Good afternoon. My name is Hector, and I will be your conference operator today. I would like to welcome everyone to Starbucks Coffee Company's Third Quarter Fiscal Year 2018 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. I would like to turn the call over to Tom Shaw, Vice President, Investor Relations. Mr. Shaw, you may begin your conference.

Good afternoon, everyone, and thanks for joining us today to discuss our third quarter results for fiscal 2018. Today's discussion will be led by Kevin Johnson, President and CEO; Roz Brewer, Group President, Americas and Chief Operating Officer; Belinda Wong, CEO, Starbucks China; and Scott Maw, CFO. For Q&A, we'll be joined by John Culver, Group President, International, Channel Development and Global Coffee and Tea; and Matt Ryan, Chief Marketing 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. GAAP results in fiscal 2018 include several items related to strategic actions including restructuring and impairment charges, transaction and integration costs, gains related to changes in ownership of international markets, and other items. These items are excluded from our non-GAAP results. Please refer to our website at investor.starbucks.com to find 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 as well through August 25, 2018. I will now turn the call over to Kevin.

Well, thank you, Tom, and good afternoon and welcome, everyone. On today's call, I will provide an overview of our financial performance in Q3, expand on the business update we provided last month, and reinforce our strategic priorities going forward. Then I'll turn the call over to Roz and Belinda to report on our Q3 operating performance in each of our two key markets, the U.S. and China, and update you on our plans for each market going forward. Scott will then take you through the Q3 financials in detail and we'll turn the call over to the operator for Q&A. Starbucks revenues in Q3 totaled a record $6.3 billion, up 11% over last year driven by consolidation of our East China business, strong performance from new stores, favorable FX, and comp sales increases of 1% both globally and in the U.S. Excluding FX and the net impact of streamlining activities, revenues were up 7%. June comps in the U.S. and Americas landed as expected, representing an acceleration from May and April. For the quarter our non-GAAP EPS totaled $0.62, inclusive of a $0.02 impact from the anti-bias training on May 29, representing a solid 13% increase over Q3 last year. While we fell short of the expectations we had entering the quarter, we made measurable progress against two commitments we've made to our shareholders: to deliver predictable, sustainable growth at scale and to create meaningful increases in shareholder value long into the future. To deliver on these commitments, we continue to focus our energy, capital, and resources on executing against our three strategic priorities. Our first strategic priority is to accelerate growth in our targeted long-term growth markets – China and the U.S. Our success in each market will be driven by further elevation and modernization of the third-place…

Thanks, Kevin. I'll start out with how the Americas is reinforcing its commitment to improving current transaction trends by focusing on three priorities for growth: improving customers' in-store experience, delivering beverage innovation, and driving digital relationships. I'll also provide some perspective on how we're driving enhanced profitability and increasing agility. First I'll address Q3 results. We delivered another record performance of $4.2 billion in revenues, which represents a 6% increase over the prior year, and our new stores contributed four points of growth for the 17th consecutive quarter. The impact of Frappuccino decline and the store closures to support the anti-bias training is estimated to be three points of comp in the quarter. These were the main factors that led to a 1% comp in the Americas for Q3. Factoring into this shortfall, we continue to grow share, as supported by growth in our most loyal customers, growth in all categories except Frappuccino, including both core coffee beverages and innovative new products, such as Draft and Refreshers, continued strong growth in the morning, our most important day-part, and continued strong performance of new stores as we opened in underpenetrated geographies. With these indicators of brand strength, we continue to move with speed to reposition the business for growth. To modernize and elevate the third place, our first priority is improving customers' in-store experience. The U.S. operations team, led by veteran Starbucks operator Rossann Williams, is keenly focused on driving efficiency, reducing the time our partners spend on administrative tasks, and redeploying that time to customer-facing tasks. We have set an ambitious target to cut up to 50% of current in-store administrative tasks by the end of fiscal year 2019 that we expect will initially unlock up to 2 to 3 hours daily to focus on customer and partner experience this…

Thank you, Roz. Good afternoon, everyone. I appreciate the opportunity to speak to you from Shanghai in order to expand on Kevin's comments around Starbucks' solid foundation in China, put our Q3 performance in context, and provide details on the steps we're taking to deliver comp and profit growth consistent with our historical performance and future expectations. Relative to our historical success, we believe the minus 2% comp we posted in Q3 is not a reflection of the strength of our business and brand in China. On the contrary, I assure you that the enormity of the opportunity that we shared with you at our China Investor Day remains fully intact. Let me take you through the factors that combined in somewhat of a perfect storm to drive our Q3 underperformance. And when I explain what we're doing about each, I suspect you'll leave today's call confident in our understanding of the transitory situation and in our action plans to resume the level of consistent profitable growth that both you and we expect. First, as Kevin mentioned, we're making progress on our plans for delivery across China. We start this fall in Beijing and Shanghai with plans to expand across the country as we enter calendar 2019. We're fine-tuning details and approach over the coming weeks, fully confident that delivery will enhance the premium Starbucks experience our customers expect, fueling comp growth and financial performance in FY 2019 and beyond. The delivery opportunity has enabled a different yet not unusual competitive retail environment in China. Starbucks' success, growth and sustainable long-term business approach has incented upstarts and other players to enter the coffee business from time to time. Yet over the long-term the focus we put on the quality of our coffee, the passion of our partners, beautiful third-place environments,…

Thank you, Belinda and good afternoon, everyone. Starbucks consolidated revenue growth was in excess of 7% after adjusting for 4% of favorable impact from streamline activities and FX in Q3, and despite falling short of forecast, reflects the underlying strength of the Starbucks business and brand around the world. Our Americas business reported 6% revenue growth despite challenging macro and Starbucks-specific operating environments. CAP reported 11% revenue growth after adjusting for 35 points of streamline activities and FX, with China revenue growth once again in the high teens on the same basis. Channel Development delivered 10% revenue growth after adjusting for 4 points of streamline activities and EMEA delivered 6% revenue growth excluding 4% of FX favorability. The bottom line is that we continue to gain share in virtually every market where we do business domestically and around the world, at the same time as we make meaningful progress against our commitments to deliver sustainable growth at scale. Non-GAAP operating margin of 18.5% represented a decline of 230 basis points year-over-year primarily driven by 130 basis points from incremental investments related to the U.S. tax law change and estimated anti-bias training impacts. Product mix shift largely related to food as well as planned partner and digital investments also contributed to the decline. I'll now take you through our Q3 operating performance by segment. The U.S. reported a 1% increase in comp growth driven by 2 points of growth in core beverages including espresso, tea and refreshers, and 1 point from food. This was offset by over 2 negative points related to softer than expected blended sales well below what we forecast for the quarter. Consistent with recent quarters, peak transactions volume was strong with softness continuing in the afternoon, primarily in Frappuccino sales. Separately, I'd like to highlight that the…

Your first question comes from Sharon Zackfia with William Blair. Please proceed with your question. Sharon Zackfia - William Blair & Co. LLC: Hi, good afternoon. I guess a question on the development outlook for the Americas as you focus on the center and Southern portions of the country. Can you give us kind of some perspective on how those AUVs look versus the rest of the country? And I know you mentioned they're lower cost, but I'm thinking maybe they're also lower revenues. Any perspective on what the new units might look like going forward versus maybe the class of 2017 or class of 2016?

Sharon, this is Kevin. We'll have Roz talk a little bit about where we're focused on store builds, and then Scott will follow up on the part of your question around the economics.

So, first of all, if you just look at our quarterly revenues, four points of our revenue growth came from new stores and in that configuration is quite a bit of mid-America and Southern states, so we're already seeing that performance play through for us. So we're encouraged by what we're seeing with our current portfolio. Going forward, we are focusing in that area. I will tell you that in areas like Seattle and Manhattan, while we're encouraged by the business that we have in those areas, we are putting less units in those two geographies, but at the same time they're highly dense areas with increased occupancy cost and increased labor spends in those areas. So we're already seeing the performance from our current portfolio that is already targeted towards middle America and the Southern parts of the states, so we're encouraged by what we're seeing and so we're going to continue that process.

And I would add is we've moved towards more drive-thru. Roz referenced 80% or more drive-thrus. We've actually seen the AUVs accelerate over the past four or five years, so even as we've gone into some of those suburban areas the drive-thru format has about 25% to 30% more revenue than our typical in metro non-drive-thru format. So the weighting out of those drive-thrus are actually both quite high AUVs and really good profitability.

Our next question comes from the line of John Ivankoe with JPMorgan. Please proceed with your question.

Hi, thank you. I was hoping just with the amount of kind of puts and takes in G&A if there's a dollar amount that we could talk to, maybe in fiscal 2019 and fiscal 2020, maybe even beyond as you think about, really, the potential of the business from an efficiency and effectiveness point of view. Because obviously there's a lot of different ways to look at this – percentage of system sales, percentage of revenue, per store basis, what have you? I was hoping if you could help, steer us just in terms of the actual dollar type of number that might be the right level of spend for Starbucks going forward.

Yeah, thanks, John, it's Scott. Let me just try to narrow the range in a bit for you. We're literally in the middle of our annual planning process. So we'll come back in the fall and give you more specifics. But let me try to tighten in the range, because I know it's hard to model. First of all, what we've talked about is one point of system sales. And just to roll forward system sales. The last time we talked about it was in our December 2016 Investor Day, and we said it's about $30 billion. So, if you grow that at the rate of revenue, you're somewhere in the mid-$30 billion, call it the $35 billion range. We'll be around a point of that building over three years. And what I said in my prepared remarks is we think 35% to 45% of that comes on a run rate basis in 2019. So the way that we'll – when we get into the fall, we'll take a look at fourth quarter exit rate of G&A as a percent of system sales. That will be our peg point. And then we'll roll forward three years to take 100 basis points or approximately 100 basis points out of that, with 35% to 45% of that coming in 2019. So that should allow you to narrow it in a little bit. Obviously there is some range around that as we get into the specifics of exactly how quickly we can execute on some of these things, where the big opportunities lie. But that allows you to tighten up your modeling a bit, I think.

Your next question comes from the line of Jeff Bernstein with Barclays. Please proceed with your question.

Great, thank you very much. I've just a question on China broadly. I know a few weeks back when you guided for the quarter, you were talking about maybe flat to modest negative comp. It seems like it came in down 2%. So, I'm wondering, maybe, if you could just talk about the trend through the quarter. And more importantly, I guess, just looking back over the past few quarters, it seems like it's been a fairly steady decline from the high-single digits to the mid-single digits to where we are today. So it would seem like there are some factors above and beyond maybe just the perfect storm that is the fiscal third quarter. Just wondering if maybe you could talk a little bit about the broader macro headwinds that perhaps China is seeing there, or just how you distinguish between what unit cannibalization might be versus maybe if there's some consumer pushback? Just wondering how you assess those two things to make sure the business is still as healthy as you think it is. Thank you.

Yeah, Jeff, this is Kevin. I think we'll have Belinda talk a little bit about what she saw in the quarter. I think, we're – we don't think it's always helpful to go into trends within the quarter, but I think – let's give Belinda an opportunity to share with you a perspective of the health of the brand, the health of the business in China. Belinda?

Okay, hi, thank you, Jeff, for your question. First of all, delivery as a whole, it's becoming a lifestyle ritual in China. And consumer behaviors are changing. This is a trend we'll be addressing through Starbucks Delivery to complement our third-place in-store strategy. Second is competitive landscape in China, which we'll also address through our Delivery services, as well as our growth agenda we shared during our Investor Day with our elevated Starbucks experience and the innovations that we do. Third will be the higher than expected level of sales transfer that I shared before from existing stores to new stores. That may have an impact in the short-term. But for sure the right thing to do to expand our market share now and in the long run. Don't forget operating in a developing coffee market, we need to continue to grow our presence through new stores. This means more than 75% of our growth comes from new store and we needed to do that because we're in a developing coffee market. We need to cultivate coffee culture, we need to share coffee with people who have never tried coffee. And our comp accounts for 25% of our growth. And we will continue to innovate and deliver meaningful and relevant experience to our customers to drive comp. But, again, growing greater market share in this market. So, I have no doubts that China will be back on track very soon in terms of our comp. So, thank you.

Yeah, and Jeff let me just reinforce a couple of key points that I think are important – this is Kevin. First of all, as Belinda said and as I said in my comments, the market in China that we are in a market growth phase that is all about new store expansion. The fact that we're in roughly 130 to 140 cities and expanding into the next 100 cities over the next three years is critical. And the reason we grew transactions in the mid-teens in China is because of new store growth. And it is where – it is through that expansion that we're enabling the brand to not only deepen its engagement with customers in the cities that we're in but also to expand into new cities. And so I think, as Belinda highlighted those – our stores are performing. Some of them are the most profitable stores in the world. The new ones we're building are the most – some of the most profitable stores in the world, and it is about store expansion. And so I just want to reinforce that point because that is the core strategy for China right now and it will be for the next several years.

Your next question comes from John Glass with Morgan Stanley. Please proceed with your question. John Glass - Morgan Stanley & Co. LLC: Thanks very much. Your comp guidance if I'm reading this correctly for the fourth quarter is 3% or so, the low end of 3% to 5%, which, I guess, surprises me in the context of where you landed this quarter, and particularly in the U.S. So can you just talk about why you think that's a conservative or reasonable number? Can you also just talk – I know you mentioned June was where you thought it was, is July a similar number? And how much of that is the pricing overlap? In other words, is traffic improving in your business? Is that what's getting you more confident, or is that still an area of tension, and it's really just the price mix that's maybe benefiting comps right now?

Yeah, well, let me just – I'll start, John, on the question and then I'll hand over to Roz to add a bit more on the mix of things that are driving it. But first of all, I commented that following the Oppenheimer comments the quarter unfolded as we anticipated, just reconfirming sort of the statements we made at Oppenheimer. I don't think it's helpful to get into intra-quarter trends because that I think confuses the issue. So what gives us confidence? Well, you look back at this last quarter, Q3, when we had some very unusual things we had to navigate in the quarter. Certainly the situation in Philadelphia and the fact that we've closed all our stores for an afternoon – that had an impact. But also the fact that we delayed the launch of the spring/summer marketing campaign by two weeks or so in that quarter. We lost some momentum, and since we then deployed that we clearly saw we were gaining momentum, and so that gives us some optimism in terms of what we're doing. Second, our digital customer base has grown dramatically. Look, we've grown our active rewards members by 14% to 15.1 million, we've added 6 million of these digitally registered customers that we are now learning how to engage with and figuring out how to drive some more engagement with them. That combined with the pipeline of beverage innovation gives us confidence as we look forward and into this quarter. Let me hand over to Roz to talk a little bit about – there was a question on pricing and attach and things that are driving some of the ticket there. And Roz, I'll let you comment on that and maybe Matt on pricing. But, Roz?

Yeah, sure, let me give a little bit more flavor to our comp performance. So first of all, I'll start off with, if you break down our comp, we've got two points of that coming from beverage and another point coming from food. So we're encouraged in terms of what we're seeing. All of our core categories except for Frappuccino grew in the quarter, both our core coffee beverages, our innovative new products such as Drafts and Refreshers, so we're seeing growth in every category. We're seeing food attachment from our breakfast sandwiches happening, where up to 22% of our portfolio is food, so we're seeing that have a nice impression on our ticket. We're still growing in morning peak, and that's our most important day-part, and we're still growing in the morning. And then lastly I'll tell you we're seeing strong performance of our new stores that we just talked about that we're placing in these markets of middle America and in the South. So that gives us encouragement that we're on the right track. Just the isolation of moving transactions is our focus and we need to get those transactions through our beverage growth. And when Kevin talked about the afternoon day-part, it is a soft part of our business. The marketing campaign that we ran through the beginning of the spring is still ongoing. It's actually the largest media spend we've done in a while – consistent, focused on afternoons and absolutely focused on a new occasion in the afternoon with teas and refreshers. So we're going to maintain our plans to continue this work that we're doing because we're encouraged from what we're seeing right now.

Your next question comes from David Palmer with RBC Capital Markets. Please proceed with your question.

Thanks, good evening. I...

David, you're breaking up. David, you're breaking up. Can you start over?

Yes. I wanted to ask a question about the U.S. business. It looks like the afternoon and beverage contribution to growth has been a particular problem. Could you talk about that? And given the fact that you're now seeing digital user growth resume, that takes off the table that as an issue. So I guess the question is, how much do you think the U.S. comp slowdown has been a beverage innovation problem versus other, not having a Cold Brew or a Teavana shake and tea? And how do you feel about the beverage innovation pipeline at this point? Thanks.

Let me take sort of the first response to that, David, and then I'll hand it over to Roz to talk a little bit about the beverage innovation pipeline. First of all, the most important day-part for Starbucks is the morning day-part. And we are growing comp in the morning day-part. We're growing transactions in the morning day-part. The area that we've highlighted that we've had softness has been that afternoon from 2:00 on and then evenings from 4:00 PM on. So, when we look at this, the fact that the morning day-part that's growing is a very, very, very positive metric. Number two, when I look at the beverage portfolio and I look at the core platforms, Coffee, Espresso, Tea and Refreshers, all of those are growing. And they're offsetting the softness we've had in blended. So all of a sudden, you start to intersect the issue around blended and afternoons has sort of been amplified in this quarter because this is the quarter of Frappuccinos. And so you put that together and I think much of that is sort of explained. Now, as Roz mentioned, the campaign that we have for the afternoon and the cold beverages that we're driving around afternoon made, I think we're feeling good about that. Let me hand it over to Roz to talk a little bit about the pipeline of innovation.

Sure. So we actually feel pretty good about the velocity of innovation at Starbucks in terms of the beverage business. First of all, we're seeing a strong shift to Cold and we're playing directly in that space. Our mix is up to 50% with our cold mix of our beverages. And if you look at everything we focused on in terms of our newness, it has been in cold beverage. In addition to the addition of our Blonde espresso at the beginning of the year, we're seeing our customers customize even their cold beverages with Blonde espresso. So focusing on innovation in core coffee and then innovation in blended with the Premium Frappuccino, we introduced three of those this quarter, and we're pleased with how those three are moving for us. And we've also customized with cold foam and we're getting momentum on refreshers and teas. And then not only the innovation on beverages but in food. And so we introduced a new egg bite, Sous Vide Egg Bite this quarter. We're encouraged what we see there. And then when you combine that kind of innovation in food and beverage with what we're doing with the acceleration in digital, we're matching all the customer information that we're gathering with what their needs are. One thing I will isolate is that our Cold Brew is really resonating with our male millennials. So, when we wrap our arms around our consumer-driven needs for the growth in our business and innovation, it sends us directly towards a cold platform and continuing to innovate in our core coffee business. So we actually feel pretty good about our beverage lineup and the innovation pipeline.

Your next question comes from Sara Senatore with Bernstein. Please proceed with your question. Sara Harkavy Senatore - Sanford C. Bernstein & Co. LLC: Hi, thank you. A question about the U.S. unit growth and then just a quick follow-up on China. In the U.S. you said, you're talking – you're testing a new approach to portfolio management. Is that with reference to the mix of company-operated versus licensed, or is it about how you evaluate stores more – perhaps more quickly and decide whether they're meeting their hurdle rates? Just trying to understand what that might – what implication that might have for store growth going forward. And then on the China piece, I know you're seeing some cannibalization, but I'm also curious – I would assume there's a pretty steep maturity curve in China. So aren't you seeing any kind of offsetting comp lift from that?

We'll have – Sara, let's have Roz take your first question on U.S. unit growth and optimizing the store portfolio and then Belinda will talk a little bit about China. So, Roz?

Yeah, so let me just clarify the point on store growth. So, we're still adding a significant number of stores on both our company-owned and our licensed units. And I will tell you what we're doing is looking very closely at managing the trade areas in terms of where we place stores. And then there's a second piece to that, Sara, that talks about the formats that we place. So I think you're aware that 80% of our portfolio going forward – actually approaching 90% now, is drive-thru. But we're also looking at exactly where those drive-thrus can complement an express unit or complement a cafe. So we're looking very surgically at where we place our units and being really smart about that, with the focus of the geography in middle America and the Southeast. And so you'll see that play out in our stores coming forward. And we are not slowing our growth in those concentrated areas.

Belinda, do you want to talk a little bit about China?

Yes. Sara, hi, Belinda here. I assume you mean the specialty coffee market in China being mature or maturing. This is not the case at all. I think we shared the stats before on 300 cups in the U.S. and then 0.4 cup in China. And we're working hard to cultivate a coffee culture here. Even in tier 1 cities like Beijing and Shanghai. So there's plenty of room to grow. And with the middle class up-and-coming more and more people – our job is to make sure more and more people get to try what we love, which is coffee and sharing our passion. So there's plenty of room to grow.

Hey, Sara, also, this is John, just to add to the discussion around China on the maturity curve, if you're talking about the new store growth. And when you look at our new stores, we track very closely how the new stores perform once we open them and through that first year and then as they enter the comp base we've got a very disciplined approach where we review that every single month. As we shared previously, the store payback of the new stores is within a year of the opening. And as they enter the comp base, they enter the comp base at a very consistent historical level of the stores that are currently sitting in the comp base. So we feel very good about this maturity curve and the fact that it hasn't really shifted that much at all from an historical standpoint. And we feel very good about continuing to build out the store footprint based on the fact that our new store performance continues to exceed all the expectations. And the returns are very, very healthy in overall store level profitability of those stores, as well as the whole portfolio is very healthy. And that gives us optimism for the future. We talk about the importance of comp. That's clearly important. But at the end of the day, as Kevin shared, it is about new store growth right now, as we seed the market and develop this coffee culture. Last quarter we grew revenue 17%. We grew transactions in the mid-teens. We continue to grow overall transactions in the marketplace, attracting new customers into our stores as well as continuing to elevate the frequency of our existing customers. And so we feel very good about that. And then just one other point I would put on China is the work that we're doing on digital and the fact that we now have 6.7 million active MSR members, and when you break that down on a per-store basis, that's nearly double what we have on a per-store basis to what we have in the U.S. And you couple that with the work we've done with Alipay social gifting, with WeChat social gifting, we are building a very robust digital ecosystem. And then you add delivery on top of that, we see very long runway for growth for us in China for many years to come. And that's why we're still very optimistic and very strong belief in the growth plans and the strategy that we've built for the market going forward.

Your next question comes from Matthew DiFrisco with Guggenheim Securities. Please proceed with your question.

Thank you. My question is more with the U.S. I guess, just two-pronged here, looking at the expansion and targeting sort of middle America. I think for those of us who have covered the stock when you guys last closed down a large portion of stores, some of that was Howard identifying that the middle of the country might have seen some of the faster growth and that they weren't really espresso drinking, and the brand didn't resonate as well when you tried to more densely populate those areas with your stores. What's changed? And then, I guess also looking at the comp, I guess you're one of the few restaurant companies that hasn't mentioned the word at all about value, and it does seem like value is what is driving the customer, whatever that means for each individual brand respectively. How are you addressing the value equation to the customer who is not the My Starbucks Rewards customer?

Yeah, Matthew, this is Kevin I'll start and share a perspective and get some others to add. But first of all, what's changed in terms of the store performance in middle America? Well, apparently Americans in middle America like espresso beverages and our coffee because those stores are performing at higher AUVs and higher profitability than any other part of the country. And so I don't know what the experiment was back then, but it's working now. And this is not a new thing. We've been doing this for the last couple of years and we're seeing great performance from those stores. We're using – as I outlined at Oppenheimer, we're using analytics to really look at the store, the number of stores per capita that we have in areas. We look at the demographics in those areas and we're using technology to help inform us where to go build these stores. And in since doing that, it's worked. So it's – I think the fact that just proven by the store performance we're getting on those new stores that we've been building throughout middle America and the South, they're performing well. I think the other part, then, in terms of value, the core beverage platforms of coffee, espresso, tea, refreshers are all growing. The morning day-part is growing. When we think about the differentiators for Starbucks, we differentiate around a premium coffee, a premium experience, and we differentiate by doing custom handcrafted beverages at scale. And that is why our morning day-part just keeps growing. That is the core value proposition for our customers. And in that day-part we are growing, we're growing strong and we feel good about that. As Roz mentioned, we had – in the afternoon day-part we've had some softness in afternoon, and we've seen softness in the blended platform that we've been working to address. I think, as I highlighted some of the consumer trends, this need state of convenience, we really have unlocked that I think in a way not only with Mobile Order and Pay, but with our drive-thrus and that's balancing then the experience we create in our stores around the third place around community. And so I think if we just look at both what we've learned over the last decade and the performance of the investments that we've made in those store formats, in those geographies, in our beverage platform, in the morning day-part, those things give us confidence that we're absolutely on the right path.

And Matt, I would just add when Roz talked about our store growth, she said middle America and across the South. And the South is actually the bigger piece of that growth when I look at the numbers. So you're talking about Southern California, Texas, Arizona, the Southeast, Florida. These are markets with a lot of growth. And in addition to the middle part of the country, which is doing great as well, we're just seeing really strong performance in those markets with drive-thru. It's completely core to the move towards cold beverages and iced coffees. It's completely core to drive-thru and the suburban strategy that we have. And so I would just broaden the middle America part to definitely talk about the broad swath of the Southern U.S.

The last question comes from Matt McGinley with Evercore ISI. Please proceed with your question.

Thank you. Kind of a quick point of – question about clarification on what you said, and then I have a question about China. In the guidance commentary, you noted a slight decline in the margin in the fourth quarter year-over-year. Was that driven by trends that you're experiencing already in July, or was that more of a general comment about fourth quarter relative to what you saw earlier in the year? And then on China, Belinda, earlier in the year you noted that the China JV stores were not – that were not in the comp base were slightly below the stores that are in the comp base. Did that gap narrow as the year went on? Or when you experienced a slowdown in the stores in the comp base, did that – did they all kind of move in the same – in tandem, if you will?

Yeah, my comment on the margin wasn't indicating anything in July. I think it's really just consistent with the guidance we gave last month around lower overall profitability both in the third and fourth quarter. And obviously we had hoped when we started the year that the fourth quarter margin would be roughly flat year-over-year, and we made good progress this quarter if you take out the anti-bias training and the tax investments. And we'll make good progress next quarter, but I'm just simply saying we're probably not going to quite get to flat, which was our initial guidance. So I was just sort of chewing that up. And Belinda, do you want to handle the second part?

Sure. Hi, Matt. East China comp over the past few years has been somewhat below the rest of Mainland China, just as you said, due to the significant pace of store openings in that market and some other opportunities we're executing on. After East China, it's fully-owned company operated. That continues in FY 2018, and over time we expect the comps in these two pieces of the business to converge. But I'm happy to report that East China integration is progressing on track and the region is posting P&L performances in line with our expectations.

That was our last question today. I will now turn the call over to Mr. Shaw for closing remarks.

Yeah, thanks. And, for your planning purposes, please note our fourth quarter 2018 conference call has been tentatively scheduled for Thursday, November 1. In addition, we look forward to seeing many of you at our 2018 biennial Investor Day on Wednesday, December 12 in New York. Thanks again and have a great evening.

This concludes Starbucks Coffee Company third quarter fiscal year 2018 conference call. You may now disconnect.