Durga Doraisamy - Director of Investor Relations Howard S. Schultz - Chairman & Chief Executive Officer Kevin R. Johnson - President, Chief Operating Officer & Director Scott Harlan Maw - Executive Vice President and Chief Financial Officer John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands Clifford Burrows - Group President-Americas, US & Teavana Region Adam B. Brotman - Chief Digital Officer Matthew Ryan - Executive Vice President, Global Chief Strategy Officer

David Palmer - RBC Capital Markets LLC John William Ivankoe - JPMorgan Securities LLC Joseph Terrence Buckley - Bank of America Merrill Lynch Keith R. Siegner - UBS Securities LLC John Glass - Morgan Stanley & Co. LLC Andrew Charles - Cowen & Co. LLC Nicole M. Miller Regan - Piper Jaffray & Co (Broker) Jeffrey Bernstein - Barclays Capital, Inc. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker) Jason West - Credit Suisse Securities (USA) LLC (Broker) Andrew Marc Barish - Jefferies LLC Karen Holthouse - Goldman Sachs & Co. Matthew DiFrisco - Guggenheim Securities LLC R.J. Hottovy - Morningstar, Inc. (Research)

Good afternoon. My name is Connor, and I'll be your conference operator today. At this time, I would like to welcome everyone to Starbucks Coffee Company's Second Quarter Fiscal Year 2016 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. Thank you. Ms. Doraisamy, you may begin your conference.

Good afternoon, everyone. This is Durga Doraisamy, Director of Investor Relations for Starbucks Coffee Company. Thank you for joining us today to discuss our second quarter 2016 results which will be led by Howard Schultz, Chairman and CEO; Kevin Johnson, President and COO; and Scott Maw, CFO. Joining us for Q&A are Cliff Burrows, Group President-U.S. and Americas; John Culver, Group President-China/Asia Pacific, Channel Development and Emerging Brands; Matt Ryan, Global Chief Strategy Officer; and Adam Brotman, Global Chief Digital Officer. This conference call will include forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and 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 the reconciliation of non-GAAP financial measures referenced in 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 investor.com – at investor.starbucks.com. I would now turn the call over to Howard. Howard? Howard S. Schultz - Chairman & Chief Executive Officer: Thank you, Durga, and welcome, everyone. I taped my conversation today before heading to Johannesburg, where earlier today we opened the first of approximately 150 stores in South Africa, Starbucks's 71st international market. In Q2, Starbucks' powerful 24,000-store global retail operation again drove record financial and operating performance, including record revenues, record profits, a 7% increase in comp store sales in the U.S., a 6% increase in comp store sales globally, our 25th consecutive quarter of comp store growth at…

Thanks, Kevin, and good afternoon, everyone. Starbucks once again delivered very strong operating and financial performance in Q2 with record Q2 performance across virtually all of our operating and profitability measures, including revenue, operating income, operating margin, and EPS. Noteworthy is that our revenues in Q2 were the highest of any non-holiday quarter in our history. EPS both GAAP and non-GAAP increased 18% to $0.39 in Q2, the top end of our guidance range. Non-GAAP operating income increased 11% over Q2 last year to $887 million, while non-GAAP operating margin expanded 30 basis points to 17.6%. Margin improvement in Q2 was driven by sales leverage that more than offset the impact of ongoing investments, particularly in our partners and our digital platforms. It's important to note this quarter that our consolidated operating margin also reflects dilution from a multi-year employment tax audit accrual. More specifically, our 30 basis point increase in operating margin would have been 40 basis points higher or 70 basis points in total, and our operating income growth would have been 240 basis points higher than the reported 11% or 14% with rounding. The impact of this G&A related accrual was largely offset below the operating income line in Q2 income taxes, and is expected to be entirely offset in federal income tax expense by fiscal year-end, resulting in no impact to earnings for full year 2016. You may recall that our Investor Day in December 2014, we discussed the importance of reversing the negative leverage we were seeing on cost of goods sold and G&A. I am pleased to report that the plans we put in place to do so are working and that on top of the significant progress we made on that front last year, so far this year we are seeing an additional…

Your first question comes from David Palmer with RBC Capital Markets. Your line is open.

Thanks. Good evening. With regard to the rewards switch that you just mentioned and that noise that you mentioned that tradeoff of one point to two points, is there a net drag to overall same store sales that you're seeing so far, or is this simply just an exaggerated version of the traffic versus check tradeoff that you expected earlier?

Yeah, thanks, David. We're not trying to signal any trends that we're seeing early in the quarter or post launch. And in fact, as Kevin referenced, we have seen an increase in account activity and customer acceptance post launch. All we're trying to say is this is a big change. It's a very positive change. We're bullish on it in the long-term. But it's a big change in customers. We've got a number of plans in place to leverage the new program, and we'll keep an eye on things as the quarter moves on. But you notice we haven't changed our guidance for the year, and we're not trying to signal anything about intra-quarter trends.

Your next question comes from John Ivankoe with JPMorgan. Your line is open.

Great. Thank you. There's been a lot of focus on getting COGS leverage and G&A leverage over the past couple of years. So the question is really on the labor expense at the store where you have been making significant investments over the last four quarters or so. So as we think about over the next year, do those increases in labor costs begin to slow, and is there anything that Starbucks can do to begin to get more efficiency out of that line which has been deleveraging?

Right. What I would say, John, is we expect to continue to make those partner in digital investments as we move through time. We know that they're driving comps. We have talked before about the tie between the changes we made about a year ago in pay for our U.S. store partners and the increase in comps that started at the same time. And in fact, what we see is at the stores that have the lowest turnover, they have the highest comps. And we've seen turnover tick down since we've made those changes. So it's all tied together, it's highly accretive and highly profitable. So we'll continue to make those investments. And as we go into each year, we'll talk a little bit about the size of those investments, the impact on leverage. But there are other places in the P&L that we can go to continue to grow EPS at 15% to 20%, which is our long-term range, G&A and COGS just being two of them. And then (44:50) and the team have done a nice job driving productivity on – in the stores and Mobile Order & Pay has been a key aspect of that to help us with throughput at peak. And as Kevin said, peak was once again our fastest-growing daypart in this quarter. Last quarter, it was our fastest-growing daypart in over five years. And as you know, last quarter is the first quarter we had Mobile Order & Pay fully rolled out and what we're seeing, based upon the numbers that Kevin showed, is in those busiest stores at peak, Mobile Order & Pay is driving significant productivity and throughput. So those are all places elsewhere in the P&L we can go to fund the investments we need to drive growth.

Your next question comes from Joe Buckley with Bank of America Merrill Lynch. Your line is open.

Thank you. I was wondering, in the CAP segment, if you could be a little bit more specific on the same store performance in both Japan and China? John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Yeah, Joe. This is John. First off, obviously, from a CAP perspective, the composition of comp has changed dramatically over the past year with the weighting of Japan coming in. If you go back a year ago, sequentially Japan was not included in the comp base at all in 2015 and it was only partially included in Q1, and now we have it fully included in Q2. When you look at the total comp growth for the region, we came in at a rounding basis of 3%. 2% of that was transactions and 2% was ticket. But more importantly, when you go into China and you dig underneath China, we delivered a 5% transaction growth rate across the country. And when you dig even deeper into that, in our Tier 1 and Tier 2 cities where we have over 65% of our stores, we outpaced that 5% growth – transaction growth rate significantly. So for us, we have great optimism around the opportunity that exists for us in China as well as in Japan. We continue to see very strong new store performance, as Scott highlighted, in both China and Japan, with record revenues and record sales results and significant return on investment. So for us, we remain very bullish on the opportunity that exists not only in China, but then also across the entire segment.

And I would add, in those larger cities, that's where we have most of our new store growth targeted. And so that's why you see revenue growth at 18% and the overall CAP segment continuing to drive the profitability and revenue growth that we expect.

Your next question comes from Keith Siegner with UBS. Your line is open.

Thank you. Just two quick questions on Channel Development. The first one, it sounds like there's so much good stuff coming later this year: new economics with K-Cups, we've got Nespresso-compatible pods, we've got ready-to-drink options expanding. There's a lot of moving pieces that sound very beneficial. But yet you mentioned lower revenue growth in the second half. Maybe you could talk through why? And then the second part of it would be, against the five-year operating profit targets that you laid out in December 2014, one of them was doubling Channel Development. Would all of these new announcements that you made, are we still within that target? Could this actually outpace that target? Where are we against that five-year plan? Thanks. John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Yeah, Keith, this is John. Let me take the first part of the question, and then I'll turn the second piece over to Scott. And clearly, Channel Development continues to perform very, very strong for us as a company with the 8% revenue and 17% income growth in the quarter. We are gaining share across all categories that we operate in, whether it's the roast and ground category, premium coffee, or K-Cups. This was our 17th consecutive quarter of share growth in the Channel Development business across all categories. And in the quarter, we grew five times the category average and our shares increased over 100 basis points. Roast and ground, we now have a 25.3% share growth and K-Cups share now sits at 16.3%. And when you look at the success that we're having in channels, a couple things are driving it. First, it's the execution that we're seeing in the stores and the merchandising that we're doing and the fact that we're winning down the aisle. It's the fact that we're increasing our points of distribution. We've seen significant success with the larger pack size that we've introduced and clearly that's been driving our share gains across all our major categories. In addition, we've taken the My Starbucks Rewards program and introduced that down the aisle as well, where in the quarter we saw an 18% increase in the number of codes that were redeemed and today we have over 20 million codes entered by over 2 million MSR customers in the CPG segment. So for us, we're very encouraged by the results that we're seeing in the category and in the segment, and we're very bullish on continuing to deliver that double-digit growth for the entire year as we look to finish out the year strong.

Yeah, Keith, on your second question, what I would say is in the near term, the new Green Mountain agreement doesn't go into place until later this quarter. So not – a little bit more than a quarter impact in this year's earnings. Over the long-term, there could be upside to the range that we gave back at Investor Day, and I think one of the key pieces to that is all of the international opportunities that Kevin and John laid out. And so I think as you look at international CPG growth, particularly over the medium-term, out a couple, three years, once the partnerships get up and running and we get product rolling off the lines, if those things go as well as we expected, there could be some upside there. John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Yeah, Keith, and just one other thing I would just add on the K-Cup opportunity, when you look at K-Cups, we grew more than three times the rate of the category this past quarter. And the new Keurig agreement gives us an opportunity to extend the agreement, number one, on very favorable terms. We have improved economics coming in, as Scott highlighted. But more importantly, we have greater operating flexibility in terms of being able to drive more innovation into the K-Cup category, additional SKUs, and new packaging. And we also have the opportunity to now sell the K-Cups directly into office, into food service, college and universities, hotels, and C stores. So, we're on track this year to do about 1.5 billion K-Cups, and we expect this category to push near the 20% growth rate for the entire year for us. So very optimistic on the opportunity that K-Cups has.

Your next question comes from John Glass with Morgan Stanley. Your line is open. John Glass - Morgan Stanley & Co. LLC: Thanks very much. I just want to go back to the Americas traffic of 3%. You seem very pleased with the throughput given mobile ordering. Is there other constraints in other parts of the business? I mean, the 5% and the 3% don't add up to – they add up to 8% to 7%, so one of those or both of those are probably a little less than a whole number. And just as a related question, in my observation, does the new chip credit cards – has that slowed transactions down, for example? Are there obvious bottlenecks or maybe just a little color around that in general, please? Clifford Burrows - Group President-Americas, US & Teavana Region: Yeah, thanks, John. I have to say I'm really pleased with the traffic we're seeing. The 3% on traffic and the 5% on ticket, as you say, rounding to a 7%. It's our 25th consecutive quarter of 5% or better comp growth for the Americas. At the same time, we're seeing very, very strong growth in our new stores, and they are adding, in total, 4% to our revenue growth. So things are very, very healthy and we're seeing great progress there. Mobile Order & Pay just gets better and better as it becomes a normal part of doing our business. And as you heard earlier, the strength in the higher volume stores at peak gives us confidence we can keep growing our capacity and our comp through the stores. I think the other thing just to add is daypart. We are seeing growth across all dayparts being led by the morning. So we're very, very pleased with this. And the EMV or the Chip and PIN is negligible at the moment. We're in the early phases of rolling out, and we're just working through the ways that that will be implemented across the system and we're planning for it not to have any impact on transaction speed overall.

And, Adam, why don't you talk a little bit more about Mobile Order & Pay and what we're seeing?

Yeah, thanks. This is Adam. So, first of all, as we mentioned in the remarks earlier, our overall average number of percentage of transactions for Mobile Order & Pay is 4% across all stores, all dayparts, all store types in the U.S. But that's just the beginning of the story with Mobile Order & Pay. First of all, Kevin mentioned in his remarks, over 10% of all orders at our busiest 300 stores are mobile orders, and it's been noted that we're seeing mobile orders comprise 7% of all orders at our busiest 1,200 stores. So when you really look at our busiest stores, Mobile Order & Pay is very important. And drilling into that further, when you look at the busiest (54:48) peak for those 300 busiest stores, for example, mobile orders are already approaching 20% of transactions at those peak hours. So you're really seeing how Mobile Order & Pay is benefiting all customers. It's benefiting the overall store performance in all these stores because of the incrementality and throughput unlock. Of course, Mobile Order & Pay is allowing customers convenience so they can have that incremental visit, incremental occasion they wouldn't normally have time for, but it's also driving a huge capacity unlock because of the program. You take 20% of transactions at peak, out of the line, out of POS, and you see it benefit all stores and allow customers to benefit from less people in line and allow partners and customers to benefit from the fact that now our partners can concentrate more of their energy on making food and beverage, on connecting with customers, and that's a big capacity and throughput unlock. And as a result, we're seeing Mobile Order & Pay meet or beat all of our expectations and grow as we mentioned in a way that's very pleasing to us.

And, John, I'd just also remind you that Cliff's business had nearly 9,000 stores. It's going to approach $15 billion in revenue this year, and it's rounding down this quarter to 7% comps with 3% transaction. Those are really significant numbers, and I just sort of remind everyone of that.

Your next question comes from Andrew Charles with Cowen & Company. Your line is open. Andrew Charles - Cowen & Co. LLC: Great. Thanks. One thing we didn't touch on is with the full quarter of delivery now underway, just was curious about your early learnings from that. Your customers using it primarily in the mornings or is it more balanced over the course of the day relative to in-store transactions? And also, what would lead you to expand the Green Apron Delivery to more stores? What do you need to see before you do that? Thanks.

Thanks, Andrew. This is Adam. It's still very early on delivery. So, the headline is that we're continuing to learn. Yes, the orders are in the morning like we're seeing in other examples. But frankly, we're continuing to learn how does this integrate with our technology, what's the customer behavior, what's working well? And so we're not prepared to talk too much about delivery yet while we're still in the learning phase but stay tuned for more in the future.

Your next question comes from Nicole Miller with Piper Jaffray. Your line is open. Nicole M. Miller Regan - Piper Jaffray & Co (Broker): Thanks. Just one question, two quick clarifications, if I may. Back on the Channel Development question earlier, because I think it's an important one, if I recall right, lower coffee prices would be shared with the consumer in Channel Development more so, well, than a retail store, and maybe that's what's driving high single-digit growth because there is discounting. You give back when coffee prices go down, whereas underlying business is still – when you normalize that growing double digit. I just want to see if that gut check is right. And then, did Easter have any shift – any impact, the early Easter, that you would call out? Thanks and congrats on another great quarter.

Yeah. Nicole, I think what I would say is we continued to grow volumes significantly independent of price. I will say that both in K-Cups and roast and ground, it's competitive. We continue to gain share in that competitive environment. We continue to outgrow in food service by many times the industry. So we're able to work through that pricing. But we are seeing volume growth somewhat above revenue growth. So I think that lines up with your overall pricing comment. John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Yeah, Nicole, this is John. I would agree with what Scott said. The volumes when you take pricing out and you just look at total pounds sold, our pounds are outpacing as well. So we feel very confident that the business again is very healthy down the aisle, that we continue to take share, and that we are priced appropriately for the consumer. And we're not only taking it from other premium retailers, but you're seeing the mainstream customers also trading up into the premium segment and trading into Starbucks, frankly.

Any impact from Easter, John? John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: No sequential impact to Easter. We did have a very good Easter holiday, as we did last year.

Great. Clifford Burrows - Group President-Americas, US & Teavana Region: I'm not sure, Nicole, whether you were commenting on Easter as it refers to the retail business, but here in the U.S., early Easter did not have a material impact. It obviously does change spring breaks, but all in all, it is not significant to the quarter.

Your next question comes from Jeffrey Bernstein with Barclays. Your line is open.

Great. Thank you very much. Maybe just two related questions on the U.S. comp. Just first, it would seem like the compares now – well, they have been growing increasingly difficult as we move through this whole year, so I am just wondering whether it would be fair to expect the comp deceleration at least on a one-year basis from the current 7%, just based purely on a comparison. And as a follow-up, I am just wondering whether the offset on that – or what the offset on that could be? And it would seem like Mobile Order & Pay would be the biggest near-term opportunity to buck that trend. It seems like you're talking quite favorably about the order and pay signup and whatnot. Just wondering whether you can perhaps frame for us where it could go, and I think you said it's now 8 million transactions a month. I think the number was 6 million just last quarter and I know we're in very early ramp-up mode, so I'm just wondering if you had any insight into where that number could go over the next 12 months. Thanks.

I think I'm going to have Adam start with the mobile order question. I'll talk about U.S. comp guidance, and Cliff can jump in on the operational things we have going.

Yeah, Jeffrey. This is Adam. So just in terms of the growth in Mobile Order & Pay, let me touch on a couple of things. One is that you're right, so we had 8 million Mobile Order & Pay transactions per month run rate on this quarter, up from the 6 million the previous quarter. And so you get the 40% sequential growth that Kevin mentioned. You also have the fact that we are seeing a huge number of new capabilities that we're going to be adding to this, which will continue to grow that momentum and accelerate us. So one of them is that we added the ability for customers to redeem their rewards in the Mobile Order & Pay flow just 10 days ago. We're seeing great customer excitement about that. And as I've said before, we're going to continue to add a large number of new features for Mobile Order & Pay, including favorite stores, favorite orders and recommendations in the flow, all of which will contribute to the growing acceleration of Mobile Order & Pay as we move over time.

And then on guidance, what I would say, Jeffrey, is we're still saying somewhat above mid-single digits for the year. That obviously relies on good performance in the U.S. business, and I'll let Cliff talk to some of the things we have lined up for the back half of the year. It expects good performance in CAP as we look at the back six months and some recovery in EMEA. But as we look forward, we have a number of things in each of those geographies as the summer comes up to drive additional transaction, additional comps (1:02:19) and additional profitability. And I'll let Cliff speak to the (1:02:20). Clifford Burrows - Group President-Americas, US & Teavana Region: Yeah. Thanks, Scott. It really does start, Mobile Order & Pay. We've got our new Starbucks Rewards, and we're really excited by the early signup and contribution that is going to come from that. We have a fantastic season ahead of us, building on the strength of last year, whether it's Frappuccino or later on in the summer with our cold brewed coffees, our iced coffees and a recent introduction of Nitro into select stores. And we're in the early phase of that. And I think our Teavana iced teas are set for a fantastic season. And all of that is going to be complemented by the continued growth we are seeing in our food in the U.S. now, where we're up to 20% contribution coming from food, and it's the first time we've seen it there, and we continue to see growth in our cold beverages. So we've got a great season ahead.

Matt, maybe talk a little bit about the new rewards program.

Sure. And let me comment first of all that we were a little over a week out from launch here, so these are very early days, but they're very encouraging nonetheless. In addition to the signups we're seeing, the new people raising their hands to join, we're seeing a couple other very encouraging things. Spend per member is up across the board, and I know somebody is going to ask this question, so let me try to get ahead of it here. We do obviously track all cohorts of people in our rewards program, and they are the people who are going to be better off by the new rules, they are going to be the majority of people who are more or less the same and a small minority of people who will earn rewards a little bit slower. All three of those cohorts are up in terms of spend so far. And we see absolutely no difference in the percentage among those three cohorts. So we are not seeing any of the noise that has been speculated on coming to bear. So very encouraging news there. And we'll be keeping a very close eye on it, and obviously, there's a lot of unlocked that comes with the new rewards program as well, too. It's enabling the stars as currency initiatives because of the lowering of the denomination of the star. We have a lot of runway ahead with this, and we're very excited about what it will do in the long-term.

Your next question comes from David Tarantino with Baird. Your line is open. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Hi. Good afternoon. My question actually you just answered on the loyalty program, but I guess as a follow-up to that, the new partnership that you have with the prepaid debit card, I am curious to know how you are planning to support that and how that will work in terms of stars being earned and just what the pace of that rollout and development of that strategy might be? And then, was that the primary motivation for reducing the value of the stars or are there other initiatives that have yet to be announced that are on the way?

Sure. It's a multiple-part question. Let me see if I can remember all of them and get through it. With the program, the timetable for the actual product facing forward to customers will be late this year. The product obviously will work just like the current product works except it will bear the Visa mark on it, and it will be a general purpose stored value card that works everywhere. We'll be announcing all the details about how to sign up and the exact value proposition as we get closer and have a way for customers to sign up. But we're on track to do it this year. With regard to whether or not that was the primary motivation, the answer is no. There are a number of different things that we're going to be able to do as a result of lowering the denomination of a star. So you can expect this to be the first of a number of partnerships that you'll see down the road in the future.

Your next question comes from Jason West with Credit Suisse. Your line is open. Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah. Thanks. Sorry to circle back on this again but, Scott, I am just still confused about the message you guys are sending around the rewards change. It sounds like signups are up, you are very happy with the overall program, but you're using the word noise and bumpiness. So I am just trying to understand, are you saying that there has been some customer pushback on the changes and it's going to take time for people to get used to the new system? Or are you saying there has actually been a strengthening in the program? That would be helpful. Thanks.

Yeah. I just want to remind, we launched it a week ago. And so the first week metrics that Matt talked about are encouraging. But there's obviously a lot of customer spending and behavior that will happen over the coming weeks. And given the importance of the MSR program and the significance of the changes, we think broadly beneficial. But to some customers, they may not feel so benefited. We want to just make sure we communicate to you guys that there could be some noise. We're not seeing it yet. We'll see how the quarter plays out. So nothing in the early results but this is a big deal for us and we want to make sure we get it right. Howard S. Schultz - Chairman & Chief Executive Officer: Scott, can I add something from South Africa about that?

Yes. Howard S. Schultz - Chairman & Chief Executive Officer: First of all, I have been very quiet on the phone because you guys are doing such a great job. But it's very odd sitting here in South Africa listening to this. But I think the answer to the question is with great transparency, we just want to make sure that everyone understands this is a complicated change for our customers, lots of training for our people, and I think the better part of valor is just to say to you upfront that there could be some noise in the quarter. We're not signaling anything, but as Matt said, we're building something so significant over the long-term that I wouldn't be so concerned about noise in the quarter if there is some because what's happening here is we're building something so enduring and so unique that I think it's going to be one of the most significant changes to the equity of the brand, customer experience. And as Kevin said earlier, the opportunity for Stars Everywhere in terms of ubiquity of people using that debit card and the only way they can bring back stars and get rewards is to Starbucks is going to be a significant flywheel effect on our overall business. So I think we just wanted to just be open with you about the complication and the degree of the significant change. But the long-term is so beneficial for our customers and obviously to our shareholders.

Thanks, Howard.

Your next question comes from Andy Barish with Jefferies. Your line is open.

Hey, guys. I want to circle back on Channel Development, more on the profitability side. Margin-wise, you're up 250 basis points in the first half, yet just guiding to moderate improvement for the year. So what are the cost implications or are there things going on with the new Nespresso rollout in the back half of the year with whomever you are using? And actually, who are you using to manufacture those, if you care to share?

I'll take the first part of the question. I think you can expect to see margin expansion in that same range that you saw in the first half, which is obviously very strong at 250 basis points. I guess it's just the definition of moderate. We continue to see revenue growth opportunities. We continue to take share, and we continue to do that at highly profitable overall margins. And so we see that continuing throughout the rest of this year. And although the Green Mountain change doesn't impact us too much this year just because of the timing of it, that has a chance to help us as we look forward into next year. And I'll let John answer that manufacturing question perhaps. John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Yeah, Andy, I'm not going to disclose who we're working with from a manufacturing standpoint, only to say that we are in a position now to launch the Nespresso-compatible pods in both our retail stores, as well as through the CPG channels across the U.K. and France later this year. We are focusing first and foremost on Europe because there's 25 million machines of Nespresso machines that are installed there. It's a very similar size right now in comparison to the number of install base on Keurig here in the U.S., and we feel there is a significant opportunity to build this capsule business similar to the way we built the K-Cup business here in the U.S. And as Howard highlighted on his comments, single-serve represents 40% of the coffee consumed in-home in Europe and nearly 50% of our Starbucks customers have Nespresso machines in their homes and so we see this as being a big opportunity. Beyond Europe, the big size of the prize is going to be in CAP, and more importantly in China, and we are going to continue to look at how we expand the single-serve opportunity as the only truly leading global premium coffee brand in Asia across our store footprint, and really go after this opportunity as well. So looking forward to the growth opportunity that exists both in Europe as well as in Asia around the single-serve opportunity.

Your next question comes from Karen Holthouse with Goldman Sachs. Your line is open. Karen Holthouse - Goldman Sachs & Co.: Hi. Thanks for taking the question. So I have a question a bit more on the rolling out of a better targeting solution. I'm curious what the end game of this is. Is it something that you think you will be able to better control exactly, what percentage of rewards are redeemed? Does it ultimately lead to more redemptions per person or more traffic per person on the back end of it? And I might have missed it in the prepared remarks, but was there – is it something that's rolling out now or something that's coming later this year? Thanks.

Sure. Matt Ryan here. We're in the process of rolling that out and you'll see that across the remainder of this year. What we're talking about doing is basically stepping up our game with regard to how we communicate with customers and there are a couple key components to it right now. To date, we've really communicated in a targeted way via e-mail. And as we progress through the year, you're going to begin to see the targeted communication emerge within our digital platform, specifically our app with recommendations. So we don't catch people in the moment right now. We will be catching people in the moment as time goes on, so that's a very important piece. We also are going to be able to use triggers and to target much more individually than we currently do. We have limitations because of the technology right now on how many different messages we can put out. Those limitations go away with the investments in technology that we've already made. So you'll see, from a customer perspective, more relevant, more targeted messages, some of which will be offers, and that will allow us to basically manage those more economically in the future.

Your next question comes from Matthew DiFrisco with Guggenheim Securities. Your line is open.

Thank you. I think you may have answered this question in a different way, but I just wanted to make sure that there was specific mention of how you're going to – you looked at the Mobile Order & Pay transition and also the combination of switching over to the new loyalty program as being accretive to both margins and to the top line over time. I wonder, was that purposely said to say over time? Is there any investment when you switch over in the loyalty program that you might do that might be upfront loaded to hold on to that lower ticket customer that might look at this as his reward program is being devalued a little bit, the guy who spends less than $5 per transaction? I was just curious if that was purposely said over time, meaning there might be some upfront investment to discount that guy or give him extra rewards and target him so you don't – so you keep him thinking he is getting big rewards.

Thanks, Matt. No, there's no big upfront investment from a technology standpoint or from any customer standpoint. What I will say is we're obviously investing in marketing and in-store training for partners and messaging for customers just to make sure everyone is crystal clear on the program. And then as we talked about in our February call, we have a number of contingency plans and things that we can do with some of the personalization capabilities that Matt just talked about to target any cohorts of customers that may be displaying lower frequency or different types of behavior. But those won't be expensive. They won't be a big impact in the quarter. I think the only reason we said over time is obviously we expect the momentum to build with this program. Customer will become familiar with it. They'll get used to earning more stars. We'll layer in the Chase opportunity in some of the other Stars Everywhere opportunities, and those will really build. But it will be profitable immediately and build over time.

If I just could add to that. One of the things when you sign up new members, you don't necessarily see all the value in the first few weeks or even first few months of somebody signing up, it is something that laps over time. So as you build the membership of Starbucks Rewards, that is a benefit that keeps on showing up in the results for not just months but years to come.

Your next question comes from David Palmer with RBC Capital Markets. Your line is open.

Thanks for the follow-up. Just a quick one on breakfast sandwiches. Your check growth has been up 5% and I think you said breakfast sandwiches are up 30%. That might be the majority of the check growth, if I'm doing the right math. I guess the question is, how are you doing it? Do you think you can keep it going with regard to that sales layer? Thanks. Clifford Burrows - Group President-Americas, US & Teavana Region: Matt (sic) [Dave] (1:16:55), we said that breakfast sandwiches were up nearly 30% in the quarter year-on-year, food overall was up 16%, lunch contributed an 18% growth. So you're absolutely right. We're getting some uplift on ticket plus better attach from food. But by no means is that accounting for all of our growth. We continue to focus on price giving us between 1% and 2%, and the rest is from either the swift movement to a higher ticket product or increased attach, and we're seeing a mix of all three of those.

And, David, I would just add in the morning daypart, the breakfast sandwich is a meaningful contributor, but really it's all three of those items that Cliff outlined: a bit of price, premiumization or up-leveling, and attach at morning and at lunch both very strong.

The last question comes from R.J. Hottovy with Morningstar. You may ask your question.

Thanks. I had a quick follow-up question on the single-serve business and I was particularly struck by Howard's comments about the future opportunity in CAP with the single-serve product. I was just hoping you could give us a preliminary roadmap as to how you see this business evolving over the next couple of years, and in particular if there is any particular hurdles that you have to overcome to really accelerate that business. Thanks. John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Yeah, thanks, R.J. This is John. Howard S. Schultz - Chairman & Chief Executive Officer: John, can I just... John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Sure. Go ahead, Howard. Howard S. Schultz - Chairman & Chief Executive Officer: John, can I lead with that and just give it right back to you? John Winchester Culver - Group President-China/Asia Pacific, Channel Development and Emerging Brands: Sure. Howard S. Schultz - Chairman & Chief Executive Officer: I think John should answer the question specifically, but the thing that I would mention is throughout Asia and specifically Japan and China, we have a very, very large strategic advantage in that distribution in terms of educating the consumer, demonstrating the product and really I think leveraging our ability to educate the customer the way we have just with regard to our basic coffee business. We are in a unique position to leverage the national footprint we have in Japan, in Korea, and obviously in China. And it will be very difficult for the single-serve companies who are in the machine business to really create national distribution. So our ability to leverage the equity of the brand, the in-store experience puts us in a lead position. And I think that, as John said…

Before we end the call... Howard S. Schultz - Chairman & Chief Executive Officer: It wasn't too long ago – go ahead, I'm sorry. I'm sorry. I was just going to say it wasn't that many years ago where people would not walk in the street holding a Starbucks cup because they might lose faith in Asia. Now, obviously, throughout Asia, specifically Japan and China, that's exactly what's going on. It wasn't that many years ago where the morning ritual did not exist in many of those countries and other than China that it now exists and we're beginning to see it in China. So single-serve is going to be a major business throughout the region, and we're going to be in a winning position to take advantage of it.

Howard, I thought before we ended the call, we would just turn it back to you to see if you had any final comments. Howard S. Schultz - Chairman & Chief Executive Officer: Well, I was just saying now that we have opened here in South Africa, this is our 71st country and market, I just wish that the people listening to the call could witness firsthand what we have seen now throughout the world, and that is the universal acceptance of Starbucks Coffee Company and what we're doing in-store, the relationship we have with our partners, the relationship we have with our customers. And I have said for many, many years, these are the still the early days of the growth and development of the company. And despite with 24,000 stores globally, I've never been more enthused especially sitting here so far away from our home in Seattle and seeing exactly what we started in the early years, and that is Starbucks being the third place between home and work and delivering extraordinary cup of coffee. And it's just a wonderful opportunity for us once again to open up a new market, especially here in South Africa.

Thank you.

This concludes Starbucks Coffee Company's second quarter fiscal year 2016 earnings conference call. You may now disconnect.