Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to Starbucks Coffee Company’s First Quarter Fiscal Year 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. DeGrande, you may begin your conference.

Thank you, Mike. Good afternoon. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Thank you for joining us today to discuss our first quarter fiscal 2015 results, which will be led by Howard Schultz, Chairman, President and CEO; and Scott Maw, CFO. Also joining us for Q&A are Troy Alstead, COO; Cliff Burrows, Group President, U.S., Americas and Teavana; John Culver, Group President, China, Asia Pacific, Channel Development and Emerging Brands; Adam Brotman, Chief Digital Officer; and Matt Ryan, Global Chief Strategy Officer. This conference 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 our website, at investor.starbucks.com to find a reconciliation of non-GAAP financial measures referenced in today’s call with our corresponding GAAP measures. This conference call is being webcast and an archive of the webcast will be available on our website at investor.starbucks.com. Before I turn the call over to Howard, please note that our Annual Meeting of Shareholders, which will be webcast will be held at 10 a.m. Pacific Time on Wednesday, March 18th here in Seattle. With that, let me turn the call over to Howard.

Thank you, JoAnn, and welcome to everyone on today’s call. Starbucks performance in Q1 was exceptional by any standard or metric. Financially each of Starbucks’ principal business segments and each of the regions around the world which we operate contributed meaningfully to record Q1 revenues of $4.8 billion, record Q1 operating income of $916 million and record Q1 EPS of $1.30 on a GAAP basis and record $0.80 when excluding non-routine items, principally the gain on our acquisition of Starbucks Japan. Operationally we delivered the best in-store holiday experience to customers in our history, bar none, with comp sales accelerating through the quarter and December’s performance reflecting the success of our holiday lineup. For the quarter, we drove nearly 9 million more customer transactions through our U.S. stores than we did in Q1 last year, almost 12 million more globally and our global comp store sales grew 5%, with 2% coming from increased traffic, representing our 20th consecutive quarter of comp growth of 5% or greater. And every geographic region contribute to our performance this quarter with Americas delivering 5% comp growth, EMEA 4% and CAP 8%. These results are nothing short of stunning, particularly when you consider that our comps were calculated off of the U.S. store base of almost 7,000 stores and our global store base of almost 10,000 stores. Our Channel Development segment grew sales 10% and delivered strong profitability. At the same time, we increased our share of premium single serve, premium packaged coffee and premium packaged tea, and we delivered record non-GAAP operating margin across the company of 19.5% for the quarter, an 80 basis points increased over Q1 last year. I will be discussing a number of strategic initiatives and innovations that took shape in the quarter that will further extend our global coffee…

Thanks Howard. Good afternoon everyone. Starbucks had a very strong start to fiscal 2015 with each of our reportable segments contributing to record consolidated revenues, operating income and earnings per share. Revenues grew to $4.8 billion, a 30% increase over the prior year, driven primarily by incremental revenues from the acquisition of Starbucks Japan, 5% global comp growth and incremental revenues from 1,641 net new Starbucks stores opened during the past four months. This was partially offset by unfavorable foreign currency translation. As Howard mentioned, we saw global traffic increased 2% during the quarter, reflecting the strength of our brand and progress in many of the areas we discussed during Investor Day. On a GAAP basis, operating income grew 13% over Q1 to $916 million, resulting in operating margin of 19.1% for the quarter and earnings per share of a $1.30. When excluding non-GAAP items, operating income was $935 million or 18% higher than the prior year first quarter. Non-GAAP operating margin was 19.5% compared to 18.7% in Q1 FY‘14 primarily due to sales leverage including meaningful cost leverage. After adjusting for certain items for comparability purposes, we also saw G&A leverage in Q1 as we continue to gain traction early in our efforts in both these areas. And non-GAAP EPS grew 16% to $0.80 per share over the prior year first quarter. Before going into specifics, I’d like to provide a quick update on the status of the Starbucks Japan acquisition. During Q1, with the closing of the first tender offer, Starbucks assumed majority ownership of Starbucks Japan and a second tender offer to the public shareholders was commenced. We completed the second tender offer early in the fiscal second quarter and the transaction is expected to close as planned during the first half of calendar 2015. As of…

Scott, thank you very much. I have one more important announcement to share before moving on to Q&A. Today, I am extremely pleased to announce that Kevin Johnson, former CEO of Juniper Networks and former President of Microsoft’s Platforms Division, and a 5-plus year Starbucks Board member will be joining the Starbucks senior leadership team as President and Chief Operating Officer effective March 1. Welcome Kevin. Kevin has worked closely with the Starbucks senior leadership team and me as a Board member since 2009 collaborating and providing deep insights and wise counsel in connection with our transformation in 2009. And many of the strategies we’ve outlined at our Investor Conference last month and we will be executing against over the next several years. Kevin and I have been discussing his coming to the company in order to contribute his insights and expertise and help us as we grow our business in North America and around the world for some time. These discussions were independent of Troy’s subsequent decision to take a sabbatical. Kevin will be reporting directly to me. Now as I said at our Investor Day and I want to underscore here, my passion and personal commitment to Starbucks has never been greater. I also want to make it clear that Kevin’s addition is not part of some unannounced succession arrangement because it’s not. Instead, Kevin’s public company experience and his deep management, technology, global operating company supply chain, mobile and digital expertise will be a fantastic addition to already the strongest and most talented management team in our history. Please join me in congratulating Kevin, who is with us this afternoon, and welcoming him to Starbucks, and I would ask him to say a few words of introduction. Kevin?

Thank you, Howard. Greetings, everyone. For nearly six years now, I have had the great privilege of working closely with Howard and the SLT and my role as Starbucks Board member. Through this involvement, I have gained the deep insight into Starbucks business, its values, the culture and the critical role that our 300,000 passionate partners play in delivering an elevated Starbucks experience to millions of customers around the world each and every day. In December I attended the Starbucks Investor Day, at which time we outlined our strategies for the next several years. We are fully committed to working with Howard, the SLT and our partners around the world to fully operationalize those strategies and to deliver results consistent with the expectations we share, our core values, and our culture. As always, performance driven through the lens of humanity. Troy and I are already engaged to ensure a smooth handoff as he begins to sabbatical on March 1. Our prior business experience leading global organizations combined with my Starbucks Board experience should enable me to quickly ramp up in my new role. I want our partners and shareholders to know the deep sense of responsibility and accountability I feel to fulfill our aspirations and deliver results. Howard?

Kevin, thank you so much. And on behalf of all of us today, this is a wonderful opportunity to welcome you to the Starbucks. This also marks Troy’s last earnings call before he takes his sabbatical, a coffee break in Starbucks parlance. Troy has been a true friend, a great leader, and a passionate 23 years Starbucks partners, who is beloved inside our building and around the world. I am going to miss, Troy, in my daily conversations and collaborations and look forward to the day when he is ready to return to the company. Troy wants to say a few words to all of you in the financial community before taking his leave. Troy?

Thank you, Howard. I have had the incredible opportunity to be part of Starbucks for 23 years, starting from the early days as a small, privately-held coffee company with stores primarily just here in the Northwest. And while very difficult to step away from this place that I know and love so deeply, I recently made the personal decision to dedicate the next year to my family with four school age children. It gives me great comfort in stepping away right now as the incredible strength of the organization and momentum of the business. As we demonstrated during the Investor Day here in Seattle in early December, the performance of the business around the world is stronger than ever, the opportunities ahead of us are greater than ever, and the aspirations of the company are higher than ever before. The holiday quarter we just reported underscores that strength and opportunity. We are fortunate to have a leader of Kevin's caliber and experience able to join Starbucks at this time. I've worked with Kevin in his role as a Board member for many years and have benefited from his experience and insights. His experience as a public company CEO, combined with his years on the Starbucks Board, positioned him to hit the ground running. Kevin and I have already spent much time together in the transition and we’ll engage further together over the next month to make sure everything transitions smoothly. Most of you on the call today I have come to know very well over the years. Thank you for your engagement and your support to Starbucks and of me. I assure you that the best days for Starbucks are still ahead. And finally, I'd like to say thank you to Howard for giving me incredible opportunities and support over many years and for supporting this personal family decision at this time. Thank you, Howard. With that, we'll turn the call back to the operator for Q&A. Mike?

[Operator Instructions] The first question is from Jeff Bernstein with Barclays.

Great. Thank you very much. Congratulations, Troy. A question on the mobile payment platform, I know you’ve got a lot of attention at the Analyst Day and it seems like that’s probably the biggest opportunity from a traffic driving standpoint. It sounds like Portland must have gone reasonably well. It sounds like you’ve identified the next few markets in the rollout by the end of fiscal '15. Just wondering whether you can give us some color on maybe early learnings over the past couple of months in terms of any challenges or nuances you’ve had to overcome, or whether there’s any insight into what kind of incremental sales, or how it helps speed of service? I saw there were some quotes from Scott earlier this afternoon in terms of the significant benefits that it provides. Just trying to get some insights in terms of your early learnings and what we can expect in the year so to come?

Hey, Jeff. This is Adam Brotman. I’ll answer that. First of all, we’re not breaking out specifics. But what I can tell you is we have completely hit the ground running in Portland and the experience for both our customers using the app as well as the partners operationally has met and even exceeded our expectations. So we are full steam ahead in terms of rolling this out around the country as you mentioned over the course of the rest of this calendar year. And what we’ve learned is that this is absolutely every bit of what we thought would do in terms of helping us add convenience for our customers, integrate it fully and to not just our technologies, but our operational flow. And we are as confident as day we launched it that this is going to help drive incremental transactions, improve throughput and capacity, and even help us accelerate MSR.

Great. Thank you.

The next question is from John Glass with Morgan Stanley.

Thanks very much. Scott, you outlined $1 billion in cost savings over the next four years and there are several buckets. How much of that is in your thinking for '15 guidance? And specifically, you commented on through you’re expecting a second half acceleration in earnings growth. Is that largely due to these cost savings coming in? Are you -- do you believe that there is like a sales benefit or an uptick in sales in the back half to drive that?

Yeah. Thanks, John. Maybe I’ll answer the back part of that first. There is a number of things as we look into the second half of the year that will help us accelerate profit. It includes cost of goods sold leverage, which I’ll get you in a second, but also some of the work we’ve done around. So for cost and then what we believe will be accelerated revenue opportunities through things like Mobile Order and Pay, some of the things we have around innovation with beverage and some of things we see in our international operation. So all of that is driving the slight acceleration in our earnings growth in the back half of the year, we are pretty confident we’re going to see that. As far the COGS savings, we think it will be about $200 million this year. You may remember from Investor Day, in 2013 we had a $100 million that we booked, in 2014 it was $140 million, and in 2015 it’s getting up close to $200 million. So, great work by the supply chain team and all the business units. And we’re well on our way to recognizing most of that, most of that is already in the run rate.

Thank you.

The next question is from Karen Holthouse with Goldman Sachs.

Hi. Congratulations on the quarter and Troy on what comes next. Kind of a little bit of a deep dive question. If you look in the Americas segment, we’ve now had a couple of quarters where licensed store revenue growth has been pretty meaningfully exceeding, unit growth plus comp growth. Is there something -- at the same time coffee prices are going down, so would you think that would be the opposite? Is there something in store composition or anything else in the model that we might be missing there?

Karen, hi. It’s Cliff. The significant difference is with our approach to food. And for the first time ever most of our licensees are now taking the incredible La Boulange range of food plus our breakfast sandwiches and that has allowed us to increase our revenue stream through our licensed stores. And it’s been extremely well received. It also helps us improve our offers to the customers with a greater consistency than we’ve ever had before. So food is the meaningful change.

And I would just add to that. We are seeing comp growth in our licensed stores that equal to or greater than what we’re seeing in our company-owned store. So it’s the combination of those few things that’s driving revenue.

Okay. Thank you.

The next question is from John Ivankoe with JPMorgan.

Hi. Thank you. I wanted to just see about how much of a change there was in this enhanced partner experience and maybe what was driving that? And maybe what was driving that’s just you are in a position of strength where you can just improve how you treat your employees and how you attract and retain the absolute best talent that was out there? But just wanted to understand a little bit more substantive, how their day-to-day or their year-to-year is going to be affected? And maybe if you were beginning to see some tick up in turnover or in execution consistency as the labor market for the better people is starting to get a little bit tighter?

Hi, John. This is Howard. You are probably, better than almost anyone on the company, you've covered the company since the IPO, you know first hand at the culture, values and guiding principles of our company are directly linked to the equity of the brand. And the equity of the brand is defined purely by the relationship we have with our customers, which is defined by our people. There is no issue of increased turnover or anything like that. We are in the business of doing everything we can, not only to invest in customer-facing experiences and enhancements but we have to do everything we can to do the same thing with our people. Starbucks has had a long history as you know of equity in the form of stock options healthcare now, college achievement in which we’re providing free tuition for juniors and seniors. We want to do everything we can to demonstrate the amenity of the company and we have felt since day one that investing over the long term in our people is the best investment we can make in the customer experience. So we’re taking these steps, not because we have a problem, we’re taking these steps because it’s the right thing to do.

The next question is from Sara Senatore with Sanford Bernstein.

Thank you very much and my congratulations to both Kevin and to Troy on these new stages. Hi. I actually wanted to sort of ask about this transition. In the context of a couple of things, I mean, first of all sort of how Kevin’s responsibilities might be similar to different from what Troy had in the sense that it sounds like Kevin has a lot of experience but not in retail or restaurants per se. And then I don’t know if you can talk at all about this but obviously, Kevin has been a board member since 2009, so not really new to the story. But so I guess, is there any sense of what -- of may be what kind of initiatives he might undertake or where he might see the opportunities there?

Well, look this is Howard. I’ll start it and I'll give Kevin his initial opportunity to share his own thoughts with you. If we were hiring someone from the outside who did not have almost six years of experience with the company, I think this would be a different story. The transition would be longer, the learning curve will be longer. But Kevin has lived and worked in Seattle for many years at Microsoft. So he has been a customer to Starbucks for many years. And as a board member, he has been the kind of board member that has been deeply involved in the strategies of the company and specifically aligning himself and helping the digital side of the transformation of the company which has been so successful with Adam. His responsibilities in many ways will mirror Troy’s with the exception that he is picking up digital with Adam and he’ll have IT as well as supply chain which Troy had. Scott Maw who had been reporting to Troy will be reporting to me. And Kevin will have the geographies, which are represented at this table with John and with Cliff. And I have spend many, many hours with Kevin over the many years sharing with him the aspirations we have with the company and he is very, very well versed. And what we are trying to do in the opportunity that lies ahead and we are very, very fortunate. In many ways, I said to a reporter a couple of hours ago having Troy leave the company is in no doubt a significant loss. But we are so fortunate at the same time, in a sense have a number one draft choice in Kevin Johnson. So Kevin, I’ll give you your own opportunity.

Yeah. Well, thanks for your question. I think, clearly my professional experience has been in the tech industry, companies like IBM and Microsoft and Juniper. But in that experience, I’ve had the opportunity to work with many retail industry customers on technology-based solutions and ways to help them drive their business. Now certainly, as Howard mentioned, my experience on the Starbucks Board since 2009 is providing me a solid understanding of the strategy, and the culture and the leadership talent that we have here at Starbucks. And certainly Troy and I are working closely together on the transition just to ensure that this is a seamless moved transition. And in terms of what initiatives to undertake, I think the Starbucks Investor Day in December, we outlined strategy. And so my focus is going to be working with the SLT and working with our partners to operationalize that strategy. And that’s going to be my priority.

Thank you Kevin.

Thank you.

The next question is from David Palmer with RBC.

Thanks. Congrats on the quarter and Troy, congrats on your career. Last year, Starbucks talked about a significant follow-up in result after Black Friday. How did the growth rate change through this last quarter and perhaps what did that tell you about your business? And then separately, Scott, with regard to your COGS commentary, dairy and energy prices, they come off lately, is that a factor in the back half? Thanks.

David, I’ll take the holiday question and then give it to Scott. You are exactly right. I think we were here at last year at this time. And I think I said for the first time that the U.S. retail environment and the consumer, we are in -- we are experiencing a seismic change in consumer behavior. And as a result of that brick-and-mortar retailers will have to redefine their relevance. We went to work at this time last year in completely redefining and transforming not only our holiday season, but in many ways the calendar year at ‘15 with leveraging all the assets we have and specifically understanding how we could utilize MSR, our digital platform to lower our cost of customer acquisition and emotionally build a relationship with them that was not only based on than being in our stores for driving traffic in our stores. And so the results that we posted today is a manifestation of all that and specifically the merchandise relationship that we built around the Dot Collection, the Starbucks card and we got very fortunate in once again hitting a bull’s eye with Chestnut Praline Latte. And we may have another winner of that magnitude with Flat White, don’t know yet. But clearly the beverage resonated with our customers. And we were going to position like and unlike many other retailers who demonstrate such relevancy in store with a beverage that created demand and experience that was spot on in terms of the card and the gifts of choice, and Starbucks for Life just added all of that in terms of the excitement. And I would just add that our people were so proud of how we went to market for holiday and they rose to the challenge and were able to really develop that kind of relation with our customers. Serving millions of customers more than we did last year, we should not underscore. We are talking about 9 million more customers. It’s an unbelievable number and that was U.S. alone, and we saw the same level of accretion worldwide with 12 million more customers. It’s a stunning number in any environment, especially when you consider the environment we are in with a different type of consumer who is really turning away from traditional and bricks-and-mortar retailers. Scott?

On the commodity piece, the way that it shapes up for the year, David, is we saw some significant coffee favorability in the first quarter, not much on dairy and diesel. And you can see that coffee favorability in the channel development margin improvement. That coffee favorability at that level is not going to continue in the back half of the year and so you’ll see channels margin growth come down. However, we do see offsetting that some favorability in dairy and diesel. So when you add that all the way, all up across the year, we think commodities will be roughly neutral year-over-year. But that’s kind of how it shapes up.

Thank you.

The next question is from Keith Siegner with UBS.

Thank you. And similar congratulation to you everyone involved. I just want to circle back and ask one more question on the [indiscernible] or the mobile order and payment since it’s such an exiting part of the story for this year. Scott, maybe you can help me think about this. When we think about that pace of rollout and we know kind of what the completion date is, but how does the pace of the rollout happen? Is it a slow build and we get a big boost right at the end? And then similarly how did the costs associated with this roll? Did they come a little early? Maybe is that part of what leads to some of the cadence of the year -- if you could help me with those two pieces, it would be very helpful? Thanks.

Adam, why don’t you start and then Scott could jump in.

Okay. Keith. In terms of the rollout pace, it’s going to be fairly evenly spread out throughout the year. So it’s neither front loaded, nor back loaded and so that’s how we are thinking about it. And so far everything seems on track to that.

And as far as the cost goes because of the rollout, the cost is pretty evenly spread as well. And I’ll just remind you, there is not a lot of cost. There is some incremental costs that will happen this year, but because of how integrated this is with our existing technology and how seamlessly it works with our existing system that cost is manageable.

Can I do one thing, also? There is lots of companies who are ringing the bell about mobile order and pay. But in my prepared remarks, I specifically talked bout this is a proprietary integrated relationship that we are building with our infrastructure and in turn with the customer. Adam, can you just -- you or Matt can just touch on that for one minute?

Well, yeah. And this is -- and actually at the investor day, but this is -- what's so unique of what we are doing is we are not starting from a cold start. We already have 13 million active mobile users. We have the POS and payment capability. We have MSR now up to 9 million plus. And so for us, we are simply adding on mobile ordering on to that stack of proprietary integrated technology that allow us to do something like that. And it sets us up frankly for delivery as well. So the kind of pace of innovation, our ability to roll it out and positively influence our business overall is because we have built this and integrated in the way I just mentioned it.

And then the other thing I just want to say one more time is that in a traditional advertising and marketing to try and overcome this seismic shift in consumer behavior is probably not going to work for most people. The relationship that we have build with our customers though mobile payment through MSR, through gold members and now Mobile Order & Pay and delivery is a significant driver in not only elevating the relation that we have with our customers, but significantly lowering our traditional cost of customer acquisition, especially when you compare it to other national retailers.

Thank you much.

Next question is from David Tarantino with Robert W. Baird.

Hi. Good afternoon, and congratulations again to everyone. My question is a follow-up on the Mobile Order & Pay experience you've seen so far in Portland. And really, I wanted to focus on the operation side of this. And I know, there was some potential, I guess changes in how the back of the house or the baristas operate and some potential conflicts with how customer timing and pickup might work. So, I was wondering if you could comment on your experience so far and if your operations are running as smoothly as you would have envisioned at this stage of the game?

David, it is Cliff here. It’s been incredibly smooth. We did a lot of work upfront. As Adam already said, we built off existing platforms. We integrated it with MSR. It is totally intuitive and we took the existing flow in the store, have build a printer into the register lineup and so it is an absolutely seamless experience for our baristas. And it doesn’t change the routine for the bar, as consolidation area for our food and beverage come together and quite frankly, I say without fear of contradiction from any of my colleagues here. It has been seamless and we are delighted by the way the customers from day one, when we are down in the market and our partners have embraced this and that’s why we are still confident we can meet this 2015 rollout.

And I guess one quick follow-up. Have you run into issues with the timing of the order being prepared and the timing of the customer picking it up, is that, I know that was one potential watch out, but is there any issues like that that you are still working through or is it working pretty smoothly?

No. We have had, David, incredible smoothness in this. There are obviously individuals who will learn it, it’s a new technology. We didn’t go in with a narrow test or pilot. We went in replicating our final rollout plans. We are learning along the way, but it has been -- it's improved everyday, adoption has grown from day one and we are extremely confident about this.

Great. That sounds great. Thank you very much.

The next question is from Matt DiFrisco with Buckingham Research.

Thank you. I just had a follow-up and then a question. I just wanted to understand, you made a comment, Scott, regarding the investment in your partners and how that's going to be a little bit more or comes into 2Q and that's somewhat of the 16% or lower end of the full year guidance in 2Q and then the somewhat ramp in the back half? I'm just curious, isn't that though like wages, so I don't know why is there like a level of investment that is going on in 2Q or a conference of sorts or one-time training or something that’s weighted in 2Q, if you could give some color on that? And then my question was with respect to Portland and the digital. I'm curious on if you have had an early read in the first six weeks or so of the rollout or four weeks of the rollout? What you are seeing in winning over more people, has Portland outpaced bringing people into the mobile app versus other regions, obviously, everyone is moving over, but are they moving over faster because of the added benefit of Mobile Order and Pay? Thank you.

Well, I’ll go first and then I’ll turn it over to Adam. Matt, what I was referring to was if you look at analyst estimates for the second quarter, they are north of 20% on average. And I was trying to speak to what might be missing in those forecasts. And I think, this investment that starting really in January and you’re right, continuing all year in our forecasts and partner wages and other benefits might be an explanation for that difference between what we’re seeing and what you’re seeing. What’s really driving the second half acceleration in earnings, by the way, it’s a pretty slight acceleration from 16% to 18% is all the things that we’ve talked about on the topline, the momentum we see in the business and then the things we’re doing in the middle of the P&L book within the stores and within the supply chain and support cost, we see that picking up a little bit in the back half of the year. Adam?

And again we’re not like -- I can’t get into specifics, the answer is yes. We are seeing incremental driving of MSR membership, usage of our app. And what’s so exciting about that is we have -- this is still in beta mode in terms of -- we haven’t even put this on our android platform yet, which is coming soon. We have additional features to come. So we’re just getting started and we like what we see early on in terms of all the drivers that we talked about at the Analyst Conference.

And Matt, while I’m clarifying some comments that I made earlier, I want to make sure everyone’s clear that target stores that we’re closing in Canada are licensed stores. And then I want to make sure the amount of non-GAAP EPS relate to the Japan transaction is $0.49, I may have said $0.41, so clean all that.

Thank you.

The next question is from R.J. Hottovy with Morningstar.

Thanks. I had a question about lowering the cost of customer acquisition, specifically the success of the holiday promotions, like Starbucks for Life and other things you are running during the period? Just wanted to get a sense of how you plan to keep this momentum going and other activities, promotional activities that you might have planned for the rest of fiscal 2015? Thanks.

Matt Ryan here. The reason why customer acquisition will continue to come down in terms of cost is a confluence of a number of factors. As we add more features that are meaningful to the customer, things like Mobile Order and Pay, down the road delivery, we’re going to be giving the customer added reason to sign up for MSR, that is an organic thing that happens. The second thing that happens is as we sell more and more gift cards, we naturally get through the process of registration incremental MSR customers. Those are probably the two most important things we see rolling out. And that along with increased focus within our stores, which is a low-cost customer acquisition opportunity, builds out MSR as a platform and the acceleration in MSR growth we saw last quarter was the result of all three of those things.

Thanks.

The next question is from Nick Setyan with Wedbush.

Thank you. Congrats again on the great quarter. My question is on the China Asia Pacific, we saw a very meaningful acceleration from last quarter, both on a one and three-year basis, and maybe -- there’s a lot of folks on the U.S. comp drivers, maybe you can -- maybe give us some color on the various drivers in China Asia Pacific and whether it's market-by-market or one product or another, that would be great? Thank you.

Yeah. Nick, this is John. Thanks for the question. I think, really we saw obviously 8% comp growth in the quarter and it was all driven by traffic and what I would say is that, we have more customers now coming in our stores than ever before in our history, across the 15 markets that we operate in, that is being driven in large part as well in China. And when you look at the China comp and I'm not going to quote any specific number, but China comp actually outpaced the entire region. We opened our 1,500 store there, we opened eight new reserve stores there and the relevance of the brand in China has never been stronger. We did a consumer study in China and what we have seen is that, we are looked at as the coffee leader in the market. That our products, the localization of our products are locally relevant and we are building a strong trust between our baristas, as well as work with our customers. And what we have been able to do is we have been able to take the awareness that we built around Starbucks in China, as well as in other markets, we have been able to translate that into traffic into our stores and we have done a very good job of converting that awareness to actual visits. We had a very strong holiday season, our promotional beverages did very well and we feel that we are in a position to continue the momentum. When you look at our two-year comp across the region, it’s at about 15% and Starbucks card and mobile does very well in China. We are at now over 40% of our transactions are done on the Starbucks card in China, as well as two other major markets. Japan had a very strong quarter as well, given the tough economic environment that’s going on in Japan. The acquisition, as Scott said, was accretive in the quarter and we are in a good position in Japan to accelerate the growth through new stores, through channels outside of our stores, as well as aggressively going after the digital platform in Japan as well. So feel very good about the job our team is doing across the region.

John, thank you.

Thank you.

Last question.

We will take one last question. The last question comes from John Ivankoe with JPMorgan.

Follow up.

John, you don’t get two questions. Go ahead. Kidding.

I know a lot of people will probably ask this, so I will just take the opportunity to ask it publicly. It’s sounds like December was the high month of the quarter, if I am listening to your comments the right way and I think in your prepared remarks you made some comments that you already seeing and realizing the benefit of increased activity in the stores, which I assume is January? So should I interpret the right way or are you saying that, there was further acceleration in January relative to December? Just trying to get a sense of what you are trying to communicate regarding March in general year-over-year and relative to the first quarter, if I can ask that?

Yeah. Thanks, John. It’s Scott. We haven’t said anything about January. You are correct that within the quarter we did see some acceleration and as the holiday period our busiest period, we actually saw the highest transaction comps we have in the U.S. and that is certainly encouraging as it relates to the first quarter.

Okay. Thanks.

Thanks, Scott.

This concludes Starbucks Q1 fiscal 2015 earnings conference call. Thank you very much for joining us today.

This concludes the Starbucks Coffee Company’s First Quarter Fiscal Year 2015 Earnings Conference Call. You may now disconnect.