Starbucks Corporation (SBUX) Q1 2012 Earnings Report, Transcript and Summary

JoAnn DeGrande - John Culver - President of Starbucks China and Asia Pacific Region Clifford Burrows - President of Americas and Starbucks U S Howard D. Schultz - Founder, Chairman, Chief Executive Officer and President Troy Alstead - Chief Financial Officer, Principal Accounting Officer and Chief Administrative Officer Jeffery J. Hansberry - President of Starbucks Channel Development, Seattle's Best Coffee

Keith Siegner - Crédit Suisse AG, Research Division Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division Joshua C. Long - Piper Jaffray Companies, Research Division David Palmer - UBS Investment Bank, Research Division John S. Glass - Morgan Stanley, Research Division Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division Sharon Zackfia - William Blair & Company L.L.C., Research Division John W. Ivankoe - JP Morgan Chase & Co, Research Division Michael Kelter - Goldman Sachs Group Inc., Research Division Jeffrey Andrew Bernstein - Barclays Capital, Research Division Joseph T. Buckley - BofA Merrill Lynch, Research Division

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 Starbucks Coffee Company's First Quarter Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] Ms. DeGrande, you may begin your conference.

Thank you. Good afternoon. This is JoAnn DeGrande, Director of Investor Relations for Starbucks Coffee Company. Thank you for joining us today for a review of our first quarter fiscal 2012 financial results. This is our first earnings report under our new reporting segments, and we'll take the opportunity today to let you hear directly from 2 of the segment presidents on results from their respective businesses. We'll start our call with comments from Howard Schultz, Chairman, President and CEO. Troy Alstead, our CFO, then speak to consolidated results. Jeff Hansberry, President of CPG, Foodservice and Seattle's Best Coffee, will discuss results for these businesses, followed by Cliff Burrows, President of our American segment. Troy will then wrap things up with a look at Europe, Middle East, Africa and China/Asia-Pacific results and a review of our targets before we move to Q&A. Our discussion today will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release, and 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 statements accompanying the earnings release to find disclosures and reconciliations of non-GAAP financial measures mentioned on today's call with their corresponding 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 recapped under the new reporting segments can be found under the Investor Relations segment of starbucks.com. In addition to the P&Ls we initially filed and posted late last week, we added 3-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' 2012 Annual Meeting of Shareholders will be held in Seattle at 10 a.m. Pacific Time on Wednesday, March 21. That meeting will also be available via webcast. With that, please let me turn the call over to Howard Schultz. Howard?

Thank you, JoAnn, and welcome to everyone on the call. We are delighted to report Starbucks' first quarter of fiscal 2012 results we announced earlier today. 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 in our history, and our financial performance indicates that we delivered on every key performance metric, to drive our ninth consecutive quarter of positive comps, including 9% growth in U.S. comparable store sales and 9% increase in global comparable store sales, a 7% increase in customer traffic and the strongest holiday season in our 40-year history, record quarterly revenues of $3.4 billion and record quarterly earnings of $0.50 per share. Combined with the growing strength and global relevancy of the Starbucks brand, our performance in Q1 was driven by continued product and beverage innovation, continued focus on operating excellence, fiscal discipline, deepening our connection to customers, elevating our customer experience and extraordinary execution by Starbucks' partners in all 57 countries around the world, in which we operate. Yet it's gratifying as our results last quarter were, we are even more motivated by the global opportunity that lies ahead, both in terms of growth of 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 new 3-region global alignment of our retail business. This move was designed to support an acceleration of Starbucks' long-term blueprint for profitable growth, a global growth strategy we first shared with you in December of 2010 at our biannual 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 global retail 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 world with a global footprint of company-owned and operated stores, a growing CPG business, best-in-class social and digital media assets, a cutting-edge experience with mobile payment and millions of registered Starbucks cardholders as part of our loyalty program. These assets, along with our management talent and the underlying trust in the equity of our brand, allows us to introduce a new product or category 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 a synergistic model that we first initiated through the introduction of Starbucks VIA. Beyond product success and importance to our global single-cup strategy, VIA demonstrated that Starbucks has the unique ability to leverage our global retail footprint, and unique connection with customers to create and grow a completely-new CPG product category. And VIA was, in many ways, the proof source for our blueprint for growth strategy. In 2010, we aspired to build VIA into a billion-dollar brand, and today, we are well down that path. In its first year, VIA achieved $185 million of systemwide 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 demand and growing customer response to the launch of the Starbucks K-Cup portion packs last November, is another illustration of our blueprint for growth at 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-Cup packs, 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 availability with 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 billion-dollar business within our single-serve portfolio, adjacent to the billion-dollar 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 a significant contingent of coffee drinkers that is completely incremental to our existing business, consumers preferring a lighter roast representing 40% 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. And 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, we are applying the full talent and muscle of our creative, strategic, social media and operational expertise to our major new entry into the $50 billion health and wellness industry, as we build a 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 and wellness 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 anything else in the marketplace today. We look forward to sharing a 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 they have done to deliver yet, another record quarter and set in motion what is shaping up to be another defining year on many fronts for Starbucks Coffee 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're doing all this, we're doing it in a way which we are preserving our core values in enhancing the connection to the communities we live and where we work, in a sense, using our scale through good [ph]. With that, I thank you for the opportunity and I'll turn the call over to Troy.

Thanks, Howard, and good afternoon, everyone. Starbucks entered fiscal 2012 with strong momentum, which we carried through our fiscal first quarter, with records being set for many critical measures of our financial health. As Howard mentioned, our blueprint for growth is taking hold, and now beginning to payoff in a big way. Record revenues, operating income and earnings are testaments 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 I will turn to Jeff and Cliff for more details on their businesses. First quarter consolidated net revenues were $3.4 billion, up 16% from $3.0 billion a year ago. The revenue increase was primarily driven by a 9% increase in comparable store sales, attributable to a 7% increase in traffic and a 2% increase in average ticket. Two year global comp reached 16% 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. Consolidated operating margin was 16.2%, which represented an 80 point decline from the first quarter of last year. Higher commodity costs were particularly impactful 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 on 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, and will give you some insights into what's to come in this high-growth area of our company. Jeff?

Thank you, Troy. We saw strong results amongst our portfolio of branded products in the first fiscal quarter of 2012, even as we continue to reinvest in the business for future growth opportunities. Record quarterly revenue of $336 million was a 72% increase over last year, driven equally by growth of the premium single-cup segment and the benefit of recognizing the full revenue in our packaged coffee and tea business, under the direct distribution model. 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 our fiscal year '12 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 continue to improve, as we approach the anniversary of the transition to our direct distribution model. Despite a consumer shift toward single-serve formats, we did see positive share turns within the packaged coffee segment in the first quarter. We are well positioned to maintain and elevate our leadership in this space through new offerings like Blonde Roast, which I'll talk about more in a minute. Our recently-launched simplified new package -- packaging organized by 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 overall growth 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 in almost 80%. In the first quarter, we added 2 new VIA flavors, House Blend and 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 VIA, both in the U.S. and abroad. 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 2 months in the quarter in which Starbucks and Tazo K-Cup packs were available, over 100 million cups were shipped, and we have already reached an 11% value share in the premium single-cup market, with 66% ACV in the month of December. As we gained additional supply, we expect to see continued positive momentum in both of these areas. Looking forward, in Q2, we plan to launch K-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 reinvent the $1.6 billion superpremium juice segment by providing our customers even more healthy options for their on-the-go lifestyles. The rollout of Evolution juice products represent a significant entry point into the large $50 billion health and wellness sector. The integration of Evolution into our 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 and the CPG channels. With over 54 million coffee drinkers in the U.S. preferring a lighter flavor profile, the new Blonde offering serves as an example of 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 allow us 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 roast categories, 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 in such 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 are driving 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. The capabilities and experience we are building within our internal team has allowed us to concurrently and thoroughly deliver on all areas I've just covered, and will ensure that Starbucks remains the market leader when consumers shop for premium coffee products in the CPG channel. With that, I'll now turn the call over to Cliff Burrows, President of the Americas. Cliff?

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 been healthier as both financial and customer metrics are extremely positive, and we've just had the most successful holiday season in our history. Total Americas net revenues for the quarter was $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 from across 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: peppermint mocha, gingerbread latte and caramel brulée latte, highlighted our seasonal beverage offerings, which delivered the 20% growth over the last year, and our warming program also continues to show strength with 31% sales growth over last year. Average daily transactions per store in the U.S. for the first quarter surpassed our previous record, which was set in 2006, as throughput continues to benefit from initiatives put in place over the past 2 years. The Starbucks Card and our mobile payment app are supporting increased frequency, and will contribute to second quarter revenue growth, as U.S. customers loaded $0.5 billion on their cards in December alone, that's 23% more than last December. We also gained another 413,000 new members to the My Starbucks Rewards program in December, bringing total membership to more than 3.7 million, and today, we're seeing 1 in 4 customers use their Starbucks Card for tender. Store managers have also helped us become more efficient, as U.S. store productivity in December hit record highs. Our partners are working together to 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, our sustained progress in these areas helped us deliver a world-class customer experience. In addition to increasing capacity during morning peak, we have driven additional business throughout the day, by efforts such as the successful launch of Bistro Boxes Petite, and special promotions such as Frappuccino Happy Hour and Treat Receipt in the U.S. We have growth opportunity in our drive-through stores, which now make up nearly 40% of our U.S. portfolio, the opportunity to improve transaction times and increased throughput. This is why we're focusing on this area like never before. Brand-new technology such as wireless mobile payment scanners, building efficiency driving improvements in our drive-through renovations, and testing many other ideas to improve the customer experience through this expanding platform. Our success is not limited to the U.S. company-operated stores, we're also seeing fantastic results from our licensed stores. Revenue in our Americas licensed stores were up 25% in the first quarter over last year, and in U.S., we're seeing double-digit revenue growth across all license partnerships, 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 margins contracted 80 basis points to 21.8%, from the record of 22.6% last year due to higher commodity costs, primarily coffee and that reduction and that impact 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 have 400 net new stores this calendar year. The majority of that will be in the U.S., where we have a solid pipeline of stores that will be LEED certified and are expected to 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 program was an important step to continuing to drive frequency among those 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 than 300 stores, we will celebrate the 10th anniversary in September, and we have increasing confidence in the potential for Starbucks in Brazil, supported by 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 a long 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 is generating a lot of pride from our partners, but they're now able to offer our customers a 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 deal with our customers, our value for our customers and rewards to our partners and shareholders. 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'm going to turn the call back over to Troy. Troy?

Thanks, Cliff. The next thing I will discuss is Europe, Middle East and Africa, which delivered revenue growth of 17% in the first quarter. As I commented on a recent conference call outlining the changes to our segment reporting, we're targeting this region as a big opportunity, both on the top line and 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 to turn 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 Glass, a 15-year Starbucks partner, to be president of this region. Michelle's played an integral role in the development and execution of Starbucks' transformation agenda, 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 these fronts, 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 in those periods, but as we come out of these implementation costs, we're targeting margin improvement to mid-single digits in fiscal 2012, declining over time to the midteens. 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 worsening consumer outlook and high unemployment in many markets across Europe. In the U.K., we recorded our 10th consecutive quarter of positive comps, boosted this quarter by a highly successful holiday campaign. The overall revenue growth of 17% for the EMEA region was driven primarily by the consolidation of the Switzerland and Austria markets, with a 2% comp and its 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 food and dairy in the U.K. This is an important change that will improve the freshness and delivery efficiency of products to our stores. Higher commodity costs have 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 revenues increased by 38%, driven largely by rapid new store growth, along the 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 4 of our company-owned markets in CAP posted double-digit comps, with China leading the way at 28%. We have now recorded greater than 20% comps for 6 consecutive quarters in China. Consistent with results across our global store base, the holiday platform produced very solid results as well. Additionally, we're gaining traction on our loyalty program, with nearly 250,000 My Starbucks Rewards 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 still outstanding 34.6%, resulting from higher performance-based compensation, higher costs necessary to fuel our expansion in this region, as well as 200 basis points related to higher commodity costs. While store operating expenses and costs increased, we saw solid leverage on occupancy and depreciation from the additional sales. 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 950 stores, Japan makes up 1/3 of the region store count, and makes up approximately 40% of CAP operating income. It only comprises about 13% of revenue, however, due to the ownership structure. Japan is a joint venture market for us, with Starbucks owning 40%, our partner, SAZABY, owning 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 strategic products sold to the joint venture. Our stake of the equity, essentially 40% of the market after-tax profit, which recorded in the income from equity investee's line of the CAP P&L. From a performance standpoint, Japan continues to show improvement in revenue, operating income and operating margins. It was just 10 months ago 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 the region's 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 new stores in Q1, the highest of our 3 retail regions. The growth came from 48 net new stores in mainland China, where we continue to see extremely strong returns that are surpassing our initial projections. Sales to investment ratio in mainland China is more than 2.5:1, and first-year, cash-on-cash returns are the highest in our system. Better 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 continued momentum of our CPG business. We expect full year consolidated operating margin 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, representing 17% to 20% growth over fiscal '11 EPS of $1.52, excluding the non-routine gains. The expected impact due to higher commodity costs in FY '12 remained virtually unchanged from what I've 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 has 6 months of our fiscal 2013 requirements secured at costs markedly 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 commentary in 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 current visibility into production capacity, we're targeting the high end of the $0.03 to $0.05 incremental per share range that was provided on our last call, as the FY '12 contribution from K-Cups. On a segment basis, our store count projections remain unchanged for fiscal 2012 at 800 net new stores. Operating margin for our Americas business is still expected to improve slightly over FY '11's 20%. EMEA is expected to show modest improvement over its FY '11 margin. CAP margin guidance remains at nearly 30%, and CPG margin also remains unchanged from our previous target of near 25%, lower than FY '11, largely due to the impact of higher coffee costs. We continue to expect marketing expense near 3.5% of revenue for the full year, a meaningful increase over a year ago. That marketing expense will be 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 proven a unique ability to be immediately relevant in the marketplace, as demonstrated by our impressive launch of K-Cups in November. We've proven the 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 still challenging economic backdrop. We've proven an ability to be innovative with the global launch of our Petite platform and additional countries launch in the frequency-driving My Starbucks Rewards loyalty program, including Canada and the U.K. just recently. And importantly, we continue to drive shareholder value in all the various ways I've 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?

[Operator Instructions] Your first question comes from the line of David Palmer of UBS.

Want to ask the question just about the U.S. business. The traffic momentum there is pretty great, 8% growth. The check was also not quite as high as I might have 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 have 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 insight beyond that -- the trio of holiday drinks? I can understand those would be doing well. But there are things beyond that like the Starbucks Reward, the point-of-sale systems helping throughput that it can help us get our heads around this traffic.

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, overriding priority. And we know the customer continues to seek value, and their engagements in the My Starbucks Rewards program is really a big part of this. And we are increasing frequency of visits, and obviously, there are benefits attached to the My Starbucks Rewards program, and obviously, our growth on ticket, the net growth. The other thing that I have to say is that we have pulled back somewhat over recent years in our merchandise range around holiday time focusing on cold 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 improved technology, whether that was the introduction of Symphony, whether that is the introduction of the scanners or the applications for iPhone and Android, all of those are increasing the opportunity. The other area where we're seeing good growth which is helping 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 bean, and that also came through at both the Christmas Blend, whole bean coffee and our VIA coffee Christmas and 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.

Your next question comes from Sara Senatore of Sanford Bernstein. Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division: I have a question about some of the margins. Just trying to work through the operating leverage opportunity for some of them. Obviously, I understand that CAP, it's mostly mix shift coming out, left [ph] Japan and more company-operated. But store operating expenses maybe weren't quite -- didn't quite see the leverage I would have 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 a marketing or incentive comp, or basically, something else that I'm not thinking about? Because you had great, great top line, and obviously, I understand the commodities issue but just trying to get a sense of how to bucket these things?

Let me start and let me call some of my -- Cliff or Jeff here to speak a little bit about their businesses as well. We're actually -- we're very pleased with the flow-through in the margins we saw delivered to the bottom line in the quarter, given the headwinds that we faced in coffee. And I appreciate your question, we'll do our best to answer it. But on balance, we drove margin improvement in a quite significant way across the business, absent the 300 basis points of commodity cost pressures. And just on that point, before I hit the margins for a moment, this quarter we just ended is the single biggest peak of year-over-year coffee costs we will face, and we're quite pleased that we found our way through this challenge and delivered the kind of earnings growth in margin delivery that we did despite what is an extreme coffee cost pressure, in the quarter and the first half of this year. And CPG in particular, the business is most impacted by coffee cost, and so the decline in margins we saw there, is consistent with what we told you to expect back on our November call in terms of the target for the year, right around the mid-20s. And again, that's heavily impacted by more so than any of the business segments by coffee costs. In the U.S. and other regions, I'll perhaps talk to Cliff to speak a little bit more about productivity and the flow-through that we're seeing in that business.

Yes, and it really was, Sara, a very strong performance across all areas in the U.S. And again, as Troy says, we were very pleased that we're able with productivity 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 increased -- significant increase in coffee prices and other pressures, whether it's cocoa, dairy or fuel. All of those have an impact, so we were pleased with the quarter.

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 improvement at the country level, and we would expect this to continue to grow in China/Asia Pacific with the phenomenal economics that we have there and the great top line growth we're experiencing, that will continue to drive margin improvement country by country. There is a mix shift going on, as you've referenced, it's just important to recognize that it happen over time, as we grow extremely rapidly in the company-owned businesses. In China, there will be some dilution of the highly licensed revenue business that comes out of Japan. It's not a bad thing, 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 particular, our U.S. business, is that we have -- just as we have the past couple 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 we have in a very disciplined careful way, spent a bit more on engaging consumer to our marketing spend than we have in years past. Some of that's 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 be most pronounced in Q2, particularly relevant to the launch of Blonde Roast in this quarter. Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division: Great. And just the CPG, so it was, it was all commodities as opposed to say, mix shift towards K-Cups or something like that?

Almost entirely driven by commodities.

Your next question comes from Jeffrey Bernstein of Barclays Capital.

I actually had related questions, probably for Jeff, just on CPG and the related K-Cup. Just first, 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 that compared to your internal expectation? I know that's only 2 months through the quarter but I'm just trying to figure out how you assess the momentum in that business, whether it's people filling the shelves and therefore, that raise is not sustainable or whether in fact, it is because post 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. And more broadly speaking, as you now embark on kind of this bigger CPG push, I'm just wondering whether you had any insights for us or learnings on the new segment's aggressive growth whether there's anything that gives you pause or have you really exceeded all of your expectations in terms of building the second platform that's literally going to rival the entire retail business?

With regard to K-Cup, it's still early days, but as we've shipped over 100 million cups in the first 2 months, we're running ahead of 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 are seeing takeout at the shelves, we have delivered, as I mentioned my remarks, an 11 share in essentially an 8-week period of even being available, and that's with -- call it 66% ACV distribution in the food drive 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 the same time, we are seeing strong sell-through, 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 great partner in meeting their initial expectations on the volume they committed to supply. Again, we're working closely with them to get additional cups 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 what we had initially expected.

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 half of that 70% growth is, I'm assuming that's coming from craft and therefore, that disappeared this quarter, if you could just confirm that, and then if 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 bringing, taking the business in-house to the direct model. So that is accurate. We -- there is 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 getting started. 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 how to work together more effectively, as we get our syndicated data sources in place, as we get our shopper [ph] marketing resources in place with our key customers, as we learn everyday how to more effectively connect the unique strategic assets of Starbucks to communicate with our customers in 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.

Your next question comes from Michael Kelter of Goldman Sachs.

I wanted to ask about China. First off, China ticket was up 5%. Does that represent a price increase to offset inflationary pressures? Or is there some sort of a change in the way consumers are interacting with the brand in China? And then also in China, the acceleration in unit growth which you're now actually starting to see, curious if you're bumping into any internal or external bottlenecks, and what you're finding you have to tweak as you accelerate the trajectory there?

This is Howard and we've got John Culver here, the President of that region. So John?

Yes, I would say that -- I mean, 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 what you'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 this quarter, and this past quarter, we opened 5 new cities, all right. So what we see is continued acceptance of the Starbucks brand and the Starbucks Experience. And in terms of any kind of bottlenecks or barriers, clearly, we are ramping up the investment around the infrastructure, and back-in-the-house systems. So IT systems, as well as supply chain systems and distribution capabilities, and then also, continuing to accelerate the advancement around 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 development standpoint of shifting the resources back here in Seattle, and pushing that out into China, into markets of the world much closer and much quicker in the market. And then we've also added additional investment in China around research and development to really capture the consumer trends in China, and to drive innovation that really is going to be impactful for the Chinese consumer.

Your next question comes from the line of Sharon Zackfia of William Blair. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Troy, a question for you on the full year revenue guidance, kind of keeping it at 10%. I guess you look at every division, and every division's been solid double-digit revenue gains. So implicit in your guidance is that revenue growth will decelerate to the single 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 would be happening as the year progresses or bring us down to that 10%?

No, there's actually not. We've been fairly pleased with the revenue growth in the first quarter, it has outpaced our own expectations. But it's still early in the year, and with 3/4 of the year yet ahead of us, just too early to meaningfully update much of that guidance. We have every bit of optimism about our ability to continue to drive the growth in of the business. 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 harder to keep growing, despite the fact that we have every expectations to drive dollars of revenue to 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 watch our progress in the top line and update targets accordingly.

Your next question comes from Nicole Miller Reagan of Piper Jaffray.

This is Josh on for Nicole. I had 2 quick questions, one to the extent that you can share some details around the expanded test of your evening day part program, that would be great. Any sort of learning to date, or things where we might or opportunities we might see some of those tests or learnings show up in the breakfast or lunch day parts in throughout the rest of the system? And then, maybe one for Jeff as well. Anything longer term that prevents you from kind of expanding this Seattle's Best brand into the K-Cup platform as well. Obviously, it's still early in your relationship with Green Mountain and the K-Cups, but anything that would prevent that from happening over the longer term?

Josh, it's Cliff. Let me comment on the evening day part. We are -- as I'm sure you've read, we are extending our tests on beer and wine, supplemented by a small range of appropriate foods to the evening. Today, we have 6 stores serving beer and wine in what we probably call the Pacific Northwest, and we are very encouraged by the customer's one, acceptance; and two, use of the stores over our longer day part. And that's been very encouraging. That's the first part of the test. We will now expand that test to 3 areas: California, Atlanta and Chicago, where approximately, 5 stores in each. And then, it's not going to happen immediately because we have to apply for licenses. But that really will form a meaningful part of the test, because each of those stores is selected based on our learnings. And I think over the coming quarters, we'll be in a better position to say how material is that. And the great news is, customers have accepted it, and they're using the longer day part, not just for beer and wine but for food and using it for occasions where some people have coffee, some tea and someone may have a beer or wine. The good news is, we're on their radar now for that evening day part 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 day parts. And we've seen great success, as I said earlier, with our world platform which is predominantly breakfast. We continue with Bistro Boxes and we'll have further developments there in the future months around the lunch period, and then with the K-Cups, that sort of afternoon day part. So really, challenging ourselves in the U.S. on all day parts, and those learnings are shared with each of my colleagues who run the other regions. But we really are focused on food. It is relevant to our customers in each of the local markets. Jeff?

With regard to Seattle's Best and K-Cups, again, as I mentioned earlier, we're just getting started. And our near-end focus is going to be optimizing our Starbucks brand on that platform. In March of this year, we will launch into CPG in Canada, and later this year, we'll launch in Starbucks retail stores, both in Canada and the U.S. as well. So near end, we're going to be focused against driving Starbucks first.

Your next question comes from Keith Siegner of Credit Suisse. Keith Siegner - Crédit Suisse AG, Research Division: So I apologize in advance, Troy, I'm going to ask a similar question to the one I asked 2 weeks ago. But looking at G&A as a massive category, particularly, on unallocated. On that call 2 weeks ago, you went through kind of what the pieces were that moved around this 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 a pretty nice leverage of G&A in the first quarter. If you could talk through kind of like what the pieces are and then like how maybe the business good leverage G&A over time, should that be coming? Now how should we think about modeling this nearly $600 million expense over the next couple of years as all these businesses grow into the infrastructure you've put in place ahead of that growth?

Yes, that was the same question you asked 2 weeks ago. 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 one particular 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 rounded for comp that will spike G&A in any one particular quarter. So quarter-to-quarter moments 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 entirely around 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, the big picture with the large infrastructure we have, both here but now growing around the world, to some extent, we 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 channel development 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 platforms we 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, moderate leverage to come, year in and year out, for some period of time now.

Your next question comes from the line of John Glass with Morgan Stanley.

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 to mean 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 retail business 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 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 you think that performs in the 2 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 you already 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 have not really chosen Starbucks as their primary place for either the beverage or holding [ph] coffee. And we believe, based on the research we've done, and as I said the early read, 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 change in 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 you understand the attributes and the differentiation that we have as a company to go after that. And I would list 3 major areas in terms of the seismic change: One is that as a result of the recession, there is a significant amount of pressure on 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 digital media has become a primary vehicle to gain access 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. One of the differentiating factors of the last year or so has been the loyalty and the stickiness of the Starbucks Card. There's almost 4 million people holding that card. 1 of every 4 people are buying with the card. And what we've been able to do is, which is very difficult, is balance the premium position and premium pricing of Starbucks, while 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 has created the capability and the discipline that we have with almost 40 million worldwide fans on Facebook, leading company in Twitter on Foursquare, what that has done, has given us the ability to lower our cost of customer acquisition in terms of traditional advertising, and build a more enduring emotional relationship with our customers. The third issue is that Starbucks today, and this is an important point, we are the #1 company not in the U.S. but in the world in terms of 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 that we are experiencing. These 3 things wrapped into what Cliff and his team have been able to do in the U.S. is build a customer experience. And to think that today, we are serving more customers than ever before in our history, despite the economic downturn, and this year's stores that opened 12 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 competitive advantage with regard to value, social digital media and mobile payment.

Okay. And just the rollout of the Blonde then in the grocery channel, is that fully distributed at this point or...

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 customers prefer 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 2 pieces combined 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 big deal. 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 number of 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 very importantly, 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.

And you have a question from John Ivankoe of JPMorgan. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Just a really quick follow up and some prepared remarks. Troy, do you have the unredeemed gift card balance for the end of the quarter in front of you?

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

And over 20% growth over last year. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Okay, great. And secondly, if I may and completely unrelated, there is a fairly big deal made around the redesign of the Starbucks logo last year. I mean really focusing on the iconography of the green mermaid. And there was at least interpretations I had that we might begin to see that logo on non-coffee products such as, for example, Evolution juice. And I guess what I'm asking is, as you think about the broader CPG portfolio is, will you start to use that type of iconography on brands like Evolution or other brands that you might develop or acquire that won't necessarily be coffee, but we know what kind of an honor [ph] the same type of principles that Starbucks as a company has?

Well, the logo change clearly, was designed to give us the freedom and the flexibility to take advantage of the blueprint for growth with other CPG products and categories. 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 own merit, 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'll see 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 within the other categories and other products, and we'll leverage the blueprint for growth by bringing those products into our stores, primarily first.

And you have a question from the line of Joe Buckley of Bank of America Merrill Lynch.

I just had 2 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 price, and maybe the food contribution? And there's been reports of price increases here in New York and other places. How should we think about price in the U.S. going forward.

Joe, this is Cliff. We have continued the same strategy on pricing now over the last 3 years, and developing our, I would say, expertise and focus 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, that is not all prices up by 1%. We're very conscious of the value, as I've 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 market place. So yes, we continue to review it periodically, and we are very conscious of keeping that to a modest level to support our customers. And obviously, on those frequent visitors, have the My Starbucks Rewards programs to support the use of the Starbucks Card and the price they pay on certain items will be discounted because one of the benefits of the card, or they get free beverage every 15, all of which helps them keep their average ticket down.

Okay. And then just one my clarification question. Jeff, you talked about the CPG revenue growth being driven, I think, you said driven equally by takeups and the craft business. Could you talk, just elaborate a little bit further on that, and maybe throw VIA into that discussion as well?

Yes, Joe. So that is in rough terms, probably roughly equal parts from single-cup growth and from bringing the roast and ground business to a direct model. In terms of VIA, I'm glad you asked, I think for VIA to be overshadowed by all the other great news in the CPG space. We continue to do extremely well 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 2 big and important brands and again, just getting started. So for VIA, we launched House Blend and Breakfast Blend in the quarter, and we're building distribution on those varietals. We've got more good news coming on VIA. In the quarter, we grew on a syndicated databases by 42% on the VIA business. And what is also very encouraging on VIA, I've reported to you in the past about our repeat rates running in the high 30s. Most recent tracking against repeat rates, they're actually now approaching 40. So we're getting people to try VIA, and when they try it, the repeat rates are at the higher end of the category. Again in the first quarter, we ran the VIA products for the second time, which gives customers an opportunity to try VIA, and if they don't like it, we'll replace 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 and see a lot of opportunity for VIA going forward, both in the U.S. and abroad.

And your final question comes from the line of Matthew DiFrisco of Lazard.

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's correct. Can you just put that in context with, I guess we've, mostly, we think of sort of the $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 operating expense line, it grew 10% sort of in line with -- in the Americas this is -- the America revenues from the company-owned stores. I guess it was lagging about half the pace of growth in the prior couple of quarters. I'm curious, is that the beginning where we're going to start marketing show up? And is that pretty much limited to the first half for the year and starting to get back to lagging top line trends if we were to sustain these type of comps?

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 provide the 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 or above $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, we see both the K-Cup business, the Starbucks K-Cup business, as well as the Starbucks VIA business, as both being billion-dollar opportunities for Starbucks.

And to your -- Matt, your 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 the needle upwards modestly on marketing spend, and that's a very conscious move, a very strategic move in something that paid off for us quite meaningfully, we believe in driving incremental traffic in the last year, in the last 2 as we've moved the needle, some of [ph] the marketing and we plan to do it again this year. It will be more pronounced in the second quarter, particularly the launch of Blonde Roast, but it is true throughout the year, that we'll have some incremental spend on marketing, and that shows up in store operating expense, when it's applied against our store business. But the overarching point I'd make here is that our whole intention here is to, over time, provide the right leverage points on the overall Americas P&L. It's a high-margin business already, last year, about 20% operating margin. We've targeted improvement in that margin in the Americas 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 those also incremental investments that we do make from quarter-to-quarter in, as I said marketing, and other elements of that line.

Certainly, the comp and the traffic that you're getting, shows that there's a massive response to the marketing side. I was curious as far as if you were 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 prerecession and 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-Cup soon to come into your stores, with the Blonde starting to get more momentum behind it, food, healthier items, all of it, looking at the upper decile of your stores and capacity, can you sort of put us to rest to not be concerned about capacity constraints? Can you -- What are you seeing as far as improvements that your upper decile, as far as store volumes versus 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, and being able to handle those capacity issues?

Well, 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 dialed into the need phase [ph] that customers have during different day parts 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 to capture customers at different parts of the day, where 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 whitespace throughout the day, and I think there's opportunities that we still have not uncovered that goes past the evening hour, whether it's the test that we have now with beer and wine, or other things that we're thinking about that take 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 information or data to put a lid on what we think is possible. And I think the fact is that we're doing more volume and serving more customers than any other time in the 40 year history of the company, and we're just getting started.

I think it's really true, Howard. Just to add to that. We've really been focused and we continue to focus on our effectiveness and efficiency. And what 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 got stronger this year, and we still believe there is more capacity even at peak. Add to that work we're doing around technology in the card, again, it will help us drive, Troy mentioned earlier, we've now seen some testing which gives me real confidence that we can show significant improvement. If you look at the day parts to Howard's point, we have virtually no share of lunch, and that is a huge opportunity for us. We've started -- we have a commitment to that, and that ray [ph] will be a big opportunity. So we do see volumes growing. We do see as being more efficiency to peak and capitalizing on other opportunities in day parts.

Thank you all for the great questions this afternoon. This concludes our First Quarter Fiscal 2012 Earnings Conference Call. Appreciate you joining us today, and we'll talk to you again soon. Good night.

Ladies and gentlemen, this concludes today's Starbucks Coffee Company's First Quarter Fiscal Year 2012 Earnings Conference Call. You may now disconnect.