Starbucks (SBUX) Earnings Report: Q2 2015 Conference Call...

CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure

EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

Starbucks(SBUX)EarningsReport:Q22015ConferenceCallTranscriptThefollowingStarbucksconferencecalltookplaceonApril23,2015,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JoAnnDeGrande;Starbucks;VP-IRHowardSchultz;Starbucks;Chairman,President,CEOKevinJohnson;Starbucks;President,CEOScottMaw;Starbucks;CFOCliffBurrows;Starbucks;GroupPresident-US,Americas,andTeavanaJonCulver;Starbucks;GroupPresident-China/AsiaPacific,ChannelDevelopment,andEmergingBrandsMikeConway;Starbucks;President-GlobalChannelDevelopmentAdamBrotman;Starbucks;ChiefDigitalOfficerMattRyan;Starbucks;GlobalChiefStrategyOfficerJohnCulver;Starbucks;StarbucksCoffeeChinaandAsiaPacific,ChannelDevelopmentandEmergingBrands

OtherPart icipants

SaraSenatore;Bernstein;AnalystKeithSiegner;UBS;AnalystDavidPalmer;RBCCapitalMarkets;AnalystJoeBuckley;BankofAmericaMerrillLynch;AnalystKarenHolthouse;GoldmanSachs;AnalystJohnGlass;MorganStanley;AnalystJohnIvankoe;JPMorgan;AnalystDavidTarantino;RobertW.Baird;AnalystJeffBernstein;BarclaysCapital;AnalystNicoleMiller;PiperJaffray;AnalystDianeGeissler;CLSA;AnalystWillSlabaugh;Stephens;AnalystAndrewCharles;CowenandCompany;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetoStarbucksCoffeeCompanysecond-quarterfiscalyear2015earningsconferencecall.(OperatorInstructions).Thankyou.Ms.DeGrande,youmaybeginyourconference.

JoAnnDeGrande (VP-IR):

Thankyou,Mike.Goodafternoon.ThisisJoAnnDeGrande,VicePresidentofInvestorRelationsforStarbucksCoffeeCompany.Thankyouforjoiningustodaytodiscussoursecond-quarterfiscal2015




results,whichwillbeledbyHowardSchultz,Chairman,President,andCEO;KevinJohnson,PresidentandCEO,andScottMaw,CFO.

AlsojoiningusforQ&AareCliffBurrows,GroupPresidentinUS,Americas,andTeavana;JonCulver,GroupPresident,China/AsiaPacific,ChannelDevelopment,andEmergingBrands;MikeConway,President,GlobalChannelDevelopment;AdamBrotman,ChiefDigitalOfficer;andMattRyan,GlobalChiefStrategyOfficer.

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

Starbucksassumesnoobligationtoupdateanyoftheseforward-lookingstatementsorinformation.Pleaserefertoourwebsiteatinvestor.starbucks.comtofindthereconciliationofnon-GAAPfinancialmeasuresreferencedintoday'scallwiththeircorrespondingGAAPmeasures.Thisconferencecallisbeingwebcast,andanarchiveofthewebcastwillbeavailableonourwebsiteatinvestor.starbucks.comlatertoday.LetmenowturnthecallovertoHoward.Howard?

HowardSchultz (Chairman,President,CEO):

Thankyou,JoAnn,andwelcometoeveryoneontoday'scall.Q2offiscal2015wasastunningquarterforStarbucksonalmosteverylevel.RecordQ2revenuesof$4.6billion,recordQ2operatingincomeof$778million,andrecordsplit-adjustedQ2EPSof$0.33pershare,allclearlydemonstratingacontinuationofthestrength,momentum,androbustnesswesawinourbusinessduringholidayQ1.EquallyimpressiveisthatourQ2resultsweredelivereddespiteforeignexchangeheadwindsandsoftconsumerenvironmentsinseveralkeymarkets.

Ourglobalcompstoresalesincreasedastrong7%inQ2,with3%comingfromincreasedtraffic,our21stconsecutivequarterofcompsalesgrowthof5%orgreater;andaspectacularresult,giventhatourcompsarenowcalculatedoffofaUSstorebaseofover7,000storesandaglobalstorebaseofover10,000stores.

Nootherglobalretailerapproachingoursizeorstorebasecomesremotelyclosetopostingsuchconsistentlystrongcompperformance.

OurAmericassegmentdeliveredanotheroutstandingquarter,withperformancedrivenbythesuccessfulintroductionofseveralinnovativenewcoffeebeverages,includingStarbucksFlatWhite,ournewtiramisuandcaramelflanbeverage;anexpandedselectionofTeavana-brandedteabeverages;andverypositivecustomerresponsetoournewbreakfastsandwichlineup,allofwhichcontributedtoincreasedfoodattachacrossvirtuallyallregionsanddayparts.TurningtoChinaandAsiaPacific.

Nowwithover5,000stores,ourChina/AsiaPacificsegmentdeliveredacompany-leading12%compincreaseinQ2,almostentirelycomingfromincreasedtrafficandastrongincreaseinoperatingincomeaswell.WealsocompletedtheacquisitionofStarbucksJapaninQ2,andarenowinapositiontoaggressivelygoafterbusinessacrossallchannelsinJapan,bothinandoutsideofourstores,inwaysneverbeforepossible.

Andwearealreadyseeinganaccelerationofourbusinessinthatkey,highlyopportunisticmarket.CAPremainsafocalpointofourfuturegrowth,andweareontracktomeetourgoalofdoublingourCAPstorecounttoroughly10,000locations,triplingourrevenuetoover$3billion,andtriplingouroperatingincometoover$1billionoverthenextfiveyears.




Inaddition,I'maproudtosaythatEMEAdeliveredthestrongestQ2performanceinitshistory,reportingbothrecordoperatingmarginandrecordoperatingincome.AndourChannelDevelopmentsegmentalsodeliveredabannerquarter,witha16%increaseinsalesandstrongincreasesinbothoperatingmarginandoperatingincome,whileatthesametimefurtherincreasingStarbucks'alreadyindustry-leadingshareofpremiumsingleserve,premiumpackagedcoffee,andpremiumpackagedtea.Starbucks,byawidemargin,isthenumber-onepremiumcoffeebrandintheK-Cupcategory,andwenowhaveshippedover2.5millionK-Cuppackssincelaunch.

Starbucks'stellarperformanceinQ2wasmulti-segment,multi-channel,andmulti-geographical,drivenbyourpeopleindistinctmarketsallovertheworld,yetwoventogetherbyacommonthread:industry-leading,partner-centric,andcustomer-facinginnovationandtheongoingstrengthandglobalrelevancyoftheStarbucksbrandandretailexperience.Ourhistoryandexperiencedemonstrate,andourresearchunequivocallyconfirmsthattheinvestmentswemakeindeepeningourconnectiontoourpeoplelinksdirectlybacktovaluecreationforourshareholders.

ByofferingeveryeligiblepartnertheabilitytoprofitalongsideourshareholdersthroughBeanStock,providingpaidhealthcarecoverage,providingcompetitivewagesandincentivecompensationopportunities,reimbursingcollegetuitioncoststhroughStarbucksCollegeAchievementPlan,sharingandadvancingourcommonvalues,andinvestinginthecommunitiesinwhichourpeopleliveandwork,weareandwillcontinuetomakesignificantinvestmentsinourpeoplearoundtheworld.Andtheseinvestmentsarebearingfruitforourshareholders.You'llhearmoreaboutthat--aboutouradditionalpartnerinvestmentsthatwearemakinginafewmoments.

Ontoday'scall,I'mgoingtoprovideyouwithanoverviewofsomeoftheinnovationsandstrategicinitiativesthatwe'veannouncedorthatwebegantoshapeinthequarter,innovationsandinitiativesthatwillenableustofurtherextendStarbucks'globalcoffeeauthorityandleadershiparoundallthingsretailinmobile,andpositionustocontinuetoleadandtowinaroundtheworldinthefuture.ThenIwillturnthecallovertoKevin,whowillsharehighlightsofindividualsegmentandmarketperformanceinQ2.And,finally,ScottwilltakeyouthroughourQ2financialandoperatingresults,andwe'llfinishupwithQ&A.

Leadershiparoundallthingscoffeeremainsatourcore,andwecontinuetoinnovateandinvestinordertomeaningfullyelevatethepremium,highlydifferentiated,locallyrelevantcoffeeexperiencewedelivertoover75millioncustomersforover22,000storesin66countriesaroundtheworldeachweek.StarbucksFlatWhite,anespressoforward,handcraftedbeveragethatcombinespremiumespressoqualitywithcreativeartistryintoadelicioushotbeveragethatweintroducedintotheAmericassegmentearlyinQ2,hasalreadygeneratedastrongcustomerfollowingandisdrivingafoodattachexceedingouroriginalexpectations.

OntheheelsofthesuccessofFlatWhite,wehavealsointroducedbothStarbucksColdBrew,and,incertainmarkets,yogurt-basedfruitsmoothies,incorporatingandleveragingbrandedEvolutionFreshjuices.Whileintheearlydays,eachofthesebeveragesisreceivingahighlyfavorablecustomerresponse,andwewillberollingoutafantasticlineupofinnovativenewFrappuccinobeveragesandbrandedTeavanaicedteasforourcustomersduringthehotsummermonthsahead.

YoumayrecallthatinourholidayQ1,werecordedrecord-settingcardsalesandloadsof$1.6billionthatweexpectedtodrivetrafficandpositivelyimpactourbusinessinQ2,andthatispreciselywhatoccurred.Moreimportantisthatwearenowseeinglargenumbersoflastholiday'sfirst-timegiftreceiversbecomeloyal,engaged,repeatStarbuckscustomers,supportingandcontributingtothegrowthweareseeingacrossourglobalcustomerbase.Andwithincreasingcustomeracceptanceofourmobileapp,wenowhaveover16millionactiveusers.




DollarsloadedonStarbucksCardcontinuestorise--thisisareallyimportantnumber--at19%year-over-yearincreaseinQ2alone,inwhich$1.1billioninQ2wasloaded,atrendandafigurethatbodesverywellforourbusinessincomingquarters.WeknowthatincreasedStarbucksCardsalesdrivesincreasedMyStarbucksRewardsmembership,and,inturn,increasedtrafficandsalesinourstores.Weadded1.3millionnewMyStarbucksRewardmembersaloneinQ2,moreadditionalmembersinonequarterthanmostloyaltyprogramshaveintotal,andnowhaveover10millionactivememberswithalmost6millionmembersbeingactiveGoldmembers.

MyStarbucksRewardswillcontinuetobeamongourmostimportantbusinessdriversasnewmemberscontributenotonlytoshort-termincreasesinrevenueandprofit,butalsotolong-termloyaltyformanyyearstocome.

InDecember,weintroducedMobileOrderandPayinto150storesinPortland,Oregon.Sincethen,wehaveexpandedMobileOrderandPaytoover600storesinthePacificNorthwest,andwearenowontracktorolloutMobileOrderandPaynationwidethiscalendaryear.

MobileOrderandPayhasbeenextremelywellreceivedbyourcustomers,enablingthemtoorderahead,avoidlines,avoidwaitingfororderstobefilled,resultinginshorterlines;fasterservice;improved,moreefficientin-storeoperationsandexecution;andanelevatedStarbucksexperience.AndMobileOrderandPayisdrivingincrementality,asweareseeinganincreaseinbothattachanddailytransactionsinthosestoresandmarketswhereMobileOrderandPayhasbeenlaunched.

Inaddition,aswehavesharedwithyoubefore,weareon-plantolaunchdeliveryinSeattleandintheEmpireStatebuildinginNewYorkCityduringthesecondhalfof2015.There'snodoubtinourmindsthatdelivery,likeMobileOrderandPay,willdrivefurtherincrementalityandprofitabilityfortheCompany.Manyofyouhadtheopportunitytoexperiencetheworld'smostpremiumcoffeeexperienceforyourselveswhenyouwereinSeattleforourInvestorDaylastDecember,andvisitedtheone-of-a-kind,15,000squarefeetStarbucksReserveRoasteryandTastingRoom,whatmanyhavecalledtheWillieWonkaofcoffee.WefullyanticipatedthattheRoasterywouldbeasuccess,andthatwewouldbuildadditionalRoasteriesinselectUSandinternationalcitiesintheyearsahead.

ButnoonecouldhaverecentlyhaveanticipatedtheoverwhelmingcustomerandvisitorresponsethattheRoasteryisgeneratinginonlythefirstfourmonthsofitsoperations.LookforoursecondStarbucksReserveRoasteryandTastingRoomincalendar2016inacitytobeannouncedlaterthisyear.AndwhiletheRoasteryisanimmersive,experientialvenue,itisactuallysomuchmore.

OurintentwiththeRoasteryfromdayonewastocreateandbuildanew,ultrapremiumcoffeebrandandbusinessunit.TheadditionalsmallbatchcoffeeroastingcapacityprovidedbytheRoasteryisenablingustosource,roast,blend,andmarketspectacular,limitedavailability,micro-lotcoffeesfromaroundtheworld,andtomeaningfullyelevatethesuperpremiumcoffeeexperiencewedelivertoourcustomers.WearealreadyexpandingavailabilityofStarbucksReservecoffeestoover1,000StarbuckslocationsaswebegintobuildtheStarbucksReservebrand.

AndtheRoasteryisenablingthelaunchof500StarbucksReservestoresworldwide,anewclassofstoresthatwillshowcasethemostpremiumofallsuperpremiumcoffeesintheworld,andthenewestcoffeebrewingmethodssuchaspour-over;siphon;andStarbucks'proprietarybrewingtechnology,Clover.StarbucksReservestoreswillalsoincorporateanintegratedTeavanakiosktoleveragetrafficandgrowingconsumerinterestinsuperpremiumlooseleafandpackagedTeavanateas.StarbucksReservestoresandStarbucksReservebrandprovidesuswithanexciting,innovative,highlydifferentiated,new,globalgrowthopportunitythatleveragesallofStarbucks'strengthsaroundtheworldintermsofcoffeesourcingandroasting,[premiumization],coffeebeveragedevelopment,retailsiteselectionanddesign,merchandising,andcustomerengagement.




WatchfortheopeningofournewStarbucksReserveflagshipstoretowardstheendofcalendar2015,andtheopeningofStarbucksReservecoffeebarswithinselect,existingStarbuckslocationsacrosstheUSaspartofnormalStarbucksstorerenovationcycles.

TheadditionofStarbucksReservecoffeebarswillbothdriveincrementalityinexistingStarbucksstoresandquicklybuildconsumerawarenessofournewStarbucksReservebrand,domesticallyandaroundtheworld.Inclosing,beforeIturnthecallovertoKevin,IwanttosharewithyouwhatmanywithinStarbucksandIalreadyknew,thatKevinJohnsonisapassionateservant-leader,aworld-classbusinessman,anexpansivethinker,andawisecounselor.

ThepartnershipandtheinsightsthatKevinbringstotheseniorleadershipteamasahighlyengaged,six-yearmemberoftheStarbucksBoardofDirectors,andnowasPresidentandCOOofourCompany,areprovidingtobeinvaluableandalreadyhavingatremendouspositiveimpactacrossallbusinesssegmentsandgeographies.Andhe'sjustgettingstarted.SoIwelcomeKevintothecall,andInowturnthecallovertoKevin.

KevinJohnson (President,CEO):

Thankyou,Howard,andgoodafternoon,everyone.Q2wasanexcellentquarterforStarbucksacrosstheboard.Beforeprovidingoperatinghighlightsforeachofoursegments,IthoughtIwouldshareaverybriefupdateonmytransitionintoday-to-daymanagement.SinceJanuary,IhavebeenworkingcloselywithHowardandtheStarbucksseniorleadershipteamtoensureasmoothtransitionandarapidramp-upbeginningonMarch1.Iamnowalmost4monthsintoadeepimmersionacrossallkeybusinessfunctions,aswellasfieldvisitstostoresandfacilitiesthroughoutNorthAmericaandEurope,engagingwithourpartners,customers,andsuppliers.

NextweekmyimmersiontakesmetoAsia,whereIwillhavetheopportunitytovisitStarbucksstoresandpartnersintheregionwithourGroupPresident,JohnCulver.ThisimmersionprocessisprovidingmewithamorecomprehensiveunderstandingofStarbucks'businessandoperations.Butmorethanthat,theimmersionisprovidingmewithanevengreaterappreciationoftheenormousglobalopportunitythatliesaheadforthisfantasticcompanyandtheremarkablytalentedmanagementteam.

I'mcommittedtodoingeverythingIcantocreatevalueforourStarbuckspartnersandshareholders,alwaysthroughthelensofhumanity,aroundtheworld,andintothefuture.ThankstoHowardandalloftheStarbuckspartnersfortheirwarmwelcome,andfortheirhelpinmakingmytransitionintothisrolesoseamless.

NowIwouldliketotellyouaboutQ2.OurAmericasbusinesscontinuestodeliverstrong,consistent,profitablegrowth,witha7%increaseincompsalesinQ2andrecordrevenueof11%overlastyear,recordoperatingmargin,andrecordoperatingincome.OurUSfoodprogramcontinuestobeakeyfocusandatremendousopportunityforus.

I'mpleasedtoreportthatinQ2,USfoodsalesgrew16%year-on-yearandcontributed2pointsofcompgrowthwitheverydaypart,platform,andregioncontributingtotheincrease.Noteworthyhasbeenthesalesofourinnovativenewbreakfastsandwichescontributedtoa35%year-over-yeargrowthinourbreakfastsandwichprogram.Ourlunchplatformalsodelivereddouble-digityear-over-yeargainsaswell.

AsHowardmentioned,weintroducedtheStarbucksFlatWhitebeveragethatwasenthusiasticallyembracedbyourcustomers.FlatWhitebothelevatedtheentirecoreespressocategoryanddroveincreasedfoodattach.Welaunchedanothercoffeeforwardbeverage,StarbucksColdBrew,inselectNorthAmericanmarketswithaplantoofferStarbucksColdBrewinmanymoreUSstoresthissummer.

Whilestillearlyinitsinnings,customerresponsetoStarbucksColdBrewhasbeenverystrong.




HandcraftedbrandedTeavanateabeveragessoldinStarbucks'retailstorescontinuedtodrivebothfoodattachandstronggrowthintheteacategoryinQ2,withtearevenueup15%year-on-year,driveninlargepartbyverystrongcustomerresponsetothelaunchofTeavanabrandedshakenicedteasandTeavanaTeaLattes.Teavanarepresentsaverycompelling,strategicopportunityforStarbucks,andweplantoexpandavailabilityofbrandedTeavanateabeveragesthroughoutStarbucksretailstoresinmultiplenewgeographicmarketsinthequartersahead.

BasedonoursuccessintheUnitedStateswithLaBoulangeBakeryplatform,wehavenowbegundeploymentthroughoutCanada.Alreadynearly70%ofStarbucksCanadacafeshavetransformedpastrycases,withthebalancetobeconvertedbysummer.AndourcoreFrappuccinoplatform,introduced20yearsago,remainsverystrongandcontinuestoattractbothnewandrepeatcustomers.BirthdayCakeFrappuccino,availableonlyfivedaysinMarch,wasahugesuccess.

AndasHowardmentionedearlier,wehavesomeveryexcitingFrappuccinoandbrandedTeavanaicedteabeveragesplannedforthissummer.StarbucksChina/AsiaPacificregion,ourfastest-growingregion,deliveredanotherverystrongquarterwithcompsalesrising12%,thestrongestcompsalesincreasesince2012.Withrevenuesincreasing124%--or24%whenexcludingthe$270millionincrementalrevenuefromtheacquisitionofStarbucksJapan--operatingincomerose29%fromQ2lastyear.

WehavemorethandoubledourCAPstorecounttoover5,000storesinthepastfiveyears.We'veadded769netnewstoresinthelast12months.Wewillopenour1,600thstoreinChinalaterthismonth,wherewenowoperatein87cities,andouronourplantoincreaseourstorecounttoover10,000storesinCAPoverthenextfiveyears.

PassionforcoffeeandpartnercustomerengagementinCAPareamongthehighestofanymarketintheworld.Inresponsetocustomerandpartnerdemand,wehaveexpandedavailabilityofStarbucksReservepackagedcoffee,andwenowofferStarbucksReservein136storesacross10CAPmarkets.InQ2,weassumedfullownershipofthestrategicallyimportantJapanesemarket.Japanisamarketwefirstenterednearly20yearsago.

Andnowwithfullownership,wehavetheabilitytofurtheracceleratestoregrowth,expandtheStarbucksbrandacrossmultipleotherchannels,andcross-sellproductsintootherCAPregions.Asanexample,werecentlyintroducedOrigami,ourpremium,singleserve,pour-overpackagedcoffee,formerlyonlyavailableinJapan,intoTaiwan,HongKong,Korea,andmainlandChina,toastrongpositivecustomerresponse.

OurChina/AsiaPacificbusinesscontinuestoperformextremelywell,reinforcingourconfidenceinthelong-termgrowthpotentialofthemarket.TheevolutionofourEMEAbusinesscontinues,withthebusinessreportinga2%compsalesincreaseinthequarter,with2%drivenbytrafficgrowthand1%increaseinticket.WearebuildingourEMEAbusinessbyintroducingnewfoodandbeverageofferingsandinnovativenewstoredesigns,whileatthesametimeincreasingsalesacrossalldaypartsandsuccessfullybuildingcapacityatpeak.

Andwecontinuetoenterhighcustomertrafficlocationsbyaddingadditionalchannellicenseesatvenuessuchastrainstations,airports,andsupermarkets.Equallyimportant,theEMEAteam'slaserfocusonoperationsandtheongoingmixshifttowardslicensedstoresenabledthatsegmenttosignificantlyincreasebothoperatingmarginandoperatingincome,despiteformidableforeignexchangeheadwinds,asubjectScottwilldiscussinafewmoments.

ChannelDevelopment.Nowoperatingin41marketsaroundtheworld,inQ2ourChannelDevelopmentsegment,alreadyoursecond-mostprofitablebusinesssegment,increasedrevenue16%andoperatingincome23%year-on-year.AtthesametimetheChannelDevelopmentteamincreasedshareofevery




productwithinitsportfolio,includingroastandground,K-Cup,VIAandTazoTeas.OurChannelDevelopmentsegmentremainsontracktogrowitstoplineby60%anditsoperatingincomebynearly100%bytheyear2019.

Sincelaunch,StarbuckshasbuiltitsleadingpositionontheK-Cupplatformthroughongoingproductinnovation,includingtheintroductionofsingleorigincoffeesandseasonalandLTOofferings,includingholidayblends.Andbyexpandingourchannelsofdistribution.WewillcontinuetoinnovatearoundoutK-Cupportfolio,includingnewofferingsforsummerrefreshment,includingicedStarbuckscoffeeandTazoicedteaK-Cupstobrewoverice.

AndinQ2ourgrowingfoodservicesbusiness,whichincreasedsales11%year-over-year,beganservingmillionsofcustomerstravelingonDelta,andDeltaConnectionflights,aroundtheworld.Theglobalready-to-drinkcoffeemarket,amarketweareuniquelywellpositionedtolead,islargeandgrowingrapidly.

Ourplanistodoubleourinternationalready-to-drinkcoffeebusinessoverthenextfiveyears.WehavetakenanimportantstepforwardwiththestrategicpartnershipweannouncedlastmonthwithTingyi,amongChina'slargestandmostrespectedbeveragecompanies.CombiningtheStarbucksbrandandour1,600retailstorefootprintinChinawithTingyi'slocalmanufacturingcapabilities,itsgrocerysalesexpertiseanditsbroaddistributioncapabilities,positionsustounlockthehugeopportunitythatexistsforStarbucksready-to-drinkcoffeesinChina.

Amongthethingsthathasimpressedmemostthroughoutmyimmersionhasbeenthepaceofinnovationthat'stakingplaceatStarbucks.HighlightingalltheinnovationcurrentlyunderwayacrosstheCompanyinbeverage,food,storedesign,marketing,merchandising,wouldrequiremanymorehoursthanwehaveavailabletoday.ButIwouldliketoshareafewhighlightsofwhatIbelievetobegame-changinginnovationtakingplaceonthecustomerdigitalexperience.

WearedelightedwiththeinitialresultsofMobileOrderandPay,ourmobileorderingcapabilitynowavailableinover600storesacrossthePacificNorthwest.StarbucksMobileOrderandPayexperienceisaproprietary,fullyintegratedtechnologythatallowscustomerstoordertheirfoodandbeverageselectionsthroughtheirmobiledeviceaheadoftime,andgototheirparticipatingstoretopickupthecompletedorder.

Ourexperiencetodategivesusconfidencethatoncefullydeployed,MobileOrderandPaywilldriveasignificantincreaseinmobilepaymenttransactionsinstoresacrosstheUS.Enhancingourin-storeexperiencewithcustomerfocuseddigitalexperienceslikeMobileOrderandPaycreatesapositiveflywheeleffectonourbusinessandattractsmoreMyStarbucksRewardsmembers.EachnewMSRmemberrepresentsadeeper,morepersonalizedcustomerrelationship.Andmorepersonalizedcustomerrelationshipsallowustobetterservecustomersandgrowourbusiness,asevidencedbythesignificantincreaseinthenumberofactiveMSRmembersweareserving.

Forthefirsttimeever,wenowhaveover10millionactiveMSRmembersintheUS,up27%overlastyear,havingadded1.3millionnewMSRmembersinQ2.Wearenowprocessingover8millionmobilepaymenttransactionsperweek,equalingnearly19%ofourUSstoretender.AndinQ2,wenotonlyexperiencedrecordcardredemptionsfollowingtherecordholidaycardsalesandloads,butwealsorecordedQ2recordcardloadsofover$1.1billionforNorthAmerica,a19%increaseyear-over-year.

WhileMobileOrderandPayisexceedingeveryinternalgoalwehaveset,weareevenmoreproudofthedifferencethetechnologyismakinginourcustomers'lives.Wearereceivingpositivefeedbackfrommanycustomers:studentswhonowhavetimetovisitStarbucksbetweenclasses;parentswhoareabletoeasilyordertheirfavoriteStarbucksfoodandbeverageswhilerunningerrandswiththeirchildren;and




busypeoplefromallwalksoflifewhoareleveragingthisnewcapabilitytoenabletheirownpersonalStarbucksexperience.Wealsoreceivedoverwhelmingappreciationfromdeafcustomers,whoarenowabletoeasilyorderandreceivetheircustomizedbeveragejustthewaytheywant.Customerconnectionhasalwaysbeencoretowhoweareasacompany.

Andweareleveragingthedigitalassetstoexpandandenhancethatcustomerconnectiontowhatisnowmorethan16millionactiveusersofourmobileappsintheUSalone.WeremainontracktofullydeployMobileOrderandPaytoallUScompany-ownedlocationsbeforethisholidayseason.

Atthesametime,wewillbegintestingdelivery.InMarchweannounced,throughacollaborationwithPostmates,aleadingon-demanddeliveryservice,wewillenablecustomerstoorderfoodandbeverageitemsusingStarbucks'mobileappandreceiveon-demanddeliverywithindefinedareas.

Wearealsolaunchingagreenaprondeliverytestwithourpartners,deliveringorderswithinspecificofficebuildings.AsHowardmentioned,ourfirstgreenaprondeliverytestwillbegininNewYork'sEmpireStatebuildinginthesecondhalfof2015.CreatingagenuineStarbucksexperienceforourcustomersandanauthenticandpersonalconnectionbetweenourcustomersandourpartnersiscoretoeverythingwedo.Earlierthisfiscalyear,webeganrollingoutaseriesofinvestmentsinsupportofourin-storepartnerswhodelivertheStarbucksexperience.

Conceived,carefullydevelopedandhonedoverthepastyear,thechangeswehaveimplementedarealreadytouching135,000partnersacrossourUSstorebase.Changesincludeincreasedbaristaandshiftsupervisorpayrates,additionalperformance-basedrecognitionprograms,updatestoourdresscode,anewfoodbenefit,aswellasourindustry-leadingCollegeAchievementProgram.

Wearealsoinvestingindigitalsolutionstoautomatestoretasks,freeingupourpartnerstofocusmoreoftheirtimeandattentiononcustomerengagement.Wearebeginningdeploymentofhandhelddevicesconnectedwithascannertosimplifythingslikeinventorymanagement.Thisisjustoneexampleofmanywhereweintendtoleveragetechnologytoempowerin-storepartnersinsupportofourmission.Thisisajourney,andwearecommittedtolisteningtoourpartnersandtodeliveringfurtherenhancementstothepartnerexperience.Wearemakingsimilarinvestmentsinlocallyrelevantwaystoimproveourpartnerexperienceelsewherearoundtheworld.

Inclosing,andasHowardmentioned,ifthereisonewordtodescribeStarbucks'recordperformanceinthequarter,Ithinkitwouldbeinnovation.Innovationaroundnew,locallyrelevantfoodandbeverageofferings;innovationaroundstunningnewstoredesigns;innovationthroughthecreationofnewglobalgrowthplatforms,allcenteredaroundcoffee;innovationaroundhowweserveandengagewithourcustomersandbuildcustomerloyalty;innovationaroundourbreakthroughmobileanddigitaltechnologies;andinnovationaroundhowweinvestinandconnectwithourmostimportantasset,ourpeople.

Innovationwillcontinuetodriveourbusinessinthefuture,andprovideuswiththeconfidenceandabilitytocontinuegrowingourbusinessinmarketsandchannelsonaglobalbasis.AndwhilewewerepleasedwithourQ2performance,weknowthatwehavemuchmoreworktodotoachieveouraspirationofbecomingtheworld'smostrespectedandenduringcustomerbrand.Withthat,IwillturnthecallovertoourCFO,ScottMaw.Scott?

Scott Maw(CFO):

Thanks,Kevin,andgoodafternoon,everyone.IamverypleasedtocommentonthestrongQ2financialresultsthatStarbucksannouncedtoday,especiallyinlightofthefactthateachofoursegmentscontributedmeaningfullytotheresults.Strongglobalcompgrowthof7%inthequarterdemonstratesonceagaintheincreasingstrengthandrelevancyoftheStarbucksbrand.




Transactioncompsof3%,driveninlargepartbyanexcellentexecutioninourkey,fast-growingCAPregion,exceededtransactioncompsintheAmericas,reflectingtheincreasinglyglobalnatureofourbrand.Revenuesgrewto$4.6billion,an18%increaseoverprioryear,despitenearly2percentagepointsofheadwindthroughforeigncurrencytranslation.

GAAPEPScameinat$0.33.Andournon-GAAPEPS,alsoat$0.33,cameinaheadofthepre-splitconsensus.Weraisedourguidancemodestlyatourannualshareholders'meetinginMarch,andtheresultsweannouncedtodayareatthetopendofthatrevisedrange.Excludingnon-GAAPitems,operatingincomeincreased23%overQ2lastyearto$789million,whilenon-GAAPoperatingmarginexpanded70basispointsto17.3%inthequarter.Importantly,wesawameaningfulincreaseinCOGSleveragethisquarter,assupplychaininitiativeswehavepreviouslydiscussedincreasinglybenefitouroperations.

Ouryear-over-yearoperatingperformanceimprovementbecomesevenmoremeaningfulinlightoftheongoinginvestmentswecontinuetomakearoundbuildingnewstoresandrenovatingexistingstores,thepartnerinvestmentswearemaking,andunfavorableforeigncurrencytranslation.IwillnowtellyouabouteachofoursegmentsandhowtheyperformedinQ2.

OurAmericassegmentrevenuesgrew11%inQ2,primarilydrivenbyastrong7%compgrowthandanotherquarterof2%transactiongrowth.Ofthe7%compgrowth,foodsalesdrove2pointsoftheincrease,whilebeverageinnovationandteadrove1pointeach.NoteworthyisthatthecontributiontocompgrowthfromteahasroughlydoubledsinceweintroducedTeavanateasintoourStarbucksstoreslastsummer,adding1pointtocompineachofthelastthreequarters.InQ2,Americasoperatingmarginexpanded110basispointsoverQ2lastyearto22.7%,anexcellentresultasthebulkofourUSstorepartnerinvestmentsbeganinearnestduringthequarter.

Thelargestcomponentsofthenewpartnerinvestmentswerewageadjustmentsandtheintroductionofanewfoodshiftbenefit.Altogether,theseinvestmentsimpactedQ2operatingincomeby$34millionandoperatingmarginby100basispoints.Forfiscal2015,weexpectpartnerinvestmentstototalapproximately$140million,andthisamountwasfullyincludedinourinitialandcurrentguidance.Lookingforward,weexpectmodestfurtherexpansionoftheAmericasmarginduringthesecondhalfoftheyear.

OurEMEAsegmentincreasedoperatingincome65%overQ2oflastyeartoaQ2record$29million.Ourlicensedstoreportfoliointheregioncontinuestoperformexceedinglywell,withhigh-single-digitcompsonceagainthisquarter,reflectingthestrengthandresiliencyoftheStarbucksbrand.

Atthesametime,EMEA'soperatingmarginexpanded470basispointstoaQ2record10.4%,reflectingthecontinuedprogressthattheEMEAteamismakingagainstourplantoimproveoperationsandachievemid-teensoperatingmarginsoverthenear-term.EMEAsawadeclineinrevenueslargelyduetounfavorableforeignexchangetranslationandtheongoingshiftfromcompany-ownedtolicensedstoresinseveralmarkets.Thesefactors,coupledwithcontinuedconsumerweaknessinseveralcountrieswithintheEMEAregion,makethissegment'sQ2performancethatmuchmoreimpressive.

WeremainconfidentthatEMEA'soperatingmarginwillreachtheupperendofour10%to12%guidanceduringfiscal2015.OurChina/AsiaPacificsegmentdelivereda29%increaseinoperatingincometo$112millioninQ2.GAAPoperatingmargindeclinedfrom32.8%to18.9%,reflectingtheimpactofouracquisitionofStarbucksJapan.

AsIhavementionedpreviously,ourJapanstoresremainamongourmostprofitableintheworld.Excludingthenearly15pointfinancialimpactoftheownershipchangeinStarbucksJapan,CAP'soperatingmarginincreasedby80basispoints,drivenprimarilybysalesleveragethroughouttheregion,




includingverystrongsalesleverageinChina.WecontinuetodriveanincreaseinstoreuniteconomicsinChina,andournewestclassofstoresisdeliveringexcellentfirst-yearoperatingprofitability.

TheCAPteamremainslaser-focusedoncontinuingtodeliversubstantial,disciplined,profitablegrowth.AndweareincreasingourCAPoperatingmarginguidanceslightly,aswenowexpectoperatingmargintoapproach20%forallof2015.ChannelDevelopmenthadanexcellentQ2,withoperatingincomeincreasing23%toarecord$156million.Operatingmarginforthesecondquarterexpanded210basispointsto36.5%,primarilydrivenbyefficienciesincostofgoodssold,strongresultsfromourNorthAmericancoffeepartnershipthatdelivereditshighestquarterlyyear-over-yearprofitgrowthsince2009,andsalesleverage.

Wenowexpectapproximately150basispointsofoperatingmarginimprovementinChannelDevelopmentinfiscal2015.Strongresultsduringthefirsthalfof2015enabledustogenerateearningspershareattheupperendofour16%to18%non-GAAPtargetEPSgrowthrange.Accordingly,inMarch,weincreasedourguidancerange,andtodayreaffirmedthatrangewithGAAPEPStargetedbetween$1.77and$1.79,andnon-GAAPEPStargetedbetween$1.55and$1.57.ForQ3,wearetargetingGAAPEPSofbetween$0.39and$0.40,andnon-GAAPEPSintherangeof$0.40to$0.41.For4Q,weexpectGAAPEPSintherangeof$0.40to$0.41,andnon-GAAPEPSintherangeof$0.42to$0.43.

OnefurthernoteaboutourguidanceforQ3andQ4.WhilewefullyexpectmarginexpansionfromQ3toQ4,ourearningsgrowthforQ4willbeslightlybelowouraverageearningsgrowthfortheyear,duetotheimpactofthepartnerinvestments,highernegativeforeigncurrencytranslation,andlappingaparticularlystrongQ4of2014.Revenuegrowthforfiscal2015remainstargetedat16%to18%,despite2pointsofheadwindfromforeigncurrencytranslation.Wecontinuetoexpectcommoditiestoberoughlyneutralin2015ascomparedto2014.

Ourcoffeeteam'spatiencearoundcoffeepricingpaidoff,resultinginourcostsforfiscal2015beingbelowaveragemarketprices.Movingontomargin,wenowexpectamodestincreaseinfiscal2015non-GAAPoperatingmarginoverlastyear,representingaslightincreaseoverourpriorguidance.Westillanticipate1,650netnewstoresinfiscal2015.ButwenowexpectAmericastohaveapproximately600netnewstores,slightlylowerthanpreviousguidance,duetotheimpactoftheclosingofthe132licensedTargetstoresinCanada.OurEMEAnetnewstoretargetmovesupslightlyto200,andnetnewstoresinCAPremainsthesameat850.Allotherguidanceremainsconsistentwithlastquarter.

Aquicknoteon2016coffeepricing.Duetotherecentdropincoffeeprices,wehavebeenlockinginsupplyfor2016,andarenowcloseto70%pricedfor2016atpricessomewhatfavorableto2015.Wewillupdateyouontheimpactofcoffeepriceson2016performanceastheyearprogresses.Finally,afewwordsofcautionaboutextrapolatingourcurrent-quarterperformanceintoresultsabovetheupperendofourguidance.Whilewearecomfortablewiththerangethatweaffirmedtoday,severalfactorsneedtobeunderstoodwhenconsideringtheupperendofourrange.

First,theUSstorepartnerinvestmentsthatbothHowardandKevinspokeaboutwillbefullyrampedupduringthethirdandfourthquartersoffiscal2015,impactingmarginsfortheAmericassegmentduringthebackhalfoftheyear.Wehavefullyplannedfortheseinvestments.However,thefuturebenefitsthatwillflowfromtheseinvestmentsaresignificant.Andwewillnothesitatetotakeadvantageofopportunitiestomakeadditionaltargetedpartnerinvestmentsthatbuildandstrengthenthebusinessaswemovethroughthebalanceof2015.

Second,bothCAPandChannelDevelopmenthadbannersecondquarters.Andwefullyexpecteachsegmenttofinishtheyearverystrong,butwedonotanticipatearepeatofsecond-quarterperformanceforeithersegment.Forexample,inthebackhalfof2015,ourinternalprojectionscallforChannelDevelopmentrevenuegrowthtobecloserto10%,consistentwiththegrowththatwehaveseenoverthe




pastseveralyears.

Finally,foreignexchangeisbecominganincreasinglychallengingheadwind,withover2percentagepointsofnegativeimpactonbothrevenueandearningsgrowthplannedintothebackhalfof2015.Thiswasnotcontemplatedinourplanorourinitialguidancefortheyear,andwearestillplanningtodeliverearningsgrowthof17%to18%,despiteover2pointsofcurrencyimpact.Infact,wemodestlyincreasedboththetopandbottomrangesofourfull-yearEPSguidancelastmonth.Webelievethatthislevelofgrowthwillrepresentbest-in-classperformance,therightlevelofinvestmentinourpartners,andanindustry-leadingreturnforshareholders.

OnefinalsubjectbeforeturningthecalltoQ&A.Inthepast,wehavegivenguidancefortheupcomingfiscalyearduringourthird-quarterearningscall,eventhoughourannualoperatingplanistypicallynotfinalizeduntilSeptember.KevinandIhavebeendiscussingthis,and,giventhesizeandscaleofourincreasinglycomplexandglobalbusiness,havedecidedthatgoingforwardwewillmovefutureguidancetoourQ4earningscall,enablingustocompleteandfullyvetourplanpriortoprovidingguidance.

BeassuredthatthischangeisnotrelatedtoQ3performancetodate.Infact,wearequitepleasedwithhowthequarterhasstarted.Nordoesitsignalanycomingchangeinlong-termtargets;itdoesnot,andourlong-termtargetsremainunchanged.

Instead,wearemakingthisadjustmentforthesoleandsimplereasonthatdoingsowillresultinamorecompleteandinformedforwardguidanceconversation.Q2representedanotherquarterofstronggrowthandexcellentfinancialandoperatingperformanceforStarbucks,allaroundtheworld.

Asweenterthesecondhalfof2015andlooktothefuture,weareideallypositionedtocontinuebenefitingfromtheinvestmentswearemakinginourpeople,inourstores,andininnovation,andtocontinueprovidingworld-classreturnstoourshareholders.Wewillcontinuetoupdateyouonourprogressaswemovethroughouttheyear.NowIwillturnthecallbacktotheoperatorforQ&A.Operator?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions).SaraSenatore,Bernstein.

SaraSenatore (Analyst-Bernstein):

IwaswonderingifyoucouldtalkalittlebitmoreaboutMobileOrderandPay,acoupleofquestionsrelated.Oneofthemisyou'reabouthalfwaythroughtheyearandyouhave650stores,andyouarelookingtoaccelerateIthinkquitenicelyinthebackhalf.

Ifyoucouldtalkalittlebitaboutwhatyou'velearnedthatwillallowyoutoacceleratethatpace.Andtheotherpiecewearecuriousaboutis,areyouseeingthatonlypeoplewhoalreadyusemobilepayareusingtheorderandpay?Orareyouactuallyattractingnewcustomerstotheuseoftheapp,nowthatyouhavetheorderingcapability?

AdamBrotman (ChiefDigitalOfficer):

ThisisAdamBrotman.Iwilltakethesecondquestionfirst.Theanswerisyes.Weareseeingnewcustomerscomeinanduse--joinMSR,usethemobileapp,andalsouseMobileOrderandPay.Sothisisnotjustleveragingthestrongbasethatwealreadyhaveinourmobilecommerceplatform.Intermsoftherolloutplansandwhatwe'relearning,we'reverypleasedwithhowthishasstarted.




Wewillactuallyseeasignificantlyrampedup,acceleratedpaceofrolloutinthesecondhalfoftheyear,asyoumentioned.Wehaveabigwaveofstorescomingonthissummer.Andwhilewecontinuetolearnandoptimizeacoupleofareas--forexample,theestimatedwaittimepick-up--we'redialinginstorelevelmenuandinventorymanagement.

Theseareallthingsthatwe'regoingtocontinuetoimproveon.But,frankly,we'reecstaticaboutthefactthat,outofthegate,ourcustomersandourpartnersarereallypleasedwithhowthisisgoing.Infact,SeattlestartedoutevenquickerthanPortland.Andaswerollthisintomoredenseurbanenvironments,thatbodesreallywellforhowthisisgoingtocontinuetodrivetransactionsandbeagreatthingforourcustomers.

And,operationally,ourpartnersaretellingusthereisnoimpact,andtheyareveryhappywiththisaswell.Sowe'reexcitedtoacceleratethatrollout,asyoumentioned,intothesecondhalfoftheyear.We'realsogoingtobeaddingthistoourAndroidapp,andlaunchingthisintheUKandinCanadaallbeforetheendoftheyear,sowe'retrulyjustgettingstarted.

SaraSenatore (Analyst-Bernstein):

Great,thankyou.

Operator :

KeithSiegner,UBS.

KeithSiegner (Analyst-UBS):

Congratulationsonagreatquarter.IwanttoaskaquestionabouttheAmericaswiththecheckgrowth.Veryimpressive;it'sthehighesttwo-yearticketgrowthwe'veseeninmanyyears.AndwithsomeofthesenewpremiumproductslikeFlatWhite,likeReserve,likeColdBrew,withthemobileorderrollingthroughoutthisyear,withthefoodattachincreasingasyou'vetalkedabout,lotsoftailwindshere.Couldthisbethebeginningofarunofclosertomid-single-digitticketgrowthintheUS?

Clif f Burrows (GroupPresident-US,Americas,andTeavana):

Okay,thankyouforyour--it'sCliff--thankyouforyourcommentsthereaboutourticketgrowth.Yes,weareabsolutelydelightedwithourticketgrowthinthequarter.We'veseen2%comefromfood.We'veseen1%fromtea.

We'veseenstrengthfromourbasebusiness,whetheritisFrappuccinointhesun-belt;or,asyousay,FlatWhite,allofwhichhelpourticketinthequarter.Plusourroutineanddisciplinedapproachtopriceinthequarter,allhavehelped.Asfarasthefuture,IwillpassitovertoScott.

Scott Maw(CFO):

Yes,IthinktheonlythingIwouldadd,Keith,isthatticketmixwasblendednicelyacrossthethreedriversthatCliffwastalkingabout.So,alittlebitofprice,alittlebitofup-levelpremiumizationwithFlatWhiteandsomeofthethingsthatwe'redoingwithfood,andaniceincreaseinattach.

Sothemixofthatisreallyhelping.Andso,asIsaidinmycomments,Ithinkwe'requiteexcitedabouthowtherestoftheyearlooks,butwe'restillholdingtoourmid-single-digitcompguidanceaswelookforward.

KeithSiegner (Analyst-UBS):

Thankyou.




Operator :

DavidPalmer,RBCCapitalMarkets.

DavidPalmer (Analyst-RBCCapitalMarkets):

Congratulations.AcoupleofP&Lorientedones,perhapsforScott.TheCOGSleveragewasreallystronginthequarter,asyoumentioned.Andyoumentionedinthereleasehowsupplychainefficienciesweredrivingagoodbitofit,particularlyintheChannelDevelopmentsegment.Butaswelookforward,howshouldwethinkaboutthatCOGSline?

That,pluscoffee--willthatkindofleveragecontinue?Andthenseparately,withregardtoG&A,youhadasignificantincreaseinthequarter.Ithinkitwas27%.Whatinvestmentsaredrivingthat?Andhowshouldwethinkaboutthatlineaswell?Thanks.

Scott Maw(CFO):

OntheCOGSpoint,theshortanswerisyes.Weexpectcontinuedleverage.Idon'texpectittobeashighasitwasthisquarter.Thiswasareallygoodquarterwithsomeoftheinitiativesthatwetalkedaboutkickingin,andalsoinCliff'sbusiness,significantcontinuedtractionaroundwaste.Butweseethatleveragecontinuinginthequarter.Andwe'vegotanumberofthingsstackedupagainstmakingsurethathappens.AndthenonG&A,thebiggestdriverofthatatthecorporatelevelissometrue-upsthatwehadaroundtotalcompensation.

DavidPalmer (Analyst-RBCCapitalMarkets):

Thankyou.

Operator :

JoeBuckley,BankofAmericaMerrillLynch.

JoeBuckley(Analyst-BankofAmericaMerrillLynch):

Acoupleofclarificationquestions.ForgivemeifImissedit,butdidyougivethemainlineChinasame-storesalesincreaseforthequarterwithinthatstrongCAPnumber?

Scott Maw(CFO):

Wedidn'tbreakitout,Joe.But,asalways,Chinaisobviouslythebiggestcontributortothatgrowth.SowewerereallyhappywithwhatwesawinChinathisquarter.

JohnCulver (StarbucksCoffeeChinaandAsiaPacific,ChannelDevelopmentandEmergingBrands):

Joe,thisisJohn.Iwouldjustaddthatthemaindriverforthecompgrowthhasbeentransactions.Andtheexperiencethatweareprovidingacrosstheregionhasneverbeenstronger.Andinparticular,whatwe'reseeingisthatStarbucksisbecomingpartofthatdailyritualofourcustomersinChina,inJapan,orintheothermarketsthatwe'reoperatingin.

Andtheleveloffrequencyofourexistingcustomersandthenewcustomersthatweareattractingcontinuestogrow.Wearenowservingwellover5millioncustomersaweekacrosstheregion,andextremelyproudofthejobourteamisdoingoverthere.


Okay.AndthenjustaquestionontheTingyi--ifI'mpronouncingthatcorrectly--agreement.How




quicklywillthatrampup?Andthebulletinthereleasementionstheready-to-drinkcoffeecategory.Willthatcoverteaproductsaswell?

MikeConway(President-GlobalChannelDevelopment):

Yes,Joe,thisisMikeConway.So,wecurrentlydistributetheFrappuccinoproductinChinatoday,althoughitisinamorelimitedgeographicalpresencethanwewouldhave.Fromatimingperspective,we'regoingtobetransitioningin2016toTingyi.Andweexpectthatwiththestrengthoftheirdistributionandtheirknowledgeofthemarketplace,combinedwithourstrongbrand,thatwewillsignificantlyunlockthegrowthforChina.


Mike,youwanttojustspendalittlebitmoretimeonChannelDevelopment,sincewehaven'thadanopportunity?


Sure.


AndalsowithregardtoTingyi,maybeyoucantalkabouthowmanypointsofdistributiontheyhave.


Yes,absolutely.So,andyoualso,Joe,mentionedabouttea.And,yes,wewill,overtime,belaunchingteaaswellwiththeTingyidistribution.Wewill,fromachanneltodistributionperspective,pointsofdistribution,theyhavewellover100,000pointsofdistributionwithinChina.AndforChannelDevelopmentforthisquarter,weareactuallyverypleasedwithourresults.Our16%growthwas,byallmeasures,quiteexceptional,andwasdrivenbyanumberoffactorsforus.

Firstofall,very,verystrongprogramming,in-storeexecution,aswellasthesuccessofandlaunchofinnovationslikeournewicedK-Cupplatform.Andaswethinkabouttheremainderoftheyear,wehaveotherinnovationscomingonaswell,includingalaunchoficed--orratherourcocoaK-Cupsaswell.Andsoweexpectverystrongperformanceinthebackhalf,althoughexpectittobemoreinlinewithourhistoricalgrowthofaround10%.


Thankyou.

Operator :

KarenHolthouse,GoldmanSachs.

KarenHolthouse (Analyst-GoldmanSachs):

Actuallyanotherquestiononthechanneldevelopmentsideofthebusiness.So,we'veseeninthelast,probablyfewmonths,onNielsenorIRIdatathatpricinghasactuallycomeinforStarbucksbothonanabsolutebasisandrelativetothemarket.I'mjustcurious--thelogicbehindthat,ifthatwasseenasanopportunity.Yournetprofitaccretion,ifit'ssendingoffpotentialentrantsintothemarketwithDuncan,movingintomorepointsofdistribution,justsomeofthelogicbehindthat.And,ofcourse,congratulationsforafantasticquarter.

Scott Maw(CFO):




Yes,thankyou.Fromapricingperspective,weactuallyarequitepleasedwiththewaywewereabletobalanceourbasewithpromotionalpricing.Youcombinethatwiththestrongin-storemerchandisingthatwehad,wewereabletoachievesignificantsharegrowthacrossallofourbusinessesduringthequarter.Andsowewillcontinuetomonitorthemarket,continuetomonitorthepricing,andmakeappropriateshifts.Butatthemoment,we'requitepleasedwithhowourpricingisliningupinthemarketplace,andinparticularhowwe'redrivingshareinthemarket.

KarenHolthouse (Analyst-GoldmanSachs):

Great,thankyou.

Operator :

JohnGlass,MorganStanley.

JohnGlass (Analyst-MorganStanley):

Afewquartersagotherewasanotionofmaybegreaterpartnershipsinthetechside,eitherusingsomeoftheirtechnology,maybewhite-labelingsomeofStarbucks'paymentplatforms,etcetera.Sowheredoesthatstandnow?What'syourcurrentthinkingonthat?AndKevin,asyoucometothisfull-time,maybearetherespecificareasthatyouthinkareevengreateropportunitiesthatyoubringyouroutsideexperienceintoStarbucks?


IthinkMattandRyanisgoingtostart,andthenKevinwillfollowup.

MattRyan (GlobalChiefStrategyOfficer):

Sure.Wecontinuetobeinanumberofactivedialoguesrightnowaboutanumberofdifferentpartnerships,leveragingmobile.Weseethecontinuedgrowthasbeingourpermissiontodomoreandmoreinthatspace.We'renotpreparedtoannounceanythingspecifictoday.AndwhatIcantellyouisinthemonthsandyeartocome,therewillbemoreonthatfront.


Yes,intermsofopportunitiesforustobetterleveragetechnology,earlyobservation,Ithinkwe'reaheadoftheindustryinthoughtleadershiparoundthedigitalcustomerexperience.Andwe'regoingtokeeppushingtheenvelopeonthat.

Wehavekindofoutlinedthatforyou,andthere'smoreideasevenbehindthat.TheareathatIthinkwehaveopportunitycertainlyiswithourin-storepartners,onleveragingtechnologytohelpourin-storepartnerswiththetaskstheyhavetodothataremoreabouttheadministrativesideofthingslikeinventorymanagement;makingiteasierforthemtodoschedulingofourstorepartners,communicatingwithourstorepartners,thewaywereachin-storepartnerswithtrainingandcommunications.

We'vegotatremendousopportunitytostepupourgameinthatparticularareaandweregoingtodomorethere.Andthencertainlyifyoulookathowwe'reutilizinginformationacrosstheenterprisetomakemoreinformedandbetterdecisions,whetherit'susingdata--bigdatakindsofanalyticstohelpuswithastorelocation,orbigdataanalyticstohelpusunderstandhowtodoabetterjobofpromotingtoourcustomersatdifferenttimesoftheyear.Ithinkthosearethebigopportunitiesthatwesee,andwe'regoingtocontinuetodriveforwardwiththose.

Operator :




JohnIvankoe,JPMorgan.

JohnIvankoe (Analyst-JPMorgan):

HowardandKevin,youwerevery,veryclearthattheMobileOrderandPayhasexceededeverygoalthatyou'veset.SoIwantedtogetjustalittlebitmoreintothedetailsofthis.Onewouldthinkthatmobileorderwouldworkthebestattheconstraintorthepinchpoint,Ithink,inyourwords,wouldbeattheregisterandnotatthebarista.

Andsoasthatrollouthascontinued,whatyou'veactuallylearnedaboutincreasingbaristacapacity.Isitjustanissueofaddingmorebaristas,addingmoreequipment?Andasyouthinkaboutmobileorder/mobilepayovertime,howmuchmorelatentcapacityexistswithintheexistingStarbucksunitbecauseofthistechnology?


John,thisisHoward.Cliffisgoingtotakethatintermsofthedetailsofthequestion.Ithinkit'sfairtosaythatwedidnotintend,nordoweforesee,addingequipmentasaresultofMobileOrderandPay.

Theincrementalitythatwe'reseeingintheearlystagesstronglysuggeststhatwe'regoingtobeabletointegratethiswellwithintheengineofStarbucks.Withregardtolaborandhowwe'redeployingit,IwillletClifftakeit.ButIwouldsay,asAdamsharedwithyou,thattheearlysignsofMobileOrderandPayisthisisgoingtobeamuchmoreseamlessintegrationthanwereallyanticipated,bothintermsofcustomerresponseandthelevelofconvenience.

AndalsoIwouldn'tunderestimateoneotherthing,whichwelearnedwithFlatWhite,andthatisourpeoplearesoexcitedandsoproudofthisinitiativeandthistechnology.They'veembracedit.They'reenthusedaboutit.Andasaresultofthatthat'soneoftheprimaryreasonswhyit'sworkingsowell.Cliff,doyouwanttoanswertheissueofincrementallabor?


Yes,letmejusttalkaboutthis.Ithinkoneofthethingsthatwe'reseeingisconvenience;improvedrelationshipbetweenthecustomerandtheirstorewhere[their]order.Theyfeelmuchmoreincontrolofit.Foodattachisstronginit,andjusttherepeatnatureofthesetransactionsisreally,reallyhelping.Itisconvenientforthecustomer.

Theyhavenoqueuetime.Theyarecominginandgoingstraighttothehandoffpointandcollecting.That,inturns,isfreeingupspaceinthestoresandtakingstressawayfromtheregistertransaction.Andweareseeingreallyencouragingsignsofgrowthatpeakinourbusieststores,whichiswhatismostexcitinghere.

Thosebusieststores--wecanonlyreallytalkaboutSeattle--butwherewehaveputinMobileOrderandPay,weareseeingreallystronggrowthatpeak.Andtherehasbeennoadditionalequipment,overandaboveputtinginaprintertoreceivetheordersfromcustomers.Andit'sreallyencouragingthatwewillbeabletogetmorecapacityatpeakoutofexistingstoreswiththeadditionofMobileOrderandPay.


Adam,canyouorKevinjusttalkabouthowthishasbeenintegratedintotheecosystemwithregard--thisisnotabolt-on.Thankyou.


Yes.Firstofall,theecosystemyouarereferringtoisthemobilecommerceplatform,whichincludes




loyalty,themobileapp,ourcardprogram,ourPOSsystemsinourstores.Wehaveintegratedallofthosetogether.Andit'sactuallythatentiremobilecommerceplatformandecosystem,andasyouheardearlierisaccelerating.We'reseeingunbelievablenumbersofactiveMSRmembers,mobileusers,mobilepaymenttransactions.

Soit'sintothatmomentumthatwe'velaunchedMobileOrderandPay.Sothisisnotabolt-on.Thisisgettoleveragethatexistingecosystem.AndIthinkthat'swhy,frankly,ourcustomersarelovingit.Theydon'thavetodownloadanewapp.Theydon'thavetolearnsomethingnew.Thisisjustseamlessforthecustomers,justlikeitisforthepartner.


That'sgreat.Thankyou.

Operator :

DavidTarantino,RobertW.Baird.

DavidT arantino (Analyst-RobertW.Baird):

Justafollow-upontheMobileOrderandPayinitiative.ItsoundslikeyoumightbestartingtoseesomeincreasesinMyStarbucksRewardsmembersalsoasaresultofrollingthisout.Sojustwonderingifyoucanmaybecommentonthethoughtprocess,orhowyouthinkabouttheincreaseyouareseeingintheloyaltyprogrammembers,andhowyouplantoutilizethatasyougetthisrolledout.Maybemoreone-to-oneoffersthanwhatyou'redoingcurrently,ormaybethat'snotpartoftheplan.Butanythoughtstherewouldbehelpful.

MattRyan (GlobalChiefStrategyOfficer):

Sure.ThisisMattRyanagain.Thankyouforthequestion.Therearetwowaysoflookingatthis.Therearelotsofwaysthatwe'reactuallygrowingourmembership,andMobileOrderandPayisoneofthem.Weareactuallyincreasingthestrengthofourvaluepropositionovertime,withmoreoffersthroughone-to-one.Peoplearerecognizingthat.Peopleseetheconveniencewithinthestores.Andbecauseitisanoverallinitiativetorecruitmoreandmorepeople,weareseeingthegrowthintheplatform.

Thatbegetsavirtuouscirclewherebywecandomorethingswiththatplatform.Certainlytheabilitytobecomemoreandmoretargetedandsendmoreofferstotherightpersonattherighttime,inthewaythattheywantit,isacapabilitywe'vebeengrowinghere.Butthegrowthofthatplatformis,infact,thepermissionthatwehavetodomore,overtime,inthedigitalspace.Becauseaswegrowthatengagedbaseofcustomers,theadjacentthingswecandowiththem--startingwithMobileOrderandPay,movingontodelivery,andontootheropportunities--isgoingtobeanenormouslong-runplayforus.


Thankyou.Andhaveyouseen,infact,thatthemembershiplevelsintheNorthwesthasincreasedsinceyourolledtheMobileOrderandPayout?


Well,IthinkasAdamcommentedearlier,wehaveseenincreaseinMSR,withnewMSRcustomerscomingtouseMobileOrderandPay.And,granted,we'rejustinthePacificNorthwestrightnow,soit'sstillearlydays.ButIthinkthat'safantasticexampleofafeaturethatisacustomer-focusedfeature.It'sallaboutthatbenefittothecustomer,theconsumer.Andwethinkofferingthosetypesofbenefitsandthosetypesoffeaturesaspartofourmobileapp,itwillbringmorepeopleintotheMSRprogram.





Great,thankyou.

Operator :

JeffBernstein,BarclaysCapital.

Jef f Bernstein (Analyst-BarclaysCapital):

Justtwoquestions;oneontheAmericascomp.Idon'tknowifyoumentionedthis,butintermsofthetrafficgrowthacrossalldayparts,Iwaswonderingwhetheryouwereseeing,again,stabilityacrossallthosedayparts,andwhetherornotthatwouldimplythatatthispointtherestillnorealsignsofthroughputconstraints,despiteobviouslytheoutsidecompgrowth.

AndthenmyotherquestionwasjustontheAmericasunits.Iknowthatinfiscal2015,Iguesshalfofyouropeningisgoingtobelicensed.Justwonderingwhetherthere'sanyunderlyingstrategyincomingyearstomovetowardsmorelicensedovertime,notunlikeIguessmanyofyourinternationalmarkets.Thanks.


Thanks,Jeff,andI'lltakeboththequestions.ThisisCliff.Aswesaidearlierinthescript,wehaveseengrowthintheAmericasinalldayparts,allgeographies,andacrossallplatforms.Itreallywasaverybalancedportfolio.Andweareseeinggrowthatpeaktimesinourbusieststores,whichreallygivesustheencouragementthatweare--westillhaveroomforcapacity.AndMobileOrderandPaywillonlyhelpthatinthecomingmonths.

Secondly,aroundstoregrowth,thisquarter,aswesaid,wasabitofananomalywiththeclosureofthe132licensedstoresinCanada,sothatwilldistortthenumberalittlebitthisyear.ButIthinkoverthecomingyears,youwillseeuscontinueabalancebetweencompany-operatedandlicensedstores.Theremaybetimeswhereitgoesupordown,onewayortheother.Butintermsofstrategy,wecontinuetolookforopportunitiestogrowbothourcompany-operated,andevenhereintheUS,westillseeaveryhealthypipelineofnewopportunities.

AndweopenverysoonourfirstsmallfootprintstoreinNewYork,whichgivesusanotheropportunityforgrowth.AndasHowardsaidearlier,withthepremiumnatureofthe--buildingofftheRoastery,wehaveagainanotheropportunityforgrowth.So,weseethepipelineoutintothefuturebeingveryhealthy,balancedbetweencompany-operatedandlicensed.


Letmejustaddafewthingstothat.ForthoseofyouwhohavefollowedtheCompanyformanyyears,itwasn'tthatlongagothatourstoresclosedearlyintheevening--7,8o'clockatnight.Andmostofourbusiness--50%orso--wasdrivenbefore10,11AM.Inthelastfewyears,IthinkCliffandhisteamhavedoneawonderfuljoboftwoprimarythings

Butthebignewsinthelastcoupleofyearsisidentifyingdaypartsandneedstatesthroughuniqueproductsinwhichwecouldleveragethefixedassetofthestore.Solunch,asanexample,isdrivingasignificantlevelofvisitsandincrementality,bothintrafficandinticket.Thenewopportunitywithsmoothiesintermsofhealthandwellness,identifyingthatneedstate,andleveragingthatdaypartopportunity,whichismostlyrefreshmentintheafternoonandhealthandwellness.

Andthenonethingwehavenottalkedabout,eitherinthescriptortheQ&A,istheadvancementofevenings,whichwe'reveryexcitedabout.Andsoallthesethingshavegivenustheabilitytointegrate




newproduct,newlevelsofinnovation,andidentifyneedstatesanddaypartsthatfiveyearsago,candidly,werenotpartoftheunitaveragevolume.IfyoulookedattheaveragevolumeofStarbucksbothintermsofmaturestoresand,probablymostimportantly,newstores,weareexperiencingthebestperformingnewstoreclassinourhistory.AndoneoftheprimaryreasonsiswhatI'vejustdescribed.

ThenyouleverageMSRandMobileOrderandPayonthat,andyourimaginationcanreally--Ican'tbegintothinkabouthowmuchvolumewecanputthroughthesestores.AndIthinkwe'rejustgettingstartedwithalevelofinnovationwethinkthatfoodteamcancreate.Andsothat'swhywe'resoexcitedaboutthefutureintermsoftheopportunitytodriveincrementalityinexistingandnewstores.

Jef f Bernstein (Analyst-BarclaysCapital):

Helpful.Thankyou.

Operator :

NicoleMiller,PiperJaffray.

NicoleMiller (Analyst-PiperJaffray):

WhoeverputthecoffeeinDelta,thankyousomuch.Andonthatnote,canyoutalkalittlebit--orjustwalkusthrough--Ithinkit's100%ofcoffeeislockedforthisyear.Weknowit'sfavorable.Canyougiveusanycoloronhowmuch?

Wewerealsosupposedtoseeabenefitoflowerdairyanddiesel,Ithink,inthebackhalfoftheyear.Areyouseeingthat?Andthenalso,thankyouforthecoloron2016andthelockthere.Priceisloweragain--byhowmuch?Justwondering,canweflowthatthrough,ordoyouwantustoassumeyou'llmakeinvestmentsagainstthat?Thanks.

Scott Maw(CFO):

Thanks,Nicole.Soasitrelatesto2015,whatyouhavetorememberisthatcoffeepricesthroughout2014werequitelow.Soforalongtime,theywereinthe$1.20and$1.30range.Andso2015coffeeprices,despitethefactthatwewerepatientandwaitedoutallthespikesabove$1.90andboughtitfarbelowaveragemarketprices,ourcoffeeisactuallyalittlebitunfavorableyear-over-year.Butthat'smuchmoreabouthowlow2014wasthanitisaround2015.Weactuallydidareallygoodjobbuyingbelowthemarket.Soalittlebitofunfavorability,andaverylittlebit,offsetbyfavorabilityindairyanddiesel.That'skindofhowtheyearisshapingup.

Whenwegaveguidanceallthewaybackinthesummer,weexpectedcoffeepricestocomedown,justgivenwhatwesawinthemarket.Wedidn'tknowtheyweregoingtocomedown,butweexpectedthat.Wewaited,andwewerepatient;andwhentheycameintoourtargetrange,wefilledupourneedsfortheyear.Sothat'showtothinkabout2015--roughlyflat,alittlebitunfavorableoncoffee,alittlebitfavorableondairy.On2016,becausewedidsowellin2015,despitethefactthatwe'velockedatslightlylowerprices,again,thatfavorability,whilemeaningful,itisprobablynotashighasyoumightcalculatebaseduponaveragemarketprices.

Sowe'llgiveyoumoreupdate.Westillhaveafullthirdofourcoffeetoprice.Wewillgiveyouabitmoreupdateaswemoveinto2016andbecomemorespecific.

NicoleMiller (Analyst-PiperJaffray):

Thankyou.

Operator :




DianeGeissler,CLSA.

DianeGeissler (Analyst-CLSA):

IwantedtoaskontheCPGbusiness.IthinkDanoneannouncedonitsearningscallthatitwasco-brandinganEvolutionFreshproductwithyou,yogurtproduct.ObviouslytheTingyideal,Ithink,isabigdealintheCPGspaceinChinafor2016.So,justgoingbacktwoanalystdaysago--whichwould'vebeen,Iappreciate,quiteawhileago,whereyoutalkedabouttheCPGspace,andhowyouthoughtitcouldrivalthesizeoftheUSretailbusinessatsomepointinthefuture.

CouldyoutalkaboutyourgrowthplanswithinCPG?WhichIthinkyou'veobviouslycrystallizedaroundtheK-Cupbusiness.Butthere'slotsofopportunitiesinalotofdifferentaislesinnotonlytheAmericas,butalsoinChina.Socouldyoutalkalittlebit--maybeaddalittlebitmoredetailaroundthat?I'dreallyappreciate(multiplespeakers).

JohnCulver (StarbucksCoffeeChinaandAsiaPacific,ChannelDevelopmentandEmergingBrands):

Yes,Diane,thisisJohnCulver,andletmejusttakethat.ClearlytheCPGbusiness,firstoff,hadaverystrongquarteranditcontinuestogrow.Andourexpectationisthatitwillcontinuetogrowatthatdouble-digitrateintheforeseeablefuture.Now,aswelookatthegrowth,thatgrowthisbeingdrivenbyourcorecoffee,andreallyK-Cupsisabigpieceofthat.

Aswelookatotherareasofgrowth,though,weseetremendousopportunitytogrowoutsideofcoffee.Thebiggestistheteaopportunity,andinparticularwiththeTazoTea,andthenasweintroduceTeavanateadowntheaisleandthroughready-to-drinkaswell.

Andthenwe'vealsoworkedverycloselyonEvolutionFresh.AndEvolutionFreshtodaystandsinover11,000doorsacrossthecountry.TheCPGsharethatwehavebothinnatural,aswellasintraditionalFDMisaverystrong,anditcontinuestogrow.Wejustrepackagedtheproduct.Andwenowhavenewpackaging,an11-ounceanda15.2ounce.

Andthenwe'vealsolaunchedEvolutionFreshsmoothiesinourstores.AndweanticipatelaunchingEvolutionFreshyogurt,withfruitonthebottom,inourstoreswithourDannonpartnership.So,forus,theseareallinvestmentsthatwecontinuetomakeinourchannelbusiness,giventherelevanceandthestrengthofthebusiness.Andalsoweareveryoptimisticaboutthefuturegrowthofthebusinessgoingforward.

DianeGeissler (Analyst-CLSA):

Okay,great.Thankyou.

Operator :

WillSlabaugh,StephensInc.

WillSlabaugh (Analyst-Stephens):

Onemorequestiononchanneldevelopment,butmoreontheinternationalfront.Idon'tknowifyouhadanupdatethatyoucouldgiveusthereonsomekeymarketsinternationally--whereyoustandnowversuswhattypeofgrowthyoumightexpectinthosekeymarketsinthenextcoupleofyearsasyoumighthityourgoals.


Well,thankyou.ThisisMikeConway.WeseechannelAspecificasbeingoneofourmostimportant




marketsgoingforward.CertainlywiththepartnershipwehavewithTingyi,Chinawillbeabigmarketforus,particularlydrivenbythesizeoftheready-to-drinkenergyandcoffeebusiness.Andwealso--Japanisoneofourlongest-standingready-to-drinkmarkets.

Whileitissomewhatmature,atthesametimethere'salotofgrowthforusthere,particularlywiththemovethatwemadenowfullyowningtheJapanmarket.

Beyondthat,thereareanumberoftheemergingmarketsthatwe'rereallyfocusedon.WestillhavehavefairlyemergingbusinesswithinourLatinAmericaregion.Andwe'relookingatmarketslikeBraziltoestablishapresencethere,anotherbigmarketforus.

Andthenwehaveanestablishedrelationshipin(technicaldifficulty),butwehaveprobablythelargestnumberofmarkets--onsorry,inEurope--wehavethelargestnumberofmarketsintheEMEA,andwearegoingtocontinuetodriveourbusinessthereaswell.ButtheUK,France--thosearesomeofourlargestmarkets.SoasIthinkaboutthesignificantgrowththatwehaveforready-to-drinkcoffee,wearereallylookingattheCAPregionaswellasLatinAmerica.

WillSlabaugh (Analyst-Stephens):

Thankyou.


Operator,thiswillbeourlastquestion.

Operator :

AndrewCharles,CowenandCompany.

AndrewCharles (Analyst-CowenandCompany):

JustwantedtotouchbasewithAdamonthemobilepaymentjustjumpingtoroughly19%;ithadbeenstuckforawhilearound15%.Justwantedtoknowwhatyouattributedtheincreaseinmixto.


Thanks,Andrew.ThisisAdam.It'sagreatquestion.IwouldsaythecoreecosystemthatHowardandIweretalkingaboutearlierisaninterconnectedsetofpartsthatareall--havemomentum.SothefactthatMSRs--you'veseenthemomentuminMSR.You'veseenthemomentuminmobileactiveusersingeneral.Youareseeingthemomentumincardloadsandcardredemptions.

Andthosethingsarealltiedtogether,soliketheflywheeltheyallpoweroneanother.Andsoit'snotasurprisethatwe'reseeingthatkindofaccelerationhappenwhenitcomestomobilepaymentsaswell;over8millionperweek,approaching19%-plusintheUSintermsofpercentageoftender.Anditjustspeakstothemomentumandtheoverallmobilecommerceplatformingeneral.

AndrewCharles (Analyst-CowenandCompany):

Thankyou,Adam.Greatquarter,thanks.


Thanks,Mike.ThisconcludesStarbucks'Q2fiscal2015earningscall.Thankyouallforjoiningustoday.

Operator :




ThisconcludesStarbucksCoffeeCompany'ssecond-quarterfiscalyear2015earningsconferencecall.

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