Good afternoon. My name is Mike, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Starbucks Coffee Company's First 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. [Operator Instructions] Thank you. Ms. Doraisamy, you may begin your conference.

Thank you, Mike. Good afternoon everyone. This is Durga Doraisamy, Director of Investor Relations for Starbucks Coffee Company. Thank you for joining us today to discuss our first quarter 2016 results, which will be led by Howard Schultz, Chairman and CEO; Kevin Johnson, President and COO; Michael Conway, President, Global Channel Development; and Scott Maw, CFO. Joining us for Q&A are Cliff Burrows, Group President, U.S. Americas and Teavana; John Culver, Group President, China Asia Pacific, Channel Development and Emerging Brands; Matt Ryan, Global Chief Strategy Officer; and Adam Brotman, 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 Web site at investor.starbucks.com to find the reconciliation of non-GAAP financial measures referenced in today's call with their corresponding GAAP measures. This call is being webcast and an archive of the webcast will be available on our Web site at investor.starbucks.com. And with that, I will turn the call over to Howard.

Thank you, Durga, and welcome to everyone on today's call. Starbucks stellar Q1 2016 financial and operating performance highlighted by a 9% increase in comp store sales in the U.S. and 8% increase in comp store sales globally, our third sequential quarter of 4% increase in global traffic by far the strongest holiday in our history and record revenues and record operating income from our channel development segment underscores the increasing strength and relevancy of the Starbucks brand and the success of the accretive fly wheel positive effect of retail, CPG, digital, mobile loyalty card, investment strategies around the world that are coming together to accelerate our growth and drive significant margin expansion and EPS leverage across our business. In Q1, Starbucks delivered a 12% increase in revenue to a record $5.4 billion and 15% increase in non-GAAP EPS to a record $0.46 per share. Despite the significant investments we continue to make in our partners and in our business. And we served over 23 million more customer occasions from our global comp store base in Q1 and roughly 18 million more customer occasions in the U.S. alone and we did in our very strong Q1 last year. Starbucks Coffee Company is connecting more deeply with more customers across all day parts around the world than ever before and we are delivering quarter-after-quarter of record breaking financial and operating results despite the accelerating shift in consumer behavior away from traditional bricks and mortar retailing and despite challenging macro economic foreign exchange, geopolitical and retail and consumer headwinds that continue to negatively impact many other national and global retailers. Global leadership around all things coffee and tea and ongoing beverage and food innovation remain at Starbucks core and are propelling our business forward. And in Q1, we brought further premiumization to…

Thanks Howard. Good afternoon everyone. I'd like to build on Howard's comments and share a few observations on the quarter before asking Mike Conway to discuss the amazing performance channel development delivered in Q1. Scott Maw will then take us through the Q1 financials in detail. Starbucks' global comp store sales grew 8% in Q1 with 4% coming from increased traffic. This represented our 24th consecutive quarter of comp growth of 5% or greater. As Howard mentioned, we are experiencing significant transaction growth in every geographic region and that contributed to our strong Q1 performance. On our last earnings call, I reinforced the clarity we have around our strategic priorities, investments we are making in the business and the focus we have on operational execution. This clarity and focus is enabling every segment of our business to deliver. Retail, channel development and digital are driving the revenue and profit increases we are seeing and elevating the Starbucks brand in the mind of consumers the world over. This holiday season, we delivered meaningful beverage and food innovation with Holiday Spice Flat White and an expanded holiday food platform to enhance the in-store holiday experience. And we leveraged our digital assets to reward our most loyal customers with five specialized Very Monday offers throughout the holiday season. Those offers, combined with the Starbucks for Life sweepstakes, this year open only to our MSR members, drove customer traffic and increased MSR loyalty membership. Retail innovation and digital engagement were then complemented by great execution across all channels, where sales of our packaged Holiday Blend coffee was particularly strong, our new Christmas Blend Reserve coffee quickly sold out and our K-Cup platforms delivered record dollar share for the quarter. Starbucks gift cards once again enabled customers to give the gift of choice. And this…

Thank you, Kevin, and good afternoon everyone. Channel Development continued its strong momentum and delivered record financial and operating performance in Q1 while connecting more and more people to Starbucks Coffee around the world where they live, work and play. We experienced record revenues of $512 million and we were up 16% over Q1 last year following a 14% increase in Q4 of fiscal 2015. This was driven by strength of our U.S. CPG, ready-serve coffee and food service businesses. Our operating income grew 23% in the quarter to $193 million. In Q1, each of our U.S. at-home coffee segments significantly outpaced the overall category punctuated by strong in-store execution of our holiday program in the U.S. Just as our Starbucks stores turned red to signal the holidays, Starbucks also turned the aisles red with nearly two out of three grocery stores on average having a holiday display in December. In addition, our limited-time Holiday Blend coffee in both K-Cup and roast and ground was the fastest selling coffee in the Starbucks portfolio in the first quarter. Both the Starbucks roast and ground and Starbucks K-Cup platforms delivered record dollar share for the quarter. Already the leader in premium coffee, total Starbucks grew 16%, more than five times total category growth, moving Starbucks ahead of Kraft to become the number two player in all of coffee. In addition, Starbucks was the fastest-growing coffee company and the largest contributor to category growth. Starbucks K-Cups posted very strong dollar sales growth of 20% and gained 100 basis points of share to a record 17.2%, making Starbucks yet again the number one K-Cup brand for the quarter and now also the number one brand for the full calendar year while creating further share gap separation from our nearest competitor. Recently launched Starbucks hot…

Thanks Mike. A key element of our strategy is our Starbucks Rewards loyalty program combined with digital engagement. This was another quarter of solid progress. We continued to see broad customer acceptance and adoption of our mobile platform and the Starbucks mobile app has emerged as an evolving platform and a profit driver of its own. We increased the number of active MSR members in the U.S. to 11.1 million, up 23% over Q1 last year. We are seeing growth of active MSR customers in markets around the world. Customer engagement is also growing. In the quarter, over 21% of total U.S. transactions were paid using the mobile apps with December accelerating to 22%, and we are seeing further acceleration in the month of January. Over 1 million customers in the U.S. used our mobile order and pay capability in the month of December and those customers averaged approximately five mobile orders in the month, driving meaningful revenue growth and incrementality. Usage of mobile order and pay is growing and we are now processing over 6 million mobile order and pay transactions per month. In many of our busiest stores where morning peak demand is high, mobile order and pay exceeds 10% of total transactions. And we have just scratched the surface. We have bigger aspirations for our digital plan and we are expanding the digital agenda across four key pillars. The first is delivery. We are extending Mobile Order & Pay to include a delivery option for customers. Pilots are underway in Seattle and New York City, and we are learning many new things that will help us shape the future of delivery. Number two, personalized offerings. We have invested in technology to help us better personalize the offers we make to our loyalty customers. This will strengthen our customer connection and fuel growth. Number three, global deployment. We are committed to leveraging these digital experiences in our major company-operated markets and with our licensee partners. And number four, digital media. The Spotify music capability we launched this week is one example of an integrated digital media experience. We plan to explore additional digital media scenarios that are entertaining and interesting to consumers and that align with our brand. The Starbucks digital Flywheel is driven by our loyalty program and membership in My Starbucks Rewards has grown by over 50% in the last two years. In 2016, we will enhancing the Starbucks Rewards program and enable our loyalty customers to earn stars in many new and exciting ways. Clarity of our strategic priorities and investments combined with a focus on excellence and execution is powering our results. I will now hand the call over to Scott to take us through our Q1 financial results in detail. Scott?

Thanks, Kevin, and good afternoon, everyone. We kicked off fiscal 2016 with another record breaking quarter and a continuation of the accelerating momentum we saw in our business throughout 2015. As Howard shared, in Q1, Starbucks operating income increased 16% year-over-year and exceeded $1 billion in a single quarter for the first time ever. And we delivered a strong operating margin of 19.7%, 60 basis points over last year. Q1 GAAP EPS of $0.46 compares to GAAP EPS of $0.65 in Q1 2015, noteworthy is the Q1 2015 included a gain of $0.26 on the acquisition of Starbucks Japan. Excluding certain Starbucks Japan related items, non-GAAP operating margin grew 40 basis points over Q1 of last year to a quarterly record 19.9% and non-GAAP EPS also increased 15% year-over-year and reached a quarterly record of $0.46. For Q1 operating margin, strong sales leverage and favorability and cost of good sold was partially offset by the impact of our partner in digital investments. Also Q1 revenue growth included 2 points of negative foreign exchange impact and non-GAAP EPS growth included 5 points of negative foreign exchange impact. I will now take you through the individual segment performance in Q1. Americas our largest business segment has never been stronger driving 14% operating income growth over Q1 last year and contributing a record high $935 million. Americas operating margin expanded by 80 basis points to 25.1% also a Q1 record driven primarily by sales average and excellent management around cost of good sold. The margin improvement we saw in Q1 in the Americas is even more significant when considering that the vast bulk of our partner in digital investments began in our Q2 last year, so we will not begin lapping those investments until next quarter. The increase in partnering digital investments is…

[Operator Instructions] Your first question comes from Keith Siegner from UBS.

Thank you very much. Just a quick question for me in thinking about the food attach and direct sales growth rates because those are monstrous numbers. If we think about what's driving this, and maybe, Kevin, this is for you, how much is Mobile Order & Pay adding to the food sales? Is this innovation on product? Is it recipes, promotions through the MSR network? Is it the placement in-store with some of the remodel work you've done? What do you think is really driving these big food numbers? And is it continued tweaks or expansion of Mobile Order & Pay that really keeps this going? Thanks.

Yes. Thanks for the question Keith. I'll comment and then I'll hand over to Cliff to share some more color around it. I think, number one; we've been on a strategy around new occasions that had us investing in food and beverage innovation. And I think number one that's driving it is that as we've continued to tune the food portfolio, I think we certainly have dialed in, in the morning daypart and what we've done to complement the food items with our breakfast sandwiches, I think for lunch and afternoon daypart the Bistro Boxes and how we are dialing in there. And then we are laying the foundation for evening. So I think it's, number one, it's the innovation redundant food and how that's been presented to the customer in the stores. I think that's a big part of it. Certainly, digital helps because we can target offerings to get customers to try new things. And so what we find is, once we encourage trial that starts to lead to repeatability. So let me hand over to Cliff to add a little bit more color behind what we're doing in the stores to help drive that.

Yes. Thanks Kevin. And Keith, it's really an ongoing program. We now have some authority in our breakfast sandwich range and we continue to refine both the product and our availability and we enhance our skills at both offering the product to customers through displays and through the partner confidence in sharing the product. One of the changes we made in Q2 last year was we introduced a food benefit for partners in the U.S. who were working on shift, they could have free food. And that I think has really helped them build confidence and it's probably the best practice we've had with beverage for many years, so they are very proud of the product. We are continuing to enhance that range basing it off breakfast, but now in lunch and Bistro Box, as Kevin mentioned, has grown 65% and we own that format and we consider that another way that we can grow our range. So it's about us having a confidence around food, having an authority around food and working on quality, variety, availability and our selling skills of our partners. So all in all, it's going well and we have a lot more runway to continue to build food.

Yes. And then the personalization in the digital platform is just allowing us the one-on-one marketing capability that's driving trial. And I think that's a key aspect. So thanks for the question.

Your next question comes from John Ivankoe with JPMorgan.

Great. Hi. Thank you. The question is on the partner investments that you've been doing in the Americas. And certainly, it was very evident in this quarter as store operating expense was up 80 basis points year-over-year despite 9% comp. So my question is how much do you view that investment that you've been making in partners really as a specific driver of comps over the past four quarters? And as we think about lapping some of the investments that were made in the second quarter of 2016, does Starbucks have an opportunity to continue to invest in their partners, to continue to invest in margin as a way to get outside sales, or can you achieve outside sales levels and actually begin to get leverage on that line?

John, its Cliff. The investments we are making in our partners, both in the technology side to give them the tools to improve the way they do the work and also in them as partners and the salaries and benefits. We are certainly seeing strengthening engagements, reduction in turnover at partner level and we are seeing the opportunity to invest also in hours to capture more of the opportunity that presents itself. Certainly, it has helped us cope with the benefits from Mobile Order & Pay and we have seen growth at peak times across all of our markets and we've seen a strengthening in our weekend business and this is what we've been investing in hours, we are investing in the quality and retention of our partners.

John, I think I would add and you may recall, if you go back to the second quarter of last year when we introduced these partner investments, we started to see an acceleration of the business in comps and profitability. And that continued every quarter as we increase those investments and I would argue this quarter is a further acceleration of that. Also, in 2016, we are starting to make these partner and digital investments internationally, not a big number in Q1, but as we move throughout the year, we are so convinced by the results that we are seeing in the U.S., we are starting to do some things in China, in Canada, and in the U.K. So we are completely convinced it's all tied together.

Your question comes from Sharon Zackfia from William Blair.

Hi. Good afternoon. Howard, I think you alluded to potentially going a different route with the K-Cups in the future and maybe not partnering with Keurig. Can you kind of give us some more detail on what that might look like as it relates to Starbucks either from an upfront cost perspective or an ongoing margin perspective?

Let me say it this way. Regardless of what we decide to do, there would be no dilution whatsoever in our current ability to deliver to the market or retain the margin which has been so attractive since we started. We are in a unique position. We have the leading share. We know customers buy the brewer because of Starbucks. And it's a wait-and-see situation. But the most important thing is, we are reaffirming to the market and our customers they will have an ongoing stream of K-Cups and there will be no dilution whatsoever in terms of our ability to maintain supply regardless of who is making it.

Your next question comes from David Palmer from RBC Capital.

Thanks. I'm wondering about the learnings from Mobile Order & Pay as you are now fully rolled out across the country and that's been in some areas like the Pacific Northwest for many months. Specifically how incremental do you think it's been inter-synced to your sales and in what way whether it be new users frequency or check? And has it continued to build in the first markets like the Northwest? Thanks.

Thanks David. This is Adam. So first of all, I'll take the second question, part of your question first regarding incrementality. We are not breaking that out. Of course, Mobile Order & Pay orders are driving incrementality, particularly at our busiest stores at peak. We are seeing incremental occasions that come from the convenience itself, plus throughputs, efficiency and line blocking benefits that we are seeing. So in our busiest stores in particular, we are seeing the incrementality that we had hoped for. In terms of the learnings, I can tell you that we have -- we have just scratched the surface in terms of our ability to both promote Mobile Order & Pay and provide trials to our customers because we are seeing great conversion upon trial. That's one of the learnings. And we've got this robust roadmap for additional features over the course of the rest of this year, including the ability to earn -- to use your earned My Starbucks Rewards in the Mobile Order & Pay flow, the ability at favorite stores and favorite items and of course suggested and recommended selling, which is going to be a great thing for improving attach. So all of those things are as a result of the learnings and you'll see us roll those out over the course of this year.

I just want to add one thing as it relates to China specifically. Having just been in China, for John and I over the last week or so, I think there is one significant difference between the young people in China and the evolution of mobile in the U.S. And that is the Chinese consumer has leapfrogged from a rotary phone to a regular phone to a cell phone and a smartphone overnight. And as a result of that, not if but when we roll out Mobile Order & Pay and mobile payment in China, the adoption that we believe we are going to have in China is going to be more significant and quicker than it has been in the U.S., which already has stunned us in terms of how quickly the U.S. customer has embraced it. So our growth in China is not only in terms of the 500 stores per year that we're going to add over the next five years; it's overlaying that growth with technology that we strongly believe is going to be adopted at a quicker pace than the U.S. consumer has because of how technology is embedded in the Chinese consumer's life.

Your next question comes from Jason West from Credit Suisse.

Thanks. Just one quick clarification and then a bigger picture question. Could you guys give us a general breakdown of the partner investment or I guess the overall investment that occurred in the first quarter relative to the full-year guidance just to give us a sense of how that's pacing? And then just a bigger picture question around some of the Rewards partnerships that you guys have talked about in the past with things like Lyft? Just wondering if there is any new deals that have been added to that portfolio and sort of the general thoughts on that.

Scott, do you want to take that part.

Hi, Jason. It's Scott. So, in the first quarter, the vast majority of our partner and digital investments were in the U.S., as I stated. And it was about 120 basis points. So you can do the math on revenue, but that's the number. For the full year, the vast majority still is in the U.S. although, as we get into the back part of the year, we will talk about the other segment, but it's $275 million to $300 million for the full year. Matt?

We don't have a specific announcement to make today on a new partnership, but what I can tell you is, we are confident on a pathway of significant new partnerships that we will be announcing in the coming quarters. And it will fulfill our vision to make stars everywhere, the ability for customers to order stars -- to earn stars everywhere part of Starbucks experience.

Your next question comes from John Glass from Morgan Stanley.

Thanks very much. I have two questions just on mobile ordering and digital in general. First, I'm just following up on the comments about kind of the next-generation of the app. Are there certain milestones; is there a next quarter for example generation 2 coming out that allows for example for that suggested up-selling? Or do you think you have to wait to amass several of them to kind of roll it out, just because consumers don't want keep updating their apps all the time to get the latest? And secondly, related to that, those who -- other have engaged in digital platforms have seen tipping points where adoption really accelerates significantly. And also you get an accelerated labor benefit. You've been able to suddenly remove a certain amount of labor from the store because it's coming in, you're getting digital orders or whatever. Do you have a sense of were those tipping points of both revenue and for labor are for Starbucks, you've already reached them or when you might expect to reach them?

Jon, this is Adam. First of all, in terms of waiting for features, we are not planning on doing that. The way we approach it is we are constantly at work adding new features, both in the U.S. and around the globe, on both our iOS an Android platform. And so you saw that just in the last week as we not only launched the Spotify integration in the U.S. but we also added Mobile Order & Pay to Android in the U.K. and Canada also just in the last week. So you can see how busy we are. The future enhancements to mobile ordering that I mentioned are going to happen when those features are ready, so they are going to happen over the course of the year. We are not going to bunch them up, and so you will see those happen on a continual basis. And in terms of the tipping point, I would say that we are just continuing to see acceleration of the adoption of Mobile Order & Pay. As Kevin mentioned in his remarks, this has been happening from the beginning and we saw acceleration through the first quarter and even into January as now we're up to 6 million mobile orders per month run rate. And we anticipate that to continue. And I also mentioned that we are just scratching the surface in terms of awareness and trial. So I think we are still approaching the tipping point, frankly.

Hi, John. I just want to add one thing to that and it relates to the incrementality we are seeing on Mobile Order & Pay. So Kevin talked about, in the U.S. business, we saw the fastest morning daypart revenue growth that we've seen in over five years, so biggest morning daypart in over five years. And we can trace back a good portion of that uptake in performance this quarter to our busiest stores, and in those busiest stores, we can trace that back to Mobile Order & Pay introduction. And so it's aligned with what we are seeing in our results. It's aligned with the daypart. I would argue it's aligned with food attach and capacity and we're just getting started.

So just to -- John, it's Cliff -- to follow up on your points about tipping point and labor. I would say that what is most exciting of all is these higher volume stores that are seeing the greatest adoption and usage of Mobile Order & Pay, which is growing capacity and it's allowing us to reach volumes in those stores that set new levels for us. So, I think that tipping point is happening in some stores and it's happening in a really meaningful way in the high volume stores, which is great. And in terms of labor, we are not looking at it that way. We are looking at using the labor to continually serve the customers that are there, continue to build relationships with our customers and enhance the experience. So I think it's a continuous process of check and adjust, increase capacity in the store, hopefully have more Mobile Order & Pay orders and then grow our labor accordingly. And that's the way we are looking at it.

Your next question comes from Andrew Charles from Cowen.

Great. Thanks. Howard or Adam, just to follow-up on an earlier point, as we look back over the last several years to the trajectory of mobile payment sales growth, do you believe, between the digital infrastructure you have in place as well as consumer awareness, your digital prowess should lead growth in the mobile ordering sales mix to directionally outpace the growth you experienced in your mobile payment sales?

Yes. I can't give you the specifics of that, but clearly we are already demonstrating, if you look at the trajectory of these numbers, there's no question that this segment of the business and this foundation of the ecosystem we are building is going to grow the business. And that is going to have a significant effect on the overall growth of the business, both in the U.S. and around the world. And going back to China, I think having just come back there, I think we just can't wait to introduce mobile payment, Mobile Order & Pay, in China because it's going to be a runaway success.

This is John. Just let me add to what Howard just said on China and the mobile order and payment there. We are seeing, just with the Starbucks card alone, that over 40% of our transactions are coming through China on the Starbucks card. And that gives us great optimism around what mobile order and payment can be in China. So, we are very bullish on that. Matt?

This is Matt Ryan here. Just in terms of the customer segments and the way we look at it, our core customer growth is strong. The loyalty customers, we have people participating in MSRs, is growing significantly faster than our regular customer base. People using the mobile form of loyalty is growing even faster than that. And people using Mobile Order & Pay is growing even faster than that. So you actually see a cumulative benefit to the ecosystem at play.

Your next question comes from Karen Short from Deutsche Bank.

Hi. Thanks for taking my question. Just a couple of questions on China. I guess the first question is, can you give some color on what the impact of Japan would have been on the comps, or CAP comp? And then I guess, within the China comp, I'm wondering at this stage if you would be willing to break out the comp by daypart, so morning, afternoon, evening and any color on how that's evolved over the last several quarters? Thanks.

We don't break out comps by country within the segment, but let me say it this way. We had over 10 consecutive years of positive comps and positive traffic in China. The success we are enjoying in China is really kind of highlighted by this past quarter. We opened over 150 stores in China this past quarter, the most we've ever opened in our history and it was the strongest class of new stores we have ever opened. In terms of daypart, I think, in addition to the technology we've talked about that we will be introducing in China, perhaps the most exciting aspect of the core China business looking to the future is that we are sitting with an incredibly strong level of unit economics in Tier 1, Tier 2, Tier 3, Tier 4 cities that now are almost 100 cities in China and we are doing that for the most part without truly establishing a morning ritual. And there's no doubt in our minds if we look at every market we've opened around the world, including those markets in Asia, that a morning ritual starts, it evolves and it occurs. And we are seeing it sporadically but enough to give us great not hope, but vindication in those stores that have been open the longest, in Beijing and Shanghai, how that is developing. So if you look at the unit economics in China today, which are incredibly attractive and you lay on the technology we talked about. And then we know the morning ritual is going to come. We are sitting in a business today that, as I said publicly when I was in China last week, that we believe one day could very well be larger than the U.S. business. So anyone on the call who is in any way dissuaded by our commitment or our success in China as a result of a 5% comp in the region is not only mistaken, but you are looking at the wrong metric.

Your next question comes from David Tarantino from Robert W. Baird.

Hi. Good afternoon. Howard, you've talked in the past about the shift from brick-and-mortar retail to online retail creating some headwinds in the holidays for all retailers and perhaps for Starbucks. So, I was wondering if you could talk about how your business trended during the holidays specifically and perhaps how you exited the quarter relative to some of those headwinds you've talked about in the past.

That's a perfect question for me. So I think we said three years ago publicly that we began to envision that there would be a seismic change in consumer behavior and that seismic change was due in large part to eCommerce and smartphone shopping. I think today in the headlines you've seen just in the last three weeks store closures of almost 50 Macy's stores, 150 Walmart stores. You've got to ask yourself what's going to happen to the future of many of those malls that are anchored by those big-box retailers. Having said that, the investments that we made in our partner investments, which is store execution and retention of our people and the intimate relationship we have with the customer, coupled with the technology investments which have been significant, to put up 4% traffic in this environment when there isn't a retailer in the country that is putting up anything close to 1% or 2%, let alone 9% comps in the quarter in the U.S. business, and we finished very strong for the quarter. So we have insulated ourselves from the bricks-and-mortar problem that will face many retailers as a result of the experience that we've created, the innovation, both in product, partner investments and technology. And as people who have covered the company know, we are still opening fantastic stores in the U.S. on a base of almost 10,000. And in addition to what I said about China and the 150 stores that we just opened best-of-class, the stores that we've opened in the U.S. this year are also best-of-class in terms of revenue and return on investment. So we see no signs whatsoever that we are going to be hit in any way by this seismic change in consumer behavior because we invested ahead of the growth curve and we continue to invest in those things that are customer-facing, partner-facing and technology.

Your next question comes from Nicole Miller from Piper Jaffray.

Thanks. Good afternoon. When we look at the channel development business, what's the long-term revenue and your margin opportunity? And do you imagine that it comes from or envision new and existing platforms? And if new, how can we think about that?

Hi, Nicole. I'll start it and I think Mike can jump into the second part of the question. What we see over the long-term is double-digit revenue growth in channels every year and moderate margin expansion driven by leveraging cost of goods sold and overall operating leverage. Mike, do you want to take the second question?

Yes. Let me take the rest. So our future performance is going to build on what you are seeing this quarter. So in the U.S., you will continue to see strength of our existing coffee business just based on the level of innovation, the loyalty that we have and the opportunity, quite honestly, for us to connect with our My Starbucks Reward down the aisle even more. What we haven't talked as much about yet but what is coming is the activity that we have on the international front. So you've heard me talk about many of the partnerships that we've just created in China and also in Latin America. That is primarily a ready-to-drink business for us, so we're going to leverage the strength that we've seen in the U.S. and insights we've gotten with our partnership with the North American coffee partnership and translate that into a growing business from a ready-to-drink perspective internationally.

Your next question comes from Jeff Bernstein from Barclays.

Great. Thank you very much. Just two questions. One, in the European business, or EMEA, I'm just wondering whether you can talk a little bit about the softening that you saw. I didn't realize the magnitude or the impact it had on the broader European comp in terms of the obviously tragic Paris attacks. I'm just wondering if you can maybe get some color, maybe what those trends were running pre- or post- or whether it impacted other markets? I'm just trying to get a feel for whether it's just kind of a -- just a broader macro issue, or whether there's anything you think is going on just within the Starbucks numbers. And then separately, Scott, I was wondering if you could give us an update on the balance of the dividend versus the share repo and kind of your thoughts on leverage. I know you talked a lot about returning incremental cash with a share purchase and obviously dividends. Just any updated thoughts on that would be great.

Yes. Jeff, this is Kevin. I'll take the first question and then I'll hand over to Scott for the second one. Fundamentally, what we saw as we track our daily comps in France, Germany and U.K., large cities in France, Germany, and the U.K., I think there was just a shift in customer behavior that showed transaction comps flat or down slightly across large cities in France, Germany and the U.K. And in this last week or so, we've seen evidence that that consumer behavior is recovering. And so I wouldn't read anything more into it than that. Scott?

Yes. I would add two things. One to what Kevin just said, just as we look at the international segments, EMEA and CAP. This year and over the long-term, we expect significant revenue and margin expansion to continue. So if you look at EMEA for example, a few years ago, they were at breakeven. Margin was essentially zero. And we are guiding to 15% this year, which is over a 100 basis point improvement over last year. And as I said, we're going to get up towards 20% over the next handful of years in EMEA. So that is a market with significant profitability growth. So to your question, October looked like a really good month to us and it looked like we are right on track to what we expected for the year. And then after what happened in Paris, we've seen some softening and now it's coming back. And so full year, we haven't changed our guidance and we are not at all changing the long-term belief in what we can do and what we have been driving in EMEA. And in CAP, again, we've targeted around 20% this year on operating margin, which is up slightly despite the math that impacts us from the Japan acquisition. And I actually think in CAP, you'll see us move towards the low to mid 20s over five years or so from an operating margin perspective, which gets CAP right up there with the Americas business. So again, strong revenue growth. We will have mid-teen revenue growth in CAP this year. The numbers are just phenomenal. Japan has outperformed the model in every single aspect that we can look at since acquisition and we are just getting started in growing that business, working with the team over there. And Howard talked about China. And again, we've never been more bullish on that. So the international markets for the quarter had a good quarter and the outlook for the future is very strong. As far as the balance sheet goes, we did a little bit more buyback than dividend in that split I gave you. But I want to just remind you, Jeff that given what we saw in the holiday and what we saw in the equity markets, we've significantly increased our buybacks to the tune of roughly double already this quarter what we did in the whole quarter last year. So that will include some leverage on the balance sheet and we will continue to evaluate that as we go forward. If you look back over the last 12 months, we've returned $2.5 billion of cash to shareholders. The number is significant. And over the last few quarters that number has increased as we put the balance sheet to work a little harder, as we've discussed.

Your next question comes from Karen Holthouse from Goldman Sachs.

Hi. Thanks for taking my question. One of the things and not necessarily trying to get at the China comp number, but one of the things that was talked about last quarter was some seasonality to the fourth quarter comp. And theoretically comps improving getting past the holiday and with cake gifting that was down substantially more than the rest of the business. Did that in fact materialize as we moved through the quarter?

Karen, this is John. We did not see any of the seasonality come into the business in the quarter. Like Howard said, we continue to see very, very strong transaction growth. We had a record number of store openings in China and then also across the region. And we remain very bullish on the opportunity that we have going forward. Right now, we are in the throws of the Chinese New Year and we are very optimistic on what that is going to bring.

And one --

Hello?

Hello?

Oh, we cut her off. Anyone there?

Karen Holthouse, your line is open.

Hi. Does your guidance include any change in the amount of stock that you intend on buying back over the course of the year, or is it exogenous from that? [Technical Difficulty]

Ladies and gentlemen, this is the operator. We are currently experiencing technical difficulties. The conference will resume momentarily. Thank you.

Mike, are you there?

The speaker line is connected.

Mike, are you there?

This is the operator. The speaker line is connected.

Mike, are you there? Can you hear us?

This is the operator. You are connected.

Thank you, Mike. We are ready for our next question please.

Your next question is from Matthew DiFrisco with Guggenheim.

Thank you, guys. I appreciate you coming back on the line there. A balance sheet question following up there on the prior question. Deferred revenues, I wonder if you can give us a little bit of a taste of what encompassing both the gift cards as well is in the years passed you have given us some reload numbers as far as what sits on cards, what sits on the digital mobile app. I would assume, with the growth of the digital Mobile Order & Pay and the digital app and sales you said were -- gift cards were 19% growth. Can you sort of encompass that and tell us what you have entering 2Q as far as balances and how that might have grown year-over-year? Thank you.

Yes. Matt, deferred revenue is up about -- just give me a second here. I'm pulling it up. It's up about $500 million over year-end, which is about 50%. And as Adam said, we had total loads on the card of $1.9 billion. We haven't split that out recently and I don't have at my fingertips the split between what goes on card and what goes on digital, but I think the relevant numbers are the significant growth we are seeing in total loads and frankly, that's the way we look at it and then the total increase in deferred revenue balances, which is about $0.5 billion.

Excellent. Thank you.

[Operator Instructions] Your next question comes from Andy Barish from Jefferies.

Hey, guys. Actually, just a boring G&A question. It looked like that number reported was a little bit lower than at least I was modeling. Do you have some, maybe some timing shifting with some of the technology investment or is there some FX benefit that's actually showing up in the G&A line?

One of the reasons that G&A as a percentage of revenue is a little lower than you may have modeled is last year we had a fair bit of expense in G&A related to the Japan acquisition. And that was deal related costs and just some of integration costs and they were highest in the first quarter. So if you are modeling it as a percentage of revenues that could explain the delta you are seeing.

At this time, there are no further questions. Ms. Doraisamy, are there any closing remarks?

No. That will be all. Thank you all very much for joining us this afternoon.

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