Good afternoon. My name is Chris, 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 2018 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] I will now turn the call over to Tom Shaw, Vice President Investor Relations. Mr. Shaw, you may now begin your conference.

Good afternoon, everyone. Thanks for joining us today to discuss our first quarter results for fiscal 2018. Today's discussion will be led by Kevin Johnson, President and CEO; and Scott Maw, CFO. For Q&A, we'll be joined by Roz Brewer, Group President Americas and Chief Operating Officer; Cliff Burrows, Group President, Siren Retail; John Culver, Group President, International and Channels; Matt Ryan, Global Chief Strategy Officer; and dialing in from Milan, Howard Schultz, Executive Chairman. 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 factors 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. GAAP results in fiscal 2018 includes several items related to strategic actions, including restructuring and impairment charges, transaction and integration costs, gains related to changes in ownership of international markets, and other items. These items are excluded from our non-GAAP results. Please refer to our website at investor.starbucks.com to find the reconciliation of non-GAAP financial measures referenced 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 as well. I will now turn the call over to Kevin.

Well, thank you, Tom, and welcome, everyone. Starbucks reported another quarter of record financial results in Q1 of fiscal 2018, highlighted by continued acceleration in our China/Asia Pacific segment. On today's call, I will provide an overview of company-wide performance in Q1 with a particular emphasis on our two unique and powerful global growth engines: our retail businesses in the U.S. and China. I'll then turn the call over to Scott, who will provide further detail on segment performance and an update on the impact of the new tax law. For the quarter, Starbucks delivered record revenues of $6.1 billion, a non-GAAP operating income margin of 19.2% and a non-GAAP EPS of $0.65 per share. And we opened 700 net new stores globally, with our newest class of stores continuing to deliver industry-leading returns and higher AUVs than the immediate prior class. China once again our fastest growing market in Q1, with 6% comp growth, driven entirely by increased transactions and 30% revenue growth. Customers' response to our Shanghai Roastery has been extraordinary and the Roastery is already performing well above expectation. I'll share more details around Starbucks' plans to maximize our opportunity in China in a moment. But let me start the call with an update on our U.S. business in Q1. We ended Q1 with 6% revenue growth and 2% comp growth in the U.S. Continued strength in throughput at peak and strong digital performance were noteworthy highlights in the quarter. But we recognized that overall our U.S. operating performance fell short of expectation. We have isolated the drivers of our Q1 under performance and I want to take you through both the details and the corresponding actions we are taking. Through the first half of the quarter, our U.S. comps were 3%, with strong performance at peak,…

Thank you, Kevin, and good afternoon, everyone. Starbucks Q1 of fiscal 2018 reflected solid revenue growth of 6% or 7% after adjusting for a point of impact for the licensing of our business in Singapore, the sale of our Tazo tea business, the exit of our e-commerce business and the continued wind down of our Teavana stores, all streamline driven activities. I will talk more about the makeup of these activities later. Q1 2018 represented the first $6 billion revenue quarter in our history. We earned $0.65 of non-GAAP EPS in Q1, including $0.07 of benefit from the U.S. tax law change and $0.02 of favorability below the operating income line from a true-up of our liability for unredeemed gift cards, principally from first time breakage recognition for market outside the U.S. and Canada. Non-GAAP operating margin of 19.2% represented a decline of 80 basis points year-over-year, primarily driven by sales to leverage and food mix shift in the Americas. Despite delivering record results in Q1, we've recognized that we did not meet all of our expectations for the quarter, but as Kevin shared we are laser focused on executing against plans to drive improvement across the U.S. business, as we move into Q2 and through the back half of the year. I'll now take you through our Q1 operating performance by segment. Our Americas segment grew revenue 7% in Q1, primarily driven by 979 net new store openings over the past 12 months and a 2% comp growth, principally ticket. Americas operating margin declined 100 basis points to 23% in the quarter, primarily due to lower than expected revenues and food related mix shift resulting from increased customer adoption and the increasing success of our food program. Kevin covered the key operating metrics and actions for the Americas segment,…

[Operator Instructions] Your first question comes from Sara Senatore with Bernstein. Your line is open.

Thank you. I was hoping to sort of just talk a little bit about the first quarter and implied rest of the year, which is to say you suggested that holiday and merchandising was an issue. But then also noted that 2Q will be softer, which means that maybe it wasn't just holiday. If January was also off to a soft start. So I guess, first, are you confident that you have the right diagnosis. Is there any chance that you are either losing share or cannibalizing yourself? And then second, to what extent that can you preserve some of the earnings of the margin, if in fact, the low end of your guidance doesn't materialize through better expectations in the back-half, which is sort of what happened in 2017?

Yeah, thanks, Sara. It's Scott. I'll start. I think what's important to understand and what we're saying about Q2 is given some of the things that happened specifically during holiday, we're seeing some impacts of that early in the second quarter. And specifically what we're seeing is we sell a lot of gift cards in the lobbies of our stores and through third parties. And those gift cards once again this year, went to about one in six Americans. And the gift card lows were about flat year-over-year. But as you know over the last many years, those gift cards have actually contributed meaningfully to comps. Both as we closed out the first quarter, and then, importantly in January and February, and a little bit beyond as we went through the second quarter because those gift cards were roughly flat, still sold a lot of them. We're just a little bit cautious on how the quarter is starting, so that's the first thing. The second thing is in the lobby category, what we see coming through into January is a little bit additional softness above what we'd expected. So Kevin talked about holiday LTOs and lobby down over a point. Lobby remains soft in January. So those two things are just a little bit of headwind. And so, I think what we signaled for the year is we still have a high level of competence in being within our 3% to 5% range. We're just a little bit cautious for Q2. And really EPS and revenue growth and comp growth, still holds with what we guided last quarter.

And, Sara, this is Kevin, let me take your second question about share or cannibalization. I mean the short answer is no. And let me share the data with you that leads us to that conclusion. Certainly, we look at many external data sources to inform us of macro trends in away-from-home coffee and certainly away-from-home food and beverage. Those trends would suggest that overall daily customer occasions in food and beverage are relatively flat. Now, when we triangulate those data points with the fact that we grew total customer occasions across existing stores and new stores by 5% this quarter, that would imply that we are growing transactions faster than the market and taking some share. Now, the better view that we have is when we look at the micro trading areas. Now, this is where we have our own analytics, where we look at a micro trading area that provides us data on traffic patterns. And whenever we build a new store in that trading area, we have predicted analytics to tell us what we think will happen and then we have post analytics to tell us what actually happened. The data suggest that when we build a new store in a trading area, we see increased customer occasions for Starbucks. When a competitor builds a new store in the micro trading area, our data shows little to no impact on Starbucks' traffic in that micro trading area. Now, certainly a similar dynamic exists when a competitor runs a product or pricing promotion or schedule at a trading area. And we look at these micro trading areas very carefully. And so, that's a data driven analysis. So when you triangulate these data points, it's evidence that we're not losing share to competition. And it's evidence that we're not cannibalizing as we build new stores. And so, that's how we think about it.

Okay, thanks. And then, just a question on can you preserve the P&L as the comp comes in and stays at 2?

Yeah, I think what we said and we talked about this a little bit last quarter, Sara, is that, in order to hit the comp guidance and the revenue guidance and profit guidance, 3% to 5% high-single-digits and 12%-plus. We need that 3% in order to get to 12%-plus. With that said, given just a little bit of softness in the first-half of the year, we still think we're going to be to deliver a 3% per year and therefore deliver the full EPS and margin guidance. I think the thing I was trying to say in my prepared comments is, the first half of the year is probably going to be a little bit softer, with the second half of the year accelerating. Yeah, when the things we are doing on streamline, the things we're doing in the middle of the P&L, and a little bit of benefit from buyback. So I think we'll get back to 3% and preserve the margin.

Yeah, I agree with that. The only thing I would add is just to be careful not to over-rotate just looking at the U.S., China is becoming a bigger and bigger part of the growth agenda and contributing a larger and larger percentage of our operating income growth. The 30% growth that we saw in China this last quarter, we just closed on East China, the Shanghai Roastery. And so, I think you need to look at both of these growth engines when you consider the overall enterprise P&L.

Your next question comes from David Tarantino with Baird. Your line is open.

Hi. Good afternoon. Just one clarification on the commentary on fiscal second quarter. Are you signaling you expect it to be weaker than what you just reported for Q1 or more the same? And then, I guess, my real question is about - as you diagnose the U.S. business and look at the consumer feedback metrics that you get, are you seeing anything in the consumer feedback that would suggest any issues related to brand or operational performance or anything of that nature? Thanks.

Yeah, I'll start, David. And then, we will have Roz take the second half. So if you do math on at least the 3% for the full year, and we just did 2%, I think it gave you a pretty good idea of what we think by somewhat softer. We're not signaling that January had been off to a big negative breath. That is not what we're signaling. All we're signaling is a little bit softer estimate for Q2, so you can kind of do the math and figure out. We didn't put a number on it. But I think it's pretty clear about where we think we'll land. Roz, you want to cover the customer piece?

Yeah, so concerning the customer piece, I will say that we've been really looking carefully at this afternoon daypart and the customer that visits our stores during that timeframe. And we're learning a lot about them. But I can tell you that, they're confident about our brand. They still are committed to Starbucks. We are making sure that we are ready for the customer, the afternoon dayparts by looking at our routine efforts in the stores and to make sure that we've got the right partners in front of them. So we feel good about the customer and their connection to us. And we'll continue to make sure that they stay aligned with who we are as a company.

And, Kevin, can just add one thing about the equity of the brand? Could you hear me? This is Howard.

Yes, yeah. Please, Howard, yeah, go ahead.

Just in terms of the equity of the brand, just in recent weeks two things came out that I think demonstrate and reaffirm the strength, the trust and the confidence in terms of Starbucks as a brand and a trusted company. Fortune survey came out and Starbucks was the fifth - fourth, I'm sorry, fourth most admired company in the world. And then we have a constant effort year in and year out to make sure that we are as relevant as possible with young people. And what came out is that Starbucks relevancy among teams is number one in any food and beverage retail brand in America. So I think, in terms of the equity of the brand, there's no issue whatsoever. This is a daypart challenge in the afternoon. And just like we figured out and cracked the code in the morning daypart, we will do the same thing in the afternoon.

Your next question comes from Sharon Zackfia from William Blair. Your line is open.

Hi, good afternoon. I guess a question on the digital side. I think, last quarter you provided us with what the comps were for the Starbucks Rewards spend versus the more occasional customers. I was wondering if you might provide that again. And as it relates to kind of broaden in the digital ecosystem, I mean when can we kind of expect more information from you? And are there thoughts about enabling some sort of a Starbucks Rewards program, where you don't have to have a preloaded card?

Thank you for the question. Matt Ryan here Sharon. First of all, as is obvious in the numbers, virtually all our comp this past quarter came from our digital customers. And we saw a significant growth in the number of members, up 11% or so year on year, as well as healthy growth in member spend. So we're very, very pleased with what we saw. We've leaned into customer acquisition results. During this coming quarter, you're going to see some significant new initiatives added on, which have both short term and long-term potential benefits. We are going to be targeting, not just the Starbucks Rewards customers, but all customers with ways for them to sign up and engaged with us directly. That will create a new pool of customers that we can use our marketing capabilities to reach and talk to, and build a business from. You'll see that emerge across the course of the quarter, especially in March. And you'll see us begin to then have a greater pool of people with whom - from whom we can recruit future Starbucks Rewards members as well too. There are a number of different things teed up, not just for this quarter, but across the next year, that includes some of what you've been alluding to. And you can expect us to continue to make digital the focus of all of our marketing efforts moving forward.

Your next question comes from John Glass with Morgan Stanley. Your line is open.

Thanks very much. Two if I could. First, just I'm still struggling with why the non-Rewards customer, the occasional customer is not coming as often. If you see, the brand is still strong and relevant, particularly young people, but they're not coming back. Is it as simple as the Frappuccino platform for example is getting tired? And if it is, what - how soon can you substitute products that really drive that afternoon business? Can you talk a little bit more about specific customer insight? I didn't think I heard that that in answer to a prior question. And on the guidance, I just want to make sure I understand you. You've kept your guidance the same. But I think you said margins are going to be below and comps are going to be at the lower end. So in this excluding taxes, what's the plug that still get you there if comps are at the low-end and margins are below?

Yeah, John. This is Kevin, I'll take your question and I'll let Scott take the second one. When you think about our patterns, it's first of important to note that our core customer and especially in that morning daypart is very strong. And that's just reflective of the increased throughput at peak that we've driven. And I would say that the digital growth that we've seen, so core customers, morning daypart, daily ritual, throughput at peak strong. And that's beverage, food attach, strong. Number two, what we're calling the occasional customer, in some ways you could say are those non-Rewards customers or non-core, now the fact that we've grown active rewards by 11%, means we're attracting more and of the occasional customer into Rewards. So part of the reason you see that comp, you say, well, our occasional customers aren't growing. That's because a lot of them are joining rewards. And the more, we get them in that digital ecosystem, the best. Because now we can communicate directly with them, we can personalize offers that are contextually relevant to them. We can do so much more to create a great experience for those customers when we have digital combined with our brick and mortar experience. So the number three, say, okay, those customers who haven't joined Rewards, what's happening with occasional customers, now a lot we have a higher volume of occasional customers in the afternoon. And in many ways, you think about the morning daypart and a lot of that is really driving the need state of convenience as customers are getting their beverages and food on their way to work or school or some activity, what we find the afternoon is a customer occasion that's more the third place. And so in many ways, the opportunities we have to continue to enhance the experience in the third place drive innovation around food and beverage that resonates in the afternoon, and as Matt that the number one thing we can do is now connect with those occasional customers in a digital way. And so that's what we see happening and that is why the plans that we have are geared exactly to that. Roz, you want to touch upon sort of the plans that we have driving those three pillars.

Sure. So first of all, let me talk about in the first quarter, we added 1.4 million new active members and that really gives us an opportunity to do just what Matt mentioned is to bring them to the same level at our Starbucks Rewards customers that have been enjoying our business in the morning daypart. But second, we have very strong beverage innovation plan for the remaining part of the year. And I know, we've been talking to you about our beverage innovation for some time now, but we've been able to for the first time in a long time introduced a second espresso roast for the first time, our blonde introduction that just started in the month of January, we're excited about that. But second, we have a number of cold offering that we're introducing and some of them are accelerating into the second half of the year and I just remind you cold beverages are nearly 40% of total beverage sales and 50% of the overall growth that we're seeing right now is from our cold lineup. And that's up 230 basis points for our company. So the accelerating I think like our Nitro rollout, our Teavana teas, and our premiumized beverages. This is going to help us in the second half of the year, and these are items that have not existed in our product lineup. And when you align that with our food success, it really creates a package for us. And remember, our food represents right now 21% of our total revenues so we've got great moves in our beverage lineup, and the food attach that we've been seeing quarter-over-quarter will continue in the second half of the year.

And then, John, your question on margin, I'll just quantify a little bit for you. We had slight margin expansion in our last guidance and now we're seeing a little bit of margin contractions we're not talking about it big dollars, but you're asking a fair question. There's two things. First of all, we did get a little bit more favorability than we had forecast below the line this quarter for some of the gift cart, unredeemed gift card true-ups that I talked about. And then that all of the net of the streamline activities are coming in a little bit more favorable than we originally thought, again both of those are relatively small amounts, but don't have a big impact, obviously on operating margin but allow us to hold our EPS guidance.

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

Thanks. I heard in some previous answers you highlight the digital initiatives and you mention cold beverage innovation, just then. Are those the major factors that give you confidence in a back half acceleration that, it sounds like, it could be significant in your thinking or at least your banking on that perhaps you can give some sort of a ranking of what is giving you confidence in the back half acceleration? Thanks.

Yeah, maybe - David maybe I'll start financially and I'll ask Matt, Roz to weigh in operationally, because obviously what we're mainly focused on talking about the U.S. business. But if you talk about the global business back half acceleration from a margin standpoint. It's the things that we're doing in the middle of the P&L around cost of goods sold around waste and around labor, we talked about those, that's the first thing. The second thing is acceleration of profitability as we bring East China into the fully wind down Teavana. We're a little bit more optimistic on how that's going to add to overall profitability. And then just to be specific, we expect the first half of the year in Americas comps to be a little bit below the average for the year, and the second half to be a little bit above. So I'm not [Technical Difficulty] in U.S. comps in our forecasting. We see that as a potential opportunity depending on how things land, but that's not what we're saying in that comp guidance we're giving, just to be clear. But maybe I'll turn it over to Matt to talk a little bit about the digital opportunities, first, and then Roz can cover up beyond that.

Absolutely. So one of the things we see is, we see continued growth in the core Starbucks Rewards program, we've seen healthy growth in recent quarters and we have every indication of the investments we're making in technology that are sort of behind the scenes and less visible to you will continue to drive both acquisition as well as per member spend, so we're very confident in that. I think the more important it is, we're adding on a couple more major initiatives, so this quarter we will be launching with Chase and Visa, our first ever co-branded credit card and that will enhance the value of the program to many of our customers. The thing that I would like to highlight as well, is that we are also doing more to reach our non-Starbucks Rewards customer digitally and established digital relationships This includes making Mobile Order and Pay available at scale to all customers starting in March as well as deliberate initiatives, which you will see as the quarter unfolds, in which we actively sign up new customers with the special benefits and offers that will be meaningful and make a difference in our ability to market and personalized beyond just the core Starbucks Rewards members.

This is Roz. Let me just mention some of the things that we're doing from an operational improvement standpoint in the afternoon daypart, if you are recall about a year ago we introduced some labor deployment improvement at peak, and it's been successful for us. And for the first time, we're going to expand those through the full daypart and this includes some of the lessons that we've learned at peak from the routines and the labor deployment improvements that are really goes a little bit further than that. We're specifically looking at tasks that are performed in the afternoon, and we're looking at the experience level of our partners in the afternoon. Typically, we've used our afternoons to train our new partners, and to do routine tasks. And we often have a lot of our newer partners on staff doing their training. So over the coming weeks, we'll reevaluate how our staff will use these hours and use the stores and the partners against more customer facing initiatives, this will allow us to do really effective product introduction and then connect with the customer effectively. So we've learned a lot in that morning daypart and we're going to think it throughout the full day.

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

Hi, two questions if I may. First for Roz, and the second for John, if I may. Roz, as you bring a broad perspective and focus now on the Americas business. Do you think some sort of a value strategy that fits within the overall lens as Starbucks becomes more important, as we can about 2018 and 2019 and maybe bring back some of that non-core customer. And how may you be thinking about communicating a price to the consumer? And a follow-up after this, if I may as well.

Actually I don't see a value position here, I actually think that our brand has the ability to speak even more at an up leveling. When we talk about product innovation, we talk about making our core coffee even better, when we talk about our Frappuccino business it's about making the very best Frappuccino. So a value position is not the direction we're looking at, we feel like our brand can go to the next level.

Okay. And thank you, John. I think, if you're on the phone. As we look at China, and you're obviously doubling down with the consolidation of East China, presumably margins of CAP become higher than that of the Americas, you know you have a lot of G&A and growth cost, unit inefficiencies, pre-opening, what have you in those numbers. But as you look out the next number of years, when might - firstly, will that happen? And when might that happen as we think about really the contribution from that division over the next couple of years?

Maybe, John. This is Scott. I'll start, and then I'll turn it over to John to talk about why we think, we can drive outsized profit growth in CAP broadly in China specifically. So remember that our margin on that East China business today is probably in the triple-digit somewhere, because we have half of the profitability, but just a fraction of the revenue. So when you take that highly profitable business, and you do the new math with 100% ownership and that revenue denominator getting so much bigger, we'll see a little bit of impact at the CAP level on margins negatively, while we go through the first year. And again, that's not because profitability goes down, this John, but that because of just the straight math of owning 100%. Then I think, you're going to see CAP once again grow margins faster than any of the other businesses. And I do think over a number of years, we should see CAP catch, the Americas and perhaps overtake. And the reason - the big reason that is, and I'll turn it over to John is, because of the inherent profitability of CAP broadly. So markets like Korea, Japan doing well from a profitability standpoint, and of course, first and foremost the profitability within China. John, do you want to build on that?

Yeah, just to build on that. As we integrate East China into the operations, we really are focused in three critical areas to - number one, get the business integrated, but more importantly make sure that we're in a position to accelerate growth, and at the same time expand the margins. So really looking at the operational efficiencies that we can gain with the acquisition and with the integration, particularly around supply chain, development and design, R&D, IT and a lot of the back-end infrastructure that currently exists in two different places, as we operated a joint venture and then we operated a company-owned business. And then, the last piece is around gaining synergy and leverage around scale. And in particular these areas are driving growth. Digital is a big opportunity, and if you look at digital and one voice to the customer across these markets, we see tremendous opportunity and runway for growth, just to put it into perspective. We now have six million active MSR members across China. We've introduced WeChat and Alibaba pay in our stores, and that is accounting to over 60% of the tender that's coming through the stores. Beyond digital, we've got beverage innovative and continued focus on accelerating the growth of beverage innovation through R&D that we've got on the ground, food, and then clearly, a big synergy around operations, and creating great customer experience across the entire portfolio. So to Scott's point there will be a period during the integration, where you'll see a moderate decline on margin, but we will gain that back and very confident of that.

I just want to add one…

Hey, John, this is Howard - I'm sorry. This is Howard. Can I just want add a little bit of context to China, and some of things you said. As Kevin said, I'm in Milan, and I'm working on the Milan Roastery with our design team, but on the heels of the record setting opening of our Shanghai Roastery, I just like to put it into context for you. I don't know how many store openings, I've been to and how many countries we've opened. But in my long, long history of Starbucks, I have never ever seen anything remotely like what happened, when we opened a Shanghai Roastery. I mean, we shattered every sales record in the history of the company, and I'm going to give you some numbers that we have not yet released, because I think it's very important as we look at the difference between 3% and 2% comps for the quarter. I think again, here's a number that I think you'll be very interested in. Our U.S. Starbucks stores on average do about $32,000 a week. The Roastery in Shanghai after eight weeks of operations is doing on average, twice that not each week, but each day. So the volumes that we are now hosting at the Shanghai Roastery is a number that we have never quite seen before, reaffirming the equity of the brand, reaffirming the interest our customers have in Princi, an opportunity that we feel is not only a domestic opportunity for standalone stores, but also an opportunity to leverage infrastructure and build Princi stores in China as well. But we just opened a store that is doing twice the amount per day that an average Starbucks is doing each week. That's the growth opportunity and that's the strength of the company…

Thank you.

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

Great. Thank you very much. Maybe just shifting gears for a second in terms of potential positive for the U.S. business or the Americas business. Just curious to get your theoretical thoughts on tax reform, and I know you guys and others have talked a lot about the corporate tax benefit, which seems significant. But in terms of the consumer benefit from tax reform, I was just hoping you maybe can give some insight in terms of historical or any kind of expectations you have, one, because the tailwind of a lower payroll tax, which is going to drive higher paychecks for the consumer and we're also seeing lots of corporates returning tax savings to employees by pay raises or the onetime stipends. I'm just wondering, what would you even compare that to historically, maybe people talk about the gas price savings even and how that was kind of a onetime benefit. But how do you think about, but what could be a benefit for Starbucks or for restaurants maybe relative to broader retailer in terms of the prioritization of that consumer spending?

Yeah, Jeffrey, this is Kevin. Look, we haven't gone into some deep study of how much did this increase consumers discretionary spend, and we haven't factored any of that into the future view. I mean, logically you could draw a conclusion that increased discretionary income would increase spending on consumer items, including food and beverage, and that could be good for us. But being candid, we haven't studied that and I don't have any models or insights to share with you other than just general intuition, if consumers have more money, then that must be good for consumer spending.

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

Thank you. I just had a one point of clarity I just want to see, and then also if you - just a question. Specifically to the $180 million to $220 million, Scott, I think you said that was - about half of that is going to come into 2018. So is that a - that's a run rate, so there will be a bigger weight on 2019? And then also the 2019 tax rate, I think you said, it was going to be 300 basis points higher or at least beyond 2018, the tax rate is going to be 300 basis points higher, is that correct?

The first part is correct, Matthew. So 2018 will see a little less than half of that $180 million to 220 million run rate, and 2019 will see a little bit more. And part of that is, just because of the timing of some of the investments we'll make over the remaining course of the year. On the tax rate, the numbers I was quoting was trying to reconcile you from our GAAP tax rate to our non-GAAP tax rate. The thing to think about is, our non-GAAP tax rate will be about 26% in both years, so about 7 points lower than what we have guided at 33% before the change in the tax law. So that's a pretty consistent number as we look into the future.

Your next question comes from Karen Holthouse with Goldman Sachs. Karen, your line is open.

Hi, another question on the tax reinvestments. The language in the press release indicated that these were accelerating investments and you're part of the conversation for some time now has been built - talking about a multi-year cycle of investments that you're in. And when we're trying to bridge 2018 to 2019, should we sort of be layering in on top of this incremental spend, another $150 million or $200 million in partner investments? Or how did these just fit into sort of the original plan?

Yeah, Karen, this is Kevin. Let me start and then I'll hand it out to Scott to add to this. But, clearly, when we looked at the tax reform and thought about the principles around this, the first principle we had is this doesn't change our strategy. Our strategies are strategy. We're clear on what we're doing. We're clear on the priorities we have. And so, just because the tax law changed, it does not alter our strategy. That was principle number one. Principle number two though was looking at the implications to Starbucks of that tax change and making a thoughtful decision around allocation of resources. The resource we could allocate to our existing strategy, that we thought would help us accelerate progress against it. And then how do we make sure - and so, and that principle was the second principle. The third was how we make sure we do this in a balanced way. Are we investing in the things that are creating shareholder value? And for the majority of this, it's going to drop to the bottom line and go straight to EPS. So when we put that together, the number one area you look at over the last several years has been an ongoing multi-year strategy is our investment in partners and digital. And the bulk of that investment has gone into partners around things like wage and benefits just knowing that certainly ads. You know. With unemployment low and with competing for the right kinds of talents, there's going to continue to be the need for us to invest in our partners. And we know in investing in our partners that we're able to attract the right people, and we're able to have a lower attrition and longer tenure than others in the industry, which helps us better connect with customers and help us drive sales. So we know that's a good investment to make. In addition, we know and have wider sight to the return on investment on certain digital projects. And so, that is the work we went through to determine what in the opportunity to make some additional investments in our partners, and some of the benefits in wage and to accelerate the progress on some of these digital projects that lead directly to the way that we know we can connect with customers and drive comp and drive revenue and profit. And so, that's kind of the principles and the construct that we came up with and I'll let Scott then take it from there in terms of the implications financially.

I think, Karen, I think this is definitely…

Howard, go ahead.

Scott, I was just - I know it's difficult because I'm on a remote phone. But I'd like to just add something that I think is a strategic importance to the company long term if you don't mind. I think if you look at the history of our public life, one of the I think real benefits of what we've been able to accomplish as a company has been the entrepreneurial D.N.A. of Starbucks and constantly having the curiosity to see around corners and make big bets. And I think there's probably no better example of that than over the last five six years what we've been able to do, and what Matt and his team has been able to do around digital mobile payment. And our leadership position in what we've been able to accomplish as a brick-and-mortar digital mobile payment business. I'd like to just pose a question to all of you. And the question is, we all can probably remember 20 years ago or so, when someone tapped us on the shoulder and asked us anything about this thing called the Internet? And we probably all can remember that moment. Well, 20 years later or so, the world has been completely transformed. And we're all connected in ways that no one could have possibly ever imagined. And in terms of business and value creation there have been some huge winners, we all know that. From Facebook to Google to Amazon and many others, and there's been some companies that have not done as well, the Myspace of the world, Yahoo and others. Well, I think I have another question for you. 20 or so years later, and the question is, the issue of do you understand and are you anticipating what could happen with cryptocurrencies? And the…

Thanks, Howard. Scott, you want to - the second part of Karen's question was on the investments that we were making. Yeah.

Yeah, I think, Karen, the way to think about that is, as Kevin says, these were all on our roadmap. But I wouldn't think that, that this place is a partner investment in 2019. Or said more clearly, we're doubling down a little bit this year with partner investments, because it's the right thing to do. As we get into 2019, I assume we'll make additional partner investments and we'll come back to you on the size and scale of that. But this wouldn't be in replacement of that, which I think is the nature of your question.

Your next question comes from Jason West with Credit Suisse. Your line is open.

Yeah, thanks. Just two quick ones. I guess, one, in the past you guys have talked about how much of the spend or what the spend growth was for your MSR members, and if you could provide that for the quarter? And then just to clarify the timing of the rollout of offering mobile ordering to the non-MSR, is that something that is going to be nationwide coming up here in the spring or is it going to be rolled out gradually, starting at that point? Thanks.

I'll cover the first part, Jason, and I'll turn it over to Matt. So we saw mid-single-digit kind of growth in spend per member, so another really good quarter off the back of two big quarters. So we're pretty happy with what we've seen, particularly given the members, member growth we had in absolute numbers. Matt, you want to cover the second part?

Sure, we're actually in pilot right now in the marketplace. So we are offering mobile order and pay to many customers. You can call it guess checkout if you will to many people who do not have a stored value card. What will happen by the time we reach the end of March is we'll be able to scale that nationwide and make that available to all customers who are using our app.

The last question comes from Nicole Miller with Piper Jaffray. Your line is open.

Thank you. Good afternoon. Just two quick ones, both on China. As you look at the brand identity there and the unit growth, are you seeing achievements from landlords and stable rents in that regard? And then the second part is around the CPG business, so when you look at I guess China, also look at Japan and places that - I think you're growing the international CPG product rollout. Is there a U.S. model, you want the stores first or not as a model or now it is a model switch, where you have enough stores and you have the Shanghai Roastery that can go full fetched forward with that and that's something that also aids in brand awareness? Thanks.

Yeah, Nicole. This is John. Real quick on the China piece. We are seeing continued very strong growth as it relates to our stores and really the elevation of the Roastery and the opening of the Roastery, we have landlords coming from all over China to see that. And they are reaching out to us, asking us to bring beautifully designed stores into their development. So we see tremendous opportunity to continue to accelerate the growth of new stores. Our new store performance is the strongest that is ever been. We opened up 188 new stores in the quarter. We now operate 3,100, over 3,100 stores across the Mainland. And we're going to continue to accelerate the growth. And we'll share more about that on our call next week with you. And then in terms of the channel development business and how we're thinking about growing channel development in these developing markets and in particular in China, as Scott shared, we sold 30 million bottles of Frappuccino since we introduced our partnership with Tingyi. Clearly, we have a strong retail brand footprint. But that retail brand is now extending out into the channels business, and then to retailers as well as into the digital space as well. And we're seeing that play out not only in China. We're seeing that in Japan, and then obviously, strong growth coming out of our channel development business in EMEA. So we're excited to grow that business in parallel with our retail footprint.

So just - I'd add to John's point and maybe reflect back to a question that John Ivankoe asked about the growth of CAP. And just remember, in 2017, we saw China/Asia Pacific add nearly 50% of our overall operating income growth. As we think about this year, we'll probably be in that same range. Maybe not quite as much, because the Americas business is going to contribute a little bit more. But this is the twin engines of growth that Kevin talked about so specifically in his comments. And as we look forward to 2019 and we get into the full ownership of East China, I think you're going to see that same kind of mix to the overall operating income growth. That's obviously driven by China, but within China/Asia Pacific, the other pieces of Japan and Korea as well. So just make sure you remember this, that we're seeing a strong blend of profitability across those two businesses.

I will now turn the call over to Mr. Shaw for his closing remarks.

Great. Thanks. Before closing today's call, we wanted to provide an update on the timing of several upcoming events. As mentioned in our earnings release today, we will host a supplemental call to discuss our business in China, as well as implications from modeling standpoint next Wednesday, January 31 at 2:00 PM Pacific. In addition, we want to provide the specific dates of our China investor tour that Howard mentioned. We plan to host management meetings, local store tours, and a visit to the Roastery in Shanghai on May 16, with plans to visit a second market the following day on May 17. And finally, we are timidly planning our 2018 Investor Day in New York on Wednesday, December 12. Thanks again. And have a great evening.

This concludes Starbucks Coffee Company's First Quarter Fiscal Year 2018 Earnings Conference Call. You may now disconnect.