EDITED TRANSCRIPT SBUX - Q1 FY12 STARBUCKS EARNINGS ...mylearning.starbucks.com.edgesuite.net › mylearning › PRO_BBA_EP… · PRESENTATION Operator Good afternoon. My name is

THOMSON REUTERS STREETEVENTS

EDITED TRANSCRIPTSBUX - Q1 FY12 STARBUCKS EARNINGSCONFERENCE CALL

EVENT DATE/TIME: JANUARY 26, 2012 / 10:00PM GMT

THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us

©2012 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited withoutthe prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliatedcompanies.

http://www.streetevents.com

http://www010.streetevents.com/contact.asp

C O R P O R A T E P A R T I C I P A N T S

JoAnn DeGrande Starbucks - IR Director

Howard Schultz Starbucks - Chairman, President, CEO

Troy Alstead Starbucks - CFO, CAO

Jeff Hansberry Starbucks - President Channel Development & SBC

Cliff Burrows Starbucks - President Starbucks Coffee Americas

John Culver Starbucks - President Starbucks Coffee China & APAC

C O N F E R E N C E C A L L P A R T I C I P A N T S

David Palmer UBS - Analyst

Sara Senatore Sanford C. Bernstein & Company, Inc. - Analyst

Jeffrey Bernstein Barclays Capital - Analyst

Michael Kelter Goldman Sachs - Analyst

Sharon Zackfia William Blair & Company - Analyst

Josh Long Piper Jaffray - Analyst

Keith Siegner Credit Suisse - Analyst

John Glass Morgan Stanley - Analyst

John Ivankoe JPMorgan Chase & Co. - Analyst

Joe Buckley BofA Merrill Lynch - Analyst

Matthew DiFrisco Lazard Capital Markets - Analyst

P R E S E N T A T I O N

Operator

Good afternoon. My name is David and I will be your conference operator today. At this time, I would like to welcome everyone to the StarbucksCoffee Company's first-quarter fiscal-year 2012 earnings conference call. (Operator Instructions). Thank you. Ms. DeGrande, you may begin yourconference.

JoAnn DeGrande - Starbucks - IR Director

Thank you. Good afternoon. This is JoAnn DeGrande, Director of Investor Relations for Starbucks Coffee Company. Thank you for joining us fortoday for a review of our first-quarter fiscal 2012 financial results.

This is our first earnings report under our new reporting segments, and we will take the opportunity today to let you hear directly from two of thesegment presidents on the results from their respective businesses.

We'll start our call with comments from Howard Schultz, Chairman, President, and CEO. Troy Alstead, our CFO, will then speak to consolidatedresults. Jeff Hansberry, President of CPG Food Service and Seattle's Best Coffee, will discuss results for these businesses, followed by Cliff Burrows,President of our Americas segment. Troy will then wrap things up with a look at Europe/Middle East/Africa and China/Asia-Pacific results, and areview of our targets before we move to Q&A.

1



JANUARY 26, 2012 / 10:00PM, SBUX - Q1 FY12 Starbucks Earnings Conference Call



Our discussion today will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actualresults to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in ourearnings release and risk factor discussions 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 the financial statementsaccompanying the earnings release to find disclosures and reconciliations of non-GAAP financial measures mentioned on today's call with theircorresponding GAAP measures.

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

Before we turn the call over to Howard, let me cover a few housekeeping matters. Historical results recast under the new reporting segments canbe found under the investor relations segment of Starbucks.com. In addition to the P&Ls we initially filed and posted late last week, we addedthree-year historical same-store sales data and store counts.

Also please note that we filed the Company's 2012 proxy statement today, which can also be found on our website. And finally, Starbucks' 2012annual meeting of shareholders will be held in Seattle at 10 AM Pacific Time on Wednesday, March 21. That meeting will also be available viawebcast.

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

Howard Schultz - Starbucks - Chairman, President, CEO

Thank you, JoAnn, and welcome to everyone on the call.We are delighted to report Starbucks' first-quarter fiscal 2012 results we announced earliertoday.

Q1 was an outstanding quarter for Starbucks on many levels. We served more customers in our stores around the world than at any other time inour history, and our financial performance indicates that we delivered on every key performance metric to drive our ninth consecutive quarter ofpositive comps, including 9% growth in U.S. comparable-store sales and 9% increase in global comparable-store sales, a 7% increase in customertraffic and the strongest holiday season in our 40-year history, record quarterly revenues of $3.4 billion and record quarterly earnings of $0.50 pershare.

Combined with the growing strength and global relevancy of the Starbucks brand, our performance in Q1 was driven by continued product andbeverage innovation, continued focus on operating excellence, fiscal discipline, deepening our connection to customers, elevating our customerexperience, and extraordinary execution by Starbucks partners in all 57 countries around the world in which we operate.

Yet as gratifying as the results last quarter were, we are even more motivated by the global opportunity that lies ahead, both in terms of growthof our store footprint and the growing opportunity within CPG.

By now, you know that in October Starbucks implemented a new leadership and organizational structure, the centerpiece of which is a newthree-region global alignment of our retail business. This move was designed to support an acceleration of Starbucks' long-term blueprint forprofitable growth, a global growth strategy we first shared with you in December of 2010 at our bi-annual analyst conference.

The Starbucks blueprint for growth is proving to be a differentiated and unique approach that allows us to integrate and build off of our globalretail footprint, our deep and unique connection with our customers, and our rapidly-expanding CPG business.

While some companies may be able to execute some portions of this strategy, we strongly believe that Starbucks is the only company in the worldwith a global footprint of company-owned and -operated stores, a growing CPG business, best-in-class social and digital media assets, a cutting-edgeexperience with mobile payment, and millions of registered Starbucks cardholders as part of our loyalty program.

2






These assets, along with our management talent and the underlying trust in the equity of our brand, allows us to introduce a new product orcategory within our stores and draft off of that success to then build multiple channels of profitable distribution as part of our CPG strategy.

We have built and we are executing the synergistic model that we first initiated through the introduction of Starbucks VIA. Beyond product successand importance to our global single-cup strategy, VIA demonstrated that Starbucks has the unique ability to leverage our global retail footprintand unique connection with customers to create and grow a completely new CPG product category. And VIA was, in many ways, the proof sourcefor our blueprint for growth strategy.

In 2010, we aspire to build VIA into a billion-dollar brand, and today we are well down that path. In its first year, VIA achieved $185 million ofsystemwide sales, and generated more than $250 million in systemwide sales in fiscal 2011 with over 80,000 points of distribution.

The confidence and muscle memory we have developed with VIA is now being applied in our approach to new opportunities.The pent-up demandand growing customer response to the launch of Starbucks K-Cup Portion Packs last November is another illustration of our blueprint for growthat work.

But unlike VIA, we inverted the model and the sequence of events. We launched K-Cups nationwide first in CPG, shipping over 100 million K-Cuppacks to every region of the country. Building off of that success later this year, we will bring K-Cups to our own retail stores, timing this availabilitywith the additional supply that is required to meet the increasing demand in this exciting new area of business.

We strongly believe that as we garner additional supply and continue to execute against our channel rollout plan, we will build a second $1 billionbusiness within our single-serve portfolio adjacent to the $1 billion opportunity we see for VIA.

And on January 10, we rolled out Starbucks' latest innovation, Starbucks Blonde Roast.The question might be asked, why is Blonde so significant?Because Blonde provides us with a major new product platform within our core business to deliver the Starbucks premium coffee experience to asignificant contingent of coffee drinkers, and it's completely incremental to our existing business, consumers preferring a lighter roast, representing40% of all coffee drinkers in the U.S. alone.

What's more, following our blueprint for growth we're launching Blonde differently than we have launched any other product in Starbucks history,across all channels in our stores and within tens of thousands of points of distribution within CPG and around the world.

As you can see today, Starbucks' blueprint for growth is guiding everything we do, and we are just getting started. For example, as we speak weare applying the full talent and muscle of our creative, strategic social media and operational expertise to our major new entries into the $50 billionhealth and wellness industry as we build the national brand with Evolution Fresh.

We have exciting news to share on this front in the weeks and months ahead as we finalize plans for the debut of our Evolution Fresh health andwellness store in the first half of 2012.We're not ready to announce details today, but I can assure you we are incubating a concept unlike anythingelse in the marketplace today.We look forward to sharing the detail of our vision with you, so please stay tuned.

Before I turn the call over to Troy, Jeff, and Cliff, I'd like to close by thanking our nearly 200,000 Starbucks partners around the world for all theyhave done to deliver yet another record quarter and set in motion what is shaping up to be another defining year on many fronts for StarbucksCoffee Company. As we continue to execute at this high level and pace, I couldn't be more proud that what we are doing -- that while we are doingall this, we're doing it in a way in which we are preserving our core values and enhancing the connection to the communities we live and wherewe work. In a sense, using our scale for good.

With that, I thank you for the opportunity, and I'll turn the call over to Troy.

Troy Alstead - Starbucks - CFO, CAO

Thanks, Howard, and good afternoon, everyone.

3






Starbucks entered fiscal 2012 with strong momentum, which we carried through our fiscal first quarter with records being set for many criticalmeasures of our financial health.

As Howard mentioned, our blueprint for growth is taking hold and now beginning to pay off in a big way. Record revenues, operating income, andearnings are a testament to this, and as you'll hear on this call, we have a great deal of opportunity ahead.

I'm going to quickly give you an overview of consolidated results, and then I will turn to Jeff and Cliff for more details on their businesses.

First quarter of consolidated net revenues were $3.4 billion, up 16% from $3.0 billion a year ago. The revenue increase was primarily driven by a9% increase in comparable-store sales attributable to a 7% increase in traffic and a 2% increase in average ticket. Two-year global comps reached16% in the first quarter.

We reported consolidated operating income of $556 million in the first quarter, an 11% increase over the first quarter of last year. Consolidatedoperating margin was 16.2%, which represented an 80 basis-point decline from the first quarter of last year. Higher commodity costs were particularlyimpactful in the quarter, having a negative impact on operating income of $105 million and 300 basis points of pressure on margin.

Even with this headwind, EPS reached a record $0.50 per share for the first quarter, compared to $0.45 per share in last year's Q1, an 11% increase.

I'm now going to turn the call over to Jeff Hansberry, who will take us through the remarkable results of our CPG business in the first quarter andwill give you some insights into what's to come in this high-growth area of our Company. Jeff?

Jeff Hansberry - Starbucks - President Channel Development & SBC

Thank you,Troy.

We saw strong results amongst our portfolio of branded products in the first fiscal quarter of 2012, even as we continued to reinvest in the businessfor future growth opportunities. Record quarterly revenue of $336 million was a 72% increase over last year, driven equally by growth of thepremium single-cup segment and the benefit of recognizing the full revenue in our packaged, coffee, and tea business under the direct distributionmodel.

Operating income for the quarter was $80 million, up 12% over the prior year, and operating margin was 23.7%. This is roughly in line with ourfiscal-year 2012 target, driven 950 basis points lower due to higher coffee costs, which, as you know, have had a significant impact on this segment-- have a significant impact on this segment more than any other.

I would like to provide some additional detail on our key CPG product lines. Our packaged coffee and tea businesses continued to improve as weapproached the anniversary of the transition to our direct distribution model. Despite a consumer shift towards single-serve formats, we did seepositive share trends within the packaged coffee segment in the first quarter.We are well positioned to maintain and elevate our leadership in thisspace through new offerings like Blonde Roast, which I'll talk about more in a minute, our recently-launched simplified new packaging organizedby roast profile, and stronger management of the channel with our direct-selling team.

Next, I'd like to discuss the premium single-cup category, which is without question the most dynamic segment in the coffee category with overallgrowth of more than 130% in the most recent 13-week syndicated data period.

Starbucks continues to build share in this category, first with our introduction of VIA and more recently with the launch of Starbucks K-Cups.Customer demand for VIA continues to be strong with ACV now at almost 80%. In the first quarter, we added two new VIA flavors, house blendand breakfast blend, to our CPG offerings, with even more on the way in the near future. We will also continue to expand the availability of VIAboth in the U.S. and abroad.

4






Now let me move to Starbucks K-Cups, where we are very pleased with the consumer excitement around our recent launch in the U.S. CPG channel.For the two months of the quarter in which Starbucks and Tazo K-Cup packs were available, over 100 million cups were shipped, and we havealready reached an 11% value share in the premium single-cup market, with 66% ACV in the month of December.

As we gain additional supply, we expect to see continued positive momentum in both of these areas. Looking forward, in Q2 we plan to launchK-Cups in the Canadian CPG channel, and later in the year we will roll out the products in Starbucks retail stores in both the U.S. and Canada.

Another area that we are excited about is our acquisition of Evolution Fresh, a superpremium juice company.With this acquisition, we will reinventthe $1.6 billion superpremium juice segment by providing our customers even more healthy options for their on-the-go lifestyles. The rollout ofEvolution juice products represent a significant entry point into the large $50 billion health and wellness sector. The integration of Evolution intoour business is moving along as scheduled, and we will share more information on this front in the near future.

Most recently, we introduced Starbucks Blonde Roast, a lighter roast of our premium coffee, simultaneously through both our U.S. retail stores andthe CPG channels. With over 54 million coffee drinkers in the U.S. preferring a lighter flavor profile, the new Blonde offering serves as an exampleof our ability to listen to and respond to our customers, providing them with the products they prefer wherever and whenever they want them.

The new platform is now offered in the U.S. CPG channel in whole-bean and ground-coffee formats,VIA, and K-Cup.These new products will allowus to increase our share of the brewed coffee market down the grocery aisle, where a majority of coffee sales are in the light and medium roastcategories, representing a $1 billion opportunity in the U.S. alone.

In conclusion, as I look back on where the Starbucks CPG business was just one short year ago, it is amazing how much we have accomplished insuch a short amount of time. We have revolutionized the way people think about and consume coffee at home, at work, and on the go. We aredriving rapid growth for the Company through this part of the business, which requires relatively low capital investment.

And looking forward, I remain enthusiastic about the health and continued growth opportunities of the entire Starbucks CPG business. Thecapabilities and experience we are building within our internal team has allowed us to concurrently and thoroughly deliver on all areas I've justdiscovered and will ensure that Starbucks remains the market leader when consumers shop for premium coffee products in the CPG channels.

With that, I'll now turn the call over to Cliff Burrows, President of the Americas. Cliff?

Cliff Burrows - Starbucks - President Starbucks Coffee Americas

Thanks, Jeff.

I'm pleased to share with everyone today the very strong results of the Americas retail business. Despite continued macroeconomic uncertainty,high unemployment, and rising inflationary pressure, the Americas team continues to deliver exceptional results. Our business has never beenhealthier, as both financial and customer metrics are extremely positive and we just had the most successful holiday season in our history.

Total Americas net revenues for the quarter were $2.6 billion, an 11% increase over the same period last year. Company-operated comps were 9%for the quarter, with 7% coming from increased transactions and 2% from an increase in average ticket.

U.S. same-store sales were 9% for the quarter, including transaction growth of 8% and ticket growth of 2%, with strong contributions coming fromacross the country. And we're pleased to see Canada showing signs of renewed strength with very solid comps, following several quarters of lower,although still positive, comps.

Our same-store sales we generated mainly from a holiday program that resonated with our customers. Our holiday trio of Peppermint Mocha,Gingerbread Latte, and Caramel Brulee Latte highlighted our seasonal beverage offerings, which delivered 20% growth in the last year. And ourwarming program also continues to show strength with 31% sales growth over last year.

5






Average daily transactions per store in the U.S. for the first quarter surpassed our previous record, which was set in 2006, as throughput continuesto benefit from initiatives put in place over the last two years.The Starbucks Card and our mobile payment app are supporting increased frequencyand will contribute to second-quarter revenue growth as U.S. customers loaded $0.5 billion on the cards in December 2011.That's 23% more thanlast December.

We also gained another 413,000 new members to the My Starbucks Rewards Program in December, bringing total membership to more than 3.7million, and today we're seeing one in four customers use their Starbucks Card for tender.

Store managers also helped us become more efficient as U.S. store productivity in December hit record highs. Our partners are working togetherto create a culture of coaching, problem-solving, and change in leadership. Our 2012 key initiatives of staffing and scheduling, inventory management,and a consistent method of work to deliver increased capacity enables an improved experience for our customers and partners. Together, oursustained progress in these areas help us deliver the world-class customer experience.

In addition to increasing capacity during the morning peak, we have driven additional business throughout the day by efforts such as the successfullaunch of Bistro Boxes, Petites, and special promotions such as Frappuccino Happy Hour and Treat Receipts in the U.S.

We have a great opportunity in our drive-thru stores, which now make up nearly 40% of our U.S. portfolio, the opportunity to improve transactiontimes and increased throughput.This is why we're focusing on this area like never before.

We're adding technologies, such as wireless mobile payment scanners, building efficiency, driving improvements in our drive-thru renovations,and testing many of their ideas to improve the customer experience through this expanding platform.

And success is not limited to the U.S. Company-operated stores.We're also seeing fantastic results from our licensed stores. Revenue in our Americaslicensed stores were up 25% in the first quarter over last year, and in the U.S. we're seeing double-digit revenue growth across all of our licensedpartnerships, including airports and grocery locations where we offer a Starbucks experience for those on the go.

Operating income for the Americas segment was $563 million in Q1, an increase of 7% compared to the same quarter last year. Operating marginscontracted 80 basis points to 21.8% from the record 22.6% last year, due to higher commodity costs, primarily coffee, and that reduction -- thatimpact was approximately 240 basis points.This cost pressure was partially offset by sales leverage.

The Americas region, the most mature and largest for Starbucks, will remain focused on growth. We're well underway to opening 400 net newstores this financial year.The majority of them will be in the U.S. where we have a solid pipeline of stores that will be LEED certified and are expectedto produce strong returns.

In Canada, we're beginning to see signs of economic recovery, particularly in the east. The recent launch of the My Starbucks Rewards Programwas an important step to continuing to drive frequency of our most loyal customers.

We now have more than 500 stores open in Latin America, and comp sales are healthy in all major markets. In Mexico, where we have more than300 stores, we will celebrate our 10th anniversary in September. And we have increasing confidence in the potential for Starbucks in Brazil, supportedby strong comps and exceptional new stores opened in Q1.

Additionally, we are pleased to announce today that we'll be bringing the Starbucks experience to customers in Costa Rica this May. We have along relationship with this country, given our farmer connections, and are pleased to finally have a retail presence there as well.

We're in the early days of our Blonde Roast launch, which has generated a lot of pride from our partners as they're now able to offer our customersa Starbucks coffee with a lighter roast.We look forward to launching this offering beyond U.S. and Canada.

I look forward to working with all the markets in this high-performing region to deliver customers -- value for our customers and rewards to ourpartners and shareholders.

6






In closing, I would like to thank all our store partners across the Americas for their dedication and hard work each and every day. With that, I'mgoing to turn the call back over to Troy.Troy?


Thanks, Cliff.

The next segment we'll discuss is Europe, the Middle East, and Africa, which delivered revenue growth of 17% in the first quarter. As I commentedon a recent conference call outlining the changes to our segment reporting, we're targeting this region as a big opportunity, both on the top lineand throughout the P&L. We are underperforming against our expectations in this critical part of the world and we have a solid plan in place toturn this region around.

The first step in that plan was to put an experienced, talented leadership team in place, which is what we did by appointing Michelle Gass, a 15-yearStarbucks partner, to be President of this region. Michelle's played an integral role in the development and execution of Starbucks' transformationagenda, which was the strategic basis of our U.S. business turnaround that began in 2008.

With the right leadership in place, we're going to focus on what matters most -- our coffee, our partners, and the store experience. On all thesefronts, we'll do what we need to in order to turn things around.

The second and third quarters will include foundational investment that will be reflected in lower margins for those periods. But as we come outof these implementation costs, we're targeting margin improvement to mid-single digits in fiscal 2012, climbing over time to the mid-teens.

Same-store sales growth in EMEA in the first quarter was 2%, with increased transactions of 2% and a higher average ticket of 1% despite a worseningconsumer outlook and high unemployment in many markets across Europe.

In the UK, we recorded our 10th consecutive quarter of positive comps, boosted this quarter by a highly successful holiday campaign. The overallrevenue growth of 17% for the EMEA region was driven primarily by the consolidation of our Switzerland and Austria markets, with a 2% compsand licensed store revenue growth of 18% also contributing.

EMEA margin contracted 320 basis points in the first quarter, due largely to transitionary costs of bringing in house the distribution of fresh foodand dairy in the UK.This is an important change that will improve the freshness and delivery efficiency of product to our stores. Higher commoditycosts also added 60 basis points of unfavorability.

In China and Asia-Pacific, or CAP, the strong momentum that built throughout 2011 continued in the first quarter of fiscal 2012. Net revenuesincreased by 38%, driven largely by rapid new-store growth, along with same-store sales growth of 20%.

The strong comps were comprised of a 15% increase in transactions and a 5% increase in average ticket. All four of our Company-owned marketsin CAP posted double-digit comps, with China leading the way at 28%.

We have now recorded greater than 20% comps for six consecutive quarters in China. Consistent with results across our global store base, theholiday platform produced very solid results as well. Additionally, we're gaining traction on our loyalty program with nearly 0.25 million My StarbucksRewards members already signed up in China. Strong holiday merchandise sales contributed to the higher average ticket.

Operating income in CAP was also strong, increasing 26% to $58 million in the first quarter. Operating margin contracted 350 basis points to a stilloutstanding 34.6%, resulting from higher performance-based compensation, higher costs necessary to fuel our expansion in this region, as wellas 200 basis points related to higher commodity costs. While store operating expenses and COGS increased, we saw solid leverage on occupancyand depreciation from the additional sales.

7






I want to provide a bit of additional texture on Japan in particular, as it is important for its contribution to this region to be fully understood. At 950stores, Japan makes up one-third of the region's store count and makes up approximately 40% of CAP operating income. It only comprises about13% of revenue, however, due to the ownership structure. Japan is a joint-venture market for us with Starbucks owning 40%, our partner Sazabyowning 40%, and 20% being publicly held.

The revenue that is recognized on CAP's P&L for Japan includes royalties on sales in our Japan stores and sales of coffee, tea, and other strategicproducts sold to the joint venture. Our stake of the equity, essentially 40% of the market's after-tax profit, is recorded in the income from equityinvestees line of the CAP P&L.

From a performance standpoint, Japan continues to show improvement in revenue, operating income, and operating margin. It was just 10 monthsago that Japan was faced with a devastating earthquake and tsunami.We are extremely proud of the way that our Japan partners have responded,as that market has recovered faster than expected and did so while being a significant contributor to relief efforts around the country.

With a very strong brand, powerful store economics, and significant growth opportunities, Japan will continue to be a strong contributor to therecent success in the coming years.

Given the consistency of strong results in China/Asia-Pacific, we're going to continue to accelerate growth in the region. We opened 121 net newstores in Q1, the highest of our three retail regions.The growth came from 48 net new stores in mainland China, where we continue to see extremelystrong returns that are surpassing our initial projections. Sales to investment ratio in mainland China is more than 2.5 to 1, and first-year cash-on-cashreturns are the highest in our system.

Other store-growth contributors in CAP in Q1 included South Korea, where we opened 24 net new stores, and Japan with 15 net new stores.

Now I'd like to give you an update on our outlook for the remainder of our fiscal year.We continue to target revenue growth of approximately 10%for the year, driven by mid-single-digit comp growth and continuing momentum of our CPG business, as we expect full-year consolidated operatingmargin to improve by 50 to 100 basis points over fiscal 2011 non-GAAP results.

Given the strong performance in the first quarter, we have raised our expectations for earnings per share to the range of $1.78 to $1.82, representing17% to 20% growth over fiscal 2011 EPS of $1.52, excluding the non-routine gains.

The expected impact due to higher commodity costs in FY2012 remains virtually unchanged from what I told you in November, approximately$230 million.We continue to expect a greater impact from commodities on the first half of the year, easing a bit during the second half.

With that expected impact of commodities, we're targeting 10% earnings growth in the first half of the year, with 25% growth in the second half.We've taken advantage of the recent declines in the seed price to lock in more of our coffee needs for fiscal 2013, and now have six months of ourfiscal 2013 requirements secured at costs moderately favorable to 2012.

The specific year-over-year cost improvement is still too early to quantify, as we still have half of 2013 open. I will provide additional commentaryin coming quarters as we lock in more of our coffee needs.

As you heard Jeff discuss during his remarks, we continue to be excited about the opportunity ahead of us with regard to K-Cups. Given our currentvisibility into production capacity, we're targeting the high end of the $0.03 to $0.05 incremental earnings per share range that was provided onour last call as the FY2012 contribution from K-Cups.

On a segment basis, our store count projections remain unchanged from fiscal 2012 at 800 net new stores. Operating margin for our Americasbusiness is still expected to improve slightly over FY2011's 20%.

EMEA is expected to show modest improvement over its FY2011 margin. CAP margin guidance remains at near 30%, and CPG margin also remainsunchanged from our previous target of near 25%, lower than FY2011 largely due to the impact of higher coffee costs.

8






We continue to expect marketing expense near 3.5% of revenue for the full year, a meaningful increase over a year ago.That marketing spend willbe more pronounced in Q2 due to the rollout of Blonde Roast.

Our first quarter was tremendous in nearly every measure, thanks to the continued focus and hard work of our dedicated partners.We have provena unique ability to be immediately relevant in the marketplace, as demonstrated by our impressive launch of K-Cups in November.We have provenan ability to be nimble and flexible.The multichannel launch of Starbucks Blonde Roast is an example there.

We've proven an ability to be focused and disciplined as our record productivity and transaction levels in the U.S. demonstrate, despite a stillchallenging economic backdrop. We've proven an ability to be innovative with the global launch of our Petites platform and additional countrieslaunching the frequency-driving My Starbucks Rewards loyalty program, including Canada and the UK just recently.

And importantly, we continue to drive shareholder value in all the various ways I have described. As Howard, Jeff, and Cliff mentioned before me,we're not slowing down one bit in 2012.

With that, I'd like to turn the call back over to the operator for Q&A. David?

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions). David Palmer, UBS.

David Palmer - UBS - Analyst

Hi, congrats on the quarter. I wanted to ask a question just about the U.S. business. The traffic momentum there is pretty great, 8% growth. Thecheck was also -- not quite as high as I might've thought it would be, given the fact that you seem to do well with some of the premium drinks,and you were doing a lot with food earlier in the quarter and I would've thought that would've carried into the quarter.

Could you give any hints as to maybe what's going on with that check there? And then, separately, with that amazing traffic, is there any insightbeyond the trio of holiday drinks? I understand those would be doing well, but there are things beyond that, like the Starbucks Reward, thepoint-of-sale systems helping throughput, that can help us get our heads around this traffic.Thanks.


Thanks, David, for the question. It's Cliff here.

This whole piece around focusing on throughput and focusing on the basics of the customer experience is really our outstanding priority -- oroverriding priority. And we know the customer continues to seek value, and their engagement in the My Starbucks Rewards Program is really abig part of this, and we are increasing frequency of visits, and obviously there are benefits attached to the My Starbucks Rewards Program andobviously our growth on ticket is a net growth.

The other thing we need to firstly say is that we have pulled back somewhat over recent years in our merchandise range around holiday time,focusing on core products like our holiday trio and like our foods, and all of that has really helped.

So, the focus is on the frequency and on transactions, and we're seeing good growth across the U.S. We continue to benefit from the improvedtechnology, whether that was the introduction of Symphony, whether that is the introduction of the scanners, or the applications for iPhones andAndroid. All of those are increasing the opportunity.

9






The other area where we're seeing good growth, which is helping the ticket, is on Christmas blend coffee.We had a very, very strong season there,and if you remember, we took price in July on whole been, and that also came through both the Christmas blend of whole-bean coffee and on our[beer] coffee for Christmas. Both of those benefited.

So we're pleased with the mix, we're pleased with the focus, and we will continue to work on throughput and on attach of products like food.

Operator

Sara Senatore, Sanford Bernstein.

Sara Senatore - Sanford C. Bernstein & Company, Inc. - Analyst

A question about some of the margins. Just trying to work through the operating leverage opportunity for some of them. Obviously, I understandthat CAP, it's mostly mix shift coming out, less Japan, and more company operated. But store operating expenses maybe weren't quite -- didn'tquite see the leverage I would've expected, and maybe I could say the same thing about CPG.

So can you just help me figure out whether this is mix shift versus incremental spending, whether it's on marketing or incentive comp or basicallysomething else that I'm not thinking about, because you had great, great topline and obviously I understand the commodities issue, but just tryingto get a sense of how to bucket these things.


Sure, Sarah. Let me start, and we may call on some of my -- Cliff or Jeff here to speak a little bit about their businesses as well.

We actually were very pleased with the flowthrough in the margins we saw delivered to the bottom line in the quarter, given the headwinds thatwe faced in coffee, and I appreciate your question and we'll do our best to answer it. But on balance, we drove margin improvement in a quitesignificant way across the business, absent the 300 basis points of commodity-cost pressures.

And just on that point, before I get to margins for a moment, this quarter we just ended is the single biggest peak of year-over-year coffee costswe will face. And we're quite pleased that we found our way through this challenge and delivered the kind of earnings growth and margin deliverythat we did, despite what is an extreme coffee cost pressure in the quarter and the first half of this year.

In CPG, in particular, the business is most impacted by coffee costs, so the decline in margins we saw there is consistent with what we told you toexpect back on our November call in terms of the target for the year, right around the mid-20s. Again, that's heavily impacted by, more so thanany other business segment, by coffee costs.

In the U.S. and other regions, I'll perhaps talk to Cliff to speak a little bit more about the productivity and the flowthrough that we're seeing in thatbusiness.


Yes, it really was, Sara, a very strong performance across all areas of the U.S., and again, as Troy says, we were very pleased that we were able withproductivity gains and we were serving more people in December per hour than we have ever done in our history.

And that is how we managed to overcome the increase -- significant increase in coffee prices and other pressures, whether it is cocoa, dairy, orfuel. All of those had an impact. So we were pleased with the quarter.

10







One last thing I'll say to your question, Sara, to make sure we get it all.You asked about China/Asia-Pacific.

And you're correct there that, as we've talked about in previous quarters, we fully expect and did experience in the quarter margin improvementat the country level, and we would expect this to continue to grow in China in specific with the phenomenal economics that we have there andthe great topline growth we're experiencing that will continue to drive margin improvement country by country.

There is a mix shift going on, as you referenced. It's just important to recognize that will happen over time as we grow extremely rapidly in theCompany-owned businesses in China. There will be some dilution of the highly-licensed revenue business that comes under Japan. Not a badthing; that's actually a great measure of our success in China that we'll see that shift over time.

And then, one last comment I'll make about our global business, and in particular our U.S. businesses, that we have -- just as we have the pastcouple of years, in 2012 we're moving the needle upwards again on our marketing spend in support of the business.We've had great results as wehave a very disciplined, careful weighting. We've spent a bit more on engaging consumers to our marketing spend than we have in years past,some of that driven in our retail channels and some of that driven in our CPG business.

That marketing spend is paying off quite nicely for us, but that is a bit of an uptick on the P&L this year, compared to previous years, and it will bemost pronounced in Q2, particularly relevant to the launch of Blonde Roast in this quarter.


Great, and just the CPG, it was all commodities as opposed to, say, mix shift towards K-Cups or something like that?


Almost entirely driven by commodities.


Got it.Thank you so much.

Operator

Jeffrey Bernstein, Barclays Capital.

Jeffrey Bernstein - Barclays Capital - Analyst

Thank you very much. I actually had related questions probably for Jeff, just on CPG and the related K-Cup.

Just for specific to the K-Cup, I know you talked about 100 million packs shipped in the first quarter. Just wondering if you can size up how thatcompared to your internal expectations? I know that's only two months through the quarter, but I'm just trying to figure out how you assess themomentum in that business, whether it's people filling the shelves and therefore that rate is not sustainable, or whether in fact it is becausepost-holidays things pick up.

I'm just trying to think about how you do some internal planning in terms of your thought process for the K-Cup ramp through the rest of this year.

11






And more broadly speaking, as you now embark on this bigger CPG push, I'm just wondering whether you had any insights for us or learnings onthe new segments' aggressive growth, whether there's anything that gives you pause or have you really exceeded all of your expectations in termsof building this second platform that's literally going to rival the entire retail business? Thanks.


Thanks, Jeffrey. With regard to K-Cup, it's still early days, but as we've shipped over 100 million cups in the first two months, we're running aheadof our initial expectations on what we expected for the business. And based on everything we can see at this point, it is not just pipeline.

It's very hard, though, at this point, for us to really have an understanding of how high is high, given that we are supply constrained. So we areseeing takeout at the shelves. We have delivered, as I mentioned in my remarks, an 11% share in essentially an eight-week teepee of even beingavailable, and that's with, call it, 66% ACV distribution in the food/drug/mass space during the month of December.

So we haven't fully reached distribution yet.We haven't really started merchandising yet because we are supply constrained, and at same time weare seeing strong sellthrough, and again we don't know what the full upside is yet because we don't have enough supply.

Now importantly, we are working closely with Green Mountain to ensure that we get as many cups as we possibly can. They have been a greatpartner in meeting their initial expectations on the volume they committed to supply. Again, we're working closely with them to get additionalcups to try to fully meet the need in this premium single-cup space, but we are very encouraged, and in fact the pull on K-Cups is greater than whatwe had initially expected.

Jeffrey Bernstein - Barclays Capital - Analyst

And in terms of the broader just ramp-up, is there anything that gives you pause? I mean, it's tremendous growth you saw. I know -- I guess halfof that 70% growth is -- I'm assuming that's coming from Kraft, and therefore that disappears this quarter. If you could just confirm that, and thenif there's anything that gives you pause in terms of this very aggressive ramp that we're seeing.


Right, we are seeing some revenue growth associated with taking the business in-house to a direct model. So that is accurate.

We -- there's nothing that gives me pause as to the growth prospects of the CPG business. In fact, as I noted in my comments, we're just gettingstarted. So, every day we're getting stronger as the team that we have assembled from some of the best CPG companies in the industry learns howto work together more effectively, as we get our syndicated data sources is in place, as we get our shopper marketing resources in place with ourkey customers, as we learn every day how to more effectively connect the unique strategic assets of Starbucks to communicate with our customersin unique and different ways to build awareness, consideration, trial, and ultimately loyalty to the brand.

So if anything, I am more optimistic about this future that we can build as we learn and get smarter every day. So we're just getting started.

Operator

Michael Kelter, Goldman Sachs.

Michael Kelter - Goldman Sachs - Analyst

Hi, guys. I wanted to ask about China. First off, our China ticket was up 5%. Does that represent a price increase to offset inflationary pressures orwas there some sort of a change in the way consumers are interacting with the brand in China?

12






And then, also in China, the acceleration in unit growth which you're now actually starting to see, curious if you're bumping into maybe any internalor external bottlenecks, and what you're finding you have to tweak as you accelerate the trajectory there.


This is Howard.We've got John Culver here, the President of that region, so John?

John Culver - Starbucks - President Starbucks Coffee China & APAC

Yes, I would say that what we're seeing in China is on the ticket side.There's no impact from pricing, so we have not taken pricing in China. So whatyou're seeing is real.

The comp growth is mainly being driven by transaction.

We continue to accelerate the new-store growth across all the markets. We now sit in 41 cities across the country. We opened our 500th store thisquarter, and this past quarter we opened five new cities. So what we see is continued acceptance of the Starbucks brand and the Starbucksexperience.

And in terms of any kind of bottlenecks or barriers, clearly we are ramping up the investment around the infrastructure in back-of-the-housesystems, so IT systems, as well as supply-chain systems and distribution capabilities, and then also continuing to accelerate the advancementaround hiring ahead of the curve, particularly around store operations as well as with the store development teams.

To help drive the growth, we're also accelerating the ability to design stores in-market, so we've made significant investment from a store-developmentstandpoint of shifting the resource that has sat here in Seattle and pushing that out into China, into markets, so we're much closer and much quickerin the market.

And then, we've also added additional investment in China around research and development to really capture the consumer trends in China andto drive innovation that really is going to be impactful for the Chinese consumer.

Operator

Sharon Zackfia, William Blair.

Sharon Zackfia - William Blair & Company - Analyst

Hi, good afternoon. Troy, a question for you on the full-year revenue guidance, kind of keeping it at 10%. I guess -- you know, you look at everydivision and every division has been solid double-digit revenue gains, so implicit in your guidance is that revenue growth will decelerates to thesingle digits at some point this year. Is there a particular division you're looking at or something we should be aware of on the outside which wouldbe happening as the year progresses to bring us down to that 10%?


Sharon, no, there's actually not.We've been extremely pleased with the revenue growth in the first quarter. It's outpaced our own expectations.

But it's so early in the year and, with three-fourths of the year yet ahead of us, just too early to meaningfully update much of that guidance. Wehave every bit of optimism about our ability to continue to drive growth in the business.

13






The only comment I would make is that I recognize, as we all need to, that the algebra at some point will suggest that those percentages get harderto keep growing, despite the fact that we have every expectation to drive dollars of revenue through all of our channels.

So we're very optimistic. Nothing has changed in our view of the future whatsoever, and as we progress through this year, we'll continue to watchour progress in the topline and update targets accordingly.

Operator

Nicole Miller Regan, Piper Jaffray.

Josh Long - Piper Jaffray - Analyst

Hi, thanks. This is Josh Long for Nicole. I had two quick questions. One, to the extent that you can share some details around the expanded test ofyour evening daypart program, that would be great. Any learnings to date or things where we might -- or opportunities where we might see someof those tests or learnings show up in the breakfast or lunch dayparts and throughout the rest of the system?

And then, maybe one for Jeff as well. Anything longer term that prevents you from kind of expanding the Seattle's Best brand into the K-Cupplatform as well? Obviously, it's still early in your relationship with Green Mountain and the K-Cups, but anything that would prevent that fromhappening over the longer term? Thanks much.


Josh, this is Cliff. Let me comment on the evening daypart.We are -- as I'm sure you've read, we are extending our test on beer and wine, supplementedby a small range of appropriate foods for the evening.

Today, we have six stores serving beer and wine in what we broadly call the Pacific Northwest, and we are very encouraged by the customer, one,acceptance and, two, use of the stores over a longer daypart. And that's been really encouraging.That was the first part of the test.

We will now expand that test to three areas -- California, Atlanta, and Chicago with approximately five stores in each, and that is not going tohappen immediately because we have to apply for licenses. But that really will form a meaningful part of the test because each of those stores isselected based on our learnings, and I think over the coming quarters we'll be in a better position to say how material is that.

The great news is customers have accepted it, and they are using the longer daypart not just for beer and wine, but for food and using it for occasionswhere some people have coffee, some tea, and someone may have a beer or a wine. The good news is we're on their radar now for that eveningdaypart, which I think in many areas we were not.

So, pleased with the initial tests, and we will keep in the U.S. working on the different dayparts. We've seen great success, as I said earlier, with ourwarmed platform, which is predominantly breakfast.We continue with Bistro Boxes and we'll have further developments there in the future monthsaround the lunch period, and then with the Cake Pops, that sort of afternoon daypart. So we're really challenging ourselves in the U.S. on [eightall] dayparts, and those learnings are shared with each of my colleagues who run the other regions.

But we really are focused on food just relative to our customers in each of the local markets. Jeff?


Great.Thanks, Josh. With regard to Seattle's Best and K-Cups, again as I mentioned earlier we're just getting started, and our near-in focus is goingto be optimizing the Starbucks brand on that platform.

14






In March of this year, we will launch into CPG in Canada and later this year we will launch in Starbucks retail stores both in Canada and the U.S. aswell. So near in, we're going to be focused against driving Starbucks first.

Operator

Keith Siegner, Credit Suisse.

Keith Siegner - Credit Suisse - Analyst

Thanks, and great quarter on so many fronts. So I'm going to apologize in advance, Troy. I'm going to ask a similar question to the one I asked twoweeks ago.

But looking at G&A, it's a massive category, particularly on unallocated -- on that call two weeks ago, you went through kind of what the pieceswere that moved around as part of the restatements, but it's still a really big number. And what I'm trying to get a sense of here is we just saw apretty nice leverage of G&A in the first quarter. If you could talk through kind of what the pieces are in there and how maybe the business couldleverage G&A over time. Should that be coming -- how should we think about modeling this nearly $600 million expense over the next couple ofyears as all these other businesses grow into the infrastructure you've put in place ahead of that growth? Thanks.


Hey, Keith, and yes, that was the same question you asked two weeks ago.

The G&A, we firmly believe, over the long term is a leverage opportunity for us. Now that won't necessarily be true quarter to quarter. In any oneparticular quarter, there may be investments that are more meaningful or incentive compensation that spikes up or down in a particular quarter.We have, as we've talked with you about before, a hedging program [were] on a deferred comp that will spike G&A in any one particular quarter.So quarter-to-quarter movements can be deceiving, but no question, over time we fully expect to be able to leverage that.

Now the infrastructure in our support center in Seattle, all the back-office functions that live here, as well as our G&A functions that live entirelyaround the world, are all part of that G&A function overall.We also have operating expenses and G&A that sits in the business units as well.

But in terms of the big G&A and the big picture, with the large infrastructure we have both here but now growing around the world, to some extentwe are ahead of the curve on some of our G&A to support growth outside of the U.S. and G&A in this building to support growth in our channeldevelopment organization, the CPG business, and our global business.

That G&A spend, we believe, gives us an opportunity to accelerate growth, as we have been, to drive innovation and position the growth platformswe have for the future, and then also to become a leverage point down the road. So I believe you should expect over the long term moderateleverage to come year in and year out for some period of time now.

Operator

John Glass, Morgan Stanley.

John Glass - Morgan Stanley - Analyst

Thanks. My question had to do with the launch of the Blonde Roast. You mentioned that it was incremental to the category. I took that maybe tomean it was more incremental to the category of the CPG channel, but can you talk about how you think about that? Is it incremental to the retailbusiness as well? What are your early reads? Is it actually seeing -- producing the sales lift and are new customers coming into the stores, or are

15






you just sort of trading an existing customer to a lighter roast who may prefer that in the afternoon, for example? So can you talk about how youthink that performs in the two different channels?

And can you also just -- maybe, Jeff, can you add to how that's going to fold into the CPG this year? How soon can you get -- forgive me if youalready mentioned this, but how soon can you get that full distribution on that lighter roast?


This is Howard, John.The comment that we made in our prepared remarks regarding Blonde in terms of incrementality was all channels.

The research we've done and the early read, and I want to underscore it is early, leads us to believe that there are millions of customers who havenot really chosen Starbucks as their primary place for either the beverage or whole-bean coffee. And we believe, based on the research we've doneand, as I said, in the earlier reads, that we're going to see incrementality on both fronts.

But also, I want to make an overarching comment about just -- we have witnessed, as well as other consumer brand companies, a seismic changein consumer behavior going back to the height of the cataclysmic recession in 2008-2009. And I just want to just dive into that very briefly so youunderstand the attributes and the differentiation that we have as a company to go after that.

And I would list three major areas in terms of the seismic change. One is that as a result of the recession, there is a significant amount of pressureon the consumer, whether they're buying luxury or mass, in terms of value. The second is as a result of the technology and the Web, social anddigital media has become a primary vehicle to gain access to information, and I will revisit that in a minute.

And the third is the unbelievable way in which mobile payment and mobile commerce is going to change the way in which consumers buy things.

On the issue of value, the question was asked earlier about transactions and ticket. You know, one of the differentiating factors of the last year orso has been the loyalty and the stickiness of the Starbucks Card. There's almost 4 million people holding that card. One of every four people arebuying with the card, and what we've been able to do, which is very difficult, is balance the premium position and premium pricing of Starbuckswhile creating value; in a sense, putting our feet in the shoes of our customers and giving value.That's A.

B, with regard to social and digital media, there probably isn't very many companies in America that have created the capability and the disciplinethat we have with almost 40 million worldwide fans on Facebook, leading company on Twitter, on Foursquare. And what that has done has givenus the ability to lower our cost of customer acquisition in terms of traditional advertising and build a more enduring emotional relationship withour customers.

The third issue is that Starbucks today, and this is an important point, we are the number one company, not in the U.S. but in the world, in termsof mobile payment transactions and dollars.

Now all of this is wrapped into the relevancy of the Starbucks brand and the experience, and this is what is driving much of the incrementality thatwe are experiencing. These three things wrap into what Cliff and his team have been able to do in the U.S., build a customer experience, and tothink that today we are serving more customers than ever before in our history, despite the economic downturn, and this year's stores that opened12 months ago are performing at the highest level of any other time in our history.

So I think it's very important that you understand that the macro issues that are facing many companies, we have been able to turn into a competitiveadvantage with regard to value, social and digital media, and mobile payment.

John Glass - Morgan Stanley - Analyst

Okay, and just the rollout on the Blonde, then, in the grocery channel, is that fully distributed at this point?

16







Yes, John. First, it is a big deal for us in CPG, given that 70% of all premium coffee sales are in the light or medium roast segment. 54 million customersprefer a lighter roast.

And when you take Blonde and you match it up with this brand-new roast architecture packaging that is rolling out right now, those two piecescombined will make it easier than ever to shop the Starbucks aisle for our customers, and we offer this lighter roast in Blonde Roast, which is a bigdeal.

We have timed the launch to be synchronized with our key customers' shelf resets happening during Q1, and you will see Blonde Roast in a numberof stores. We will be fully rolled out with the new pack architecture and with Blonde Roast coffees by the middle of this quarter. And also veryimportantly, all of our key Tier 1 and Tier 2 grocery and mass customers have accepted Blonde and are in the process of cutting it in now.

Operator

John Ivankoe, JPMorgan.

John Ivankoe - JPMorgan Chase & Co. - Analyst

Thank you. Just a really quick follow-up and some prepared remarks.Troy, do you have the unredeemed gift-card balance for the end of the quarterin front of you?


No, that's something we'll finalize and disclose when we produce the 10-Q, as usual, John, and that will -- you'll see those balances at that point intime. And you'll notice the deferred revenue line, but I will point out we saw rapid growth in all use of the Starbucks Card -- reloads, use, and thatwas true of transactions within the quarter, but importantly deferred revenue for future quarters was very significant in the first quarter.


And over 20% growth over last year.

John Ivankoe - JPMorgan Chase & Co. - Analyst

Okay, great. And secondly, if I may, and completely unrelated, there was a fairly big deal made around the redesign of the Starbucks logo last year,really focusing on the iconography of the green mermaid, and there was at least interpretation that I had that we might begin to see that logo onnon-coffee products, such as, you know, for example, Evolution juice.

I guess what I'm asking is as you think about the broader CPG portfolio, will you start to use that type of iconography on brands like Evolution orother brands that you might develop or acquire that won't necessarily be coffee, but will kind of honor the same type of principles that Starbucksas a company has?


The logo change clearly was designed to give us the freedom and the flexibility to take advantage of the blueprint for growth with other CPGproducts and categories.

17






I think we're going to be very thoughtful and very disciplined when and how we use the new graphics on products or categories that, on their ownmerit, will make that decision. And when we redesign the graphic and brand architecture of Evolution, which will be in the middle of the year, you'llsee us unveil how we're going to use that or whether or not we're going to use it. But clearly, the new logo gives us the flexibility to operate withinother categories and other products, and we'll leverage the blueprint for growth by bringing those products into our stores primarily first.

Operator

Joe Buckley, Bank of America Merrill Lynch.

Joe Buckley - BofA Merrill Lynch - Analyst

I just had two questions on things, just to try to clarify a bit.The ticket increase in the U.S., can you talk about the breakdown of that between priceand maybe the food contribution? There's been reports of price increases here in New York and other places. How should we think about price inthe U.S. going forward?


Joe, hi, this is Cliff.We have continued the same strategy on pricing now over the last three years in developing our, I'm going to say, expertise andfocus around individual products, the whole portfolio of products, but unique to that local market.

Overall, price is approximately 1% over the course of the year, but you will find that is not all prices up by 1%. We're very conscious of the value, asHoward said, for the customer and we're also conscious of just the price architecture. So we've been very focused on items, on food. Obviously,we take every opportunity to focus on new product, improved ingredients, improved quality.

At the same time, we're very conscious of the pressure on prices and commodities in the marketplace. So, yes, we continue to review it periodicallyand we are very conscious of keeping that to a modest level to support our customers.

And obviously, our most frequent visitors have the My Starbucks Rewards Program to support them using the Starbucks Card, and the price theypay on certain items will be discounted because of one of the benefits of the Card or they get a free beverage every 15, all of which helps themkeep their average ticket down.

Joe Buckley - BofA Merrill Lynch - Analyst

Okay, and then, just one more clarification question. Jeff, you talked about the CPG revenue growth being driven -- I think you said driven equallyby K-Cups and the Kraft business. Could you talk -- just elaborate a little bit further on that, and maybe pull VIA into that discussion as well?


Yes, Joe. So that is in rough terms. Call it roughly equal parts from single-cup growth and from bringing the roasted ground business to a directmodel.

In terms of VIA, I'm glad you asked. I'd hate for VIA to be overshadowed by all the other great news in the CPG space.We continue to do extremelywell on the VIA business, and when you look at VIA and K-Cup together, we have now captured nearly a -- we're up to, in the most recent month,a 17% of the premium single-cup space between those two being an important brands and again just getting started.

So for VIA, we've launched house blend and breakfast blend in the quarter, and we're building distribution on those varietals.We've got more newnews coming on VIA. In the quarter, we grew, on a syndicated data basis, by 42% on the VIA business.

18






And what is also very encouraging on VIA, you know I've reported to in the past about our repeat rates running in the high 30s. Most recent trackingagainst repeat rates are actually now approaching 40. So, we're getting people to try VIA, and when they try it, the repeat rates are at the higherend of the category.

Again in the first quarter, we ran the VIA Promise for the second time, which gives customers an opportunity to try VIA, and if they don't like it, we'llreplace the coffee.That has continued to prove itself to be a great vehicle for getting -- garnering trial for the brand, so we're very encouraged andsee a lot of opportunity for VIA going forward, both in the U.S. and abroad.

Operator

Matthew DiFrisco, Lazard.

Matthew DiFrisco - Lazard Capital Markets - Analyst

Thank you. Just a couple of clarifications there. On that last response there, when you mentioned premium cup market share, I guess it was 11%with the K-Cups. It was 17% when you lump in VIA with that, if that is correct. Can you just put that in context with -- I guess we -- mostly we thinkof sort of a $2 billion K-Cup single-serve category.

How do you -- do you have market-share data on that?

And then, Troy, earlier in the call, I think the first couple of questions were on the leverage in the stores. When I looked at the store operatingexpense line, it grew 10%, sort of in line with -- in America, it says, the America revenues from the Company-owned stores. I guess it was laggingabout half the pace of growth in the prior couple of quarters. I'm curious, is that the beginning where we're going to start to see marketing showup, and is that pretty much limited to the first half of the year and starting to get back to lagging topline trends, if we were to sustain these typeof comps? Thanks.


Great. (Multiple speakers). Do you want to go? (Multiple speakers)


Thank you, Matthew.

With regard to the market shares that I'm speaking to, I'm speaking from IRI syndicated data for the food/drug/mass business.That does not providethe full picture of K-Cup. But the premium single-cup segment that I'm speaking to is a combination of all premium single-cup packs priced at orabove $0.50 per serving.

And that's exactly right. We are at a near 17% share for the month of December and are trending upward quickly. And again, and importantly, wesee both the K-Cup business, Starbucks K-Cup business, as well as the Starbucks VIA business, as both being $1 billion opportunities for Starbucks.


And to your, Matthew, margin question, for the full year, so not just Q2, it's just more pronounced in Q2. But for the full year, we are moving theneedle upwards modestly on marketing spend, and that's a very conscious move, a very strategic move, and something that has paid off for usquite meaningfully, we believe, in driving incremental traffic in the last year and the last two as we've moved the needle somewhat in marketing,and we plan to do it again this year.

19






It will be more pronounced in the second quarter, particularly with the launch of Blonde Roast, but it is true throughout the year that we'll havesome incremental spend on marketing, and that shows up as store operating expense when it's applied against our store business.

But the overarching point that I'd make here is that our whole intention here is to, over time, provide the right leverage points on the overallAmericas P&L. It's a high-margin business already. Last year, about 20% operating margin. We've targeted improvement in that margin in theAmericas, as we have in each of our regions as we go throughout the course of this year. So we would expect that margin to improve.

And some of that over time will be fixed expenses. Store-operating expenses will have some leverage points, but there's also incremental investmentsthat we do make quarter to quarter in, as I said, marketing and other elements of that line.

Matthew DiFrisco - Lazard Capital Markets - Analyst

Certainly the comp and the traffic that you're getting shows that there is a massive response to the marketing side. I was curious as far as if youwere to look at the comp growth that you've had the last couple of years, I'm assuming you're surpassing average store level volumes prerecessionand pre-closing down the stores.

So, can you talk about -- I mean, I guess with all of the new products coming down the pipe, with K-Cups soon to come into your stores, the Blondestarting to get more momentum behind it, food, healthier items, all of it, looking at the upper decile of your stores in capacity, can you sort of putus to rest to not be concerned about capacity constraints? What are you seeing as far as improvements at your upper decile as far as store volumesversus historical levels?

And I guess you've focused a lot in the beginning about efficiency. Is that where we're starting to talk about that more and look at throughput inbeing able to handle those capacity issues?


Let me start. This is Howard, and Cliff can finish. I think what we have uncovered over the last 18 months or so is that we've really kind of dialedinto the need stakes that customers have during different dayparts of the day.

And that's where you see the new products that we've introduced, and also I think the marketing has been much more focused on being able tocapture customers at different parts of the day.That is a new discipline within Starbucks that we did not have a few years ago.

And I think what that has resulted in is that we think there's lots of runway, lots of white space throughout the day, and I think there's opportunitiesthat we still have not uncovered that goes past the evening hour, whether it's the test we have now with beer and wine or other things that we'rethinking about that takes advantage of the fixed cost of our real estate.

But no one at Starbucks is looking at any kind of ceiling.We believe that we're just getting started, and we're not going to use historical informationor data to put a lid on what we think is possible. I think the fact is that we're doing more volume and serving more customers than any other timein the 40-year history of the Company, and we're just getting started.


I think that's really true, Howard. Just to add to that, we've really been focused and we continue to focus on our effectiveness and efficiency, andwhat I mean by that is simplifying the work, investing in growing the skills of our baristas, supplementing that with technology.

And the performance of our stores at the top end have just gotten stronger this year, and we still believe there is more capacity even at peak. Addto that work we're doing around technology and the card, again it will help us. Drive-thru I mentioned earlier.We've now seen some testing whichgives me real confidence that we can show significant improvement.

20






If you look at the daypart, to Howard's point, we have virtually no share of lunch, and that is a huge opportunity for us. We started, we have acommitment to that, and that really will be a big opportunity.

So we do see volumes growing.We do see us being more efficient at peak and capitalizing on other opportunities and dayparts.

JoAnn DeGrande - Starbucks - IR Director

Thank you all for the great questions this afternoon. This concludes our first-quarter fiscal 2012 earnings conference call. I appreciate you joiningus today.We'll talk to you again soon. Good night.

Operator

Ladies and gentlemen, this concludes today's Starbucks Coffee Company's first-quarter fiscal-year 2012 earnings conference call. You may nowdisconnect.

D I S C L A I M E R

Thomson Reuters reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.

In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based uponcurrent expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are morespecifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of theassumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION,THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUMEANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLECOMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

©2012,Thomson Reuters. All Rights Reserved. 4690551-2012-01-27T18:29:12.890

21






EDITED TRANSCRIPT SBUX - Q1 FY12 STARBUCKS EARNINGS ...mylearning.starbucks.com.edgesuite.net › mylearning › PRO_BBA_EP… · PRESENTATION Operator Good afternoon. My name is

Documents