MANAGEMENT DISCU.S.SION SECTION

Good afternoon. My name is Julie and I will be your conference operator today. At this time, I'd like to welcome everyone to the Starbucks Coffee Company's Second Quarter Fiscal Year 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Shaw, you may begin your conference.

Thanks, Julie, and good afternoon, everyone. This is Tom Shaw, Vice President, Investor Relations at Starbucks Corporation. Thank you for joining us today to discuss our second quarter 2017 results, which will be led by Kevin Johnson, President and CEO; Belinda Wong, EVP and CEO, Starbucks China; Scott Maw, CFO; and Howard Schultz, Executive Chairman. Joining us for Q&A are John Culver, Group President, Global Retail; Matt Ryan, Global Chief Strategy Officer; Adam Brotman, EVP of Global Retail Ops; Kris Engskov, EVP, President of U.S. Retail; and Tony Matta, President, Channel Development. 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 – 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 the tables at the end of our earnings release and on our website at investor.starbucks.com to find a reconciliation of non-GAAP financial measures referenced in today's call with their corresponding GAAP measures. This conference call is being webcast, and an archive of the webcast will be available on our website. With that, I'll turn the call over to Kevin Johnson. Kevin?

Thank you, Tom. Welcome, everyone. Before getting into Starbucks' Q2 results, I thought I'd comment on a recent Wall Street Journal article noting that more retail stores have closed in the first quarter of calendar year 2017 than closed in all of 2016. And that more retail stores are expected to close in the U.S. this year than closed in any year during the Great Recession that began in 2008. The article illuminated once again the seismic shift in consumer behavior underway and the devastating impact that this sea change in behavior is having on many traditional brick and mortar retailers. Articles like this prompt three very important questions that I've repeatedly asked myself over the years and that I suppose many of you on today's call have asked as well. What are the critical, transformative components required to propel a brick and mortar retailer into the future? How do these transformative components relate to Starbucks? And what are the proof points? It is against this backdrop that I decided to open my first earnings call as Starbucks' CEO by sharing my perspective on what it's going to take for a brick and mortar retailer to survive in the future, and to explain how in the face of tremendous retail headwinds and cross currents underway, Starbucks continues to produce record financial and operating results quarter after quarter, and open a new class of over 2,000 stores around the world every year that continue to outperform both the immediate prior class and the industry overall, and deliver record AUVs and profit. Now, Howard understands this intuitively, our senior leadership team has been intimately engaged in the topic. As a company, we have a clear perspective on the answers. The critical transformative components required for any brick and mortar retailer to survive,…

Thank you. Thank you, Kevin. Good afternoon, everyone. I'm very pleased to report that partner and customer enthusiasm for the Starbucks brand and the momentum in Starbucks China business have never been greater. Comps in Q2 accelerated to 7%, driven by a 6% increase in transactions. We saw growth in all categories and day-parts. Beverage, food and digital innovation are laser-focused on operational excellence, and targeted brand investments are attracting new customers into our stores and bringing existing customers in more often. Last December, we launched a strategic partnership with Tencent, including offering Tencent's popular WeChat Pay as a digital payment option in all of our stores. In its first quarter, WeChat Pay has already reached a remarkable 29% of tender, and has elevated the Starbucks experience for both customers and partners through its convenience and fast transaction speed. Following on that success in February this year, we've launched social gifting to unprecedented customer demand, partner excitement and social media interest. In only the first seven weeks after launch, over 1.2 million gifts were sent and over half have been redeemed by recipients in our stores. Our innovative new social gifting platform, we call it Say it with Starbucks, is not only encouraging everyday simple acts of kindness and connection, it is also bringing new customers into our stores to trial and enjoy the Starbucks experience. This is a great opportunity to further build new and authentic customer connections. We're only in the very early stages of social gifting in China and the growth opportunity ahead is enormous. We opened five new cities in Q2 and entered Q3 with 2,628 stores across 127 cities. Once again, our newest class of stores are delivering record transactions, AUVs and profits. We're also creating new Starbucks locations beyond our retail stores. In Q1,…

Thank you, Belinda. As you can see, extending the digital flywheel is a powerful asset that is driving deep customer engagement and growth around the world. And we are very pleased with the results our digital flywheel made to our business in Q2. This is one of the two critical transformative elements for brick-and-mortar retailers of the future. A year ago, we made the strategic decision to transform our rewards program from a frequency-based to a spend-based program. Following this transition, we have seen solid growth in customer membership. We entered Q3 with 13.3 million active Starbucks Reward members in the U.S., up 11% year-on-year, and with 36% of total tender coming from Starbucks Rewards members. If you include sales from unregistered gift cards, a meaningful 44% of all transactions in the quarter were prepaid on our proprietary Starbucks payment platform. The program change positioned us well for investments in the next wave of priorities. One to one personalization, the ability for customers to earn stars outside of Starbucks stores, and additional social gifting partnerships around the world modeled after our phenomenally successful partnership with Tencent. The personalized Star Dashes and suggested selling are examples of how we are using personalization to provide a relevant customer experience and to increase engagement. Starbucks rewards spend per member accelerated through the quarter as both average transaction frequency and average ticket size grew for active members. This past quarter, we saw 8% growth, the highest growth rate in average spend per active rewards member over a prior year ever, reflecting both increased ticket and transaction frequency. We have line of sight to additional digital features that will drive sales growth in the quarters and years ahead, and you will see us continue to invest to extend our digit reach to more customers in…

Thank you, Kevin, and good afternoon, everyone. As Kevin shared, Starbucks once again posted record quarterly revenues, operating income and EPS in Q2. Our business accelerated through the quarter and with the momentum we are seeing and the beverage, food and digital innovation we will be introducing, we are confident in the further acceleration through the second half of the year. Now at the midpoint of our fiscal year, we are better able to assess how our year-to-date performance, our investment plans, and overall macro factors will impact our full year expectations. Before getting into our fiscal 2017 outlook, I'd like to provide color on our second quarter performance. Consolidated revenues in the second quarter grew 6% to $5.3 billion. The largest contributor to revenue growth came from the 2,240 net new stores we opened over the past 12 months followed by 3% global comp growth, comprised of a 4% increase in average ticket and a 1% decline in traffic that after a 1% adjustment for transaction splitting, nets to flat traffic. Consolidated operating income in Q2 increased 8% year-over-year to $935 million, despite two points of impact resulting from recording certain prior period revenue adjustments in our channel development segment and one point of negative impact from foreign currency translation. Consolidated operating margin totaled 17.7% in Q2 on a GAAP basis and 17.9% on a non-GAAP basis, up 30 basis points year-over-year. Margin improvement in Q2 was driven primarily by sales leverage, partially offset by higher partner investments in the Americas. Both GAAP and non-GAAP EPS in Q2 grew 15% over prior year to $0.45 per share. Both measures are inclusive of a favorable $40 million impact in other income related to a gain on the sale of our investment in Square, Inc., our previous payment processor. Noteworthy is…

Scott, thank you. Kevin, congratulations on your first call. I think you did really well. And, Belinda, coming from China in the middle of the night, I could not be more proud of you. And the story you told really came through in terms of the success and the bright future we have in China. My role on today's call and on all calls going forward is obviously different than in years past, with Kevin and the team leading the call. So my role today is really to be the unscripted closer to summarize what's been said, and I thought I'd do that through the lens of trying to put myself in your shoes, and that is the shoes of an investor. What did you hear today? What did I hear and what's my conclusion? I think there's a short-term issue and a long-term story. The short-term issue is, clearly in the first half of the year, we had compression and headwinds on comps and revenue. And as Scott and Kevin have covered, we feel very confident that we're going to see a significant change in both comps in the mid-single digits and revenue returning to historic levels in the second half of the year. You also heard from Belinda the success that we're enjoying in China. And unless you've seen it firsthand, you can't imagine the footprint we have in China, the opportunity we have and the growth and development of that market. And as I've said in the past and just having been there two weeks ago, there's no doubt in my mind that China is going to be bigger, stronger and more robust than any market in the world over time, including the U.S. Over the long term, you have to ask yourself a bigger question. And…

Yes, we'll go ahead and open it up for questions, operator. Thank you, Howard.

Your first question comes from the line of Sara Senatore from Bernstein. Sara, your line is now open. Sara Harkavy Senatore - Sanford C. Bernstein & Co. LLC: Thank you very much. Yes, Scott, I would just like to ask about the earnings algorithm going forward, just in the sense, that at the analyst Investor Day four months or five months ago, there was a reiteration of that long-term growth. This year, obviously now expectation is lower because of investments. Does that mean that if we think about it longer term, that we should sort of rethink that earnings algorithm in terms of I think the double digit revenue growth, 15% to 20% EPS growth? And I guess on a related question, we've seen other companies, maybe use their balance sheet more aggressively. Again is that something that you contemplate doing in terms of just, again, going forward, thinking about the puts and takes, the top line, maybe a step up in just the normalized rate of investments? And then what margin for error your balance sheet offers? Thank you.

Thanks for the question, Sara. I think, the first thing I'll say is we are still reiterating our long-term guidance of 10% on the top line and 15% to 20% on the bottom line. To your point, we understand why the question is being asked and it's being asked a lot more frequently by the street given what's happened in the last two quarters where we haven't quite gotten to the low end of our revenue guidance. But I think as you look at the back half of the year and acceleration back up to 10% revenue growth, we remain confident in that being the fuel for 15% to 20% earnings guidance. And I think I'd also talk about every year as we set our long-term guidance, we go through our strategic planning process in the spring and we look at all of the drivers on the top line, all the things around innovation for product and digital, all the things we can do in the middle of the P&L to drive sales leverage, and cost of goods sold savings and G&A. We've been increasingly using the balance sheet and I'll come back to that to help a bit with earnings growth as well. And we ask ourselves, can we reiterate those long-term targets? And we're at the beginning of that process. Again, this spring, we'll go through it with our board over the next few weeks. If in that process we decide that the long-term growth targets have to be adjusted, then we'll come to you, we'll explain it to you, and we'll talk about why we're changing things. But as we sit today, we remain confident give than acceleration that we'll see those long-term goals still come into line. As it relates to the balance sheet, we have over the last three years taken long-term debt up pretty significantly. I think, we had $750 million a few years ago. We're up close to $4 billion now. And as you know, buybacks have increased pretty significantly over that time as well. And we'll continue to be opportunistic on the balance sheet. I think last second quarter, we bought back over $1 billion in stock. This second quarter, it was over $600 million, it's about a $1 billion in total cash return for the quarter. So we have been selectively adding leverage .We have been taking advantage of opportunities to buy the – buy our stock back and that will continue as we move forward.

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

Hi. Thank you very much. I'd like to follow-up on the growth rate question, if I may, but dig in a little bit deeper on the Americas. Obviously, the Americas is your biggest segment. At least the calculation that we did around the analyst day, it looked like the Americas needed to grow something like low to mid-teens a year for the next five years to contribute to your overall earnings growth algorithm. And yet in the first half of the year, operating income growth was around 2% with pressure on both the cost of goods sold line and occupancy, as well as operating expenses, in other words labor. So this – are comps enough, I guess, to change that? I mean, when we go from a 3% comp to a mid-single digit comp. Is that enough to begin to see leverage in that line, or are there perhaps other things that can happen in your business, lapping partner investments, running a more efficient store if that makes sense. Maybe some benefits from lower commodities or lower rents especially as other retailers vacate their properties, that can maybe give some more visibility of margin expansion in the Americas segment than what is currently apparent at this point?

Yeah, I think, John, I'll start and then I'll maybe have John add to my comments. There's a couple of big drivers that are not evident in the P&L today. And the first one is top line comp growth. So the last couple quarters, we've been in that 3% comp growth rate, and that is a big impact on our ability to drive overall margin. I don't want to underestimate what a couple more points of comp would do for overall profit growth in the U.S. So being up in that high single digit to 10% range in total revenue growth in the U.S., that is a major driver of additional profitability. So, again, as we get into the back half of the year that should start to rectify itself. The second thing is the partner and digital investments we're making in the U.S. as a percentage of revenue, over the next few years that will start to decline. So we will continue to make investments but the reality is the rate of growth in those investments, the delta, if you will, that will start to come down and we'll be able to lever it as revenue growth increases. So that's not saying that wage investments are going to go down; rather they're going to go up. But if you look at this year, we went up $250 million for partner and digital investment, and the vast majority of that is in the U.S. That kind of impact on margin is not going to continue after we get out a couple more years. So both of those give us confidence in the growth algorithm. John, would you add anything?

No. I would just add, John, that also what gives us confidence is the new store performance. And you look at new stores, it contributes over 4% of our top line revenue growth in the Americas. We've consistently done that for 12 consecutive quarters and we anticipate that that's going to continue. So we're making these partner investments up front, to Scott's point. We feel that those partner investments are the right thing to do and also at the same time, we're starting to see traction as it relates to not only partner satisfaction and we sequentially improved turnover by two points versus Q1 and also at the same time, our customer service scores sequentially improved from Q1 to Q2 as well. So, I feel very good about the investments that we've made and that, in fact, we're seeing payback from that.

Your next question comes from the line of John Glass from Morgan Stanley. John, your line is now open. John Glass - Morgan Stanley & Co. LLC: Thanks very much. You talk a lot about retail environment and that's presumably the implication it's a headwind to your sales. But competition doesn't come up much on Starbucks calls. There is more and better places to get coffee today than there ever has been. And I understand roastery and Reserve is sort of a way of targeting that, but how do you think about the role competition is now playing in your sales trajectory today versus a year ago, let's say? Is that a contributing factor in your minds? And how would you close on that?

Yeah, John, this is Kevin. I'll comment and then I'll ask Howard to comment on the view on roasteries and at the very high end. Look, we've always had competition, and typically, I look in markets where we've had a first mover advantage and we establish a presence of a number of stores and the Starbucks brand in those markets, that is a very defensible position. And if I look at where we're at in the United States and in China in our major markets, we are not – we not only have established a very defensible position, but we're expanding that with new store growth. In fact, let me have Matt comment a bit on thoughts on new store growth and how we're thinking about as we're building new Starbucks stores in our core brand, how that's helping us further strengthen that proposition in an environment where there is competition. There's always been competition. Matt, do you want to comment on that?

Yes, domestically in the U.S., we have to look at this is not one market, but a collection of many markets. And as we look across geographies, we continue to see enormous headroom for store growth across the U.S. Just like we see differentials in store presence international to U.S., we see the same thing within the U.S. That means that there is a lot of opportunity for us to continue to expand in places where our strength has not been as traditionally great as it has been in certain urban and many western markets. So you're going to continue to see store growth, you know, ramp for us to grow into the future.

And Howard, do you want to comment on the roasteries?

I would say a few things. First of all, there's no evidence whatsoever that any national company, even those companies that are discounting coffee significantly, with McDonald's nationally or Dunkin' Donuts in New England, what Panera is trying to do, there's no evidence whatsoever that we have, that there is anything that they are doing that is affecting us adversely. So I just want to get that off the table. The competitive issues question is just a nonevent for us. I want to talk about the Roastery and Reserve brand, not through the lens of competition, but what you're going to have to do to win in the future. Every retailer is going to have to create an experiential moment, and if you're in the food and beverage business, you have to go to craft. You have to go to art. The interesting thing about the Roastery is, the average ticket to Roastery is $20. The average ticket in a Starbucks store is $5. People in the Roastery are spending significantly more time there than they do in the Starbucks store. The day-parts in the Roastery are afternoon and evening driven, which as you know is not Starbucks strong suit. The Reserve bars that we have opened are demonstrating enough interest from the customer and customers are trading up, which has given us even more understanding about the opportunity we have to elevate the Reserve brand in existing Starbucks stores. And when the first Reserve store opens in Chicago, I'm not talking about the roastery now, I'm talking about the Reserve store with Princi food, we'll have another – we'll more evidence about the opportunity we feel to grow those stores in ways that'll be highly complementary and bring a halo to the brand. But the short answer is the competition across the street, or the competition nationally and even those companies that significantly are discounting their coffee is not affecting Starbucks.

Your next question comes from the line of David Palmer from RBC Capital Markets. David, your line is now open.

Hi, thanks. Your rewards and digital mix of sales is still growing nicely, 400 basis points or 500 basis points or so on a year-over-year basis. Looking at your active rewards membership, it's growing 11%. And that's maybe half the growth it was a little over a year ago. So it looks like that growth or the deceleration in your rewards member growth is correlating with your slowdown in sales. Do you think that that's an important metric? Is rewards member growth a key thing that you're looking at and targeting to reaccelerate in the future? And how are you going to do that? Thanks.

Thank you, David. Matt Ryan here. When we look at the rewards program on the digital flywheel, we can't just focus on any one single metric. We have to look at the totality of its contribution to the business. And we're at a point right now where in the U.S., the digital flywheel has been the largest single driver of comp growth and we're very confident that's going to continue. And I think it's important to reiterate a couple of things that Kevin said. We have in fact seen 11% year-on-year growth in membership, but we have also seen record growth and spend per member. And when you take 13-point-some million members and you multiply it by an 8% increase year-on-year, that turns out to be one enormous number, and that's been a major contribution to our business.

And I would just add that's the power of personalization that Matt and his team have been driving. So taking that big installed member base and driving additional transactions via personalization. that's what's driving that spend, remember. And, David, if you go back a couple of years ago when we were adding a lot of members, the incremental spend per member was flattish. It might be up 1% or 2%, but this quarter it was up 8%. And so we see an opportunity to accelerate that over time.

Your next question comes from the line of Sharon Zackfia from William Blair. Sharon, your line is now open. Sharon Zackfia - William Blair & Co. LLC: Hi. Good afternoon. I guess another maybe strategy question. Given the phenomenal response of customers to Mobile Order & Pay, have you rethought that hurdle of having people preload money in order to utilize it?

Matt, do you want to take that?

Yeah, Sharon. Matt Ryan here. It is one of the things we will be looking at as we look across the future. But I just want to remind that a theme that we reiterated at the Investor Conference, which is we continue to have a lot of people who join the program as soon as they become familiar with it, and our biggest barrier is familiarity with the program. So continuing to let that word get out there and help people understand what the program is all about is critical. In addition, we have an easy low-hanging fruit in front of us, which is to get people into the program once they begin the sign-up process. So you're going to continue to see a lot of improvement to the sign-on process and to the way in which we guide customers to go from where they are today, not being members, into being full members with the store value card loaded. And we see a lot of opportunity there in the short term. And we'll, of course, be looking at other options like the one you suggested, in the long term.

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

Great. Thank you very much. Just focusing on the comp topics for the company and I guess specifically for the U.S., it seems like that's the side of things that you guys are extremely confident on, the mid-single digit for the full-year fiscal year 2017. If we focus on just the U.S. for a moment, I mean, do the 3% comp in the fiscal second quarter we know the compare of these what looks like 300 basis points starting in this April through June quarter. So I'm just wondering, your confidence and then is it accelerating comps confidence beyond just the compares? Because, again, you would think that you would see that uptick just to keep the line steady. I'm just wondering what you characterize as maybe the most impactful new product or platform that you think in the back half is going to lead to a reacceleration in that two-year trend. And then, Scott, just to clarify. Did you say for the fiscal 2017 earnings that the range you gave was wider and that if you make incremental investments you'll come in at the lower end of the range? Or were you implying that you can make investments that might lead you below the low end of that newly revised range? Thanks.

So I think I'll have John and Kris talk...

Let me just frame if first and I'll hand it over to John and Kris on this. Jeffrey, let me give you three things that I think in addition to – well, number one is the sequential acceleration that we saw throughout Q2, that has continued into April. The second thing is as we look at this quarter, the work the team has done around the Frappuccino launch that was kicked off by the Unicorn Frappucinno and what we've done to really make sure that we've got innovation and line of sight to how we're going to execute in the stores against that. And if you recall, a year ago we had the launch of the transition of the Rewards program at the same time. So we've been laser-focused on how we execute better in store with that. And then certainly, beyond that, there's been a great focus that Kris has placed on our partners in the stores connecting with customers and ensuring that we're getting that uptick in customer sat, and the work that Adam Brotman has been leading to increase the throughput at peak. So the increase of throughput at peak, the work that Kris has done in terms of customer connection, the innovation in the Frappuccino and the focus on in-store execution all contribute to the confidence, in addition to the sequential monthly acceleration we've seen in comps. And so maybe I'll have Kris touch upon a bit of what he's been driving in terms of store partner connection with customers. And Adam can touch a bit maybe on the Mobile Order & Pay. Kris?

Well, Jeffrey, I think we've got a number of things that we teed up, especially coming into the next two quarters, around operations particularly. And obviously customer connection is the most important thing we do, be it through MOP or cafe customer or whoever it was. But the reason I look to Q3 as a big opportunity is a number of things. First of all, I just think we've just gotten started on MOP service improvements. And we talked about that a good deal last quarter. The things we put in place I know Adam will share in detail in a minute. But very, very confident that we've got huge opportunity in front of us around improving that service and making sure we get more people through the stores. I think secondarily, strengthen beverage and food innovation. As I look to Q3, Frappuccino Happy Hour is going to be a huge home run this year. As Kevin mentioned, we acknowledged that we underestimated the interdependence of those two things, the Frappuccino Happy Hour and the launch of the MSR, or the conversion MSR program last year. But we have got singular focus on Happy Hour this year. We've got this early spark with Unicorn out there that has really ignited, I think, interest in the product, in the platform. We're going to bring at least one new entirely new drink into Happy Hour this year that is going to be as good as Unicorn or better. And we've extended our hours this year on some other tactical things to really make sure that Happy Hour is set up for success. I look a little further out and I see some great products we're bringing in the back half of Q3 and into Q4. We've got an entirely new iced tea platform we're bringing into the stores that's going to be a winner. Cold coffee is on fire. Our core espresso platforms around cold coffee are some of our strongest growth we've seen over the last few weeks. And food. We've talked a lot about food today, but I think the food performance in Q2 is indicative of what we're going to see in Q3 and Q4. Everything from Sous Vide eggs to our core around breakfast sandwiches have been fantastic. We're going to bring a lot of innovation in core food over the next quarter, and I'm very confident that is going to help us lift comps significantly over the next few weeks. Adam, do you want to talk about MOP?

Yeah, Jeffrey. This is Adam. First of all, in general, we're in the process right now of making real improvements in throughput and capacity in general. So we've got good momentum there, specifically as it relates to Mobile Order & Pay, as Kevin mentioned in his remarks. The first wave of new operational actions we've already taken in this regard have landed well in the field. We're feeling really good about the results we've already seen, both in terms of improved throughput at peak, as we've mentioned, but as well as the customer experience in those stores around MOP in general for both Rewards customers and non-Rewards customers. We saw increased peak transactions in our busiest MOP stores. We saw the greatest improvement in customer experience scores for the quarter in the latest quarter in those busiest MOP stores, and that continues into April. And we're also really pleased with how we've been able to deploy partner labor against these throughput improvements, particularly in these busiest Mobile Order & Pay stores. It's a really important part of how I think we're getting smarter in terms of shifting or reallocating labor to the morning peak opportunities occasionally, and selectively investing in labor where it makes sense to do so and where we feel good about that. So net-net, we're really happy with the early momentum we have in terms of operational improvements around getting better at MOP experiences and just in general driving our business in this area.

And I'll wrap up your question, Jeffrey. So, no, we're not indicating risk below the low end of the range. But I do want to acknowledge that if we see opportunities for investment or if the Teavana mall stores perform a little worse than we have forecast, that lower end is entirely in play.

Your next question comes from the line of David Tarantino from Baird. David, your line is now open. David E. Tarantino - Robert W. Baird & Co., Inc.: Hi. Good afternoon. Scott, just on the guidance for this year, could you give a little bit of perspective on how much of the change was related to Teavana and how much of it was related to the investments you're making? And then I guess the second question related to that, assuming that the investments is a big part of this is why make that decision now? I mean, Starbucks has such a long history of delivering on their financial targets. I think the last time you lowered guidance was during the recession. So why now are you pulling forward investments and lowering the targets?

On the first part of your question, the larger piece is the investments we're making, although the Teavana mall store performance versus what we thought is meaningful. And to the second part of your question, David, I take the spirit of what – how it's asked. We see a significant opportunity in areas like digital and specifically what we see with returns on investments that we make around personalization, around things around Starbucks Rewards, things that we do in the app to make things easier for our customers. Those investments have the shortest payback and the highest returns of anything we do in Starbucks including new stores. And so as we look at the back half of the year and we look at the fact that we're driving the majority of our comps from digital, I would argue we must make those investments because those will pay off both as we exit 2017 and as we head into 2018, and I think, it would be not the right thing to do to skip those. So the second thing I would say is on Reserve and Roastery, those have longer term implications for us as Howard talked about, So making those investments now as we build the Princi capabilities. A lot of these capabilities are in the early phases, building out. The commissary capability for Princi Kitchens is building out. The roasteries that we have under construction across the globe and opening our first Reserve store soon, all of those things, needs the right level of design, the right level of merchandising, and it costs money to get those things setup right. The good news is as we move into 2018 and beyond, we'll start to leverage those investments as we begin to open more and more Reserve stores, open the roasteries, and we think that's the right thing to do.

And I think this just reinforces the fact that we're playing the long game. And in this period where this dramatic disruption is taking place in the retail industry, we are very clear that the transformative elements that we're focused on are digital, mobile relationships with our customers and branded, experiential retail. And the investments we're putting in are in those areas. It's about elevating the digital flywheel and it's about elevating the brand with the investment we're making in roasteries and Reserve stores and Princi. It's all about the future.

Your next question comes from the line of Jason West from Credit Suisse. Jason, your line is now open. Jason West - Credit Suisse Securities (USA) LLC: Yes, thanks. Just one quick one and then I've a bigger question. Scott, did you reiterate the mid-single digit global comp guidance for the year? I just wasn't quite clear on that. And then in terms of the personalization, I know you guys have been talking about that since kind of last fall. Can you maybe give us an update on how you think that's working and maybe what's left to do there?

So yes, mid-single digit comps globally for the full year, and I'll turn it to Matt for the second part of the question.

Thank you for the question. We are very excited about personalization. And I would just reiterate what we've been saying and it remains absolutely true. We have only just begun. Right now, personalization, we did extend from email to the app about two quarters ago. We are seeing terrific results. It is the single biggest driver that we're seeing of the improved spend per member, and we just told you what that meant for us. So it's a big deal. We haven't done a lot of the things we dream about doing and one of the reasons why we continue to invest in technology is to be able to do those things. Triggered responses to events, triggered responses to external data that we can use, continuing to put personalization elsewhere throughout the app, and then eventually extending personalization to other screens beyond the app as well. These are all on the roadmap and will be coming and we believe they'll drive significant value for the company. So we're very, very optimistic and bullish on it.

Maybe just one proof point to add to what Matt said. As you know, we launched this quarter suggested selling across the platform within the app. So as you're ordering your beverage, we're able to show pictures of food and other things you've either ordered in the past, or would go well with items in your basket. And we saw this quarter the ticket on Mobile Order & Pay actually go higher than the average ticket on Starbucks Rewards orders that weren't through Mobile Order & Pay. That wasn't the case over the last year. So for the first quarter we've seen that tick above as we thought it would when we launched personalization. And that's a good sign.

And just to add, we have also seen acceleration through the quarter with regard to personalization. So as we entered the quarter, and as we exited, we saw personalization as one of those things we think is going to continue to drive comps up in the second half of the year.

And we saw higher attach on food in particular.

That's right.

Which is the highest since we launched La Boulange three years ago. So clearly personalization is playing a role in that success.

The last question comes from the line of Karen Holthouse from Goldman Sachs. Karen, your line is now open. Karen Holthouse - Goldman Sachs & Co.: Hey, another question on the sort of U.S. comp commentary. So stores that had those peak Mobile Order & Pay stores which were in 20% of transactions, you noted sequential improvement, but are we actually back to a point that those are positive year-over-year in traffic? And then when you're thinking about the improving into April, how much of that just relates to the disruption that we're lapping last year around Mobile Order & Pay or is that true on a two-year basis as well? Thanks.

So, Karen, those highest volume stores were slightly negative last quarter from a transaction standpoint, and they're still slightly negative. But that – but it's improved significantly quarter to quarter.

It was pre-adjusted. (1:19:37)

Yeah. So we're seeing improvement, but still a little bit of negative transaction there.

Can I just clarify one condition myself? I want to make sure there's clarity and common language, because I think the question was also is comp improvement based primarily on low comparisons. The answer is no, right?

So in both March and April we still had pretty big comparisons to lap over, so we're pretty happy with the overall comp growth and particularly transaction growth in April.

Yeah.

And I think our comp – well, our comp performance for the back half is based on the level of innovation that we're bringing in from a product standpoint, performance at happy hour as well as continued expansion of the digital flywheel.

Okay.

Great. Thank you, Karen. Thank you everybody. Tom?

Yeah, thanks again for joining us today. And we look forward to speaking with you again on our third quarter earnings call, which we have tentatively scheduled for Thursday, July 27. Thanks again.

This concludes Starbucks Coffee Company's second quarter fiscal year 2017 earnings conference call. You may now disconnect.