星巴克 (SBUX) 0 Q0 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 Starbucks Coffee Company's third quarter fiscal year 2013 earnings 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)

Miss DeGrande, you may begin your conference.

Thank you, Mike.

Good afternoon this is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company.

Joining me on the call today are Howard Schultz, Chairman, President and CEO; Adam Brotman, Chief Digital Officer; and Troy Alstead, Chief Financial Officer.

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 statements should be compared conjunction with cautionary statement in our earnings release and risk factors discussions in our filings with the SEC including our last annual report on form 10K.

Starbucks assumes no obligation to update these forward-looking statements or information.

This call is being webcast, and an archive of the webcast will be available on our website at www.investor.starbucks.com later today.

With that let me turn the call over to Howard Schultz.

Thank you, JoAnn and welcome to everyone on today's call.

I am very pleased to share with you the extraordinary third-quarter results that Starbucks reported today.

Starbucks global comparable store sales grew 8% in Q3, 9% in each of our Americas and China Asia-Pacific segments driven by a 7% increase in traffic and representing Starbucks' 14th consecutive quarter of comp growth in excess of 5%.

Our revenue in Q3 increased a full 13% over last year to a record $3.7 billion.

Operating leverage and our continuing emphasis on increasing efficiency and controlling costs drove our operating margin up 150 basis points to a record Q3 record of 16.4% and an operating income above 25% to a Q3 record of $615 million.

Together, these factors contribute to a record Q3 EPS of $0.55 per share, 28% over last year's third quarter and the second highest EPS of any quarter in Starbucks' 42 year history.

Particularly noteworthy are that these results were delivered in the face of challenging economic and consumer environments in many of the 62 countries around the world in which we operate.

At our December 2010 investor day conference, I laid out a strategic vision that contemplated Starbucks leveraging all of our unique assets, our robust and growing pipeline of innovation, what has grown into over a 19,000 store global footprint, our fast-growing CPG presence, and our best in class digital card loyalty and mobile capabilities to create a flywheel effect, whereby each asset would leverage and enhance our brands and customer experience, elevating the relevancy of all things Starbucks and driving increased profitability.

I left the conference recognizing that this would have to be executed in a way that would be fully appreciated after the conference.

The results we announced today demonstrate the success of both our vision and our strategy for achieving it.

Continued innovation in our core coffee and beverage portfolios, solid progress against a reinvention of our food platform and an increasing ability to leverage and translate Starbucks' brands and strong US revenue growth into revenue and profit growth in multiple markets and channels around the globe, all contributed meaningfully to our record Q3 results.

No single Q3 metric exemplifies the success of our strategy more than our 7% increase in global traffic.

For the first time in our history we are bringing customers into our stores all around the world and across all day parts with complete offerings of innovative beverages and both indulgent and healthy foods to satisfy their evolving needs space.

Today Starbucks' global retail footprint, complementary channels of distribution and unique and powerful digital assets puts us in a class by ourselves And we're just getting started with further integration and expansion of our flywheel and the introduction of disruptive and transformative food and beverage industry innovations and technologies around the world in the months and quarters ahead.

I'm going to provide a high-level overview of segment performance in Q3 and then turn the call over to Adam Brotman, our Chief Digital Officer who will discuss our world-class digital and loyalty assets and share of what is about to come in terms of digital.

Then Troy will take you through our Q3 financials and fiscal '14 targets in detail,and we will close with Q&A.

Let me begin with the Americas.

Starbucks Americas segment is firing on all cylinders with 9% comp growth driven by continued beverage innovation and increased food attachment resulting from the success of our transformed and reinvented food program.

Our strong summer refreshment lineup including the new Valencia Orange Refresher and the limited time offering of Caramel Ribbon Crunch Frappuccino is being extremely well received by our customers and exceeding even our most optimistic expectations.

In Q3 we significantly expanded our La Boulange baked goods platform.

Truly delicious and differentiated La Boulange branded products are now available in over 1000 Starbucks stores across Northern California and the Pacific Northwest.

When you try La Boulange, you will understand why we are seeing both an enthusiastic customer response and substantial lift in incrementality compared to the baked goods that La Boulange is replacing.

And we are now on track to bring La Boulange food to more than 2500 of our stores by the end of September, including stores in New York, Chicago, Boston and Los Angeles.

We are also deep into the strategic development and integration of Teavana.

Tea, as we've shared with you before, is a $40 billion global category, and we are leveraging all of our unique internal assets including our knowledge in creating best in class retail experiences and handcrafted beverages to create the premium tea experience for customers just as we have done for coffee.

You will see all of these strengths come together this fall as we open our first re-imagined Teavana street front store on New York City's upper East side and evolve the tea -- Tazo tea concept store in Seattle under the Teavana brand.

Over time many unique, handcrafted Teavana handcrafted beverages will also find their way in Starbucks stores.

Turning to EMEA.

I am very pleased to share renewed optimism that we're on our way to delivering sustained profitable growth in our EMEA region.

Our EMEA team is bringing market specific food and beverage innovation across the region and working hard to enhance our customer experience in each of our nearly 2000 EMEA stores.

While early, we feel the results are beginning to show.

The 2% comp store sales increase that EMEA posted in Q3 was the segment's first comp store increase in six quarters, and the UK, the largest individual market within our EMEA the segment, also reported positive comps in Q3.

Turning to China and Asia Pacific regions, our China and Asia Pacific region continues to be at the very forefront of Starbucks' global expansion initiatives, and we're now on plan to surpass 4000 stores in the region by the end of 2013.

Noteworthy are that are strong 9% increase in China Asia-Pacific comp store sales in Q3 included 8% traffic growth, a doubling of our Q2 traffic growth, and that increased operating leverage enabled China Asia-Pacific to delivers some of the highest margins in the Company.

We will also open our 1000th store in China by year end, and remain on track for China to become Starbucks' largest market outside the US in 2014.

We continue to invest ahead of the growth curve to build out our end market operational and management capability in China and to successfully execute against a plan calling for strong comp growth and further margin expansion well into the future.

Moving to channel development and emerging brands.

Channel development and emerging brands will be a significant contributor to our future growth as we expand to -- as we continue to expand customer occasions outside of Starbucks stores, leveraging our flywheel strategy.

I will touch on just a few particularly noteworthy developments and opportunities.

We continue to strengthen our leadership position in the $8 billion premium single cup category, a segment that has grown nine times faster than the overall coffee category during the past year and now accounts for nearly 30% of total coffee sales in grocery.

In May we announced an extension of our long-term strategic partnership agreement with Mountain Coffee Roasters that will enable Starbucks to add many more K-Cup SKUs and gain additional share in the US and abroad.

And in Q3 we shipped our one billionth K-Cup, a significant milestone in the 20 months since we had our first shipment.

While packaged coffee competition down the grocery aisle remains fierce, the price decrease we took in the third quarter has allowed us to be more competitively positioned in our CPG coffee portfolio.

And we believe the price decrease positions us to build share and maintain our leadership position in the months and quarters ahead.

Finally, on Tuesday we announced a very exciting new agreement with Danone, a world leader in fresh dairy products.

For the past several years we have been committed to evolving and enhancing our customer experience through the introduction of innovative wholesome and healthy products in our stores.

Our new multi-year relationship with Danone will enable us to leverage our acquisition of Evolution Fresh business and brand, elevating our existing yogurt offerings and bring out our health and wellness strategy to life, not only in Starbucks stores, but also down the grocery aisle, leveraging the Evolution Fresh brand name of multiple product categories including the initial acquisition of the juice business.

Our evolving portfolio will include the exclusively formulated Evolution Fresh inspired by the Danone branded ready-to-eat Greek yoghurt in our retailers doors and Evolution Fresh branded CPG products co-created by Starbucks and Danone.

These products will begin rolling out to Starbucks stores in North America in the spring of 2014, reach grocery channels in 2015, and reach global distribution over time.

In conclusion, Starbucks Coffee Company today exists within a universe of one.

And our Q3 results demonstrate the increasing relevance and power of our brands, the strength of our management and operations around the world, the success of our multiple go to market strategies, and our increasingly deeper connection to a fast-growing global customer base.

But our values and the one-on-one direct emotional engagement we have with our customers and our Starbucks partners around the world remains at the core of our business and our brand.

And because the level of innovation and expertise that we are bringing to our already best in class digital and loyalty capabilities has never been greater and dwarfs the capabilities of any competitor, I have invited Adam Brotman to join us on this call to discuss his team's contribution to the flywheel strategy and how we are leveraging our success in the US to create a truly global, unified, comprehensive digital loyalty platform.

Before I hand it over to Adam, I just want to take a moment to recognize the world class Starbucks leadership team, the strongest group of leaders this Company has ever had that has made the results we reported today possible.

And of course we could have never delivered our remarkable Q3 results or the 13th consecutive quarters of record results before it without the daily contribution of over 200,000 Starbucks partners around the world who wear the green apron and deliver the unique Starbucks experience to nearly 70,000,000 customers at over 19,000 stores in 62 countries around the world each week.

On behalf of the entire leadership team, I thank you for all you do every day.

Adam?

Thanks, Howard.

As Howard said, there are a number of factors that contributed to the strength of our US business in Q3.

From a digital perspective, we have spent the past several years building an engine of digital touch points with our customers that not only allows us a deeper relationship with our customers but also pays out with incrementality for our Business.

Let me talk for a moment about the growth we're seeing in a variety of key digital card loyalty and mobile programs.

In our third quarter we saw 30% year-over-year growth in total dollars loaded on Starbucks cards in retail North America and nearly 100% year-over-year growth in dollars loaded on our cards via Starbucks mobile apps and web properties.

And the Starbucks cards continue to represent nearly one third of all US in-store transactions.

We also saw over 30% year-over-year growth in total dollars spent in our stores from My Starbucks Rewards, or MSR, loyalty members in the US.

And this momentum in loyalty is not just in volume.

We have also expanded integration between MSR and our CPG channel as well as with our Teavana stores.

Regarding mobile -- our momentum as the leading retailer in the mobile payment space also continued its rapid growth in Q3.

I am pleased to report that now, more than 10% of all transactions in our US stores are made with a phone.

Mobile devices have been become an increasingly important part of the customer experience Starbucks as the fastest and easiest way to pay in our stores.

And we will continue to bring more innovation to this space.

As we have been building capabilities in customer enrollment in our card, loyalty and mobile initiatives, we have not taken off at off the pedal at all when it comes to Starbucks' presence on the web and social media.

We continue to see huge traffic to our wi-fi network and our web pages, and earlier this month we passed over the four million Twitter follower mark.

And we can continue to leverage Instagram, Pinterest and our global Facebook following to engage with our customers everyday around our brand and topics of interest to these customers.

Our internal measures tell us that these various digital initiatives have added demonstrable impact to our US business in Q3 with a promise of even greater growth in the months and years to come.

And we are not resting on any of our previous successes.

We currently have a robust pipeline of developments in each area of our digital ecosystem, and we expect to deliver a number of improvements and innovations to our existing programs throughout the last quarter of FY '13 and well into FY '14, as well as introducing new concepts and new platforms.

I will give you one example of that today.

I am pleased to announce that Starbucks, in partnership with Duracell Powermat, will expand the trial of wireless charging for our customers' mobile devices in select Starbucks stores in Silicon Valley.

This effort's (technical difficulties) initial test of this technology in certain Boston stores earlier this year.

The installation of multiple wireless charging Powermat surfaces in our stores will allow our customers to recharge their smartphones quickly and effortlessly.

This the kind of improvement to the digital experience that our customers expect from Starbucks and the kind that we will deliver at scale moving forward.

Turning to the international front, we continue to be committed to leveraging the success we have had in the US in digital around the globe.

Over the last month my team and I spent time in China and in Europe, and we will visit Latin America and Canada in the coming months.

The purpose of these trips has been to determine how we can accelerate deployment of our foundational digital platforms in all of our key global markets.

And by no means are we at a cold start in terms of accelerating a digital strategy globally.

In China for example, we already have 2.5 million My Starbucks Rewards members, and that is without a mobile payment platform or e-gifting in place.

In Q3, we also made mobile payment available through apps on android and IOS to Starbucks customers in our Hong Kong market, and we are already seeing strong response from that.

In fact these IOS and Android apps became the number one free application in the Hong Kong App Store within less than a day of having launched them.

Once the full breadth of our digital plan comes fully online in CAP and EMEA to complement what we're doing elsewhere, the potential for digital creates similar incremental impact to our Business in those markets is as strong if not stronger using digital as anywhere else in the world.

I truly believe that no other retailer is as far along as Starbucks in terms of building an end-to-end digital customer experience across a variety of digital touch points, both in-store and out of store and across channels and now across geographies.

We are truly only just getting started.

I'm going to turn it over now to Troy to go through the Q3 results in more detail.

Troy?

Thanks, Adam, and good afternoon, everyone.

The third-quarter results we announced today are a testament to the continued efficiency, diversity and overall strength of our Business.

The grew revenues by 13% with every segment contributing to that growth.

We grew global comparable store sales by 8% with each region accelerating compared to last quarter.

We expanded operating margin by 150 basis points with margin expansion in every segment.

Starbucks card loads grew 30% with 24 countries now contributing.

Joint venture income grew 23% with both store and CPG partnerships contributing.

All of that together produced earnings-per-share of $0.55, our best third-quarter ever growing 28% over Q3.

Over the next few minutes I will provide more context on our outstanding third quarter performance, as well as update you on our fourth-quarter projections.

Then I will provide our initial outlook for fiscal 2014.

Consolidated net revenues in the third quarter grew to $3.7 billion, 13% higher than a year ago.

The growth was largely driven by global comparable store sales growth of 8% including 7% traffic growth and a 1% increase in average ticket.

Also contributing were revenues from 1558 net new stores in the past 12 months, including 355 Teavana stores.

Operating income grew 25% in the third quarter to $615 million while operating margin expanded 150 basis points to 16.4%.

While lower coffee costs continue to be a benefit to us contributing 60 basis points this quarter, leverage on our strong sales was the biggest driver of margin improvement.

As an illustration of the strong operational effectiveness of our teams across the globe, our store operating expenses as a percentage of related revenues continues to dip near all time lows.

That is evidence of the deep cost discipline our partners have embraced, the continuous improvements we have made with labor scheduling and productivity and the scale we are now achieving in many of our smaller growing markets.

The very strong operating performance in Q3 resulted in higher performance based compensation expense which along with a discretionary $10 million donation to the Starbucks Foundation drove G&A expense higher in the quarter across the operating statements and unallocated corporate expenses.

Now I will take a moment to the speak to the results of each operating segment.

First in the Americas, the performance delivered in the third quarter was broad-based exceeding even our own expectations and was nothing short of phenomenal.

Revenues of $2.8 billion grew 12% driven by comparable store sales growth of 9%, with 7% coming from increased traffic and 2% from higher average ticket.

While we experienced moderate slowing in the month of June last year, comp growth last Q3 was still a strong 7%.

Despite this challenging comparison, the Americas region leveraged strength across all day parts and all geographies to grow at its highest rate in six quarters.

Like the Americas region overall, the US grew comps by 9% in the third quarter.

Contributing to the comp growth was strength in beverage innovations and promotions with the combination of the Macchiato platform, the limited time Frappuccino offerings, and the still new Refreshers beverages adding a combined four percentage points of comp growth.

Operational improvements leading to continued growth in labor productivity also drove higher comp growth in Q3.

Our peak hours of 7.00 am to 9.00 am in the US again shows strong traffic trends at the drive through stores where our focus on enhancing the customer expense while improving speed of service is paying off.

Food again contributed toward the growth in the US business adding two points of comp growth in the quarter as our lunch offerings continue to expand in popularity.

And while Howard mentioned the enthusiastic response our La Boulange bakery items are receiving, it is important to note that this quarter's comp growth contribution from food is not impacted by La Boulange due to the still early stage of the rollout.

Operating income in the Americas region of $619 million grew 24% in the quarter as we continue to turn strong top line growth into even higher bottom line growth.

As result Americas operating margin expanded 210 basis points to 22.3%.

Strong sales leverage combined with lower commodity costs of 30 basis points were the main drivers behind the improvement.

In addition to the strength in the US, Canada and Latin America each had great quarters, as well.

Canada also grew comparable store sales at the highest rate in the past year and a half.

And Latin America delivered significant topline growth and margin expansion in the third quarter.

And, while I'm discussing Latin America, I want to point out the news of a week ago that we have agreed to sell the remaining 18% of our equity in Argentina and 82% of our equity in Chile to our fantastic partner Alsea.

This will enable further growth in these vibrant markets and will enhance profitability for both parties.

This transaction will close in the fourth quarter, and we anticipate realizing a $0.03 earnings per share gain in Q4 as a result.

Moving now to the Europe, Middle East and Africa region where the third quarter results continued our measured steady progress for long-term profitability.

Revenue in the EMEA grew 2% to $287 million in the third quarter as growth in licensed store revenue was nearly offset by lower Company operated store revenue.

The licensed store revenue growth was primarily the result of the addition of 125 licensed stores over the past year, combined with strong growth in existing licensed stores.

The Company operated revenue decline was the result of a declining Company operated store base from closures as well as the sale of a number of Company operated stores to licensed partners as part of our store portfolio optimization last Q4.

Comparable store sales grew 2% in Q3, with 5% growth in traffic actually offset by a 3% decline in average ticket.

We are encouraged by this for a number of reasons.

It is our first quarter of positive comp growth in EMEA in the past year and a half and our highest quarter of traffic growth since early 2011.

Comp growth improved in our largest Company operated markets in the EMEA in the last quarter reflecting a broad-based contribution to the acceleration.

In our largest EMEA market, the UK, comp growth was positive in every month of Q3 with particular success coming from the launch of Origin Espresso, new pastries and salads in some stores, and growth in the My Starbucks Rewards program.

The average ticket decline in the quarter was partially due to fewer items per transaction, which we believe is a reflection of broader trend spending patterns in Europe combined with modest discounting as a result of promotions and the rewards program.

The EMEA operating income grew from $1.6 million last Q3 to $9.3 million this year.

Operating margin expanded in the quarter as it has in every quarter thus far in fiscal '13, this time by 260 basis points to 3.2%.

This was largely driven by the team's deep continued focus on cost management, as well as the impacts of the mix of our store portfolio moving to a more heavily licensed model.

In fact, 42 of the 43 net new stores opened in EMEA Q3 were licensed stores.

We anticipate that both the cost focus and portfolio mix shift will be an ongoing driver of market expansion on a year-over-year basis.

In China and Asia Pacific the third quarter brought an acceleration of topline growth with significant translation to the bottom line.

Revenues of $234 million were 29% higher than last Q3, driven by a combination of 523 net new stores over the past year, and 9% comparable store sales growth.

The 9% comp growth was entirely due to increased traffic, driven by a combination of new locally relevant products and strong growth in core offerings.

And, like in the Americas, the contribution to the strong comp growth was broad-based across the region.

There are so many great examples I'd like to given the success we're seeing across Asia but Japan stands out this quarter as a real highlight.

Sales growth in our joint venture market is not included in the reported comp, however, I want to call out that comparable store sales in Japan, normally a more moderate steady grower, rose by double digits.

We saw tremendous success with local innovation there, while at the same time delivering strong execution in operations and the store experience.

While emerging markets receive many of the headlines, Japan represents around one third of CAP's operating income with China contributing a third and the rest of the Asia-Pacific markets making up the remaining third.

Our partnership in Japan is critical to our performance in the region, and we are delighted with the direction of this market.

In the third quarter we opened 119 net new stores in CAP including 61 net new stores in China, 25 in South Korea, and 5 in India where we now have 16 incredible stores.

Our discipline around the site selection in CAP is continuing to generate very effective returns on our new stores, and our pipeline for Q4 and beyond is strong.

119 net new stores this quarter were up slightly from last Q3, but down from the first and second quarters of this year.

This is simply due to the timing of openings, as we have a busy fourth quarter plan, and we continue to target 600 net new stores in CAP for the full year.

Operating income in CAP in the third quarter grew 38% to $85 million.

Operating margin expanded 250 basis points to 36.2% with sales leverage, strong performance from our joint venture operations and 50 basis points of favorable coffee costs contributing.

Quarterly margins in CAP are significantly impacted by the pace of new store openings in the particular quarter, and the margin expansion in Q3 also partially reflects the relatively fewer stores in the quarter.

However, given our acceleration of new stores expected in the fourth quarter and the resulting investment required, Q4 margins in CAP will remains our best in the world, but will likely decline compared to the third quarter.

Channel development also contributed to our consolidated revenue and operating margin growth this quarter albeit at a bit slower pace.

Revenues of $336 million in this segment were up 6% over last Q3 with both the CPG and food service businesses growing at that pace.

Premium single cups including K-Cups, VIA and Verismo continue to drive the revenue growth in CBG adding $29 million versus last Q3.

There were a few important milestones reached in the third quarter.

Aside from the billionth K-Cup shipped and our extension of the partnership with Green Mountain that Howard mentioned, we saw our share of K-Cup dollar sales in US food, drug and mass channels hit an all-time high in the quarter at 14.9%.

While the overall premium single cup category grew by a very healthy 46% over last year, Starbucks' sales growth of K-Cups, at 51%, out-paced overall category growth.

And we have a significant innovation right around the quarter that we can continue to drive share gains in this rapidly growing category.

The growth in revenue due to the premium single cup was partially offset by softness in packaged coffee, which was impacted by significant broad-based competitive price declines and by the list price reduction we took in May.

Our price reduction was not fully reflected down the aisles for much of the third quarter, but it has now made its way into most grocery shelves.

Due to the new price positioning, the innovation in premium single cup and a growing international business, we expect revenue growth in channel development to be stronger in the quarters ahead.

Channel development expanded operating margin in the quarter with operating income of up 14% over last year.

Lower coffee costs provided a gross benefit of 320 basis points this quarter, partially offset by the margin impact of the list price reductions on packaged coffee.

Finally, let me address the results of our other segments.

All other segments is comprised of our emerging brands including Teavana, Evolution Fresh and Seattle's Best Coffee, as well as our Digital Ventures business.

Revenue in these other businesses grew to $108 million, more than doubling over last year.

Teavana, which was not in our base last year, contributed $51 million of the increase.

Evolution Fresh, while still small, also contributed, growing 21% over the last Q3.

We continue to increase share in velocity and grocery channels and our new state-of-the-art juicery began production in June, which will enable us to meaningfully expand availability of Evolution Fresh juice and both Starbucks stores and CPG channels.

We've already gained a nearly 6% share of Western US super premium juice and look forward to gains coming from both greater distribution and increasing awareness.

Turning now to our financial position, our balance sheet has never been stronger and our financial discipline tighter than it is today.

Given current favorable market conditions, we anticipate issuing $750 million in additional long-term debt over the next quarter or so to provide us with financial flexibility for general corporate purposes.

We locked the benchmark interest rate on this issuance in the early part of Q3 when rates were approximately 80 basis points lower than they are today.

As we move forward, we will continue to evaluate our capital needs and may increase our debt if we need additional liquidity and see the right returns for more leverage.

As we think about a target leverage range I would note that we are comfortable with our current S&P rating of A-, so our future leverage would likely be targeted around that rating.

Now, before I move into the outlook for 2014, I want to provide an update on how we expect to finish fiscal 2013.

First let me say again, the third quarter just completed really was a phenomenal quarter by every measure, particularly the 9% comp growth in the Americas.

For the fourth quarter we expect very good results, but we do not expect that 9% level of comp growth from the third quarter to continue into the fourth quarter.

Q4 is likely to return to the strong levels we reported in the first half of fiscal '13 in the range of 5% to 7% global comp growth.

We anticipate continued strong revenue growth of 10% to 13% in the fourth quarter driven by that strong global comp growth.

We are targeting an approximately 100 basis point improvement in operating margin in the fourth quarter versus last year.

With increased confidence in the strength of revenue growth and operating margin expansion, we expect fourth-quarter earnings per share in a range of $0.59 to $0.60.

This includes the $0.03 gain we will recognize in Q4 on the sale of our equity in Argentina and Chile that I mentioned earlier.

For the full-year we are targeting earnings-per-share in the range of $2.22 to $2.23 which includes a combined $0.06 gain on the sale of our equity in Mexico in Q2 and Argentina and Chile at Q4.

Commodities will continue to benefit us in the fourth quarter as we expect a gross $0.02 earnings per share benefit partially offset by our recent pricing actions down the grocery aisle.

Conversely we expect an unfavorable foreign exchange impact of approximately $6 million in Q4 driven by a weaker Japanese Yen.

And with regard to the Kraft arbitration, we have had no further update on anticipated timing of the resolution.

Looking ahead to fiscal 2014 we are anticipating another year of exceptional growth.

We expect revenue growth of 10% to 13% driven by global comparable store sales growth in the mid-single digits, 1400 net new stores globally and accelerated channel development growth.

The acceleration of new store openings in fiscal '14 will come from the China Asia-Pacific region where we anticipate a net 700 new stores.

We are targeting 600 net new stores in the Americas and 100 in the EMEA, consistent with growth in fiscal '13.

Full year consolidated operating margin is expected to improved by 150 to 200 basis points in fiscal '14, as we continue to drive leverage on strong revenue growth and operational efficiencies throughout the business.

We will provide segment specific targets when we report our fourth-quarter results in late October.

We are anticipating higher interest expense due to the debt offering I mentioned and a moderately higher tax rate.

And finally, we are targeting earnings-per-share in the range of $2.55 to $2.65 in fiscal '14.

This represents growth of 18% to 22% over fiscal '13, excluding the $0.06 impact of equity sales in Latin America in 2013.

Contributing to the improvement will be another year of tail winds on coffee costs currently expected at approximately $0.09 to $0.10 net for the year.

We have well more than 80% of our coffee needs locked for FY '14, providing us with great visibility into this benefit.

The $0.09 to $0.10 benefit reflects the gross coffee impact partially offset by the recent price changes in CPG, as well as routine investments in the business.

The results we've presented today and the guidance we have laid out for next year are the product of our continued deep focus on operational excellence, on relevant innovation and on rigorous financial discipline.

We are confident in the trajectory ahead for many reasons including a diverse set of significant growth drivers, a strong tenured management team, the best collection of store operators in the world, and a proven growth strategy that drives powerful returns on capital and leverages the success in our stores for growth in other channels.

Thank you.

I will now turn the call back over to the operator for Q&A.

Mike?

(Operator instructions)

Sharon Zackfia, William Blair.

I guess, Troy, I'm going to take the easy question.

I guess the comments on the comp trend not continuing that you saw in the third quarter, is there anything you're seeing specifically?

Or anything you like to comment on?

Thanks Sharon.

No, that is not a message whatsoever about early trends in the fourth quarter about.

We are not making any comments about third quarter trends as usual.

That is simply a message of the 9% comp growth in the US and the Americas in the third quarter was really a breakthrough quarter.

It is phenomenal, as you know, on a system the size of ours.

A number of fantastic things all came together in that quarter to contribute to that kind of level of comp growth.

And so as we look at Q4, as we look at fiscal '14, we expect very strong, very healthy very consistent same-store sales growth more in line with what we saw the first half of the year.

And that is just recognition a price innovation, the loyalty program, the great expense we're providing to our customers in the stores.

Perfect, thank you.

John Ivankoe, JPMorgan.

You mentioned foods impact to the quarter and achieving that without La Boulange.

I was just hoping to take this opportunity to talk about how significant La Boulange has been in your early tests and what we should really expect to see from a customer receptivity point of view for the breakfast and the lunch products as we go forward into '14 and '15?

And of course, I asked but in terms of your comp guidance of the 2014 which is always a lower than what you have just achieved, it seems like food at least is one thing that could be significantly more accretive going into 2014 that was for 2013.

Let me have Cliff speak to food in particular and what we are seeing in La Boulange now.

And then I'll come back and talk to you about the comp guidance for next year.

Thanks, John.

You know our strategy on this, John, was that we are going to acquire La Boulange to enhance the customer experience and leverage food as part of our future growth strategy.

And I'm delighted to say in every market we have introduced La Boulange so far as been extremely well received.

The product is fantastic, and we are seeing really, really encouraging results so the strategy is being justified.

And we are now through 1000 stores by the end of Q3, and every market we open received great reception particularly around the pastries, the croissants, which is the core product of La Boulange and it gives us every confidence that we are on the road to a fantastic food platform.

We'll start with breakfast.

We will then enhance lunch and the opportunity to enhance the current experience the big customers and grow sales is really strong.

Looking forward to '14 and '15.

Then I'm extremely optimistic that this will be a platform growth, and, as we realize the results in the coming months we will share more in the current quarters.

And, John, specifically the guidance on '14 -- what I will tell you is we have very good confidence in our ability to very sustainably continue to drive healthy comp growth for our stores through innovation in our stores, through productivity enhancements, through the loyalty program, and, yes, through new things such as the La Boulange which as Cliff mentioned in our experience so far in our stores has just been nothing short of phenomenal.

And we are quite confident that is La Boulange rolls throughout the system, it will be a layer of comp growth for us in the system.

With that said, as you well know, comp growth does not trend as a percentage.

You've got to re-create it every single quarter and every single year with new innovation with great experiences with new frequency among our customers.

So we firmly believe that innovation such as Evolution Fresh, such as Teavana coming into the stores, such as La Boulange and enhanced food program, all those things and many others are what allow us to speak with confidence about our ability to drive consistent healthy comp growth into the year ahead.

Thank you.

Joe Buckley, Bank of America Merrill Lynch.

I try to speak to it, because I'd like to ask Adam a question.

Just whether it is possible to have a global Starbucks card?

Or perhaps you are well on the path for that.

It wasn't clear from your comments.

Thanks Joe.

That's a great question.

And we are looking at ways that we can improve the ability for the card to travel across regions.

It is not always possible in every case, but where it is we're looking to do that.

And we already have some regions where the card can travel, and where it is not we are continuing to look into ways that we can do that.

Okay and then, Troy, can ask a question on the China Asia-Pacific region?

Just talk about the variables in the performance between the second quarter which looked a little light on the operating income growth to this quarter which looks terrific.

Joe, I'll address that specifically and really is related to two or three things.

But in particular, in any one quarter in China Asia Pacific as we are experiencing the kind of returns and growth of that we are in that part of the world and in China particular.

We continue to make investments into the infrastructure and to the supply-chain and into our stores and in some quarters those investments will just be a little bit higher and more disproportionate that they are in other quarters.

So for example in the second quarter we had a higher growth rate in new store openings in that quarter than we did in the third quarter.

That is just the timing of the pipeline and when comes to bear.

In the fourth quarter ahead of us as I mentioned in my comments we'll once again have an acceleration in the number of new stores in the quarter.

Those new stores in any one particular quarter put meaningful pressure on the margins just in that quarter.

They become very profitable very quickly and begin contributing, but there is margin pressure when you open up that many stores in a particular quarter.

And we definitely experienced that in the second quarter, and we experienced a bit less of that in the third quarter.

And that explains much of that differentiation that you are seeing.

I'd also remind you, and we pointed this out in our second-quarter call, a quarter ago, that is the second quarter of the previous year, fiscal '12 had some unusual entries in it that made the year-over-year comparison difficult.

So, I'd have to all the way back to that really get the comparison.

Thank you.

Brian Bittner, Oppenheimer and Company.

Troy, you said in your comments that in 2014 you expect a nice acceleration in the CPG segment sales.

I'm just wondering, what would be the main driver of that?

And also, when are you going to possibly pull the lever on entering some international markets?

Brian, let me have John Culver speak to the first part of the question, and then we'll come back to the second part.

Hi, Brian, this is John.

Thanks for your question.

Now, really what we have done of the last quarter is really lay the groundwork for sustainable growth going forward in packaged goods.

I want you to be clear that we are very confident and committed to delivering aggressive revenue growth, double-digit growth in FY '14.

We believe that for a couple of reasons.

First, obviously we have taken a list price reduction that Troy spoke about and with that we're seeing that show up in the stores down the aisle.

We have also introduced My Starbucks Rewards which better positions us to continue to build customer acceptance and customer loyalty.

And really we see tremendous opportunity to accelerate the premium single cup agreement that we have with Green Mountain.

And what we have seen in the past quarter is that the Starbucks share has grown faster than the overall -- or I'm sorry Starbucks growth has grown faster than the overall premium single cup category.

And with the recent announcement with Green Mountain, we are going to be able to increase the number of SKUs that we offer going into next year by threefold.

So tremendous opportunity related to premium single cup.

As it relates to international, we're just laying the foundation around international.

In the quarter, that just ended, we opened four new markets.

We now do business in 25 markets out of the 62 markets around the world so tremendous opportunity to continue to expand there.

We have many new products and innovations that we have planned yet to come up, and we continue to invest in building out capabilities from a people and from an infrastructure standpoint.

And a great example of that is Jeff Hansberry, who over the last three years has built the channel business for us here in the US and is now positioned in Hong Kong and squarely focused on the China and Asia Pacific region and the opportunities that exist in that part of the world for the channels outside our stores.

So great opportunity for us in the future.

Terrific.

Just a quick capital structure follow-up.

What would be leverage range be to keep a triple or a A minus rating?

Well I'm not going to put, Brian, a really good range around that yet.

I think as we go forward we talk a bit more about leverage, we complete this debt offering that I mentioned today, we will talk about more about that.

I think you could look at the S&P ratings.

There is guidelines around leverage that they publish, and that will give you at least an initial viewpoint on where we might be targeting.

Great.

Awesome.

Classy quarter guys, thank you.

Matthew DiFrisco, Lazard.

Just one clarification and then a question.

I think you said, Troy, you compared China Asia-Pacific segment margins to -- on a sequential basis.

I guess could you just confirm that in Q4 you expect similar year-over-year margin expansion for the region?

Matt, what I was actually saying was not that -- that we expect the fourth quarter to not expand quite like the third quarter did.

And that is simply due to due to the timing of new store openings.

We will open significantly more new stores in the fourth-quarter in CAP than we did in the third quarter.

So again my response earlier I think to Joe, in a region like China Asia-Pacific where we are making significant investments to accelerate growth, that includes infrastructure and people investments.

It also includes the short term, very short-term margin pressure that comes from an acceleration of new stores in any particular quarter.

In Q3, that impact was quite low.

It will be a bit higher in Q4.

So, my comment was simply to make you aware that our expectation for margins in the fourth quarter are a bit lower than the were in the third quarter.

Okay, I just didn't hear if you said you were implying expansion, though, but just less expansion on a year-over-year basis in the fourth quarter?

Yes, less expansion than the very strong 250 points of expansion that we experienced in Q3.

Thank you for walking me through that.

And then, Adam, I have a question with respect to digital.

I was wondering where do we see or when do you think you'll have the opportunity to potentially maybe even go across channels?

It has been a tremendous success obviously in making your traffic very stable and superior than your peers in the store -- in the Starbucks stores.

How about maybe even using that to try and drive trial traffic and new product trial traffic in the channel develop or in the CPG channel specifically?

Ranging as you have obviously a whole cupboard full of new products coming out, Teavana, Evolution Fresh, et cetera, through the CPG channel.

How do you stage that?

Do you put the products out there first, or do you use that as sort of a launch pad as well using the digital?

Thanks, Matt.

That's a good question, because we're actually -- have good news to deliver there, and we have already started doing that.

For example, we have begun the rollout of integrating our digital loyalty program, MSR, with our channel in the United States with the ability to earn stars when you buy packaged coffee down the grocery aisle.

We just started that, and we do plan on expanding upon that in the future.

Secondly, we have fully integrated My Starbucks Reward, or mobile app and our card program with Teavana.

And you can actually go into Teavana stores in use your Starbucks card and earn loyalty points in that -- those branded stores as well.

So those are two examples where we have already started, and those are good examples of what we plan on doing more of in the future.

One thing this is Howard.

Your question isn't only about digital, it's about leveraging the capabilities of our CPG business off of the tailwind of our core retail business once we build the branded loyalty.

So a great example is the acquisition of Evolution Fresh replaced naked juice in Starbucks retail stores.

We have seen a significant lift in terms of sales there.

And as a result of the proof source of that brand inside our stores, we are now shipping Evolution juice to -- across hundreds of supermarkets across the country including, as we sit here today, we are shipping nationally Evolution Fresh juice to hold foods.

And I don't think we would get that opportunity if we didn't have the proof source everyday of validating the Evolution Fresh brand inside Starbucks.

So when I spoke of my remarks, the flywheel affect is not only on the digital opportunity to leverage it across channels and concepts as Adam mentioned with Teavana but also prove product categories that we will be able to validate inside our stores and Evolution Fresh is the perfect example of that, and we're really out that whole foods will be listing Evolution Fresh nationally.

Excellent.

Thank you much for all of that detail.

Jeffrey Bernstein, Barclays.

Also just one clarification and then a separate question.

In terms of the clarification, Troy, I think we talk about the fourth-quarter the comp being more in the 5% to 7% range, just wondering specific to the fiscal third quarter you have brought up the trends had slowed last June into July and I think we all recall.

Just wondering if you can size up the sequential trend through this quarter just ended on a two-year basis to flush out the noise from last year?

Was it stable through the quarter?

We're definitely for hearing from peers that things have slowed down June and into July.

So just wondering how you read the two-year trend through your fiscal third quarter, and then I had a question on China.

To your first question, Jeff, I'm not going to make any comments about in quarter trends.

I would remind you that despite what was slowing -- that it did impact us last June that we have spoken about previously.

Q3 of last year was still a very strong 7%.

That's a challenging comp growth to lap at any point in time.

So all the better reflection of the 9% we delivered in the third quarter.

Now, as we move into the fourth quarter, given what we expect in the market and our ability to continue to drive innovation through the stores, we once again expect very healthy comp growth.

But again I won't speak to any current quarter trends, I won't speak to any trends about the third quarter or the monthly results within that.

Troy can I pickup on that?

I sense that perhaps some of you are taking away any concern we may have about comp growth.

Let me just hit that straight on.

We have had 14 consecutive quarters in a row of 5% or greater.

Our peer group of those people that reported before us, you saw that the comp growth they reported was low single digits.

For us to have a 9% comp growth in the United States of America given what is going on in this country is unparalleled and unprecedented.

It would be irresponsible for anyone at Starbucks to share with you that we intend to express to you today that we can repeat that at 9%.

So the better part of valor as for all of us to say to that we are extraordinarily proud and stunned that we were able to achieve a 9% comp and would be irresponsible to share with you that we can do that again in Q4.

Having said that, our expectation of ourselves is that we are going to deliver a healthy comp growth in Q4 that our investors will be proud of.

Let's get off the comp number, because it is not the issue.

The issue is we are building a great extraordinary and enduring company and the comps are going to follow that.

Understood.

And then just separately on China.

We're hearing from peers and just broader macro data kind of slowing whatever GDP growth and retail sales growth.

Obviously you put up a strong 9% comp.

Just wondering, at least on a two-year basis it is a modest slowdown.

I didn't know if there was any -- whether you would attribute that to just the law of large numbers where sustaining that double-digit run rate would be somewhat impossible?

Or whether you think there is some macro impact, or whether maybe avian flu has any impact on your trends this quarter or just the system getting much larger therefore the double digit pace is difficult to sustain?

Let's of John take the question.

Hi, Jeff, it's John.

First off our Q3 results were very strong.

And on top of the numbers that we were able to deliver, as Troy mentioned, we were able to make investments in the business as we have been doing over the last several years to take a very long term view on China and how we want to grow our business in a very focused and very disciplined way.

The 9% comp for the quarter was driven mostly by traffic, 8% of that was traffic.

So we continue to see new customers and existing customers coming into our stores and continuing to experience Starbucks' unique ways.

We also see that a lot of the innovation that we are bringing into the stores, whether it is what Adam spoke about around My Starbucks Rewards and the Starbucks card or whether it is the local products that we are offering.

We are resonating with the customers.

For instance in the quarter, we ran a promotion on -- around the Dragon dumplings for the Dragon boat Festival this was something that was new that we had not done in previous years.

And it drove incrementality into the business.

So very pleased with what we are seeing in China.

We continue to remain very focused and disciplined on how we want to grow this business and again we are optimistic that we can continue to do it the right way and in a way that continues to elevate our brand.

And perhaps just to add a little bit to that?

If you don't mind, John.

Now approaching thousand stores in China.

That market for us is progressing to a size and scale where we believe we have the opportunity, just as we have done for many, many quarters now in the US to deliver stable, consistent, healthy comp growth through great experiences in stores, through product innovation as John mentioned.

So China is now becoming a large market for us, significantly more opportunity ahead, and we believe we can continue to drive comp growth within that market.

Understood.

Thank you.

Keith Siegner, Credit Suisse

A question for Cliff actually.

Troy gave us the details on the third quarter of Americas and US comp including the beverage innovation and especially as it relates to the market of Macchiato, Frappuccino and Refreshers, can you give us a little detail?

Is the driving new customers?

Is this bringing new folks in for different occasions?

Or is this increased frequency of morning folks coming back in afternoon?

And then a subsector or subpart question to this are you also finding are you able to drive more packaged coffee whether that is K-Cup, VIA and other packaged coffee sale in the store?

It seemed like there were some good promotions for that for in-store purchases this quarter, did that also help contribute to the comp?

Thanks.

Thanks, Keith.

It really plays into the way the beverage growth is contributing to overall comps.

The good news is we are seeing increased comps on all day parts, and I think our innovation around beverages particular around Refreshers gives us the opportunity to serve morning customers in the afternoon as refreshers really does complement that afternoon day part.

Our iced teas are complementing our lunch platform.

So there's great innovation there.

And I also think it makes it very relevant when you get the seasonal changes that we experience in the summer.

And the refreshment platform has shown up really, really well.

So it is not only providing additional occasions for existing customers, but it is making these relevant to new customers in different day parts.

And that is as Troy said it is all parts of the country and it is all day parts so it is extremely healthy.

With packaged coffee that has not been a significant driver of our comp.

It really has been beverage and food and that has been the main drivers this year which for us is the healthy part of our business.

It is, as with the CPG channel, we are seeing the customers really adopt single serve in a big way and whether it that's a [riesmart] platform or whether that is our K-Cups, whether that is our VIA, we are really well-positioned to accommodate and serve our customers as they change their habits to adopt much more single serve in that sector.

So it is playing its part, but it is the beverage innovation and really our ability to increase the number of customers we are serving at peak with our operational discipline and our customer service that is driving the healthy comps in this quarter and going forward.

Thanks.

And very, very impressive performance folks.

Thanks Keith.

Michael Kelter, Goldman Sachs.

Can you guys talk more broadly about your food plans in the coming years beyond just upgrading the bakery case with La Boulange?

10 should we expect from you are on food at breakfast, lunch and dinner?

And where is the limit with respect to what you can or cannot do with food given your store operating model?

Michael, thanks for that, and thanks for the opportunity to talk about food.

The acquisition of La Boulange was this opportunity to really enhance the experience and really get good quality food which we needed the relevant in the marketplace, and also to develop food that matches our coffee.

And I'm really pleased with where we started with La Boulange.

We are really growing our capability and we are showing that we can be a world-class products in Starbucks stores.

This is really early days for us because as you can imagine we are having to learn the way to operate food within our store environment and obviously it has got a compliment the coffee, but we make sure that we did not slow down speed of service.

And the first thousand stores has been an amazing learning opportunity.

We are also with La Boulange capability able to respond quickly to adapt recipes and to evolve our product offering.

I just think that we are at the beginning.

We have got a capability not only around breakfast.

We are able to start testing some lunch ideas.

We have an evenings innovation that we are testing in our stores.

And all of these just bode well for the future.

Over the last five years we have developed the testing capability to make sure that we bring things into the stores that is operationally a good feeling and a good experience for our partners behind the bar, that they are proud to deliver the product to the customers and enhancing this overall customer experience.

So we just to that we're in the early days not only here in the US but I can imagine that the recipe and ideas we have started in licensed stores, and it will go into other parts of the world.

And this is a global capability that we are going to develop and it will be matching our beverage capability the with had for the last 30 years.

And just really quick, that debt you are taking on you mentioned for general corporate purposes, are there any specific calls on cash we should be thinking about other than repurchases?

No, not at this point in time.

There's still the arbitration results yet to be announced and we have is I mentioned no new news on that whatsoever.

But that certainly is in our mind just prepare for regardless of what that answers is.

And then beyond that, no specific message on use of capital at this point.

Thank you.

John Glass, Morgan Stanley.

Thanks.

Troy, historically you have made a bunch of investments every year that run through the P&L.

Can you or are there any numbers you can provide for preliminarily for 2014 investments and what they relate to?

You also didn't I think address capital spending in the release.

What is your capital spending budget for '14?

And then finally I know you said the net effect of green coffee less these things with their dollars $0.09 to $0.10.

So was the gross benefit of coffee for 2014 if you would?

John our planning cycle in our Company is really in the beginning now and some of that work is done but much of it is in the, the head of us yet.

As we finish up this fiscal year and just remember we're not even in the new fiscal year yet.

So our final capital spending plans of course are well underway but they're going through the normal scrutiny and planning and discussion that we would always put them through, as are all of our investment plans for the year.

So no messages for you at this point in time on any of those things.

Those are all things that I will detail for you in our call late October as I do every year.

But suffice it to say the broad-based targets are provided today in terms of margin expansion and in terms of earnings-per-share are numbers that we feel quite confident in being able to deliver even with those investments that we have?

Now when it comes to coffee, yes I spoke about the $0.09 to $0.10 as a net benefits of that you all have clarity as to what we expect to deliver of the benefit to the bottom line.

As primarily net of the CPG price actions we've taken recently, and in other normal course investments and again what the size of those are in flux at this stage, and I won't provide detail on them now.

Nor will I provides Pacific details on the gross copy benefit critically because we still help out of the fiscal '14 year a bit open as far as price locking at this stage.

But the gross benefit is somewhat higher than that $0.09 to $0.10 net benefit that I spoke about.

Thank you.

Nicole Miller, Piper Jaffray's.

Thanks, good afternoon.

Howard, I was wondering if you would talk to us about your vision of as the stores come together with the digital experience and food and beverage innovation on TBN innovation and evolution of the platforms we have today.

What does that translate to in terms of domestic growth opportunities and global growth opportunities?

And then, Adam, if I can do a follow up with the as well, I think it has been great color around technology, and it is very disruptive in the fact that it is channel agnostic.

I looked into how you use it, and it is a little bit manual.

I am wondering if you ever envision not becoming more automatic?

Thank you.

Want to go first?

Sure.

Nicole it is a good question because one of the things that has allowed us to get such a big lead in mobile payments is that we did not try to for example, go right to the cloud, go right to some sort of tap to pay, although we do plan in the future on implementing whatever the state of art is most convenient for customers.

But where we have done a barcode or we have done other things is it has given us an ability to go to nimble and fast and is give us a lead in the space.

Okay.

In terms of your question about the multiple formats and growth opportunities, that may begin was saying that the lens that we have used to decide whether or not to acquire these companies was first and foremost to try to check the box and answer the question in the affirmative.

Does this acquisition enhance the experience inside our retail stores?

Obviously in listening to Cliff talk about La Boulange we have certainly been able to do that in terms of what food is representing and the thousand stores in one respect, nationally.

Secondarily, the acquisition of Evolution has given us a health and wellness brand and a platform to build well beyond juice and take that into the CPG category.

And thirdly, Teavana, a little bit different.

We bought 300 plus stores in malls that we thought we could bring our creativity and our competency to the category and do for tea what we did for coffee in a number of ways.

Beginning as I said in my remarks that we will open up re-imagined flagship store and operate in the upper East Side in Manhattan in the fall.

And that will be the beginning of demonstrating the integration and our capability of theater and romance AND handcrafted tea beverages hot and cold inside the Teavana store.

And that will be the template to then go back into Teavana stores and do that in their stores and then over time you will be able to see Teavana handcrafted beverages inside Starbucks as well as a very high quality super premium loose teas.

So the integration of Teavana into Starbucks, the integration of La Boulange of the Starbucks, the integration of juice in our stores, but the Teavana opportunity I think is at least 1000 stores in North America.

And the opportunity that we saw during the acquisition due diligence to Teavana was much greater outside of North America given the propensity of people consuming the impact of the world were are very strong specifically Asia-Pacific.

So I think this is the early days of these growth channels for us, but as I said in previous calls, no one should lose sight of the fact that in the last two years, the Starbucks stores that we gave opened have been some of the best performing stores in almost a decade in terms of average unit volumes and sales to investment ratio.

And we have no plans whatsoever to slow down on the US opportunity, including the success that Cliff and his team have had in drive though which has added significant incrementality.

So I think we're in a very unique position to offset any slowdown in the economic environment and continued the pace we have had about our core business and take advantage of the acquisitions we have made to leverage inside and outside of our stores.

Thank you.

David Tarantino, Robert W Baird.

Good afternoon and congratulations on excellent results.

Troy, or maybe Howard, I just wanted to come back to the question on the debt placement and the thought that you need additional liquidity given how much cash is already on the balance sheet and how much free cash flow you are generating.

I'm just wondering, is a big acquisition part of the near-term strategy?

Or is that a possibility?

I think you mentioned at the analyst day back in December that you are going to absorb what you already had but just wondering if you thinking there might have changed over the last six months or so?

I would say -- this is Howard -- I would say candidly with the three acquisitions we made over the last year and a half or so, and the opportunities we have had to integrate those acquisitions inside our stores, take advantage of them globally, I would say that we have enough to digest in the near-term.

There's nothing candidly in our site line that would suggest that we are involved and engaged in anything that we'd want to acquire.

Troy do want to add?

David, I would just say of my comments with respect to debt we've long recognize that there is opportunity with an extremely conservative balance sheet to bring a bit debt onto the balance sheet.

And frankly, the market conditions have been very good for that in the last several months as he now.

So that, combined with just as we look to the future thing about our cash around the world and how that continues to grow we have made a determination that this is the right time to get into the markets and bring a little bit of that on and that's really what is behind it.

And we work with our board and I think we have reached a consensus of being fairly opportunistic given the pricing of this kind of money.

Great.

And maybe just a quick follow-up.

Once you get past the Kraft settlement, would this be a signal than that you could become more aggressive with the dividend or buybacks?

Is that the idea?

David that is always a possibility.

I am not consciously signaling that today but I will tell you as you know every year we go through the valuation of our cash flow, of our capability of our plans ahead and of our dividend and the payout ratio and how active we are at repurchases.

So that is an ongoing evaluation and certainly something we will look at as we end this fiscal year and move into the next fiscal year.

And we will come back and I expect we will have more to tell you about that when we get into the October call.

JoAnn we'll take one more call?

Thank you, Howard.

We will take one more call and we will follow-up with those of you left hanging on the line.

Looking for a good question on the last call.

No pressure

Andy Barish, Jefferies.

A lot of pressure, Andy.

Wow, Howard.

How about we can harken back to another company in the industry this week that talked about some throughput issues as a bottleneck.

I would love to hear your perspective as the operating side of the business has come such a long way just in terms of kind of where you stand in terms of labor investment or some examples of how you are handling the increased by ins and comps and complexities in the US store footprint.

I think Cliff and his team of operators deserve all the credit in the world, and I'll give it to Cliff to answer the question in specificity, but let me frame it for you.

We are serving more customers today in our US stores than any other time in our history.

And that is happening for a number of reasons.

The peak periods we have become much more effective and efficient of being able to move our customers through in a satisfactory way.

The clear difference is the day part and need space that we are satisfying that really was not in existence five years ago.

That is a credit to the operators, the product innovation and specifically what is happening on mobile because the mobile platform that Adam talked about earlier, which is growing at rates that are just unbelievable and put us in a position where we have more transactions on mobile than any retailer the world, is also creating speed of service and efficiency and also satisfying our customers in ways that they have not been satisfied before.

But the real credit in all of this goes to Cliff and his operators.

Thanks, Howard, and thank you for letting me space on to that question.

Andy, Thank you.

The work that we are doing every day in our stores is the work of serving our customers and we're really focused on the products we develop and the way we bring them into store and the testing capability that we have never had before.

We have an incredible team of people.

The teamwork that is out there today is far better.

Everything we are doing around the environment to set our partners up for success is critical.

I really just want to thank our partners for their hard work each and every day.

They do incredible job, and they are more productive than they have ever been.

That said, we still see opportunities as a team to continue to grow capacity at peak.

And the innovations around day parts, whether it is beverage, whether it is food, whether it is juice, whether it is a carbonations in the future.

All of those give us the real potential to continue growing and we will continue to do that work.

Technology will support it, whether it is the digital platform, and we have some exciting things in the pipeline Thanks very much Andy.

Thank you.

That concludes our call on our fantastic third quarter results.

Thank you for joining us, and we will talk to you again in November.

Thank you.

This concludes Starbucks Coffee Company's third quarter fiscal year 2013 earnings conference call.

You may now disconnect.