Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Starbucks Coffee Company’s Second Quarter Fiscal Year 2013 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 call.

Thank you, Mike. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Joining me on the call today is Howard Schultz, Chairman, President, and CEO; Cliff Burrows, President of our U.S. and Americas Business and Troy Alstead, our Chief Financial Officer. And also joining us here today for Q&A are John, Michelle and Jeff, the Presidents of our other three business segments. 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 the 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. This conference call is being webcast and an archive of the webcast will also be available on our website. This is the first quarter we’re including results from the recently acquired Teavana business in our financial results. And you will find them in the P&L for all other segments. Results of removed unallocated corporate expenses from Other. Full-year results for fiscal 2010 through fiscal 2012 for all Other segments a well as our corporate unallocated expenses can be found on our website. With that, I’d like to turn the call over to Howard Schultz. Howard?

Thank you, JoAnn and good afternoon to everyone on today’s call. I am very pleased to report the record Q2 results that Starbucks announced today. Global comp store sales growth of 6%, marking the 13th consecutive quarter of comp growth greater than 5%, comp growth of 7% in the U.S., total revenue growth of 11% to a Q2 record of $3.6 billion, 180 basis points increase in operating margin to a Q2 record of 15.3% and record Q2 EPS of $0.51, which after excluding a $0.03 gain on the sale of the Company’s minority equity stake in the JV that operates our stores in Mexico represents a 20% increase over last years record Q2 results. Starbucks is continuing to deliver strong consistent performance in the phase of still challenged retail and consumer environments in many of the markets around the world in which we operate. While I’m very pleased with the record results we’ve been reporting in the value that we’ve been creating for our shareholders over the last several years. As I’ve mentioned at our annual meeting of shareholders last month, we remain laser focused on our aspiration to become one of the worlds most admired, respected, and enduring brands. I’m honored with the progress we’re making on this journey has been recognized by Ethisphere Magazine, who for the seventh straight year name Starbucks as one of the worlds most Ethical Company and Fortune Magazine who recently ranked us as the fifth most admired company in the world. Neither this humbling and inspiring recognition, nor our Q2 results would have been possible without the hard work and dedication of our 200,000 Starbucks partners who done the green apron everyday and deliver the unique Starbucks experience, 70 million times from almost 19,000 stores in 52 countries around the world each…

Thank you, Howard, and good afternoon everyone. I'm very pleased to join you today to discuss the strongest second quarter results of our Americas business and to share with you several new exciting initiatives we have ahead of us. Americas revenue grew by 10% in the second quarter to $2.6 billion, fueled by 6% same-store sales growth with 5% coming off increased transactions and 2% from the higher average ticket. In the U.S., comp sales grew by a very healthy 7%, a number of drivers were behind it. We had a great success with our featured beverages including Vanilla Spice Latte and Hazelnut Macchiato, which combines nearly two percentage points of comp growth in the quarter. Food sales also lifted our comp, with strong growth in the afternoon from offerings from food offerings aided by expanded panini availability and strong Bistro Box performance. On our first quarter call, we talked about the strength of Starbucks card sales during the holiday and how that gave us great confidence in our ability to deliver a strong Q2. That absolutely played out this quarter and what is particularly encouraging is we’re seeing a lift in both afternoon daypart and in our high priced indulgent beverages by card users. There are significant number of new customers and new occasions being introduced by Starbucks card leading to new daily routines and greater loyalty, all of which bodes well for our future growth. While America segment revenue grew 10%, operating income grew 22% to $550 million. We delivered strong flow through on our exceptional sales growth with margins in the Americas growing by 220 basis points to 21.1% in the second quarter. That is the highest Q2 margin we have ever reported in the Americas segment and there are several things contributing to this improvement. Firstly,…

Thank you, Cliff, and good afternoon everyone. We are extremely fortunate that the Americas business produces results that consistently exceed what you would normally expect from a business so large and mature. Cliff cited many of the reasons behind that success; innovation, consistent delivery of outstanding customer service and a deep entrepreneurial spirit. It's the consistent strength of the Americas performance that allows us to nurture the seeds of growth outside of the Americas. I will now talk to the second quarter results of those businesses. In China and Asia Pacific, we continue to [grow] rapidly while delivering strong results. Net revenues of $214 million represented 22% of growth in the second quarter and reverted by a mixture of 15 net new store openings over the past year along with same-store sales growth of 8%. Considering the difficulties that others are experiencing in this part of the world, coupled with the fact that we are lacking extremely strong comp of 18% last year, we are very pleased with this performance. Half of our Q2 comp growth was due to increased transactions as customers were receptive to our seasonal offerings with continued strength from the My Starbucks Rewards program in China also contributing. Ticket growth was due to a combination of pricing as well as sales mix. Operating income of $68.3 million [plus] operating margin of 32.0%, down [Technical Difficulty]. We have grown our company-operated store base by 35% in the past year, double the pace of growth in the region overall. And as I have indicated for some time now, that portfolio mix shift is strategically and financially very valuable, but it does currently have a negative mix shift impact in operating margin in the region. We added 56 new company-operated stores (indiscernible) in the second quarter, the highest number…

(Operator Instructions) Your first question comes from Michael Kelter from Goldman Sachs. Your line is open.

Can you guys talk a little more about your early experience rolling out La Boulange in the stores and that where do you use – because the lift was encouraging. I was hoping you could help us with what exactly encouraging meant? And maybe in your answer you could touch upon the impact to traffic versus ticket and whether you're getting a lift in coffee or just food?

Thanks for the question. It's Cliff here. The reason I said encouraging, we are in 150 stores with any track record and we've been working live with this in refining the products as we've gone along. We are now in a meaningful 439 stores, so it will be much more meaningful when we report the next quarter and the coming quarters. I am firstly encouraged by the pride our partners in the stores have in sharing and serving and enjoying this food, the reaction of the customers, especially to the lemonades, things of the croissant, (indiscernible) and Almond Croissant which are the signature products of La Boulange. With any change, it takes time for people, customers to get used to new products, ourselves to get confident with those products and obviously we’ve got a new routine with warming in stores. I’m encouraged by the progress we’re making. I’m encouraged by the reaction, and again as I said I look forward to sharing more of that in the coming quarters.

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

Thanks. On the earnings guidance, I guess just a couple of questions. One is; why are you raising it now, it would suggest an acceleration of earnings growth from a 20% range in the first half to 25%, so what are the components that drive that, first? And secondly, does it include that $0.03 and where is that $0.03 I can’t find it, what segment is that in?

Thanks John. We’re raising because first of all we’re half way through the year. So we now have half the year in the bank, we’ve been able to see two quarters worth of great top-line growth and great earnings growth, and that gives us increased confidence in our expectations for the balance of the year. I’d also point out that we’re just that much closer now to new products that will launch as we move to the balance of the year; how the seasons are trending; our ability to drive flow through on incremental sales. All of that now half way through the year has just increased in confidence and allows us to increase our guidance for the balance of the year and for the full-year. Specifically to your second part of your question; yes the all year-to-date results are reflected in that full-year guidance so that $0.03 of the Mexico gain is included in that new 212 to 218 range that we put out there today. And that is reported in the interest income and other expense, so you need to look at the consolidated P&L and you’ll see a year-over-year change there. There’s a number I think going on in that category but there’s a big driver of this Mexico gain that shows up in that line.

Your next question comes from the line of Keith Siegner from Credit Suisse. Your line is open.

Thank you. Just a question about the new multi-channel loyalty program rolling next month. I mean, this is – it definitely is unprecedented, and I’m sure, at least to some extent there’s going to be some education required, but that’s kind of the big opportunity right, you get to bring in a lot of the non-current loyalties as they realize this opportunity. If you could talk a little bit about that marketing program, maybe how you plan to message this? Do you roll it out first just to existing users? How do you get the broad based awareness of this new opportunity? Thanks.

Hi, Keith its Jeff Hansberry. We’re very excited about bringing My Starbucks Rewards down the isle. And to your very point, today we’ve got about 6 million My Starbucks Rewards customers. As we extend the program into channels we’ll be able to reach an audience and make My Starbucks Rewards available and create awareness for the program to an audience that is 10 times larger than our current My Starbucks Rewards audience. The way we’ll bring that to live is, in the store there will be point of sale material and there will be material on each and every package of roast and ground coffee to create rapid awareness with both our loyal customers and with new customers as they become aware of the program. We will thread MSR trough everything we do in channels and will become an integral part of every promotion that we run going forward. So, we have great expectations in how it will transform the way our customers experience the brand and their loyalty to the brand.

Jeff, maybe you can also say, the benefit we have about the stores within all of these stores, 1000’s of licenses.

Yes, yes. Thanks, Howard. So, we’ve got over 3000 license stores that sit within some of the best grocery and mass merchant real estate in the U.S. What that allows us to do is to create an ecosystem within the store where our customers have the opportunity to buy hand-crafted Starbucks beverages and also their packed coffee needs down the isle. And as Howard, mentioned in his comments; every time you buy a Starbucks roast and ground coffee you’ll earn My Starbucks Rewards stars that can be redeemed for Starbucks food or Starbucks drinks. And now with those 3000 stores in the best grocery stores around the U.S. that makes it more relevant, it helps to thread it through or blueprint for growth more easily.

Your next question comes from the line of Sara Senatore from Sanford Bernstein. Your line is open.

Hi. Thank you very much. I wanted to just talk about the channel development business briefly, obviously you said that you're pleased with the share gains, but would've liked to seen a little bit more growth in the biggest part of your business. I'm just trying to reconcile sort of the slower top line growth with, I think, what is continued confidence that there will be – that ultimately this business will be as big or bigger than retail, and if you could just talk about the cadence you see and maybe when some of these other initiatives will start to look a little bit or be a little bit more present to offset what appears to be sort of a slower growth core package business? Thank you.

Hi, Sara, it's Jeff Hansberry again. We remain very confident in the future of channel development. Q2 was a challenging quarter. In that we saw both a slowing in the roast and ground business overall combined with a lot of competitive activity on our largest segment, roast and ground. That said, we feel strongly that we have the right mix of value and promotion and merchandising and loyalty activity to reignite growth in our roast and ground business with the list price reduction that we announced this month that will take effect in May with the activation of the My Starbucks Rewards program with some new additional innovation that will be hitting the market in Q3 and Q4 to include a 40% increase in the number of SKUs of K-Cups across the Tazo Tea brand as well as the Starbucks Coffee brand, additional innovation hitting the market in VIA as well as our ready-to-drink portfolio with Starbucks Iced Coffee and some other new innovations that will come later in this year. So we remain very optimistic. And layered on top of what we're seeing in the U.S. business, we continue to be in the nascent stages of our international expansion. I think I've shared previously that today the channel business only operates in about 20 of the 62 countries where Starbucks has retail operations and we're working aggressively toward expanding beyond the U.S. with our CPG portfolio. Sara Senatore – Sanford Bernstein: Thank you.

Your next question comes from Greg Badishkanian from Citigroup. Your line is open.

Great. Thank you. In the press release, you mentioned that you had considerable momentum in business as you entered the second half, which is very encouraging and I'm just wondering, what's the read through of that comment to April same-store sales?

Greg, we won't speak specific about April at all. What we can say with confidence is the great strength that we came through the first quarter, the holiday period that we've reported on previously as you know and then as we progressed through this quarter with a backdrop of, as you know, very choppy and mixed results broadly in the retail environment and with many other retail companies, we produced very steady, healthy strong growth and traffic growth and in same-store sales growth in the U.S. and consistent ability to leverage that strong top line into profit growth at the bottom. So no specific comments about April, but we exited Q2 in a very healthy place and that's given us confidence in terms of the low momentum combined with the pipeline of what's to come in the third quarter and the fourth quarter, the lineup of innovation across all channels encourages us that leads to our confidence in the momentum and that leads to our ability to speak with such confidence about the back half of the year.

Greg, I'll add one other thing. I think it's hard to perhaps really get underneath what's going on with social and digital media, the loyalty card and mobile. What I can tell you though is that we as a company have cracked the code on being able to leverage those platforms in a number of ways. To create awareness in trial of new customers who are not in the Starbucks franchise, to lower our cost of customer acquisition as a result of the fact that we're using these channels as opposed to conventional advertising. And then thirdly, we can analyze with great specificity that the loyalty and the stars that now will be leverage on to the CPG channel is significantly relevant to our core customers. When you combine that with what we've been able to do during peak periods in terms of efficiency and productivity plus creating new need stakes for customers in dayparts that in the previous years we have not been as busy as Troy said, gives us great confidence that the 7% comps that we sold in the first quarter and second quarter is stunning accomplishments when you look at the backdrop of the economy and what other people are reporting, especially given the environment we are in. So, I would say that the ecosystem that Jeff talked about and what we're going to be able to do with these programs going forward gives us the optimism that we are in very good shape for the balance of the year.

Thank you.

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

Great. Thank you very much. It's a question on more so balance sheet, in terms of cash or even looking at the cash flow statement and after CapEx spend, obviously there is no shortage of cash. I'm just wondering if you can give us kind of an update in terms of forward discussions as it relates to and how you determine the right balance first of all this is the share repurchase and dividend, what is the right level there, because obviously you could be a doing a lot more of both. And then the potential whether its considered an increase in leverage obviously right now may be it is not your priority, but rates are fairly compelling, so I’m wondering whether you consider boosting leverage or how you even think about the leverage – the right leverage level perhaps once the settlement is complete? Any thoughts on that front will be great.

Sure Jeff. I think the first thing I mentioned is where you ended which is we are awaiting resolution of our dispute with Kraft and as we come through that, which we now expect for sometime in the second half of this fiscal year, that will bring clarity to allow us to then formulate a little bit more specifically our go-forward plans. But I will say that we are very committed to sustainable dividends and growing the dividends through two metrics. One is by at earnings grow over time, the payout ratio where we have been paying since initiation at 35% to 40% payout ratio; I would expect to grow dividends just as earnings growth. But I would also expect to look at that range over time, not immediately but we are well aware of whether as an industry payout and I would anticipate at elevating that payout ratio at the appropriate time, which I think the strength of our cash flow in the business. Similarly with share repurchases, we are committed to a balance of dividends and repurchases. Of course repurchases are much more opportunistic, but we’re committed to the program and our Board has authorized continued opportunities for us to being more active in the open markets, so we will take advantage of that as we believe market conditions exist for that. Now with respect to, Jeff what I will tell you is, I’m looking closely at debt on our balance sheet and while we certainly have very, very strong cash flow position, we do recognize that we got opportunities to optimize that balance sheet and bring some additional debt on to leverage over time. And I’m well aware of where the market conditions are today and again looking very closely, we had nothing to announce today, but its definitely something close thing on the radar screen.

Thank you.

Your next question comes from the line of Jason West from Deutsche Bank. Your line is open.

Yeah, thanks. Just a question on EMEA. If you guys can talk about this thinking on holding on of the company stores there, it’s a business that’s not earning much of a margin today and just wondering, you mentioned some refranchising, but I think that’s for new growth. Just if you revisited the thoughts on refranchising some of the company business to try to pull more profits out of that market?

Michelle is sitting in London; I think she is going to answer the question.

Yes. Hi, Jason. Michelle here. Excellent question. Actually Howard spoke to, we’re actually now looking at franchising not only for new growth, but sale of some of our existing base. And we’re – we’ve begun to do that in London and Africa with some learning, then on U.K we will look for other opportunities across the continents. So to clarify, its not just about new store growth, it is actually by looking at the sale of some of our existing base. And we’re confident that this will dramatically shift the profitability of the market.

Your next question comes from the line of David Palmer from UBS. Your line is open.

Hey guys. Congratulations on the quarter. Obviously, unbelievable performance, especially at the core U.S. retail. Last year Starbucks did a $10 card for $5 with living social and I’m not acquainted with all the details on these deals, but that seems that the time to be a way to nudge the sales higher during – after what was a tough June last year. This year I think you did one with Groupon at the end of March when the retail momentum seems very strong. So I'm wondering if you're doing things like this maybe more strategically as you're trying to think about broadening that rewards user base, or maybe just what were you thinking with these types of things? Thanks.

It's true that the success that we enjoyed with LivingSocial coupled with the learnings that we had in terms of analyzing it, gave us great confidence that during the right time of the year there was an opportunity to do this again. I think the Starbucks brand and the frequency and the relevancy of the Starbucks experience puts us in the unique position to leverage these kinds of opportunities versus a traditional retailer or restaurant. I think you're exactly right, the momentum in this quarter there was no specific need to be a catalyst, but we felt there's no reason to embrace the status quo. We learnt a great deal from LivingSocial, so we had planned to do it again. I think that Starbucks is in a unique position in that we are a super-premium brand. You don't have to go to Starbucks as a discretionary purchase, but at the same time we've been able to find ways to provide a value proposition throughout the menu system and take advantage of these kinds of offers. When you couple that with the incrementality that we have gotten from our rewards program, we have a new level of analytics that we feel is a significant competitive advantage going forward domestically and internationally, and we're now going to apply that to other channels of distributions specifically the grocery. And I want to go back to one question that was asked earlier about, is in fact the other channels going to be as large as we've said in the past? And no one on this call should doubt whatsoever the commitment we have and the ambition for the multiple channels of distribution to live outside of our stores that will rival the scale of the U.S. business. We have an opportunity as we've demonstrated with VIA, as we've demonstrated with Evolution to introduce products in our stores, create the brand and then draft off that into the grocery channel. These are early, early days but the evidence that we have about what I've just described, coupled with this new level of analytics and the benefit from these loyalty programs gives us great confidence that we have the tools, the resources and the multiple channels of distribution that no other consumer brand or retailer has to do things that have not been done before. And this loyalty program that we're going to launch into CPG is a significant idea both for the consumer and I also should say for the trade that we have been in close contact with. And I'm stunned that no one has asked the question about the CPG opportunity in China. Did you not hear what I said? We are looking at the opportunity to take the CPG business into the largest growing market into the world leveraging the equity of the brand and our 1,000-store retail footprint in China.

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

Howard, I will – be a follow-up on that last statement and then another question, if I may.

Finally.

How many points of distribution do you think you could have in the CPG market in China? I mean is it like the U.S. in terms of grocery stores? I don't know exactly what the numbers are there?

I think the type of distribution that we'll ultimately have in Mainland China will be different than the core distribution we have in the U.S. That channel does not have the nationwide grocery businesses. However, the demand for Starbucks coffee and coffee products that we've had from customers and from people interested on the trade side has been growing. And so we believe very strongly that we can take advantage of that. And when we look at products like Bottled Frappuccino and the success of Blended Frappuccino in China, which has been a significant opportunity for us, we think we can leverage Bottled Frappuccino in the same context that we’ve done in the U.S. which is a $1 billion brand. So, this is a big long-term idea and it’s built off the unique trust and confidence and the relevancy of the Starbucks retail brand in China. And for any of you who have been to Mainland China, you’ve seen that the people who are going into our stores in now over 70 cities in China are Chinese nationals who are using our stores in the same way that Starbucks customers have for years in the U.S. They’re drinking Starbucks coffee, they’re drinking espresso beverages and they’re using our stores as an extension of home and work.

Okay. And if I may, follow-up on a slightly different topic. There was, I guess some discussion on the last conference call that in your early quarter sales, your March quarter sales may have been helped by very high Starbucks card redemptions because of the heavy gifting that happened in the December quarter. So, I was hoping that you could, kind of comment whether that was the case, also comment – I don’t think I saw the number anywhere, what the end of quarter, March quarter Starbucks card balance was and you’re kind of in the thought just – in case I don’t get, I cut off Troy, if there was anyway that we can tighten up the coffee cost guidance for ’14 and ’15 as appropriate they need to be that?

Well, there is no doubt that we got a boost from the sale of Starbucks holiday cards, following the holiday season. But the one thing that has happened over the course of time is that the velocity of Starbucks card sales are much more significant in the off peak holiday season than ever before, coupled with the fact that we now have a significant spike in other smaller holidays, Mothers Day, Fathers Day, Graduation, Birthdays and Gift giving. So the card itself is growing at over 30% and we expect that we continue and we just – we’re just getting started with it. I think Troy is going to give you the answer to the other question.

Yeah, John. Specifically we had on the balance sheet at the end of March, at the end of the second quarter, deferred revenue on the P&L is $668 million. That largely reflects Starbucks card balances as it does in each quarter. And our overall loads during the quarter were 32% higher than the same period time last year. So a couple of metrics that I think tell you two things. One is, the huge up tick in Starbucks card in all forms. Mobile, physical card in a loyalty program in the holiday period very profoundly came through our business in the second quarter. Card overall added roughly two percentage points of the comp growth during the second quarter, very powerful for us and not unlike what we’ve seen over the past couple of years that that program has built tremendously. I think as encouraging as anything is the fact that in the second quarter not only will we benefit from that big holiday slew of cards that came back into the stores. We also though turned new card users into loyalty program members that now allows us to connect with there much more meaningfully, and we believe gives us trajectory even more significantly into Q3 and Q4. So the card was very important to us in the quarter. Now specific to your question about coffee cost. We have now purchased a little bit more than or priced -- a little bit more than half of our coffee needs for fiscal ’14. We have been doing some incremental buying given current market conditions. So we have got about half -- a little bit more than half of our needs locked up for ’14 and given what we’ve locked as well as visibility we have in the market conditions and how we might price the balance of the year, we expect that as I’ve told you before about $100 million of commodity tailwind we would expect to come through the P&L in fiscal ’14. That’s the year-over-year benefit in fiscal ’14. Now we’re not meaningfully priced at all in the fiscal ’15 yet, but I would just point out that given where the market has been trading and where we believe it will go from here, we’ve got opportunity in fiscal ’15 to experience another year-over-year commodity tailwind. Not a specific number yet, but it could be a meaningful tailwind coming our way again in fiscal ’15.

Thank you.

Your next question comes from the line of Mitchell Speiser from Buckingham Research. Your line is open.

Great. Thanks very much. And my question is on the food program in general in the U.S. a couple of parts of the question. First, have the same store sales continue to grow quicker in food versus the overall business. And secondly, I sometimes get the pushback where that food is a lower margin product, so as it grows it could hurt margins, but is the offset a higher ticket and kind of how that works? And then the last part of the food question is just on health and wellness and the bakery product looks great, I wouldn't consider it under the umbrella of health and wellness. If you can maybe give us a little sense of where you might be going with health and wellness in the Starbuck stores? Thank you.

Thanks, Mitch, for the question. Firstly, we are seeing strong continued growth from food. And that has been the case now from the past 12 months. So really reporting a very strong growth in food in the U.S. Obviously, overall, it's a balance between food and beverage which is really important to us. On the margin, I think the – we're getting healthy margins out of our food. The opportunity here is if we can increase (indiscernible), which historically has been one in three transactions, vacancy is a big opportunity. The other side is it increases the relevance of Starbucks as a place for people to come to whether it's food on the way to work or indeed for their lunch. So we see that continuing and we'll support increased beverage sales throughout the dayparts as well. So that is part of our strategy on food. If I talk about the health and wellness as it relates to new bakery products, the fantastic thing with those new bakery products is they are all natural ingredients while we're taking out any non-artificial ingredients, we use natural sweetening. That's where we can reduce sugar. So when there is buffering there, finest ingredients, calories are managed both by the balance of those ingredients plus portion size. So that is a good part of it and health and wellness remains an important part of our strategy going forward. And you'll see in the coming months that we'll supplement a lot of launch products with other products which will give that balance. It's important to us for both food and for better customer choice and in all parts of our range of beverage and food to give healthy options.

And, Mitch, I'd like to just underscore Cliff's point about margins. While food has a lower gross margin than does our beverage platform, on a net margin level, so at the store level, food is actually additive to margin we would expect over time. And the reason for that is if we're selling incremental food and as we will be increasingly successful, we believe that increasing mix of food in our stores, the rent is already paid, the lights are on, staff is in place, our partners are in the stores, so we have an opportunity to very incrementally, perhaps see that impact of gross margin very moderately, but I would expect it to be neutral to most likely positive to margin at the store level.

Thank you.

Your next question comes from the line of Joe Buckley of Bank of America. Your line is open.

Thank you. Just a question on the China Asia-Pacific operating income performance for the quarter being flat. I know you mentioned making investment in the platform to grow the business, but could you talk a little bit about that for the quarter and what we should – how should we think about that going forward?

Joe, this is John Culver. With regards to the operating income and the impact that we saw when you look at it on a year-over-year basis, there are really three things. First was, the portfolio mix shift that [Technical Difficulty] fact that more and more of our growth is coming from our company-operated markets, and in particular China. So, in the quarter, as Troy mentioned, we grew store count 35% on a year-over-year basis. The second big item that hit us was this non-routine income and Troy quoted that at $6.7 million. That was the joint venture income that we took last year in the quarter…

Ladies and gentlemen, this is the operator. I apologize but there is a slight delay in today's conference. Please hold and the conference will resume momentarily. Thank you for your patience.

This is Starbucks. We're back on the call, operator.

Your line is open.

Do we have a question?

Hi, Howard, this is Joe Buckley, I don't know if you can hear me, but we can hear you but John got cutoff…

John, do you want to take another shot at that?

Yeah. So, with regards to the operating income and what we saw in the quarter, there are really three factors playing into it. First, with the portfolio mix shift and the fact that more and more of our growth is coming from our company-owned markets. The second big piece was the investment that we continue to make in accelerating new store growth. And as Troy shared with you, we grew our new store base over 35% on the year-over-year basis. At the same time while we make those investments, we continue to see very strong returns from a sale to investment ratio. And those metrics continue to exceed our expectations. And then the last big item, which was a non-routine item, was some joint venture income that we have to lap over from last year. It was an accounting adjustment that took place last year. It was a $6.7 million accounting adjustment in the quarter and that was the other big non-routine item that we had to lap over for the year.

We take one more question, JoAnn?

Yes, one more question please, operator.

Your last question comes from the line of Matthew DiFrisco from Lazard. Your line is open.

Mike, please (indiscernible) please.

Your last question comes from the line of Brian Bittner from Oppenheimer. Your line is open. Michael Tamas - Oppenheimer & Co., Inc.: Great, thanks. This is Mike Tamas on for Brian. Just wonder if you can talk about the consumer habits a little bit, that you’re seeing for people that aren’t using the Starbucks card. I thought I heard something mentioned about those users purchasing premium beverages and alike. So I'm just wondering kind of what the spending habits look like when people aren’t using the preloaded money? Thanks.

I will try and answer that Mike. What we are trying to come by was that we were seeing incrementality in terms of the afternoon daypart from cardholders and also we are seeing an increase in their purchasing of the indulgent beverages. We were not making and I certainly didn't intend to make any inference about the changing habits of customers who pay by other means and they remain a – the majority of our customers and they remain very consistent in their habits.

Thank you very much. We wind up today for our second quarter earnings call. We appreciate your time and we will talk to you again Q3 call in July. Thank you. Have a good day.

This concludes today's Starbucks Coffee Company’s second quarter fiscal year 2013 earnings conference call. You may now disconnect.