operating margin expanded by 230 basis points in Q1, up to 25.5%.

Favorable coffee-related costs, along with continued strength in our North American coffee partnership, helped to fuel the growth. Our partnership with Pepsi is thriving, and we plan to grow Starbucks' share of the massive ready-to-drink category with the expansion of Starbucks Refreshers beverages, the introduction of our new line of Starbucks iced coffee in a new iconic single-serve glass bottle, which is rolling out as we speak in select US markets. We will have national presence by April, just in time for the warmer months. But know that nearly 50% of iced coffee drinkers actually enjoy iced coffee year-round. We will now be very well-positioned to serve the rapidly expanding demand for iced coffee in the US. In fact, now one in five beverages sold at Starbucks retail stores is a cold coffee beverage.

Turning our attention to other coffee formats, I want to discuss the premium single-cup category and the recent milestones achieved across our product lines. VIA Ready Brew continues its solid performance, growing 16% in the food drug mass space in the quarter. VIA Refreshers has been available and very popular in our retail stores over the past six months, and we're excited to make them available at CPG beginning this quarter. K-Cups were the largest contributor to channel development revenue in Q1, as we sold them more than 175 million cups across the Company in the quarter.

And then there is Verismo, which saw strong retail support and customer interest, with more than 150,000 machines sold across all channels since launch. Q1 marked the beginning of what we expect will be a significant and sustained expansion of Verismo in the quarters and years to come. We will expand distribution, adding both new doors and new countries to the platform. We will add new products, including many Starbucks favorite beverages across coffee, tea, and more to the platform. And we will add new machines with additional functionality and style elements that will help us to drive adoption of the platform.

Rolling all this up, in the US food, drug, and mass channels in the past 13 weeks, we have grown our total premium coffee business by 28% versus prior year. That is 11% faster than the total US premium coffee category, and nearly four times faster than the entire US coffee category. As a result, we have grown our share of the total US coffee category to 12.6%, 220 basis points higher than year ago, and encouragingly, as our internal analytics and these numbers suggest, we are seeing little cannibalization of our roasted ground coffee from our success in premium single-cup.

The expansion of Starbucks Blonde Roast, now in its second year, will be one of the growth drivers of package coffee going forward. This growth will be supported by marketing in our retail stores, through our social and digital channels, and through our biggest ever multichannel marketing and demonstration campaign in CPG, starting this month. It is truly our blueprint for growth in action and will introduce millions of potential new Starbucks' customers to Blonde Roast. Beyond Blonde Roast, we will introduce new varieties K-Cups later this year, and as mentioned earlier, new varieties of Verismo pods as well.

Now I'd like to talk about the new organization that we have just finished building, Branded Solutions. This organization combines the capabilities of food service with our expertise in licensed stores, allowing us for the first time to create a single one-voice solution to reach our customers across a number of channels. From hotels to offices to colleges to hospitals, now each development manager can present an account or prospective account with a full portfolio of offerings, including Starbucks, Seattle's Best, Tazo, and Evolution Fresh, and provide a complete solution from a food service and licensed store prospective, all supported by one relationship management, all supported by a high quality Starbucks experience for the customer. It is a breakthrough that will come to life in 2013.

The next significant growth engine in the emerging brand portfolio is tea, which is fueled by both Tazo and Teavana. The Teavana acquisition closed on December 31, and we are embarking on the next chapter of the journey that we believe will reinvent the way the world enjoys tea, just as Starbucks did decades ago for coffee. By the end of the year, we expect to add over 30 new Teavana stores, including the opening of our first neighborhood store, which will combine both an expanded handcrafted tea experience with merchandise and loose tea. Down the road, we intend to offer an enhanced range of handcrafted beverages into our mall-based stores as well.

In the near-term, our priorities are integrating the company and employees, now our partners, sharing and learning about each company's respective culture, and importantly, maintaining our focus on delivering our plan for the balance of the year. While it has been less than four weeks since the acquisition closed, our integration work makes us excited as ever about the opportunity, and we will share more details as we move along. Tazo continues to perform in the super premium packaged tea space, growing by over 30% across all forms in the quarter. The brand continues to be the share leader in the super premium filter bag space, with a 28.6% share in the most recent 13 weeks ended December 30, up 160 basis points from prior year.

Now from tea to juice, where Evolution Fresh is leading the development of the $3.4 billion premium cold-crafted juice category. We continue to build the brand through new distribution, and are now in nearly 4,000 Starbucks and natural and grocery stores in the Western US. We are on track to open our new state-of-the-art juicery in late spring, which will further allow us to grow our plan to be in approximately 8,000 stores by the end of year.

In closing, 2013 is off to a strong start with much more on the horizon. We plan to continue demonstrating strong revenue growth while expanding margin. We will do it through innovation, both around new platforms and new SKUs, and we will do it through growth of a best-in-class portfolio of existing products. We will leverage unmatched cross-channel marketing and a promotional capabilities, and we will rely on the expertise and passionate commitment of the more than 500 Channel Development partners around the world who continually exceed expectations. With that, I'll now turn the call over to Troy Alstead. Troy.

Thanks, Jeff. As Howard indicated in his opening remarks, this holiday season was Starbucks' best ever. The proficiency with which our store partners delivered daily world-class experiences again drove record results in the Americas. First quarter Americas revenues totalled $2.8 billion, growing 10% over last year. The largest driver of our revenue growth continues to be strong comparable store sales, which reached 7% in Q1, with a 4% lift in transactions and a 2% increase in average ticket. In the US, costs mirrored those of the Americas region. Our US productivity continues to climb as we saw more transactions per labor hour this quarter than in any other quarter in our Company's history.

That allowed us to [grow] daily transactions per store to over 700 for the first time, as we continued to expand capacity and grow transactions across all day parts. Also fueling our strong comp growth were our fall promotional beverages, headlined by pumpkin spice latte, combined with our always popular holiday beverage offerings. Combined, we've added more than [1] percentage point of comp growth. A significant increase in food sales and a favorable shift in food mix as breakfast sandwiches and our improved lunch offerings continue to resonate with our customers also added more than 1 percentage point of comp. Verismo contributed approximately 0.5 point of comp in Q1, leveraging the successful demonstration and sampling efforts of our store partners.

The first quarter in the US started strong and ended strong, with comp growth in December mirroring the full quarter result. As we exited the first quarter, the momentum in the business combined with the record volume of Starbucks cards loaded during the holiday period is fueling early Q2 sales trends. Comp growth in the first few weeks of January is trending consistent with the first quarter. Operating income in the Americas segment reached a record $590 million in the first quarter, while operating margin contracted 50 basis points to 20.8%.

There were a few anomalies that led to the margin contraction, including our October global leadership conference, which impacted margin by 90 basis points, increased litigation charges, which had a 70 basis point impact, and 30 basis points due to the impact of Super Storm Sandy. The phenomenal execution by the partners across the region largely offset these unusual cost pressures in the quarter.

Now in China and Asia-Pacific, a combination of solid performance from our existing store base and rapid new store development led to record revenue and profit. Revenue growth was 28%, an increase over last quarter's 23% growth. A portion of this was due to comparable store sales, which grew 11% with 8% growth in transactions and a 3% increase in average ticket. Two-year comps remained above 30%, an exceptional accomplishment, considering the uncertainty that has entered parts of the region over the past year. We saw very successful holiday promotions in many of our CAP markets, with seasonal beverages driving sales growth over the same period last year. In addition, the Starbucks card was an extremely popular item in CAP in Q1, which bodes well for the future.

Howard spoke in his comments about the success of the Starbucks card and our loyalty program globally, and in CAP these are meaningful drivers of our strong comps. In fact, 29% of transaction in Thailand and 27% of transactions in Singapore are paid for with the service cards, levels that exceed those in the US where the Starbucks card has been available for much longer. And as our loyalty program expands globally, it is apparent that its relevancy is universal. In China, for instance, we already have 1.3 million My Starbucks Rewards members. Loyalty to the Starbucks brand continues to grow in this part of the world, directly contributing to our rapid top line growth.

The largest contributor to our CAP Q1 revenue growth was the addition of 125 net new stores in the quarter and 452 net new stores over the past year. 50% of these in China, where we continue to aggressively pursue high quality profitable real estate. As I discussed last quarter, this growth does have a temporary detrimental impact to operating margin. And combined with the mix shift toward a more Company-operated store portfolio, accounted for more than the 60 basis point Q1 decline in CAP margin.

Partially offsetting this was lower performance-based compensation. While performance is still very strong in the region, we are lapping the first quarter of 2012, when that CAP region performed significantly better than the operating plan for that period. Profitability remains robust and continues to accelerate quickly in the region, as the $72 million of CAP operating income in the first quarter was a record and represented a 26% growth over last Q1. ¶ In the EMEA, revenue operating income and operating margin all expanded in the first quarter, as the team couple solid traffic growth with continued focus on cost discipline. Record revenues of $306 million represented growth of 1% over last Q1, driven by 41% growth in licensed store revenue and 27% growth in our food service business. As Howard stated, we continue to see strong sales growth in many of our licensed markets, as our partnerships continue to thrive and provide a meaningful contribution to our success. The strong growth in license and food service was largely offset by a decline in Company-operated revenue of 4%.

That reduction was due to the loss of revenue resulting from the sale of the Ireland store portfolio and UK airport stores to a license partner, and closures of the unprofitable stores as part of our Q4 store portfolio optimization. The decline in comparable store sales of 1% driven by a 3% reduction in average ticket also contributed. The lower average ticket was driven by beverage mix shifts and reductions in add-on purchases such as food, suggesting a trade down impact of consumer spending driven by the economic challenges in the region. Encouragingly, traffic grew by 2% in the quarter, the highest rate of traffic growth EMEA has delivered in a year, as we're seeing traction on our efforts to demonstrate that Starbucks serves the best latte on the High Street.

In our largest market, the UK, we offered pumpkin spice latte for the first time, with tremendous success. Holiday beverages had a record year across the region. And the launch of the Starbucks card, and in this past year My Starbucks Rewards in the UK, Germany, and other markets in the region, as well as targeted value offers, played a key role in maintaining the loyalty of our core customers. EMEA operating income of $22 million grew by 18% over last Q1. Operating margin expended 110 basis points to 7.3%, the second highest quarterly operating margin ever for EMEA, as a result of continued deep focus on cost efficiencies, which drove strong leverage on our licensed stores' revenue growth.

The strong first quarter results in each of our operating segments contributed toward a record-setting performance on a consolidated basis. Revenue growth of 11% led to a record total net revenues of $3.8 billion in the first quarter. The growth was driven by a 6% increase in global comparable store sales, including an increase in transactions of 4% and an increase in average ticket of 2%. This was a truly outstanding holiday season around the globe. Consolidated operating income grew 13% to a record $631 million in the first quarter.

As I mentioned during the Americas discussion, there were a few unusual items impacting the quarter's results, which had an unfavorable 140 basis point impact on consolidated operating margin. However, strong sales leverage and to lesser extent the expected 50 basis point impact of favorable commodity costs, more than offset the unusual cost pressures, driving consolidated operating margins higher by 40 basis points to 16.6%.

We also set a record for earnings per share in the first quarter, growing 14% to $0.57. Our earnings include two additional unusual items of note. We've recorded a lower than usual tax rate in Q1 of 30.4%. As we expected and was factored into our tax rate guidance for fiscal '13, we recognized an $18 million benefit, primarily from state income tax expense adjustments for returns filed in prior years. Conversely, this quarter we recorded a $26 million reduction over last Q1 in interest income and other, which includes mark-to-market adjustments relating to commodity hedges, unfavorable foreign currency, and decreased unrealized gains in the trading securities portfolio of our management deferred compensation plan.

The impact of movement in the trading securities portfolio is offset in general and administrative expenses, as the compensation plan liability fluctuates with investment performance. Also of note, Starbucks repurchased 8 million shares of stock during the first quarter. This leaves approximately 29 million shares authorized as available for repurchase. The combination of these repurchases, along with the $0.21 per share dividend, resulted in more than $0.5 billion returned to shareholders in the first quarter, which is more than the first three quarters of last year combined.

It was a fantastic first quarter by nearly every measure. We exited the quarter with everything squarely on track, which is why we are reaffirming our financial targets for fiscal 2013, which I announced on our Q4 FY '12 earnings call in early November. These include strong EPS growth of 15% to 20%, revenue growth in the range of 10% to 13%, global comparable store sales growth in the mid-single digits, consolidated operating margin expansion targeted at approximately 100 basis points, 1,300 net new stores globally, capital expenditures totaling approximately $1.2 billion, and a tax rate of 33%. One item not factored into our targets, but worthy of mention, is the pending Kraft arbitration ruling. While there has been no ruling or resolution yet, and no change for expectations, we do anticipate resolution later in the second quarter.

This was the best holiday season and first quarter in the history of Starbucks, setting the stage for another strong year. The record results of the first quarter once again demonstrate our ability to drive growth in revenue and earnings in the current quarter, while planting the seeds for growth into the future. Our store partners are delivering great coffee and great experiences to our customers every day, and doing it with higher levels of productivity than ever before. We have a deep pipeline of innovative products, diverse channels and geographies for growth, and strong execution and financial discipline. We enter the second quarter with great momentum, and are well-positioned to deliver our growth targets for the year. With that, I'd like to turn the call back over to the operator for Q&A. Mike?

(Operator Instructions)

In order to allow as many of you as possible the opportunities to ask a question, we ask you to please limit yourself to one question only at a time. We will come back to you for follow-up questions as time allows.

(Operator Instructions)

John Ivankoe, JPMorgan Chase & Co.

First, if we could review what your remodel strategy is for fiscal '13? How significant that could be and what you've been seeing in the control sample in terms of what the performance of those stores are versus the stores that you haven't done is the first question, and secondly and I think it is short, When might you have an opportunity to put Evolution products or Teavana products as part of the handcrafted beverage line within Starbucks? I think that that might be a very big opportunity for innovation around your product line, if you could discuss when that could possibly be? Thanks.

Okay, thanks, John. I'm going to ask Cliff Burrows to speak first to the remodel strategy, and he will start the discussion about Evolution and Teavana in the Starbucks stores, and Jeff Hansberry will be part of that discussion as well. Cliff?

Good afternoon, John, and thanks for the question. With regards to refurbishments this year, and I'll talk specifically to the largest market of the US, we will do the same number of refurbishments, plus or minus as we did last year, as I shared in December when we met in New York. Where we have done major refurbishments, we have seen significant improvements in the capacity we've built in that store, and the additional opportunities to introduce Clover, for example, have all seen significant lifts. And our strategy around minor refurbishments carries on, as it always has been about. That is about simply putting the store back in a good state. So really no changes there, and if I hand it to Jeff around development of handcrafted beverages.

Cliff, why don't you be specific about how many stores we plan on touching in the balance of the fiscal year?

There will be about 1400 stores that we will cover this year, and that will be a mixture, 60/40 of major -- sorry, minor to major, that sort of magnitude. About 500 major refurbishments this year.

Jeff?

Thank you. So in terms of Evolution Fresh and Teavana entering Starbucks stores, as we had talked before, this is a critical element to our blueprint for growth strategy. And so, from an Evolution Fresh standpoint, John, we have already started moving the Evolution Fresh brand into Starbucks stores, and in fact now we are in over 2400 Starbucks stores, primarily in the Western US. And as our new juicery comes online, that will give us additional capacity to begin to move East in this year. So we will continue to expand Evolution into Starbucks stores, and also into the natural and premium grocery segment as that brand continues to expand. We've had great results so far. With regard to Teavana, we are less than four weeks into the integration, but we have said all along that Teavana beverages will play a role in Starbucks stores. We will come back with more details in the coming quarter as we develop that plan, but Teavana will play in Starbucks over time.

And the question, if I'm still on, was really not just on the ready-to-drink, but also the handcrafted beverages potentially that you could do with those sub-brands?

I would say, John, it's Cliff again. Yes, the potential is there. Our priority is to grow out the Evolution bottle juices across the US, and let Jeff do is work on the integration of Teavana multiple on that, nothing to share this time.

But I think the one last thing I would add John is the key theme here is that these acquisitions and both product platforms absolutely offers us opportunity in ready-to-drink across multiple channels and handcrafted, and is something that in the right sequence of brand development and integration and rollout of these products, you will see us pursue those opportunities, and it is part of what gives us confidence in our ability over multiple quarters and multiple years to continue to drive strong same-store sales growth for our system.

David Palmer, UBS.

Congratulations, guys. First question, just two quick questions. First question on China, it seems like your same-store sales was remarkably stable. How would you characterize the consumer environment there? And secondly, with regard to the Starbucks card loads, Howard mentioned a statistics there, I didn't quite catch that. How much have the loads -- how much do the dollar loads grow year over year in the quarter? Thank you.

John, are you on the line from Japan? Can you answer the question about China?

Sure, sure. David, thank you for the question. First off, we are extremely pleased with the continued momentum of our business in China, both in terms of the performance of the existing stores, as well is the new store growth that we are seeing. And as I said, more and more of our growth is coming from the new store base, and less so from comp sales. Our comp sales have remained strong, and when you look at it on a two-year basis, comps are in the mid-30%s, and on a three-year basis, comp sales are up into the 60%s. So we feel very good about what is happening with the consumer as it relates to the Starbucks brand.

There is no doubt that you've seen some shift with other businesses and other companies in China, but for us our traffic in our stores remains very strong. Our transaction growth continues to grow. The card, in terms of the adaptation of the Starbucks card, we are now at 1.4 million customers, and that continues to accelerate, and that is just over 1 year old, and we are continues to be very encouraged about the innovation that we are bringing into our stores, the way that the customers are reacting to that, and how they are embracing the Starbucks experience.

And Dave, your question about the card, there was a 25% increase in Starbucks card value loaded in the first quarter over the prior year. Now, what is critical of that is it clearly is a very strong level by itself, significantly outpaces the growth in the overall business, and is exactly a harbinger for that future growth as those values loaded not only introduce new customers onto the platform, but create that, deepen the loyalty and create that frequency opportunity as we move through the balance of this year and into the future.

Thank you.

David, this is Howard. I would just add that I believe that we are in the nascent stage of being able to leverage and integrate social, digital, mobile, our investment with Square, and the loyalty program into a very significant and robust opportunity going forward. And the question I was asked about Teavana in terms of products, at some point there is a natural opportunity as part of the integration to take those assets, drive incremental traffic into Teavana, benefiting from the ubiquity of Starbucks and the trust and loyalty in that program.

Again, in order to allow as many of you as possible the opportunity to ask a question, we ask you to please limit yourself to one question only at a time. We will come back to you for follow-up question as time allows. Sharon Zackfia, William Blair & Company.

I had a follow-up question on China. It looks like the rate of investment in the stores continues to accelerate beyond the revenue growth in the Company-owned units. I was just wondering kind of what are you doing in the stores that's obviously facilitating great same-store sales, but if you can give us some sort of insight into the investment you are putting in those four walls as that store expense continues to ramp?

John, would you speak to the investment in China?

Yes, sure. Sharon, I think it is important that the investments that we are making are going to set the foundation for the future in terms of the success of the stores and of the market overall. So when you look at the investments we are making, it is obviously in the stores themselves, but more so from a people standpoint in terms of ramping up the people capability that we are going to need to staff the new stores. And so with that, we are bringing on people, we are bringing them into existing stores, and we are training them to take over and run the new stores that we are opening. In addition, the investments that you are also seeing in stores have to do with the investments we are making around the design and how they are adapting into the local architecture, and making sure that we are differentiating ourselves in the marketplace in terms of the third-place environment that we are creating for our customers.

So when you look at this, we are making the investments that we need to sustain the growth for the long term. I think what we are seeing is that the investments that we are making in our people is paying off in terms of the experience that we are able to provide our customers, the speed that we're able to put them through the stores, and just the connection that we are able to build with them. And then the investment that we are making from a physical store perspective is creating that third place environment that our customers want to come to, be a part of, and to experience overall.

Joe Buckley, BofA Merrill Lynch.

Can you comment on coffee costs year over year, just what that cost look like year over year this quarter, and what it might look like in coming quarters? And also could you fill out a little bit more on the 13% growth in the channel of development category? Food service obviously less, CPG more, and just talk about the components of that growth and whether the lower coffee costs play a role in maybe restraining that revenue growth a bit?

Sure, Joe. I will speak to coffee costs and then I'll had it to Jeff to talk about channel build and growth. First with respect to coffee. As we expected, we had approximately a net $0.02 per share benefit from commodities this quarter. That includes favorability in coffee and then moderate unfavorability in dairy and a couple of other small commodities in our portfolio. So about $0.02 a share. Again, that is expected. That is 50 basis points to the total operating margin improvement in this first quarter.

And I expect about that same $0.02 per share benefit from net commodities each quarter over the balance of year, and again that is all consistent with our previous targets. As we have discussed in the last few months, that amounts to about a net $100 million benefit to this fiscal year, and given what we have locked in terms of pricing in fiscal '14 and also what we see in the coffee markets right now, we expect a similar level of $100 million benefit as we approach fiscal '14. So at least a couple years of commodity tailwinds ahead of us. Jeff, can you speak to the channel development growth?

Sure. Hi, Joe. With regard to channel development, as you noted, we grew 13% in the first quarter. We continue to see positive growth ahead of retail average in channel development. Our package coffee business, overall when you look at premium single cup, as well is roast and ground, we are seeing significant growth in the quarter from an IRI standpoint. From a food service standpoint, less so. We are still growing faster than the food service segment, which is a material piece of our business, but that segment continues to grow more slowly than the balance of the category.

And Jeff, do all coffee costs play into that revenue growth in one way or another?

Well, we are continuing to see a lot of competition in the marketplace, but we think we are well positioned to continue to grow our share and our business.

David Tarantino, Robert W. Baird.

Troy, I have a question on the guidance for 2013 with respect to the margins. Up 100 basis points, relative to what you reported in Q1 which was up 40, but you had quite a bit of unusual cost items in there. So I guess why wouldn't the 100 basis points be on the conservative side as you look at not having some of those unusual cost items in the coming quarters, or are there some potential offsets that maybe I'm not thinking about?

David, I appreciate your confidence in our ability to drive profit as we go forward. I would say that 40 basis point of improvement in the first quarter, and yes, that was net of some unusual pressures in this quarter. We believe that the guidance we have, which at 100 basis point improvement for the full year corresponds to the 15% to 20% earnings growth that we've targeted and that I believe we're right on track for. So I think with the investments we're making to drive the business, continued investments across our new growth platforms of La Boulange, Verismo, of Evolution Fresh, while we are delivering quarterly earnings just as we did in Q1, we continue to lay that foundation for growth next year and the year after. And it's been that equation that just works so well for us, and that we intend to navigate as it goes through the rest of year. So I think the guidance we have is remarkable in this environment, and feel very confident in our ability to deliver against it, as we approach Q2 and onward.

Keith Siegner, Credit Suisse.

Troy, could you possibly remind us about the planned marketing spend, maybe as a percent of sales for the year? How that compares year over year? And then maybe the quarterly cadence? Was 1Q with the Verismo launch above the annual spend, and Q2 with Blonde, is that above 1Q and above the full-year? Any details on that would be very helpful. Thanks.

Sure, Keith. The marketing spend in the first quarter was a little bit higher than 4% of sales, which for Starbucks in our history is extremely high, perhaps among the highest we've ever recorded in any one particular quarter, and as we've talked about, I think dating all the way back to July when we first announced our initial guidance, that's really primarily driven in this quarter by the launch of the Verismo platform and our investment against that, knowing that that is a multi-year platform and proposition for us, and we wanted to set it send it off on its right foot. As we progress through the balance of the year, I don't expect marketing spend as a percentage in any quarters to be at that same level as higher than 4%. So I expect it will be in the 3.5% to 4% range as we progress through the second quarter,, third quarter, fourth quarter, fairly consistent throughout the year as we approach introducing the customer and providing those messages to first Blonde and then other product platforms as we go throughout the year.

John Glass, Morgan Stanley.

First if I could just clarify, is channel development, the 13% growth we're seeing this quarter, is that representative roughly of the growth we should expect throughout the balance of the year, or is there something you think materially changes that trajectory? I just wanted clarify that from a previous question. And is this the (technical difficulties) EMEA you talked about the average check declining. What reverses that? I think you explained it has something to do with trade down. Maybe is this is the first quarter you've actually seen declines in average check there, or has that been going on subtly and it is just more exaggerate this quarter?

Thanks John. This would be a good opportunity for us to ask Michelle Gass, our President of EMEA to jump in. She's calling in from London. Michelle, can you speak to average ticket in the region?

Yes, absolutely. Can you hear me okay, John?

Yes, thanks.

Yes, thanks for the question. I would say first off that we were really pleased and proud with our results of the quarter seemed kind of both revenue growth, especially in our license channel, which is our key focus and strategy going forward. Importantly, the margin expansion that Troy spoke to, despite the significant headwinds that continue to face the European customer. And then further, actually seeing transactions/customer count growth of 2% for the quarter, and seeing that across our markets. So again, given the headwinds we are very, very pleased with that result. We did see a deeper erosion ticket than we have been experiencing, so your question is relevant, and we saw that especially with everything happening on the retail High Street, the downturn there particularly acute pressure with consumers in our European markets.

We are not, by the way, seeing that same pressure play out outside of Europe, but really is focused on the UK and Europe. And we have continued focus, both in keeping our customers coming through loyalty programs, through relevant value, and then also working on increasing our food attached through food innovation programs, and of course that beverage trade down, focusing on customers on our great assortment of beverages. We saw great response, as Troy mentioned, on pumpkin spice. Right now we are experiencing great customer demand on our innovation vanilla spice, and those initiatives will help us prop up our ticket. So it is a focus, but job number one is to keep our loyal customers and keep that customer count growing. Thank you.

Thanks Michelle. I think Jeff can speak to the follow-up on (inaudible) growth.

Hi, John. With regard to channel development growth of 13% in Q1, while we don't offer specific guidance on individual businesses, we expect the channel development will continue to grow at a rate faster than our average retail growth. Importantly, we have a number of initiatives that we are working against and building, everything from Evolution Fresh to our continued expansion of K-Cups to new flavors and SKUs in the Via lineup, and importantly we will continue to invest and grow and build over time the business that is in it very nascent stage, that is Verismo.

Jeffrey Bernstein, Barclays Capital.

Just two quick questions. The first one just on the Verismo, I guess as a follow-up. You talk about the launch and the holidays going well, I think you said 150,000. Just wondering if you could talk a little bit about how that tracked versus your expectation. Obviously it with the heavy investment quarter for it, but do you think there's obviously some time for this to build with the replacement cycle around Keurig? I'm just wondering kind of the early feedback on Verismo and your outlook for growth over the next number of quarters. And then separately, Troy, if you could just comment, I think the share repurchase. I think you mentioned it was 8 million shares, which would be roughly $400 million for the quarter. I'm just wondering if you could frame that in terms of your thoughts on cash usage for fiscal '13, whether it be between repo and maintaining the dividend versus CapEx, and whether we should assume that first quarter share repurchase was an anomaly, or that type of run rate would be sustained? Thanks.

Jeff, can I just start with an overall strategy about single serve and Verismo, and Jeff, you can take it from it from there, if that's okay with you?

Please.

I think it is very important that you all understand that we are deeply, deeply committed to becoming the leader in this space domestically and internationally. We have plotted out a multi-year strategy about Verismo and an overall single serve platform that will include multiple layers of innovation in the years to come. We feel very strongly that what Verismo demonstrated this holiday season was a great success for us. It met our expectations. We learned a great deal. We also saw a fair amount of discounting from our competitors in the market as a result of our entry, and the fact that we disrupted the market in the middle of the holiday season.

The leverage and the asset that we have in our stores to both demonstrate, inform, and ultimately sell single serve platform machines is an asset that is proprietary and nobody has, and we will continue to utilize that to our advantage. The other thing that I think is worth saying is that we already are seeing customers come back with the opportunity to merchandise and sell them pods as a result of Verismo being in 150,000 households. So we are already seeing an opportunity for incrementality there, and we will be adding more SKUs that are proprietary to Starbucks coffee. And so our commitment, our interest, our motivation to build on single serve and build on Verismo is 100%, and we are going to maintain a high level of commitment and investment in this where we are going to be the global leader. Jeff?

Thanks, Howard. Exactly in that, first our sales during our first very first holiday with a brand-new to the world platform were well in line with our expectations, and importantly, we started with a very curated small set of stores. So a select set of specialty retailers and a select set of Starbucks retail stores, and for us, we are not only encouraged by the customer response, but also the trade traction that has been created by a number of retailers who want to play on the platform, which we have not made available to them as yet. So there are really three things that are going to be growth drivers for Verismo as we step forward.

First and importantly it is the innovation itself. It is the first and only machine that does brewed coffee, espresso, and lattes, and that message got through to customers during the holiday. And secondly as we add innovation to the system, whether it is through additional coffees, additional espressos, additional Starbucks latte and seasonal favorite beverages, as well as tea, that will add to increase the interest in the platform. And then finally, from a machine standpoint, we have a pipeline, to Howard's point, multiple years of machine innovation that adds new feature, new styles, new functionality to a whole series of machines that we will be introducing. So again, and importantly, this is just the very first step in what will be a multi-year growth driver, significant growth driver, in the channel business and for Starbucks overall.

To your question Jeffrey, about share repurchases, we are fortunate that the very strong cash flow of our business enables us to have the dividends, and we've accelerated that dividend, as you know, each year since we've initiated it, and also share repurchases. We repurchased 8 million shares in the quarter. Our repurchase program is very valuation and conservatively valuation-based. So our repurchases in any particular quarter are very optimistic, based both on, again what we see in the market and the valuation, and also from time to time where and when we as a Company might have blacked out of the market, and that is frequent, given various activities going on.

So in any particular quarter our share repurchase activity will be somewhat lumpy, again just based on those factors. I would say our priority spend of cash for the balance of the year, and really every year, continues to be first and foremost investments back into the business. That is in our partners, in capital expenditures, in new stores and remodels. Of course funding the dividend over time, and then based on those metrics and principles I outlined, share repurchases. So I don't have a prediction for you of whether that Q1 8 million shares is something that we would see each quarter or not, that again will tend to vary quarter to quarter.

Sara Senatore, Sanford C. Bernstein & Company.

I have a two-part question on the Americas. The first is, just in terms of comps, I know you highlighted a couple of things that were drivers, some of which were new, so Verismo, some of which have been around for a while, so food, and some of your holiday beverages, which are always very popular. So I was just wondering if you could talk a little bit about to what extent the loyalty or the Starbucks card may have added to comps? If you can measure that, and then the other piece of this, was there anything about your mix or about any of the promotions you did that might have affected your margins? I ask only because you had some nice margin expansion on the cost of sales line, but maybe not quite as much is I would've expected, given 50 basis points of commodities plus such healthy comps on which you would've seen occupancy leverage?

Sara, let me hand it over to Cliff to speak about the comp drivers, and I think he will also be able to speak to cost of goods and leverage a bit. In advance of that, I would just make the one comment that the large majority of those unusual expenses that I spoke about in the quarter, the leadership conference which we were known about, and then a couple of the events that we did not know about until we got into quarter, things like Super Storm Sandy and some of the unusual litigation expenses I mentioned, were predominately focused in the Americas P&L. Absent those anomalies and those unusual cost pressures in the quarter, we would have been on more of our common pace of a very significant and meaningful margin expansion the quarter. With that I'll have Cliff speak.

Okay. I understand. I was just was talking about the cost of sales line in particular.

Yes, okay, understand. Cliff?

Yes. Thanks, Sara. The quarter, we really saw a very healthy mix of our cold beverages, as well as our seasonal beverages, very, very encouraged throughout the quarter how they performed. Our food continues to go from strength to strength, and I'm really excited about what lies ahead of us with La Boulange. The holiday season, and that is both core coffee with our Christmas blend, and also our gifts this year performed exceptionally well. If I look at day parts, we have seen growth in all day parts. The early morning growing fastest in terms of percentage, but we continue to add more transactions at our peak time, which again is a really healthy situation to be in. And this is a mixture, is coming from a mixture of not only our product, but we continue to work on the operational effectiveness in stores and work we've shared with you before around (inaudible).

So building that capacity of peak remains a priority for us. And bring that altogether, I have to say has been the focus and dedication from our partners in the stores, who across the whole of the US and the Americas have done an amazing job in this quarter dealing with our busiest holiday season ever, and the card, I wouldn't call out what percentage that is contributing to it, but it is certainly with more people joining the My Starbucks Rewards, by an increasing tender, there is definitely a much richer dialogue coming along. There is a much greater recognition between the customer and our barista, and we are adding, as you know, in this quarter, we are adding to the customer experience through introducing names on aprons, which will be in stores by the end of January, and then phasing in names on cups in the coming months. So, all of that it focused on the relationship between the customer and our barista and making it a great personal experience, Starbucks experience.

And then Sara, back to specifically to your question about cost of goods. The largest impact of commodity favorability, as you know, comes in our channel development business. So within the Americas segment, that commodity benefit in the quarter was about 30 basis points or so to allay, perhaps a little bit higher, and so just those roughly 30 basis points of benefit from commodities. Total cost of goods and occupancy leverage improved by about 50 basis points. I hope that gives you some context. We actually did see exactly the kind of leverage we would expect, both from commodity benefits on the cost of goods line, and then also leverage on fixed costs from growing sales.

We will have time for one last question, and I apologize for those of you left in the queue, and we will try and get back to you as we can this afternoon. Go ahead, Mike.

Nicole Miller Regan, Piper Jaffray & Co.

I think you had mentioned at the Analyst Day something about the future of a brand agnostic loyalty card. Could you give us an update on that, and given that you are talking about the different ways, shapes, and forms that a customer can access Starbucks today, would this require them to get a new card? Thank you.

Howard, you want to address that?

I'm not sure I understood the question. Can you repeat that please?

Sure. I think there was talk at the Analyst Day about a channel agnostic loyalty card, so that it doesn't matter if I get a cup of coffee this morning at a retail store, buy a pound of coffee at the grocery store, is the way I originally understood the intent, that it would be incentivized as a loyal frequent Starbucks user.

Right.

When you do roll that out down the road, do I have to consolidate the other cards that I might have, and I'm just wondering, since you are talking so much about gift cards and different forms of Starbucks cards and the way of processing payments and gifts and all of that, is this all going to eventually roll into one?

Well, I think you've asked us a question that, with respect, we don't want to get into too deeply today. But let me try and answer without being coy in any way. Over the next few months or so, we will be coming back to you and sharing with you the plans that we have to take advantage of Starbucks products within CPG, and specifically grocery, and leveraging the technology and the advancement of providing value to our customers that are buying Starbucks products in grocery and leveraging the card. I don't want to get into too much specificity today, only to tell you that we strongly believe that this will provide an incentive for our customers who not only buy Starbucks coffee, but integrate them even further in the Starbucks ecosystem with the card loyalty and mobile. And are very excited about this, and we will be sharing this with you in the months and quarters ahead. This is something we believe in and something that we are deeply committed to.

Fair enough. Thank you very much.

Thanks, Nicole. With that, that concludes our Q1 fiscal 2013 earnings conference call. We thank you all for joining us today. Have a good evening.

Thank you.

This concludes today's conference call. You may now disconnect.