星巴克 (SBUX) 2014 Q4 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 fourth-quarter and fiscal year 2014 earnings conference call.

(Operator Instructions) Thank you.

Ms. DeGrande, you may begin your conference.

Thank you, Mike.

Good afternoon.

This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company.

Thank you for joining us to discuss our fourth-quarter and fiscal 2014 year-end results.

Today on the call with prepared remarks are Howard Schultz, Chairman, President, and CEO; Troy Alstead, COO; and Scott Maw, CFO.

And joining us for Q&A are Cliff Burrows, Group President, US and Americas; John Culver, Group President, China Asia-Pacific, Channel Development, and Emerging Brands; Adam Brotman, Chief Digital Officer; and Matt Ryan, Global Chief Strategy 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 considered in conjunction with cautionary statements in our earnings release and the risk factor discussion in our filings with the SEC, including our last annual report on Form 10-K.

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

Please refer to our website at investor.

Starbucks.com to find a reconciliation of non-GAAP financial measures referenced in today's call with the corresponding GAAP measures.

This conference call is being webcast, and an archive of the webcast will be available on our website at investor.Starbucks.com.

Before I turn the call over to Howard, I want to once again extend an invitation for you to join us here in Seattle on December 4 for our biennial investor day.

The event kicks off Wednesday evening with a reception at our new roastery, which we are very excited to unveil, followed on Thursday by presentations and on-site experiences here at our headquarters.

Please contact investor relations if you need more information, and we hope to see you here in early December.

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

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

Starbucks record Q4 and fiscal 2014 financial and operating results again demonstrate the power and relevancy of the Starbucks brand and the success and scalability of our operating strategies and global business model.

Meaningful contributions from each of our business units drove a better than 10% increase in Q4 revenues to a record $4.2 billion, while improved store operations enabled us to deliver an elevated experience for our customers and our 19th consecutive quarter of comp store sales growth at or above 5%.

Sales leverage, increased operating efficiency, and disciplined expense management each contributed to a 280-basis-point increase in operating margin over last year to a record 20.5% and a 23% increase in non-GAAP earnings to a Q4 record of $0.74 per share.

For the full fiscal year, Starbucks grew revenues by 11% to a record $16.4 billion, posted global comp store sales growth of 6%, squarely in line with our targets, and grew non-GAAP EPS by 21% to a record $2.66 per share.

Starbucks' performance in fiscal 2014 was extraordinary by any metric or comparison, and the results remain even more stunning by the fact that they were achieved in the face of continued challenging retail and consumer environments, the accelerating shift in consumer behavior from bricks and mortar to e-commerce purchasing, and on the heels of 7% comp growth in fiscal 2013.

I have spent many of these calls discussing the quarter or year ahead, but today I'm going to leave that to Troy and Scott and instead lay out for you a road map that demonstrates how Starbucks is positioned to benefit from the massive cultural shift in consumer behavior underway and how we will continue to lead, thrive, and win in fiscal 2015 and beyond.

The most meaningful changes are long-term game changers, but I will begin with immediate plans that will drive results this holiday.

For this holiday season, officially starting for millions of consumers in the US and around the world this Saturday when Starbucks cups turn red, we have completely reimagined our in-store experience.

We have great seasonal offerings from La Boulange and are introducing an innovative new handcrafted beverage, chestnut praline latte, a beverage that resonated strongly with customers in test markets and will add incrementality as the next iconic holiday beverage.

And we have reoriented our approach to gifting.

Last holiday, Starbucks benefited enormously from the consumer shift towards gift-giving cards instead of traditional physical goods.

For us, that translated into a record card sales -- roughly one in eight Americans receiving a Starbucks gift card and $1.4 billion in Q1 card loads last fiscal year.

This holiday, we will create even more passion and excitement for Starbucks gift cards by offering 100 beautiful, unique, and proprietary new card designs, merchandised on an engaging freestanding card wall, and supported by social media to encourage engagement and peer-to-peer sharing.

And we will have greatly expanded our e-commerce merchandise offerings as well.

But the big driver this year is our promotional overlay of Starbucks for Life.

During the five-week period beginning December 2, at the heart of the Christmas shopping season, every customer who uses a gift card or their MSR account to pay can win one of almost 500,000 food and beverage prizes.

And 13 lucky cardholders in North America will win Starbucks for Life.

Now, customers have been trying to buy Starbucks for Life for decades, but we have never offered it and you still can't buy it.

But this holiday season, 13 Starbucks cardholders or MSR members will win it.

Our Starbucks for Life promotion and external marketing plans will ignite social media channels through our customers into our stores and drive significant loyalty into the flywheel of Starbucks.

Today, Starbucks is approaching 1,400 stores in China, and customer engagement with our brand has never been stronger.

We continue to expand and leverage our mobile, digital, and loyalty assets and become an increasingly relevant part of the daily ritual for a rapidly growing customer base.

As a result, Starbucks comp growth in China routinely outpaces segment comp growth in China overall.

And with passionate, world-class senior leaders and store partners drawn from local communities within China and demand for all things Starbucks in China so strong, we are now opening an average of one new store every day, a pace that would only accelerate for years to come.

These are still the early days of Starbucks' growth and development in China despite the fact that is one of our strongest markets in the world.

Turning to Japan, last month we entered into an agreement to acquire the shares in Starbucks Japan we did not already own.

Opened in 1996 in our first country market outside of North America, Japan today represents over 1,000 stores.

Besides being EPS accretive in year one, when completed the transaction will enable us to increase the pace of new store openings that have benefited us in the US, China, and certainly in other markets around the world, and expand the availability of Starbucks products in multiple CPG channels.

We will also be able to leverage more fully our loyalty, digital mobile, and new product development programs in Japan.

Turning to EMEA, I am pleased to report that our EMEA business has been transformed and turned around just as we had promised.

And that Q4 represented EMEA's best quarter in years, with particularly strong performance in the UK.

As good as Q4 was, you will continue to see the EMEA get even better in the quarters ahead.

Now let me turn to coffee.

For years, we have dreamed of a single place where we would capture all the passion, all the ambition, all the magic of coffee in one extraordinary, dynamic space.

Those of you who come to Seattle for our investment day -- investor day in December will see that vision come to life in the most unique and extraordinary consumer experience ever seen: the Starbucks roastery and tasting room.

The roastery will shine a bright light on everything Starbucks.

It will seamlessly integrate coffee roasting and food, beverage and merchandise retailing into an immersive consumer experience that showcases Starbucks coffee heritage, the craft of small-batch roasting, and innovative new coffee brewing methods, culminating in each cup of coffee being handcrafted right from the roaster.

We will combine the beauty and romance of super-premium, micro-lot coffees with moments of connection and discovery for our customers.

But perhaps the greatest value of the roastery is that it will anchor a new Starbucks super-premium coffee sub-brand, Starbucks Reserve.

Identified not by the Starbucks brand itself, but by a capital R and a star that defines the upper limit of what is possible in coffee, just as other authentic super-premium brands have done in other industries and formed the foundation for an entirely new Starbucks Reserve retail store platform and business unit.

The first of 100 or more reserve stores we plan to open around the world will be opening in San Francisco very soon.

And the roastery will be the first of several we plan to open in select markets around the world beginning in fiscal 2016.

Beyond the experience itself, the proprietary design, technology, and capacity we have built into the roastery will enable us to substantially increase production of rare and limited availability coffee and to double the number of Starbucks stores offering packaged Starbucks Reserve coffees to 1,500 worldwide by the end of fiscal 2015.

And I can assure you that no other coffee company in the world will be able to offer a higher quality coffee than a coffee labeled Starbucks Reserve.

With the roastery and with Starbucks Reserve, Starbucks will further elevate the premium end of the coffee industry, extend our coffee leadership and authority, and create further separation from every other coffee company in the world.

Let me turn to Teavana.

The Teavana acquisition provided Starbucks with unique entree into the $90 billion global hot and iced tea category, a category we feel strongly is ripe for innovation and reinvention.

Last year, we opened our first Teavana tea bar on Manhattan's Upper East Side, and we now have a total of six Teavana tea bars.

I was at the opening of our newest New York City Teavana tea bar on Ninth Street and Broadway just last week and was taken by the energy and customer excitement in the store.

I urge you all to visit the store yourself and envision a national and global footprint of Teavana stores that Starbucks will create.

Sales of handcrafted Teavana beverages, such as Teavana Oprah Chai and Teavana shaken iced tea and sale of Teavana premium loose-leaf teas through Starbucks' global store base were always a core strategic focus of the acquisition.

Today, we are already seeing Teavana products drive incrementality of Starbucks stores in North America, and at the same time they build brand awareness and add new customers for Teavana.

In fact, Teavana shaken iced teas were the single most profitable addition to our menu last year.

Now let me comment on digital, card, mobile, loyalty, and payments.

I want to talk to you about the intersection of three powerful consumer trends, the convergence of which bodes extremely well for Starbucks over the long term.

The shift in consumer behavior that has people spending less time shopping in bricks-and-mortar stores and more time online that I first discussed with you after Q1.

The established, long-term trend of people consuming more and more food and beverage away from home.

And the tremendous growth of online activity from mobile devices allowing consumers to conveniently conduct their lives, including commerce, from wherever they happen to be.

What is actually occurring is a cultural shift in time allocation away from retail experiences people have felt forced to undertake and towards retail experiences that people want to enjoy, with convenience as the key enabler.

Starbucks is uniquely well positioned to benefit from this convergence as a destination experience.

Visiting a Starbucks has always been an elective choice, a place people choose to frequent, and as a result a place that is vastly less dependent on intercepting retail traffic for sales growth.

The relevance of the Starbucks experience, the desirability of our coffee and food, and the ambience and feeling of community within our stores sets us apart from our competitors and are unique drivers that will continue to support our growth.

On top of this, we continue to see consumers favor retailers who improve their customer experience through the integration of convenient mobile technology.

And while Starbucks is today an uncontested leader in mobile, we will continue to innovate and lead around all things mobile in order to attract additional users of our app and provide an enhanced and simplified experience for our customers.

Innovations that will drive traffic and incrementality and create further attachment and customer engagement.

By way of example, in September we launched our new Starbucks app for Android with Shake to Pay functionality in the US, UK, and Canada, and also digital tipping in the US.

And Starbucks' iOS app now has Uber integration, enabling customers to click on a ride to their local Starbucks.

But perhaps the single most important technology innovation we will introduce this year is Mobile Order and Pay, which debuts in Portland in December and will be rolled out nationwide in 2015.

And while many people are talking about mobile and pay, what Starbucks is going to do and execute is quite different than anyone else in the marketplace.

Consumers today are no longer willing to accept convenience only around the purchase of readily available or commodity-based products.

They want convenience around the purchase of premium products like Starbucks as well.

One way we are addressing that need is through accelerated expansion of Starbucks' portfolio of high-profitable, drive-through stores.

But our research confirms that we can drive even more traffic and incrementality and offer even more customers more convenience in more locations by allowing them to place orders ahead of time via their mobile devices and pick their orders up without waiting in line.

Starbucks' Mobile Order and Pay is a totally unique technology.

It seamlessly integrates mobile ordering and our proprietary loyalty program with point-of-sale and store operations, enable us to enhance our customer experience, exceed our customers' expectations of convenience, and extend customer loyalty.

And as we will see in a few weeks, no company in any industry offers any technology remotely like Starbucks' Mobile Order and Pay; plus, we get the added benefit of increased store throughput and speed of service for all our customers.

And we will drive a further step change in customer loyalty and engagement by extending express order and pay to include food and beverage delivery -- yes, food and beverage delivery -- in select markets during the second half of 2015.

Imagine the ability to create a standing order that Starbucks delivered hot or iced to your desk daily.

That's our version of e-commerce on steroids.

All of this will grow Starbucks Rewards, our loyalty program that now has 8 million active members, up 23% over Q4 last year and has been launched in 26 countries.

And we will roll out an enhanced My Starbucks Rewards program providing even greater benefits to members in 2015, further accelerating MSR membership growth.

And we have several initiatives underway that will grow membership in the short term and surprise and delight our customers.

Finally, while we have been investing in the development of our world-class mobile technologies for many years, and there has been a great deal of activity and speculations around the mobile payment space recently, mobile payment and consumer adoption of the technology overall is still in its infancy.

Please consider this metric.

In 2013, payment for purchases by use of a mobile device in the US totaled $1.3 billion.

That was the entire market.

Now listen to this.

With over 90% of those purchases taking place in a Starbucks store, that means we had 90% share of mobile payments in 2013, while bricks-and-mortar commerce in 2013 totaled more than $4.2 trillion.

Now, what you're going to see in the years ahead will be a rapid acceleration in mobile device purchases and a continued significant migration away from bricks-and-mortar commerce.

There's obviously a huge prize there, and that's why you are seeing so much activity around the payment space from all kinds of companies.

That's why every tech and financial service company in the world is totally -- is today chasing the mobile payment opportunity.

Yet while these companies may have vast hardware and software development capabilities, and this is the key point here, Starbucks is the only local, national, or global business of any kind to succeed in crossing both the most difficult and the most critical chasm standing between success and failure in mobile payment, transforming consumer behavior.

We have accomplished this by integrating the convenience of mobile payment to a compelling and enjoyable program that gives our customers rewards.

Already, close to 7 million transactions per week, 15% of all transactions conducted in US Starbucks stores, occurs via a customer's use of a mobile device.

No company and no retail store, domestically or internationally, even comes close.

And while that figure has been growing by almost 50% per year, the real growth is yet to come.

Starbucks Coffee Company has cracked the code at tying mobile payment to loyalty, and we are now receiving great interest in partnerships from mobile payment companies who see the value of our rewards program and the mobile payment behavior we established.

But we will play our hand wisely with a long-term view, carefully choosing our partners and how we leverage our assets to take advantage of the revenue and profit opportunities in loyalty and mobile payment ahead.

But I can assure you that Starbucks will have a major role to play both inside and outside of our stores as the nascent mobile payment industry evolves.

On Veterans Day, November 11, just two weeks from now, in keeping with Starbucks' values and guiding principles, and in conjunction with the publication next week of a book I co-authored with Rajiv Chandrasekaran -- For Love of Country: What our Veterans can Teach us About Citizenship, Heroism, and Sacrifice -- Starbucks, HBO, and Chase will be hosting a free, nationally televised concert on the Mall in Washington DC to honor our veterans of the wars in Iraq and Afghanistan who have given so much so we may enjoy our freedom, our families, and our lives.

Over 200,000 people are expected on the mall, with an A-list performer list which includes Bruce Springsteen, Rihanna, Eminem, Carrie Underwood, and many others.

Don't miss it.

Lastly, we're looking forward to welcoming many of you, as JoAnne already shared with you, to Seattle for our biennial investor day on December 4, our first conference in our hometown since 2006.

After sharing with you details around new food and beverage innovations, reimagined store designs, and new store formats, Mobile Order and Pay, expansion of our evening program to drive further incrementality, elevation of our partner and customer experiences, and many other initiatives that will demonstrate how Starbucks will continue to grow and to win in fiscal 2015 and long into the future.

And I am beyond thrilled to share with you the spectacular new roastery.

I will now pass the call over to Troy and Scott to discuss our operating and financial performance in Q4 in fiscal 2014 and provide an update of our fiscal 2015 outlook.

But before I do, I just want to say one thing.

When I look at the results -- and this is not on the script -- when I look at the results of this year, the stunning accomplishments on so many levels, I hear somebody be disappointed with a 5% comp on a base of over 7,500 stores, I've just got to ask myself, is there any company in your universe putting up these kinds of numbers, and the answer is no.

And I can tell you, from my point of view and from everyone involved at Starbucks, we are just getting started.

Troy.

Thanks, Howard, and good afternoon, everyone.

2014 was an incredibly strong and record year for Starbucks across the board.

Each of our reportable segments set new fourth-quarter records for revenue and operating income.

The results we reported today are that much more significant when considered against the backdrop of the very soft global retail environment in which they were accomplished.

The hard work and dedication of our Starbucks partners have enabled us to be where we are today, and we have the solid foundation needed to continue to profitably grow both emerging and existing lines of business into the future.

I will provide an overview of our fourth-quarter and fiscal 2014 performance for each reporting business, and then turn the discussion over to Scott for additional details along with an update on targets for fiscal 2015.

For the total Company in the fourth quarter, we produced net revenue of $4.2 billion, up 10% from the same period at fiscal 2013.

In a difficult consumer environment, we delivered comparable store sales growth of 5% in the quarter, driven by a 4% increase in average ticket and a 1% increase in traffic.

And new store openings continued at a healthy pace, with 503 net new stores opened in the fourth quarter.

In terms of segment results, the Americas net revenue for the quarter was $3.0 billion, a 9% increase over the same period last year.

The increase was primarily driven by a 5% increase in comparable store sales comprised of a 1% increase in traffic and a 4% increase in average ticket.

Incremental revenues from 698 net new store openings over the past 12 months also contributed to the growth in revenue.

While we delivered comparable store sales growth solidly within our stated target range for the consolidated business in all segments, both for the quarter and the year, like others in retail we are feeling the impact of the consumer uncertainty in today's economic environment.

We're not satisfied with 1% traffic growth in the Americas and are taking immediate steps to grow traffic.

I will share with you some specific plans to do just that, including some exciting new initiatives launching in the next few weeks.

I would like to underscore that we are very encouraged with several key performance indicators in our fourth-quarter results that speak to the health of our business.

First, our new stores are driving incremental traffic, serving untapped demand, and, for a second consecutive year, maintaining record levels of first-year performance.

These stores are increasingly contributing to traffic and revenue growth, a clear indication that we're opening stores in the right places and in the right formats, which provide us with a solid foundation for future growth.

Second, similar to the third quarter, ticket growth was among the highest in the last several years, with the growth primarily driven by beverage and food mix and attach.

Pricing once again contributed 1 point total comp growth, consistent with the prior four quarters.

Third, all dayparts grew over the prior year.

And while more than 45% of our traffic is in the morning before 11 AM, we saw strong growth in the midday between 11 AM and 3 PM.

This is another encouraging sign that our food and beverage innovations geared toward expanding the afternoon daypart are gaining momentum with customers, which brings me to another key highlight of our fourth-quarter performance: food.

Food again contributed 2 points to Americas comp growth this quarter, representing double-digit revenue growth over the prior year.

Our expanded breakfast sandwich platform drove the majority of the increase in food comp, bolstered by significantly higher attach rates.

We are very encouraged that our premium breakfast sandwich platform is performing extremely well.

Our bakery and lunch platforms also delivered strong revenue growth.

The introduction of two new lunch sandwiches at the end of last quarter has created new interest in all our warm sandwich offerings, which indicates that Starbucks is increasingly recognized by our customers as an attractive option for lunch.

In addition to sales growth, we achieved margin enhancement from a variety of supply chain improvements.

The insights we gained from the rollout of La Boulange Bakery and new lunch offerings have enabled us to refine our execution.

The most significant impact we're seeing is a reduction in waste, which flows directly to the bottom line.

We have also simplified work routines in our stores with the implementation of the food management tool.

Our partners have responded positively to the changes, and we are seeing the benefit in margin improvement.

And finally, we continue to analyze our product offerings and make adjustments to ensure that the items we offer are those that will truly make a difference to our customers in terms of routine, relevance, and loyalty.

Our Teavana hand-shaken iced tea helped drive more than 20% growth in our iced tea platform.

Overall, we saw double-digit growth in the entire tea category over the fourth quarter last year, with the growth coming from across the entire platform from our base products to our limited-time offerings.

We are very pleased with the strong performance we've seen in the early days of Teavana in Starbucks stores, and we believe that we are at the very nascent stage of what promises to be a tremendous growth opportunity for tea in the future.

Moving on to our store formats, in the US, our highly profitable drive-through stores, which account for 42% of our Company-operated store portfolio, generated nearly 50% of sales and 55% of total Company-operated store profit in Q4.

Drive-throughs achieved comp growth in Q4 that outpaced the overall portfolio, with more than 60% coming from out-the-window sales, reinforcing the importance and relevance of convenience to our customers.

We are very encouraged by these results and expect them to grow as we continue to focus on improving productivity at peak and deliver an enhanced customer experience.

Overall, I am very pleased with the results from our Americas segment.

As Scott will discuss in further detail, operating margin for this segment increased a phenomenal 260 basis points over the prior year, a tremendous accomplishment considering the size of the Americas business.

Now turning to EMEA, where the momentum that has been building all year culminated in a remarkable finish in the fourth quarter.

The region delivered strong 10% revenue growth in the quarter, attributable to favorable foreign currency exchange, 5% comp growth, and incremental revenue from 171 net new stores opened in the last 12 months.

This represented the sixth consecutive quarter of positive comps, driven by a 2% lift to traffic and a 2% rise in average ticket.

The two-year comp at 7% represents the highest two-year comp in the past three years.

For a second consecutive quarter, the UK comp was slightly higher than the overall segment comp growth for the quarter.

A major driver of this increase was food, once again, driven primarily by up-leveling our breakfast and lunch platforms.

Another major market in the EMEA business, Germany, also achieved comp growth that outpaced the regions for a second consecutive quarter.

We are very pleased with this result because it was Germany's sixth consecutive quarter of positive comp growth.

As the store mix of the EMEA portfolio shifts, it is important to look at how our licensed stores in that segment are doing.

We're very pleased that several license markets comped above the segment results for our Company-operated stores, with two markets reaching double-digit comp growth.

This further demonstrates the strength of the Starbucks brand across the region, where today 62% of our stores in EMEA are licensed.

The turnaround in this region has been both remarkable and well balanced, from improving the customer experience to up-leveling product offerings to expanding margin through process and supply chain efficiencies and profitability for restructuring our store portfolio.

I am very pleased with the ongoing level of improvement from our EMEA business and the rapid pace at which the improvement is occurring.

Turning to the China/Asia-Pacific region, our fourth-quarter results were strong once again.

Total net revenue grew 21% to $310 million in Q4, a new all-time record, and represents the 17th consecutive quarter with revenue growth in excess of 20%.

The largest drivers of this growth were incremental revenue from 742 net new stores opened over the past 12 months and 5% comp growth for the quarter.

Comp growth was entirely attributable to increased traffic, with ticket declining in the quarter partially due to lower sales of seasonal packaged food offerings in China.

Most importantly, the region's strong 6% traffic growth sustained a trend from the third quarter, demonstrating the tremendous strength of the Starbucks brand in the CAP region.

We ended the year with 4,624 stores in this region, including 199 net new stores open during the fourth quarter.

120 of these new openings were in China, a fourth-quarter record.

Of particular significance is that our new stores in China are exceeding the year-one pro forma sales we projected.

These results and the investments we have made across the region, including our pending acquisition of Starbucks Japan, gives us great confidence and optimism about our future performance in the CAP segment.

Finally, the channel development.

The momentum we saw in the third quarter continued into the fourth quarter.

This segment achieved a new record for quarterly revenue, almost $400 million, resulting in 12% growth over the prior year.

The increase was primarily driven by sales of K-Cups, which rose 26% in the fourth quarter, reflecting the strength of core product sales and success of the product innovation and limited-time offerings.

Our flavors platform grew with the introduction of two new flavors in July: cinnamon dolce, and mocha.

Our seasonal, limited-time offering, Fall Blend, was also successful.

We are pleased that our diverse portfolio of K-Cup offerings contributes to our leadership position down the aisle in premium at-home coffee.

We are confident we can maintain our market-leading position in premium packaged roast and ground coffee as well despite the continued shift in consumer preference toward single-serve coffee and our strong position in that category.

Continuing innovation combined with our unique unmatched cross-channel My Starbucks Rewards program are the keys driving that continued leadership position.

In fiscal 2014, 1.5 million of the 8 million members of our loyalty program earned stars through the grocery channel.

And now to recap our full-year 2014 results, which were also very impressive.

At the consolidated level, we achieved record revenue, operating income, and operating margin.

Consolidated revenue for fiscal 2014 increased 11% to $15.4 billion.

The increase was primarily due to a 6% increase in comparable store sales, comprised of 3% increase in traffic and a 3% increase in average ticket.

Incremental revenues from 1,599 net new stores opened over the past 12 months also contributed to the growth in revenue.

Of the new stores we opened, 1,029 were licensed, demonstrating the strength of the Starbucks brand and the valuable license partnerships we have established around the world.

We achieved a number of major milestones in 2014.

We completed the La Boulange Bakery rollout in all Company-operated and licensed stores in the US.

We announced the planned acquisition of Starbucks Japan, our first international market outside North America.

And our channel development business delivered both double-digit top- and bottom-line growth for the year.

We shipped approximately 750 million K-Cups during 2014, giving us confidence that we can reach the 1 billion mark in 2015.

As we move into 2015, our priorities for our food program will be to continue to lean in on the success of our breakfast sandwiches, evolve our lunch program by introducing new items, and add several hundred evening stores as we move the program into the full launch phase that thoughtfully leverages the insights we gained during the test period.

On the digital front, we will be intently focused on learning from the Mobile Order and Pay pilot we will be launching in December in anticipation of the full US rollout later in calendar 2015.

We will demonstrate our commitment to staying ahead of the shift to e-commerce through a completely reimagined in-store holiday experience.

We will continue to grow our coffee leadership position in our stores and at home through store formats and product innovation that is relevant for our customers, including the roastery and the forthcoming Starbucks Reserve sub-brand and stores.

We will create new occasions through our tea platform.

We will grow store base with innovative store design and formats.

We will complete the acquisition and the integration of Starbucks Japan and begin unleashing new growth opportunities in that market.

And we will begin rolling out the first phase of a multi-year investment in the partner experience.

This will include higher start rates in all US markets starting in January, a new performance recognition and reward mechanism, improved shift schedules, the introduction of a food benefit, and continued expansion of the Starbucks College Achievement Plan through Arizona State University.

During our investor day in Seattle on December 4, we will provide additional depth on these initiatives and much, much more.

I look forward to seeing you here for that event.

I will now turn the call over to Scott to provide more details on the fourth-quarter and full year 2014 as well as our 2015 targets.

Scott?

Thanks, Troy, and good afternoon, everyone.

Our fourth-quarter and full year 2014 saw strong financial growth and profitability for Starbucks.

Our results were once again driven by the customer experience delivered by our partners around the world.

Q4 revenue grew 10%, and our strong comp store sales of 5% once again showed the strength of our brand in a difficult environment.

One of the most significant financial items to highlight is the 280-basis-point increase in non-GAAP operating margin, reflecting our ongoing ability to deliver -- to leverage operating costs and control cost of goods sold.

This is the highest level of non-GAAP operating margin expansion we have driven in nearly four years.

Before I go into specifics, I want to ensure that everyone is clear on what we are including in our non-GAAP adjustments for comparison purposes.

For both 2013 and 2014, we have excluded charges and adjustments related to the Kraft litigation.

We have also excluded the gains, losses, and costs from certain transactions related to equity interests and retail operations in specific geographies.

You can see the amounts, timing, and description of these items in the detailed reconciliation table provided at the end of the earnings release.

I recommend you review that in conjunction with our results.

Operating income from each of our reportable segments reached new all-time highs, contributing to the margin expansion I mentioned earlier.

Our fourth-quarter results across the segments drove another quarter of strong growth, with earnings per share $0.77 on a GAAP basis.

Our fourth-quarter non-GAAP earnings per share was $0.74, which is the highest we have ever achieved in a single quarter.

This represents 23% growth over the prior-year non-GAAP EPS.

On a segment basis, operating income in the Americas grew to $743 million, up 23% over the prior fourth quarter.

Operating margin expansion of 260 basis points reaching 24.4% was primarily driven by significant sales leverage.

Effective inventory management in our stores, primarily the result of reducing product waste and lower commodity costs, also contributed to the margin improvement.

In EMEA, we continue to deliver strong results that demonstrate that the transformation work over the past few years is truly taking hold.

Fourth-quarter operating income for this segment was $39 million, a 42% increase over the fourth quarter which translated into a 12.1% operating margin.

This is EMEA's first quarter ever of double-digit margins.

This resulted in a 280-basis-point expansion in operating margin over the prior year, primarily driven by sales leverage and continued expense management.

Now let's turn to China/Asia-Pacific.

For a second consecutive quarter, this segment delivered operating income in excess of $100 million.

This was an 8% increase over last year, which translated into a 33.5% operating margin and was driven by balanced performance across the region.

Operating margin declined 400 basis points primarily due to a 210-basis-point favorable impact to last year's fourth quarter margin from a reduction in the estimated asset retirement obligations for store leases.

The ongoing shift in our store portfolio composition to more Company-operated stores also contributed to the margin decline.

Operating profit for channel development grew 34% in Q4 over the prior year to a record $172 million.

And operating margin was 43%, a 690-basis-point increase over last year.

Significant top-line growth due to strong sales of single-serve products, coupled with favorable coffee costs and other cost-of-goods-sold efficiencies, drove the operating income and margin improvement.

The effective tax rate for the fourth quarter was 36.4%.

The combined impact of selling our ownership interests in Malaysia and Australia increased the rate by about 2%.

Our full-year results for 2014 were equally impressive.

Consolidated global net revenues reached a record $16 billion in fiscal 2014.

The 11% revenue growth over fiscal 2013, coupled with our EPS growth this year, represents the third straight year that we have grown revenues double digit and non-GAAP EPS over 15%.

Our fiscal 2014 consolidated operating income of over $3 billion represents a 25% increase on a non-GAAP basis from last year, including over 15% operating income growth in all reportable segments.

Relative to the prior year, operating margin increased 210 basis points for fiscal 2014 on a non-GAAP basis, primarily driven by sales leverage and lower commodity costs.

We added nearly 1,600 net new stores in 2014, with about 70% of those stores outside of the US, once again reflecting broad and balanced growth around the world.

Cash flows from operations remained very strong, and we returned a record $1.6 billion of cash to shareholders through dividends and share repurchases, up 32% from 2013.

This reflects our significant cash generation capability and balance sheet strength.

And today, we announced that our Board has approved a 23% increase to our quarterly dividend to $0.32 a share.

Looking ahead to 2015, we will see significant, continued revenue growth, including the impact of Japan, our largest acquisition ever.

We expect this acquisition will move our consolidated revenues up over $19 billion as we take full control of the already-successful Japanese market.

We will also increase investments in critical areas such as store partner pay and benefits, coffee leadership and innovation such as the roastery, and digital capabilities including Mobile Order and Pay.

Finally, we will have a renewed focus on driving increased leverage of both cost of goods sold and G&A expenses.

And all of this will be achieved while we continue to focus on product innovation and customer service that has driven our industry-leading performance through time.

Before I discuss 2015 targets, I want to highlight certain non-GAAP adjustments related to fiscal 2015 for comparison purposes.

In addition to the 2014 items I mentioned earlier, 2015 non-GAAP earnings numbers will exclude several adjustments related to the Japan acquisition.

Specifically, we have excluded from our comparisons the significant acquisition-related gain we will recognize in Q1 resulting from the fair-value adjustment of our current ownership interest in Starbucks Japan.

We expect this gain will be approximately $325 million to $375 million after tax and will increase first-quarter earnings by $.43 to $.49 per share.

Also, non-GAAP results will exclude the amortization of acquired intangible assets and deal-related transaction and integration costs which will flow through the P&L throughout 2015.

These are all estimates, and we will firm up the final amounts related to the gain and the amortization of the intangible assets in Q1.

Again, we have provided a summary of these adjustments in the table at the end of our earnings release.

Also, given the significant financial impact of the Japan acquisition on the CAP segment and consolidated results, we are holding a separate conference call to address questions related to this on November 5 at 9 AM Eastern time.

Given this, please limit your questions today on the Starbucks Japan transaction to strategic and business-related items, as we will defer financial and modeling-related questions to the call next week.

We expect fiscal 2015 revenue growth will be 16% to 18%, including over $1 billion in incremental revenue from the Japan acquisition.

We expect Japan will contribute approximately 6 to 7 points to revenue growth.

Excluding the Japan impact, revenue growth is consistent with our previous target of 10% plus.

Consolidated operating margin next year on a GAAP basis is expected to decrease slightly due to the impact of the Japan acquisition.

On a non-GAAP basis, we expect operating margin to be flat to up slightly in 2015.

This operating margin forecast reflects the impact of consolidating 100% of Japan revenue for most of 2015 versus a joint venture accounting approach in 2014 which recognized much lower revenue from Japan while picking up about 40% of the earnings.

In our FY15 targets last quarter, I mentioned 10%-plus revenue growth and 15% to 20% EPS growth over 2014 non-GAAP EPS, which indicated that we would have solid operating margin expansion.

The only significant change to that target is layering in the full impact of the Japan acquisition.

We anticipate margin expansion will have returned in 2016, reflecting the full-year impact of 100% ownership Starbucks Japan and continued strong operating leverage.

So we expect one year of slightly lower margin followed by return to consistent annual margin expansion, including the growth opportunities we see in Japan within our stores and other channels including CPG.

Regarding the CAP segment, we anticipate operating margin will be in the high teens on a GAAP basis.

This again reflects the change in ownership structure in Japan and the mix shift due to significant growth in China Company-owned stores.

It also includes 2 to 3 full points of impact from the amortization of the intangible assets associated with the Japan acquisition.

We expect that this operating margin will move up into the low 20s over time.

It is important to reiterate that both Japan and China have among the highest store-level operating margins in our system.

Also, market-level operating margins are expected to expand in both countries in 2015.

We remain very confident in the decision to acquire all of Japan given the immediate accretion of this transaction on a non-GAAP basis, low funding costs leveraging offshore cash, significant growth opportunities in our stores and other channels, and an overall high IRR reflecting strong deal economics.

In the Americas, we expect operating margin to expand modestly from the excellent results posted in 2014, reflecting the ongoing investment in partners that Troy mentioned offset by favorable sales leverage.

In EMEA, we anticipate operating margin improving to 10% to 12% solidly into the double-digit range for the first time, driven by the benefit of mix shift as well as continued operating improvements across the region.

And in channel development, sales leverage will provide modest operating margin expansion in fiscal 2015, improving upon our already outstanding operating results.

Our strong revenue growth and margin expansion give us the confidence in earnings per share in the range of $3.42 to $3.54 in fiscal 2015.

On a non-GAAP basis, we expect EPS ranging from $3.08 to $3.13 towards the middle of our long-term range of 15% to 20%, an increase over our initial guidance provided in July.

We are expecting GAAP EPS in Q1 in the range of $1.20 to $1.28, reflecting the large gain on the Starbucks Japan transaction.

Non-GAAP EPS is expected to be in the range of $0.79 to $0.81 in the first quarter, a bit lower growth than the full-year target given investments in marketing as we approach the important holiday season and in our partners, primarily related to the recent leadership conference earlier this month.

As we mentioned last quarter, commodities favorability added about 4 percentage points of EPS growth in 2014, and we continue to expect commodity costs to be roughly neutral in 2015.

We have 2/3 of our coffee needs priced; and despite the volatility in the coffee market, we do not expect coffee prices to impact our current EPS target for 2015.

As to recent market prices, we see nothing in current supply dynamics that indicates a fundamental market shortage, including origin-related concerns in Brazil.

We have largely stayed out of the market this year where the coffee prices have spiked, and we will continue to be patient as we lock in the final 1/3 of our needs in 2015.

As a reminder, coffee only represents about 10% of our total costs, and we have managed through difficult and volatile markets before.

Also, we have never reduced our EPS target range due to the impact of coffee costs.

We now expect to add approximately 1,650 net new stores globally.

Of the 1,650, we expect 650 in the Americas, 150 in EMEA, and 850 in China and Asia-Pacific.

Our effective tax rate should be around 31%, including approximately 4 points of favorable impact in Q1 from the planned acquisition of Starbucks Japan.

Finally, our expectation for capital expenditures is $1.4 billion for fiscal 2015.

This is somewhat higher than prior years primarily due to new store growth and the investments that will be needed as we launch Mobile Order and Pay, add more evening stores, and make other important growth investments.

We are confident that these investments will continue to fuel the strong earnings growth that we have experienced over the past several years.

In closing, fiscal 2014 represented another year of strong results for Starbucks.

All of our reportable segments delivered record revenues and operating profits, with significant margin expansion for the total Company.

Record cash returned to shareholders and new store economics set an all-time high, reflect financial discipline and a keen focus on return on capital.

As we enter the new fiscal year, our Company remains positioned for growth, with specific investments in innovation, digital capabilities, and our partners.

Funding this growth will come from operating efficiency and a renewed focus on better leveraging cost of goods sold and overhead.

Our financial targets for next year appropriately balance the need to grow and invest with the financial discipline that leads to long-term earnings growth and margin expansion.

We are confident that the best days for Starbucks still lie ahead as we look to capitalize on the strength of our global brand and the abundant opportunities that remain in markets and channels around the world.

With that, let me turn the call back to the operator to begin Q&A.

Operator?

(Operator Instructions) Sara Senatore, Sanford Bernstein.

I was interested to hear Howard talk about some of the product innovation like the Chestnut Praline Latte.

And I guess I was wondering if you could put that in the context of maybe the competitive environment because it feels like a lot of companies have tried to replicate what Starbucks is doing, whether it's Pumpkin Spice Latte or digital and loyalty.

And I know what you're doing is distinct and different, but is it possible that competition has had something to do with a little bit of the deceleration that we've seen in the traffic?

I ask only because some other parts of the restaurant industry have actually seen a little bit of improvement recently.

And so I'm just trying to sort of understand the divergence there.

Thank you.

Thank you.

We see no indication whatsoever from any competitive threat in any region in the country.

Specifically, even in those markets where companies were giving away coffee for weeks at a time, we saw no dilution whatsoever in our customer base.

With regard to products, it's clear that over the last 10 years, we created a category that did not exist with Pumpkin Spice Latte.

Having said that, PSL did very well for the season.

One of the hallmarks of Starbucks is surprising and delighting our customers with proprietary beverages.

The interesting thing about the beverage we are introducing, Chestnut Praline Latte, is this is something we tested under the radar last year.

It surprised us at the high end, and this is a product that's coming into the system with as much enthusiasm internally as anything we've done in the past during the holiday season.

And I put it in the same spirit as when we introduced Eggnog Latte many, many years ago.

This is a beverage that is going to do very well.

But the short answer to your question, no competitive attrition whatsoever to our business.

We do not see it.

Thank you.

John Ivankoe, JPMorgan.

A follow-up on that, if we are to isolate competition that's not -- have -- being an issue in the 1% traffic that I think even in Troy's remarks, he said he was not satisfied -- or you are not satisfied with 1% traffic.

What do you think it would have been if we were to identify what issue that led to that 1% being disappointing relative to your own expectations?

And I would ask that in the context of have you begun to hit a throughput wall maybe temporarily that can be at least partially solved through technology?

Is that an issue?

And have you been able to isolate your own impact on comps through possible cannibalization, as you have been recently taking up the store count?

If it's not one of those two issues, what might it be?

Thanks.

Okay.

I think this is the central question of the day.

So I really want to make sure we spend as much time as possible, that everyone understands it, and we are as transparent as we possibly can.

We do not have a throughput issue, and Cliff will talk about that specifically.

But a year ago today, we began talking about the macro shift in the amount of traffic that was going through malls and main streets in America.

And as a result of what happened last year, and that is less people shopping with bricks-and-mortar stores, and much more people shopping online and their mobile devices, as I talked about in my remarks, we began dramatically transforming the holiday season in anticipation of another holiday season that would even be greater than last year in terms of attrition of people shopping in physical stores.

What we did see, though, and we did not expect, is that we saw it come earlier than last year's holiday season.

And so we are ready to go in terms of the fall and holiday season based on what we have reimagined.

And Starbucks for Life is going to be a big holiday product and, we believe, going to create incrementality in our stores.

But the short answer to the question is there's nothing internal about what's going on within a Starbucks store in terms of throughput.

There's nothing external in terms of competitive issues.

This is a macro issue, and we are addressing it with great -- a vengeance.

And as a result of that, we are well positioned, as I said in my remarks, to not only, we believe, have the kind of holiday season that will demonstrate the change.

But heading into fiscal 2015 -- heading into calendar 2015 with Mobile Order and Pay and all the things we're going to do in terms of technology and delivering the second half of the year, we are going to be the Company that is positioned to overcome and navigate through the macro change in the cultural shift in consumer behavior.

So the net issue -- and this is so important, this is not a Starbucks issue.

All the companies that you follow and all the retail companies that are reporting in other spaces are experiencing a downturn in traffic.

That is the result of a cultural macro shift that I spoke about in Q1 of last year.

We positioned and addressed it for holiday.

We saw it a little earlier than we expected.

But come holiday and Starbucks for Life, and what we've done in the store to reimagine the gift of choice in terms of card, we are well positioned to take advantage of what we think the situation is all about.

And Cliff, just hit specifically the issue of throughput and productivity so there's no misunderstanding.

Yes; thanks, John.

And thanks, Howard.

In the quarter we just finished, we saw our strongest productivity numbers for the year, and it was the greatest improvement on the previous year.

The volumes we're putting through our stores at the moment are in excess of anything you've ever seen.

I think the other thing that is significant, we opened in the final quarter over 200 stores in the US; and for the year, 505 stores, about half a million Company-operated -- half of them licensed.

They are all performing at record levels, and they continue to contribute significantly to our growth.

So it's all good, very positive about the possibility and the potential to continue to grow.

I will just add one point to that, John.

Thanks, Cliff.

We in the quarter are growing across all dayparts.

Even the busiest morning daypart is producing nice comp growth.

So I think we are demonstrating increased throughput.

As Cliff just said, the highest productivity of fiscal 2014 happened in the fourth quarter and was a significant improvement over productivity in the fourth quarter of the prior year.

It's not a throughput issue whatsoever.

And we continue to invest in the ability to move lines more quickly, put more volume through our stores, digital with Mobile Order to Pay is just one example of what is yet to come.

And if I'm still on, have you been able to isolate the impact, if any, of cannibalization given that store growth that accelerated through the fourth quarter?

We are seeing nothing in terms of cannibalization.

The quality of the new stores, and I think our discipline around opening these new stores while maintaining our operational excellence and focus on the customer in existing stores -- we have never had so much success and strength in this area.

And John, you heard Howard comment in his prepared remarks about convenience.

We know that convenience is a huge -- it's a very important driver of the customer experience and of ultimate size of the opportunity in the business.

As we have become increasingly disciplined around market mapping, around store location, around store formats, around performance of our drive-throughs, about the ability to tap into new trade areas in demand like never before.

As we're opening up accelerated numbers of new stores, basically opening them up almost at mature volume levels in year one, extremely high performance across all history.

As we are able to do that, we are still performing with strong store results, strong comp growth, and improve the untapped opportunity we have ahead for us in-store growth in the US and around the world.

Thank you.

David Palmer, RBC Capital Markets.

We've seen Starbucks react several times in the last few years to patches of weakness with marketing pushes, sometimes in social media, and it's worked.

Is it safe to say that you might be teeing up corrective measures such as the ones you've done in the last few years?

David, can you repeat the question?

I'm not clear exactly what you're asking there.

I remember back in the June quarter in 2012, the first quarter where you had a little bit of a soft patch and you did some stuff on social media, and in terms of discounts or incentives for people to come back.

And those measures worked then; you employed them later.

I'm wondering if you had a soft patch late in this quarter, you've not had a chance to adjust.

And whether you might be thinking about making some pushes like that to help offset the bricks-and-mortar weakness you are talking about.

Yes.

David, thanks for the question.

There's no doubt that the work that we have done in preparing for holiday on the specific promotional overlay of Starbucks for Life is going to have a comprehensive and significant social and digital media component leveraging all of the learnings we've had in the past.

And I think if you go back in history, we've been able to leverage that and, in doing so, lower our cost of customer acquisition versus traditional media.

And you are going to see that in spades once the holiday season kicks off.

Now, Starbucks for Life does not start until the first week in December, but we've got a tremendous offering between that.

But you're going to see a lot of promotional material.

And I think based on people we've talked to and the demand that's already come from people who have heard about Starbucks for Life, this has the potential to be quite a frenzy with regard to being perhaps the number one gift that only 13 people in America and Canada are going to get.

Thank you.

Keith Siegner, UBS.

Thank you, and congratulations on the record year.

Scott, if I could ask you a question about the cost saves and efficiencies that you talked about clearly having an impact on the margins.

And good job on that.

Could you talk a little bit about -- maybe put all of fiscal 2014 into a -- if you could quantify it maybe into some perspective.

And then when we look at the guidance for fiscal 2015, how do the cost saves transition from this year to next year?

In other words, what is built into the guidance on that front?

Thanks.

The first thing I will say is I will be giving a significantly more level of specificity in investor day including specific dollar amounts.

But let me frame it up what we're doing.

If you look at cost of goods sold efficiencies, the challenge that we give our supply chain every year, last year the number that we gave them was -- and I will give this in investor day with X, next year the number we're going to give them is 2 times that.

And so what we've done over the course of two years is double the amount of savings that's going through the P&L, and that is what is in the forecast next year.

And what's important to note is last year with that initial target, we drove no cost-of-goods-sold leverage in the P&L.

This year, particularly in the fourth quarter, for the first time we turned that to cost-of-goods-sold leverage.

And next year, that leverage becomes significant.

So we will walk through all of that in investor day, but that gives you some rough sense of the numbers.

Thanks.

Joe Buckley, Bank of America.

Howard, can I just clarify, are you saying you are seeing this shift in retail that you noted last year starting earlier seasonally this year?

Was that the observation?

Yes.

Let me try and take a better shot at that.

If you remember, last year I spoke very specifically about the seismic change in consumer behavior.

And what I talked about specifically was a downturn in the kind of traffic that we saw historically that I felt strongly was being displaced by e-commerce and mobile shopping.

As a result of what happened last year, as soon as Christmas ended, we worked diligently to literally transform the entire Christmas holiday beginning in the middle of November in anticipation of another year of a downturn in traffic that could be worse than the year before.

And the work that I've outlined in terms of Starbucks for Life and all the plans we have around the 100 proprietary cards and leveraging the success we have -- we've had with card in the last couple of years, most specifically last year where we sold over $1 billion of cards, all of that is in place beginning for the holiday season.

What we saw, though, was that downturn in traffic, which literally I think -- when you think about back-to-school, if you talk about all the national retailers, back-to-school this year was almost a non-event for most retailers -- physical retailers.

And so once again, we saw the downturn in physical traffic, but we did not anticipate seeing it in the fall.

We anticipated and we prepared for it for the holiday season.

That is what I'm saying.

This is not a throughput issue, and this is definitely not a competitive space issue.

This is a shift -- a cultural shift in consumer behavior.

I also want to just reiterate one thing.

We strongly believe that the opportunity around convenience, leveraging what we've done around drive-throughs, and creating convenient opportunities for customers to get access to Starbucks is going to be another way in which we're going to win.

Thank you for that clarification.

Can I ask one more?

Just on the transaction of growth, the composition of the same-store sales mix, I think there's no question you are executing at all-time record levels.

Traffic was still up.

But is the challenge creating the opportunity for that incremental traffic growth?

Are the speed-of-service productivity measures up year over year, but is that gap year over year starting to narrow that perhaps just makes it more difficult to drive transactions -- incremental transactions?

Joe, let me just be clear, and I think Howard said this, that this is not a productivity issue.

Productivity in the fourth quarter was stronger than it had been all year long and significantly stronger than it was in the fourth quarter a year ago.

Productivity as measured by transactions per labor hour.

Our ability to put more traffic through those busiest dayparts.

So that really isn't the issue.

The broader issue is about less traffic out there for us to capture and bring in, as Howard has described.

It fundamentally is not a throughput issue whatsoever.

And as we continue to drive initiatives such as Mobile Order and Pay, and a larger percentage coming through the mobile app and payment technologies and the whole digital experience, all that does is raise the lid on our ability to put increased traffic through the stores at all dayparts.

Matt Ryan here.

Just add to that that when you look at the 42% of our stores that are drive-through and offering tremendous convenience to our customers, we are seeing some of our strongest performance there.

What we are anticipating in this coming year is the same step change in convenience that was offered in those stores through drive-through is going to begin to happen to Mobile Order and Pay.

So the urban customer and the metro customer can begin to have that same convenience that people have shown by staying seated in their cars and quickly grabbing Starbucks on the go.

We think it's a step change driver of our business.

Thank you.

Appreciate the thought.

John Glass, Morgan Stanley.

I'm wondering as you think about the role a check will play in the next couple of quarters, particularly as you start to anniversary the first big markets you've rolled food out.

So can you talk about how those early markets are performing as they comp?

Specifically, could check continue to grow in a year or two and by the same magnitude?

And at the same token, I don't think this is the direction you're heading, but if you talk about if it's a change in the consumer, what role does increased value play in driving greater transaction counts, if any?

Yes, John.

Hi.

It's Cliff here.

With regard to food, obviously we have rolled out now the La Boulange platform to all our stores.

We're in about 11,000 stores across the US, both Company-operated and licensed stores.

And what we are seeing is all the learnings that we got from the early markets we applied to more recent rollouts; and we are seeing continued improvement in our operation around food, both on the sales side with another 2% contribution from food growth.

We have seen the learnings from bakery has really helped us enhance and strengthen our performance around breakfast sandwiches.

We have started to roll out lunch, which is the next important daypart for us around food.

So we are seeing our ability -- our operation ability around food, and also we are being able to refine and improve food not only in the morning daypart.

We've had a record breakfast sandwich year, and that's grown by about 30%.

Lunch has grown by 14%; I think we've only just started there.

So year on year, food is growing, and it is definitely helping check as is beverage mix as well.

Adam, you want to add something?

Yes.

And I would just add in terms of Mobile Order and Pay, our research and our design indicates that we look to see an improvement in ticket as well through the way we are designing that program as well.

So it's not just traffic, it's not just throughput, it's not just convenience, but we believe it will hit ticket as well.

Just to clarify, in year two, the stores that have had food for 14, 15, 16 months, they are still selling an incremental 2% traffic check growth over the year-ago period.

Yes, I wouldn't break it out as purely check.

Some of it is growth of attach.

But a mixture of attach and mix, yes, we are seeing that growth across the system.

Thank you.

RJ Hottovy, Morningstar.

Just had a question about the logistics around the delivery plants.

First, if you've had any test markets that you've had the delivery plans in place, what kind of learnings you've had there.

And then secondly, will these be facilitated out of existing stores, or will some of these alternative footprint stores you've talked about play a part in that?

Just any color on the delivery plans would be helpful.

Matt Ryan here.

It's very early days on this.

But we are moving ahead, full steam ahead.

The pilots are coming soon.

We are going to be looking at a number of different options.

There will probably be a multiple number of solutions that we go with in terms of how we operationalize this.

And at this point, we're not ready to tip our hand on them.

But suffice it to say we have lots of different ways of doing this in front of us, and you can expect to see things in 2015.

Jeffrey Bernstein, Barclays.

Just a question on the Americas -- on the operating margin.

It continues to push new highs.

I think we are now in the mid-23% range.

It was up close to 200 basis points this year.

I know you mentioned we're going to get more modest improvement next year.

I'm just wondering what you would attribute the greatest driver as perhaps where you think that could go without changes in the ownership towards more licensing.

But that does lead to my other connected question, which is just it looks like fiscal 2015 is going to be over roughly half licensed in terms of new openings.

I'm just wondering why we wouldn't consider pushing more heavily licensed or relicensing existing stores.

I think you're at 40% today.

But why wouldn't the US or the Americas be at 60%, 70%-plus licensed just to effectively push that margin even higher and take some of the onus off of you from an operational standpoint?

So, it's Scott.

I will take the margin question in the US.

I think the short answer is we think we can continue to grow operating margin in the US business.

If you look at the strength of the comp growth and the number of drivers we have lined up next year, and you look at how we have been leveraging margin over the past couple of years through really all up and down the P&L store operating margin leverage, cost-of-goods-sold leverage, and G&A leverage, I think we can continue to drive more of that.

I think we can continue to drive labor productivity, as Troy talked about.

So I don't see a limit to the operating margin growth.

I think this year was an extraordinary year, but I think we see it continue to expand in the future.

Jeff, let me speak to your last question.

We generate, unlike many others in company-operated retail, extremely strong return on capital as we deploy capital into Company-operated new stores.

That's true all around the world.

So our decisions around when to license and when to Company-own are not purely driven by simply the percentage margin.

Of course, that's one thing.

But we very significantly look at the overall size of the P&L, our ability to deploy capital, and generate very, very strong return on capital, which we can do.

The ability to use Company-operated formats that in some cases license operations to get access to geographies where we are not able to operate specific sites in real estate where we are not able to operate ourselves.

And so there's a wide range of important decisions that lead us to what we believe to be the optimal mix of ownership for Company-operated and licensed in the US.

And that same analysis -- sometimes a different answer, but that same set of analytics lead us to think about license versus JV versus Company-operated all around the world.

So we're very pleased with the direction we're going both in terms of our Company-operated development, which we will continue to accelerate, and our licensed store development, which also continue to accelerate.

I think it's also good to say that there's been some exciting developments in recent years in license, which traditionally was transport and grocery, which continues to grow.

But we've also had the opportunity -- whether it is in Vegas in hotels; in entertainment areas; but more recently in Disney, which has just been incredible to offer Starbucks to a whole group of new customers in a captive space, and we see that continue to grow.

So we are pushing ahead on that as we push ahead on plans to expand our Company-operated stores across the US, Canada, and Brazil within the Americas.

Thank you.

Matt DiFrisco, Buckingham Research.

I had a couple -- just one question on the modeling side and a clarification.

I just want to understand when you said the 31% tax rate for 2015, is that a number that you are applying or using for both earnings numbers?

Or is there a normalized tax rate associated with the $3.08 to $3.13?

And then my question was with respect to the marketing.

There was a quick reference in 1Q, and I think David asked also about that, pulling forward or your reaction to the 1% traffic.

Are you going to spend more on marketing?

Could you quantify for us maybe how much of a wait on 1Q's earnings -- that marketing, as well as the partner conference -- is going to have on your growth rate?

Thank you.

Let me clarify the marketing issue.

There is no additional marketing spend for this quarter than we previously had in our operating budget.

We anticipated how big Starbucks for Life could and would be, and we have allocated marketing money against that that is in our AOP and in the guidance that we've already shared with you.

So there's no additional marketing expense beyond the normal course of business.

But additional for last year?

Additional relative to last year though, it is.

Correct?

Because you didn't call it out.

No, no.

Actually it's -- we're not going to get into specifics of how much we exactly spent on marketing.

But we're not spending -- I can tell you we're not spending more on marketing for this holiday than we did last year; we are just reallocating the money against Starbucks for Life.

Okay, and then the partner conference?

Troy, you want it?

Well, I'll just say we're not -- we won't provide any specifics to that.

We have a number of investments that Scott spoke about, including the partner conference, as we traveled through this quarter that led to the guidance we've initiated for the quarter.

But no specifics attached to any one of those items specifically.

And then on the tax rate, if you think about the guidance I gave on 31%, which included 4 points related to the Japan transaction -- and the difference between GAAP and non-GAAP, Matt, is all due to the Japan transaction.

And so you can back into what the non-GAAP rate is.

If I can just wrap up one point on that not related to tax but related to the previous thing.

Things such as the leadership conference which we have conducted in years past, and conducted one just a couple weeks ago here in Seattle -- investments in our partner experience.

Those are a critical investment that you should not view as costs or margin pressure.

On the contrary, those have consistently in our business led to a sustained growth in the partner experience and in the partner's ability in our stores to drive great customer experiences, which is fundamentally what fueled the kind of comp growth and margin structure and volumes in Starbucks business that nobody else can replicate.

These are investment in the current year and in the future that we are very proud of.

Right.

I was just looking at -- in the prepared remarks, I think it was cited for 1Q's growth.

I wasn't suggesting it; I thought it was cited in the prepared remarks that marketing and the partner were one of the reasons why the growth would be slower than the full year.

Is there something else?

I understand.

No, just a wide range of investments that we make in the business constantly.

Nothing more specific to provide there.

Great.

Thanks.

Andy Barish, Jefferies.

I guess I would like to just follow up on that, on the two key investment areas for 2015 in terms of the partner pay and benefits and then digital.

It does sound like those are very strategic step-ups, though.

So I guess any help in terms of quantification in that regard would be useful.

Yes, I think I mentioned those in my prepared remarks.

I think the way to think about that is if you look at our long-term EPS growth rate of 15% to 20%, we have guided right in the middle of that.

What is bringing us down a point or two off the top end of that is some of those investments.

So we don't have the commodities favorability this year, and we're going a little bit more forward into some benefits around partner pay and benefits and around digital.

So that's what really brings us down from the upper end towards the middle.

So if you add all the things Troy has referenced across the business, together it's a point or two on the growth rate.

I will jump in here on your other question and then Adam can add -- Starbucks for Life is the main, core element of holiday.

However, holiday gifting and the loyalty program of MSR, the opportunity to begin launching XOP Mobile Order and Pay in Oregon, and then our mobile payment and app -- all of these things are skewed towards the recognition of the cultural shift we saw last year and what we strongly believe will put us in a position to win over a long period of time.

And that is integrated into what Matt talked about earlier about taking a page out of our drive-through business, which has been so strong, and cracking the code on what the analog is of our urban stores and using Mobile Order and Pay, and then the second half of the year delivery to accomplish that.

And that -- these investments are going to pay off big time.

And we already know that Mobile Order and Pay is going to drive traffic and comp growth.

Adam, do you want to add anything about the specifics of that?

Yes, what it's important to call out is both with regard to the Starbucks for Life card program this holiday as well as the launch of Mobile Order and Pay is that we have a significant competitive advantage.

We are not starting from scratch.

We are rolling out Mobile Order and Pay, we are doing Starbucks for Life on the back of them leveraging, already having built a world-class mobile commerce and loyalty platform.

So we have 12 million customers that are highly active on our mobile app, 8 million active MSR loyalty members.

One of the most successful, if not the most successful, gift card program in the world.

We are integrating every one of these programs -- card for life, Mobile Order and Pay, and eventually delivery right into that seamlessly.

And that's going to give us a huge competitive advantage going forward, and it gives us the belief that this is going to significantly drive throughput and incremental transactions.

Okay.

Let me have the last word and just share with you that we are playing offense here.

We understand that there is a macro issue in the consumer shift.

We are playing offense, and we began that last year right after holiday.

And come this holiday and calendar 2015, we are going to be in a position to win.

End of story.

JoAnn, I think that's it.

Yes.

Thank you, Howard.

Thank you all for joining us today and sticking with us a little bit longer this afternoon.

We will hopefully see you here in December.

And have a good evening.

Thank you.

This concludes Starbucks Coffee Company's fourth-quarter fiscal (technical difficulty) year 2014 earnings conference call.

You may now disconnect.