Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Starbucks Coffee Company’s Second Quarter Fiscal Year 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.
Ms. DeGrande, you may begin your conference call.
Thank you, Mike. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Joining me on the call today is Howard Schultz, Chairman, President, and CEO; Cliff Burrows, President of our U.S. and Americas Business and Troy Alstead, our Chief Financial Officer. And also joining us here today for Q&A are John, Michelle and Jeff, the Presidents of our other three business segments.
This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and the risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K. Starbucks assumes no obligation to update any of these forward-looking statements or information. This conference call is being webcast and an archive of the webcast will also be available on our website.
This is the first quarter we’re including results from the recently acquired Teavana business in our financial results. And you will find them in the P&L for all other segments. Results of removed unallocated corporate expenses from Other. Full-year results for fiscal 2010 through fiscal 2012 for all Other segments a well as our corporate unallocated expenses can be found on our website.
With that, I’d like to turn the call over to Howard Schultz. Howard?
Thank you, JoAnn and good afternoon to everyone on today’s call. I am very pleased to report the record Q2 results that Starbucks announced today. Global comp store sales growth of 6%, marking the 13th consecutive quarter of comp growth greater than 5%, comp growth of 7% in the U.S., total revenue growth of 11% to a Q2 record of $3.6 billion, 180 basis points increase in operating margin to a Q2 record of 15.3% and record Q2 EPS of $0.51, which after excluding a $0.03 gain on the sale of the Company’s minority equity stake in the JV that operates our stores in Mexico represents a 20% increase over last years record Q2 results.
Starbucks is continuing to deliver strong consistent performance in the phase of still challenged retail and consumer environments in many of the markets around the world in which we operate. While I’m very pleased with the record results we’ve been reporting in the value that we’ve been creating for our shareholders over the last several years. As I’ve mentioned at our annual meeting of shareholders last month, we remain laser focused on our aspiration to become one of the worlds most admired, respected, and enduring brands.
I’m honored with the progress we’re making on this journey has been recognized by Ethisphere Magazine, who for the seventh straight year name Starbucks as one of the worlds most Ethical Company and Fortune Magazine who recently ranked us as the fifth most admired company in the world. Neither this humbling and inspiring recognition, nor our Q2 results would have been possible without the hard work and dedication of our 200,000 Starbucks partners who done the green apron everyday and deliver the unique Starbucks experience, 70 million times from almost 19,000 stores in 52 countries around the world each week. From Starbucks leadership team to each of our partners we say thank you.
In a few minutes Cliff Burrows, President of our Americas segment will discuss Americas Q2 results in detail and provide a glimpse of what’s ahead. Under Cliff’s leadership Starbucks U.S. business today is at healthy as it ever has been. We continue to introduce new innovative ways to excite our customers around all things coffee. And clearly anyone suggesting in 2008 or 2009 that Starbucks U.S. retail store portfolio was approaching market saturation was just flat out wrong. In fact, stores we’ve opened in the last few years are among the best performing stores in the 42-year history of the Company in terms of all key metrics, including unit economics, return on investment, profitability and the qualitative aspects of how well we deliver the Starbucks experience to our customers.
This performance is due to a new discipline and rigor we’ve brought to all aspects of store development that is both underpinning and driving our U.S. retail expansion. We plan to add approximately 3,000 new stores in the Americas over the next five years with at least 1,500 being in the U.S. and are now on track to open over 300 new stores and to renovate 14 other stores in the U.S. this year alone.
Our China and Asia-Pacific region continues to be at the forefront of Starbucks global expansion efforts and we are on course to have 4,000 stores in the region by the end of 2013, including more than 1,000 stores in Mainland China and more than 500 stores in South Korea.
We will establish China as Starbucks single largest market outside of the U.S. in 2014 and have more than 1,500 stores by 2015. We are building and deepening our connection to customers in China by continuing to deliver locally relevant innovation, including Chestnut Macchiato and Peach Blossom Tea Latte, two customer favorites' seasonal beverages evocative of the flavors of the Chinese New Year season and actively building My Starbucks Rewards membership.
We have now sold over 2 million My Starbucks Rewards cards in China representing an average of 2,000 members per store and the highest first store average anywhere across our global retail system, the sales on cards now representing 35% of total tender. This is a powerful endorsement of the emotional attachment and engagement we now have with Chinese customers in relationship to the Starbucks brand.
A few weeks ago, John Culver, President of our China and Asia Pacific segment and I traveled to Indonesia and the Philippines, key growth markets as well as being the sources of some of Starbucks best tasting and best selling coffees. John and I observed firsthand how powerfully the Starbucks culture and the Starbucks brand coupled with the new store designs are resonating with our partners and customers.
We now plan to open 100 new stores in Indonesia in the next three years and another 100 stores in the Philippines over the next four. And next month, John and I will be in Tokyo to celebrate the opening of our 1,000-store in Japan, an historic achievement for the first Starbucks market that opened outside North America and personally a rich reminder to me on how far we've come since I attended the opening of the first store in the Ginza district back in August of 1996.
In Q2, we also opened our first store in Vietnam to record crowds, another dynamic market with a rich cultural heritage in coffee tradition. Our flagship Ho Chi Minh City store will be followed by stores in Hanoi and other key metropolitan cities across Vietnam in the future.
Michelle Gass and her team are in the early stages of a transformative new economic business model for Europe that will further move us towards long-term profitability. We are actively continuing to expand our new UK franchise program with a number of experienced and well capitalized regional and national franchise operators as well as growing our captive licensed store footprint into important customer segments such as rail stations, airports, universities and hospitals.
We're also making considerable headway in the growth of our drive-through operations, adding our first drive-through store in Germany and adding to our drive-through portfolio throughout the UK. These and other strategic moves together with a robust set of brand initiatives will provide competitive differentiation and make Starbucks more relevant to Europe's diverse consumer base.
Starbucks performance across our joint venture and license markets in Eastern Europe and the Middle East continue to be extremely strong with growing customer response in markets such as Turkey, Hungary, Russia and across our Middle East portfolio, thanks and good measure to our partnership with the Alsea group that started with a single store in Kuwait City in 1999 and now comprises over 500 Starbucks stores throughout the Middle East.
Our Q2 results give me confidence that the strategies we have in place across Europe and the Middle East combined with an intense focus on execution and elevating our customer experience will enable us to make solid, continuous progress in the EMEA region over time, as we continue to leverage all of the learnings from the U.S. transformation.
Last quarter, Jeff Hansberry, President of our Channel Development and Emerging Brands segment detailed an extraordinary, multibillion dollar opportunity that exists for Starbucks in channels outside of our stores. Today, Starbucks has over 100,000 points of distribution across grocery, drug, mass and club locations around the world and sales topping $1 billion, with nearly 25% of the $3.4 billion U.S. premium coffee market making us the number one thing in packaged coffee brand in America. From this strong position Starbucks channel development opportunity remains in its infancy. Premium single cup currently an $8 billion categories of fastest growing segment in the coffee industry, now accounting for 27% of total coffee sales in grocery. And premium single cup is a segment Starbucks intends to lead with a solid product lineup that includes Starbucks VIA, Starbucks K-Cup portion pack and now Verismo. We continue to build Verismo’s install base to generate incremental pod sales with a successful promotion on cable Home-Shopping Channel QVC in March.
In Q3 we will gear up for a robust fall and holiday by further extending Verismo distribution to include additional specialty retailers and expand the Verismo portfolio to include both machine and pod innovations including tea. All of which will culminate in our stores what we anticipate to be a very strong Christmas holiday shopping season. Starbucks K-cup portion pack sales in U.S. food, drug and mass channels out case the industry at large increasing more than 75% versus the prior-year and maintain a leading share in the premium single cup category. This last week Starbucks K-cups remain one of the top product launches of the year by IRIs pacesetters. I am pleased to report that we have now shipped over 850 million Starbucks and Tazo cups since launch.
Q2 marked our first quarter since completion of the Teavana acquisition, an important move into the $40 billion global tea category. The tea category we believe is right for innovation and we now intend to do for key what we have done for coffee. Beyond representing a very exciting retail store platform with strong unit economics Teavana enables us to add super premium estate teas to our tea lineup and introduce and leverage a multi-brand tea strategy to complement our existing billion dollar plus Tazo tea business.
In Q2 we opened eight Teavana stores and have plans to add additional mall stores in fiscal 2013 and to add a complete line of handcrafted beverages to the Teavana menu over time. We also expanded Starbucks loyalty program to include Teavana purchases giving Starbucks customers the convenience and benefit of using their Starbucks card and mobile app to pay for purchases in Teavana retail stores. To further leverage the best capabilities of Starbucks retail including real-estate design and store operations I’ve asked to Cliff Burrows to lead the Teavana retail business as part of our U.S. and Americas business with Andy Mack, Teavana’s founder reporting to Cliff.
Our Evolution Fresh Cold-Pressed Juice platform continues to grow nicely and there is now more than 4000 Starbucks stores and other retail locations including 300 Starbucks stores in the New York and Boston markets. We continue to see healthy sales lift in juice as customers increasingly make Evolution Fresh Fruit and Vegetable Juices a part of their daily ritual. And we’re working hard to increase production, capacity to meet the growing consumer demand and our plan to have Evolution Fresh juices available in approximately 8,000 U.S. locations by the end of 2013.
It's now been more than two years since we unveiled and began to execute against our unique blueprint for profitable growth strategy in the U.S. and the time is now right to begin taking our tested embedded blueprint on the road to China. Our success at retail in China is providing us with confidence to both continue building our retail store portfolio and to leverage our brand growing retail store footprint and deepening connection to Chinese consumers into a future overall business that will also include Starbucks products and categories marketed through CPG channels to the rapidly growing Chinese middleclass. Stay tuned for updates on this exciting initiative in the quarters ahead.
I want to turn now to global payment, loyalty and social and digital media. As I have shared with you before, we're witnessing a seismic change in consumer behavior due to the emergence of social and digital platforms and a significance and ubiquity of mobile as a consumer platform, and Starbucks remains on the very leading edge of all of these developments. In Q2 we introduced new innovations and initiatives that further demonstrates Starbucks leadership in consumer card, loyalty and mobile payment experiences as more and more of our customers choose the Starbucks card as their preferred method of payment. Consider the following statistics; today, nearly one-quarter of all U.S. transactions are made by My Starbucks Rewards loyalty members and nearly one-third of all U.S. in-store transactions are prepaid.
Our mobile apps now have more than 10 million active customers and we are approaching 4 million U.S. global payment transactions per week, accounting for roughly 10% of total U.S. tender. To put this in perspective, Starbucks card tender now exceeds $3 billion annually in the U.S. and Canada, a scale that rivals many premier U.S. banks.
In Q2 we significantly accelerated My Starbucks Rewards membership by offering a $5 credit for U.S. Starbucks cardholders who became a program member, resulting in nearly 1 million new registered members and nearly 500,000 global app downloads during the two-week offer period alone.
Through this and other initiatives, we are adding approximately 80,000 new My Starbucks Rewards customers each week and expect to double the number of active members enrolled in Starbucks Rewards program from 4.5 million at the end of fiscal 2012 to 9 million in 2013.
Even more encouraging is that accelerating adopting is not just a U.S. phenomenon. We are now seeing usage of My Starbucks Rewards at the same or even higher rate than the U.S. in countries like China, Korea and Canada, providing us with a significant sustainable competitive advantage over competitors in these markets.
And beginning in May, we will unveil the market's first cross-plan, cross-channel rewards program, a capability only made possible by the unique combination of Starbucks national retail store footprint, broad consumer package goods presence and industry-leading digital capabilities.
Our customers will be able to earn My Starbucks Rewards stars for purchases of Starbucks packaged coffee in grocery channels. The star can then be redeemed for free food or beverages in Starbucks retail stores, an exciting new example of our blueprint for profitable growth being brought to life.
It's very hard, I think, to actually explain this in the kind of detail or the attachment that we think this is going to do, and this gives us a significant competitive advantage over other like coffee products that are sold in grocery, and we're going to see incrementality as a result of that in our own retail stores.
The revenue and operating leverage provided by the scale and synergies among our digital, card loyalty, mobile and social platforms provides us with strong core muscle in our U.S. business and increasingly in multiple channels in markets across the globe. And Adam Brotman, Starbucks Chief Digital Officer and I'd like to tell the digital team we are just getting started literally in the nascent stage.
Today, Starbucks ability to touch people in and beyond our stores is greater than any time in our history. And as a reality that gives me great confidence that we can obtain the high aspiration of becoming one of the worlds most respected and admired and enduring companies.
We are very fortunate to have added [Mike Conway], our new Executive Vice President for Channel Development as well as Sharon Rothstein and Matthew Ryan as Chief Marketing Officer and Chief Strategy Officer respectively to help us achieve these ambitious goals joining an already experienced and talented leadership team. I'd like to personally take this opportunity to publicly welcome Mike, Sharon to Starbucks.
I'm convinced that the next two to three years for Starbucks will be among the most dynamic and exciting periods in the history of our company. The results we announced today demonstrate that Starbucks Coffee Company has the strength, the health and the talent to continue profitably building our business in multiple channels around the world, at the same time as we continue delivering value to our shareholders.
I'll now turn the call over to Cliff who will take you through the Q2 results of the America segment.
Thank you, Howard, and good afternoon everyone. I'm very pleased to join you today to discuss the strongest second quarter results of our Americas business and to share with you several new exciting initiatives we have ahead of us. Americas revenue grew by 10% in the second quarter to $2.6 billion, fueled by 6% same-store sales growth with 5% coming off increased transactions and 2% from the higher average ticket.
In the U.S., comp sales grew by a very healthy 7%, a number of drivers were behind it. We had a great success with our featured beverages including Vanilla Spice Latte and Hazelnut Macchiato, which combines nearly two percentage points of comp growth in the quarter.
Food sales also lifted our comp, with strong growth in the afternoon from offerings from food offerings aided by expanded panini availability and strong Bistro Box performance. On our first quarter call, we talked about the strength of Starbucks card sales during the holiday and how that gave us great confidence in our ability to deliver a strong Q2. That absolutely played out this quarter and what is particularly encouraging is we’re seeing a lift in both afternoon daypart and in our high priced indulgent beverages by card users. There are significant number of new customers and new occasions being introduced by Starbucks card leading to new daily routines and greater loyalty, all of which bodes well for our future growth.
While America segment revenue grew 10%, operating income grew 22% to $550 million. We delivered strong flow through on our exceptional sales growth with margins in the Americas growing by 220 basis points to 21.1% in the second quarter. That is the highest Q2 margin we have ever reported in the Americas segment and there are several things contributing to this improvement.
Firstly, we are intensely focused on store operations, including (indiscernible) waste and utilities management. We are improving productivity as well and this is allowing us to increase customer visits without adding costs. For example, our new (indiscernible) are leading to simplified operations which in turn allows us to bring in new products or minimizing additional complexity to the system. We are also benefiting from lot of coffee prices; this alone provided 40 basis points of favorability in our costs and occupancy line in Q2.
Today's public stores are busier than ever, but we remain very conscious that outstanding service is what brings back customers again and again, that is why I am so proud about the focus of our store partners. The focus of store partners continues to place on delivering the Starbucks experience. We can see from customer voice metrics within the U.S. taste of beverage and speed of service rules are among the highest levels in recent years. Friendliness and order accuracy also moved meaningfully high in the second quarter. All these combined led to the highest total increase and our overall satisfaction goes in two years.
We continue to grow strongly outside the U.S. with Latin America delivering double-digit revenue growth. The success was seen in our licensed markets across the region together with the potential of Brazil, giving confidence to Starbucks future growth across Latin America. Our performance in Mexico is particularly exceptional, which is why we are so excited to build on the strong foundation already in place and enhance our intent to open 250 new stores over the next five years as part of the sale of our equity there. That sale is consistent with our strategy to simplify equity structure.
Looking ahead, there are number of values that been critical to our growth. One begins next week as we signaled the return of summer at Starbucks by launching our new Caramel Ribbon Crunch Frappuccino and this will be to accompany the full line up as signature handcrafted Frappuccino beverages that are being in our stores for nearly 20 years. This will be a strong compliment to the retaining line of chilled summer beverages including ice coffee, ice teas and our handcrafted refreshers.
Food is also near and long-term growth driver for the Americas. Our overall food program continues to perform well and we are excited about what's coming in the U.S. with La Boulange. At the end of the second quarter we had 150 Starbucks stores having La Boulange products. As of today we’re in 439 stores, having rolled out to the entire San Francisco Bay Area. And unless we’ve seen this far, what is still early has been encouraging. I look forward to sharing more detail with you as all of the sites become in more meaningful.
What I can tell you is the La Boulange pastries will roll out in specific Northwest including Seattle, in June then we'll expand to cities including Los Angeles and Chicago, followed later in the year by New York and Boston. We remain on track to have La Boulange products in all of our U.S. company operated stores by the end of 2014.
Another area of focus for the team is unleashing the real potential we have in drive-thru. As Howard mentioned, in the last quarter the majority of U.S. new store growth over the next few years will come from drive-through. The business case is very compelling. Our drive-thru stores have healthy profit margins as we're able to better leverage fixed occupancy costs and depreciation with sales coming from both out of the window and in the café.
We're not only focused on opening new drive-through stores, over the past two years we've conducted a deep analysis on how best to enhance efficiency and the customer experience through the drive-through window. As a result, we have already improved our menu boards, optimized operational standards and upgraded our equipment. These improvements are driving faster speed of service, high order accuracy and improved customer satisfaction.
We're still in the early days of our overall drive-through innovation. As we know our relationship with customers is just as important as the drive-through window as inside the café and our priority as well as our financial results over the coming years will reflect this.
Meanwhile, we're focused on maintaining the high quality of our existing portfolio, updating stores to approximately 1,600 renovations across the Americas segment this year. While we don't state meaningful overall sales lift due to routine renovations, we do see immediate results when we add new programs or increase capacity as part of the work.
As Howard mentioned, our integration to Teavana business is well underway and I'm extremely proud to now be leading this premium, innovative concept, and I know the expertise we have gained over 40 years of coffee merchandising and our leadership in handcrafted beverage preparation will translate tremendously well to the high level of product quality and innovation already associated to the Teavana. We're excited in the coming quarters to share more about the ideas and plans that are emerging.
All that we have accomplished and all that we have yet to accomplish would be impossible without what is far and away Starbucks most important asset, our people. I can say with certainty that my Americas leadership team has never been stronger than this today. We have great stability and rich diversity resulting in a deep talented bunch.
While I get the fortune of discussing our record results and tremendous growth with you all, it's important to remember that the partners in the 13,000 stores of the Americas region really made this all happen. So to them I'd like to say thank you.
And with that, I'll turn the call over to Troy Alstead. Troy?
Thank you, Cliff, and good afternoon everyone. We are extremely fortunate that the Americas business produces results that consistently exceed what you would normally expect from a business so large and mature. Cliff cited many of the reasons behind that success; innovation, consistent delivery of outstanding customer service and a deep entrepreneurial spirit. It's the consistent strength of the Americas performance that allows us to nurture the seeds of growth outside of the Americas.
I will now talk to the second quarter results of those businesses. In China and Asia Pacific, we continue to [grow] rapidly while delivering strong results. Net revenues of $214 million represented 22% of growth in the second quarter and reverted by a mixture of 15 net new store openings over the past year along with same-store sales growth of 8%. Considering the difficulties that others are experiencing in this part of the world, coupled with the fact that we are lacking extremely strong comp of 18% last year, we are very pleased with this performance.
Half of our Q2 comp growth was due to increased transactions as customers were receptive to our seasonal offerings with continued strength from the My Starbucks Rewards program in China also contributing. Ticket growth was due to a combination of pricing as well as sales mix.
Operating income of $68.3 million [plus] operating margin of 32.0%, down [Technical Difficulty]. We have grown our company-operated store base by 35% in the past year, double the pace of growth in the region overall. And as I have indicated for some time now, that portfolio mix shift is strategically and financially very valuable, but it does currently have a negative mix shift impact in operating margin in the region.
We added 56 new company-operated stores (indiscernible) in the second quarter, the highest number of company-operated stores we've ever opened in a single quarter in this region. We are solidly on track with our previously communicated growth trajectory in China and across the regions. Just as with last quarter and as we expect to continue, this higher pace of growth carries with it investment spending to open and operate these new stores. That also led to a portion of the margin decline we reported this quarter.
Finally, we reported a year-over-year decline at $2.1 million in income from equity investees in the second quarter. This is entirely the result of favorable non-routine income of $6.7 million in the second quarter of last year. Our partnerships across [capital thriving] including in Japan where comps and new store growth are both higher this quarter than in the prior-year.
In EMEA the difficult economic climate and continued weakness in retail football continued to impact our business. Total net revenues of $273 million reflect the last Q2 with license store revenue growth of 48% offset by a 6% decline in company operated revenue. The license store revenue growth was primarily the result of the addition of 117 license stores over the past year combined with strong comp growth.
The company operated revenue declined, it was the result of the declining company operated store base which is the outcome of the store closures we’ve previously spoken about as well as the sale of a number of company operated stores to license partners. Also contributing was a 2% in comparable store sales. Profitability in EMEA remains challenged, but we're making progress on a number of fronts.
Operating income for the quarter rose to a positive $5.2 million up from a loss of $7 million in Q2 of last year. Our continued disciplined focus on cost management is one of the items contributing to the improvement. Additionally we’re beginning to see the benefit of our portfolio mix shift to a more heavily licensed model. EMEA net new store growth in Q2 was entirely comprised of license stores also contributing to the Q2 profitability with a $5.7 million reduction to the estimated asset retirement obligations of our store leases in the region.
We are in this for the long run in Europe. It will take time to grow our license business in the region and it will take time to drive increased profitability to our existing company operated store base. The opportunity in Europe and the Middle East is meaningful though and the eventual payoff will be well worth. I mean now moving to channel development where revenues of $344 million grew 7% over the prior-year. The second quarter as it is the case for all of fiscal 2013 for channel development reflects slower growth as we continue to develop and invest in the products and businesses that will drive more rapid growth in future years.
The channel development business consists of the larger highly profitable but slower growing roast and ground coffee in food service businesses which account for approximately two thirds of current channel development revenue, and a smaller, faster growing single-serve ready to drink in international businesses. While these newer businesses account for only one third of our channel development revenue today, we are building for the future with new capability, distribution and innovation across VIA, K-cups, Verismo, Iced Coffee, Refreshers and Tea. The investments we’re making now will help fuel solid, long-term growth in the segment in the coming years.
During the quarter, dollar sales in the roast and ground coffee category declined 3.5% versus prior-year in U.S. food, drug and mass channels. And while we are pleased that we’re outperforming the industry, we are not pleased that our roast and ground dollar sales did not grow over that same period. Nearly all of our competitors have reduced pricing over the past several quarters and has announced earlier this month we have responded with a list price reduction effective in May. We believe our move reflects the right pricing in this environment along with other unique loyalty and value drivers such as My Starbucks Rewards will provide value and relevance in the category to grow share.
K-cups continue to be an outstanding contributor to our channel development business and were the primary driver of revenue growth in the quarter. Starbucks K-cups share of the premium single cup space in U.S. food, drug and mass channel grew 2.3 percentage points to 14% in the quarter reflecting the continued momentum of this still young platform. Bottom line growth in channel development in the second quarter outpaced top line growth. Operating income of $94 million grew 18% over last year; operating margin expanded 270 basis points to 27.4% as lower coffee related costs provided year-over-year favorability.
Finally, let me briefly touch on our other segments. JoAnn briefly mentioned at the beginning of the call that we have included results for Teavana along with Seattle’s Best Coffee, Evolution Fresh, the Tazo retail store and our digital ventures business and are reporting under all other segments. For the second quarter the year-over-year growth in revenue and operating income of these other segments was primarily due to the inclusion of Teavana results this quarter for the first time, then the other businesses also contributed to the revenue growth. We are working to integrate inline Teavana reporting and as this becomes a more meaningful portion of our consolidated results, I expect that we will enhance our disclosure.
Now, I will wrap up the second quarter on a consolidated basis before moving to targets for the remainder of the year. Consolidated net revenues grew to a Q2 record $3.6 billion representing growth of 11% over last Q2. This increase was due to comparable store sales growth of 6% including 4% coming from higher transactions and 2% from higher average ticket. Beverage and food innovation outstanding customer service and a growing base of highly loyal customers all were key contributors to this quarter's growth.
Consolidated operating income grew to 26% to $544 million in the second quarter. Consolidated operating margin expanded 180 basis points to 15.3%, the highest Q2 margin we've ever reported. Leverage on our strong sales coupled with 50 basis points of lower coffee cost drove the improvement.
The combination of strong sales growth in our core business, operational efficiencies in our retail stores and favorable commodity tailwinds led the record earnings per share of $0.51. This includes a $0.03 gain on the sale of our equity in our Mexico joint venture which is reported in the interest income and other line. Excluding this gain, EPS grew by 20% at the high end of our targeted range.
Also of note, Starbucks repurchased approximately 3 million shares of stock during the second quarter. This leaves approximately 26 million shares authorized as available for repurchase. The combination of these repurchases along with the $0.21 per share dividend resulted in $309 million return to shareholders in the second quarter and brings our first half of fiscal 2013 total to more than $850 million.
Now that we are halfway through fiscal 2013, I will provide an updated outlook for the year. Given our strong first half results and the momentum we are carrying into the second half of the year, we are raising our full year earnings per share target to a range of $2.12 to $2.18.
For the third quarter, we're targeting EPS in the range of $0.50 to $0.53. For the fourth quarter, we're targeting EPS in the range of $0.54 to $0.57. We now expect to add 1,600 globally reflecting the previously targeted 1,300 Starbucks stores in addition to 350 Teavana stores that were acquired or will open this year.
We remain on track to deliver on all other previously communicated targets, including 10% to 13% consolidated revenue growth, mid-single digit global comparable store sales growth, approximately 100 basis points of consolidated operating margin improvement, a tax rate of 33%, and capital expenditures of $1.2 billion. Finally, we now anticipate resolution of the dispute with Kraft sometime in the second half of fiscal 2013.
As we now progress into the second half of the fiscal year, we are extremely pleased that we were able to deliver yet another record set of results in Q2. Our Americas business continued its remarkable top and bottom line performance and we continue to demonstrate solid growth across our entire portfolio. We recently wrapped up our strategic planning for the next five years, and I can tell you that I've never been as optimistic at what lies ahead as I am today. The future growth potential of this company is as clear as it is diverse.
Our opportunities to deliver industry-leading shareholder returns are as great as our opportunity to enhance the communities in which we serve. And the rigor and discipline with which we make decisions and proceed along this path will only be matched by the focus on the outstanding experience we deliver to each and every customer. I am excited for what lies ahead in the second half of this year and even more excited for what lies ahead in the coming years.
With that, I'd like to turn the call back over to the operator for Q&A. Mike?
(Operator Instructions) Your first question comes from Michael Kelter from Goldman Sachs. Your line is open.
Michael Kelter - Goldman Sachs
Can you guys talk a little more about your early experience rolling out La Boulange in the stores and that where do you use – because the lift was encouraging. I was hoping you could help us with what exactly encouraging meant? And maybe in your answer you could touch upon the impact to traffic versus ticket and whether you're getting a lift in coffee or just food?
Thanks for the question. It's Cliff here. The reason I said encouraging, we are in 150 stores with any track record and we've been working live with this in refining the products as we've gone along. We are now in a meaningful 439 stores, so it will be much more meaningful when we report the next quarter and the coming quarters. I am firstly encouraged by the pride our partners in the stores have in sharing and serving and enjoying this food, the reaction of the customers, especially to the lemonades, things of the croissant, (indiscernible) and Almond Croissant which are the signature products of La Boulange. With any change, it takes time for people, customers to get used to new products, ourselves to get confident with those products and obviously we’ve got a new routine with warming in stores. I’m encouraged by the progress we’re making. I’m encouraged by the reaction, and again as I said I look forward to sharing more of that in the coming quarters.
Your next question comes from the line of John Glass from Morgan Stanley. Your line is open.
John Glass - Morgan Stanley
Thanks. On the earnings guidance, I guess just a couple of questions. One is; why are you raising it now, it would suggest an acceleration of earnings growth from a 20% range in the first half to 25%, so what are the components that drive that, first? And secondly, does it include that $0.03 and where is that $0.03 I can’t find it, what segment is that in?
Thanks John. We’re raising because first of all we’re half way through the year. So we now have half the year in the bank, we’ve been able to see two quarters worth of great top-line growth and great earnings growth, and that gives us increased confidence in our expectations for the balance of the year. I’d also point out that we’re just that much closer now to new products that will launch as we move to the balance of the year; how the seasons are trending; our ability to drive flow through on incremental sales. All of that now half way through the year has just increased in confidence and allows us to increase our guidance for the balance of the year and for the full-year. Specifically to your second part of your question; yes the all year-to-date results are reflected in that full-year guidance so that $0.03 of the Mexico gain is included in that new 212 to 218 range that we put out there today. And that is reported in the interest income and other expense, so you need to look at the consolidated P&L and you’ll see a year-over-year change there. There’s a number I think going on in that category but there’s a big driver of this Mexico gain that shows up in that line.
Your next question comes from the line of Keith Siegner from Credit Suisse. Your line is open.
Keith Siegner - Credit Suisse
Thank you. Just a question about the new multi-channel loyalty program rolling next month. I mean, this is – it definitely is unprecedented, and I’m sure, at least to some extent there’s going to be some education required, but that’s kind of the big opportunity right, you get to bring in a lot of the non-current loyalties as they realize this opportunity. If you could talk a little bit about that marketing program, maybe how you plan to message this? Do you roll it out first just to existing users? How do you get the broad based awareness of this new opportunity? Thanks.
Hi, Keith its Jeff Hansberry. We’re very excited about bringing My Starbucks Rewards down the isle. And to your very point, today we’ve got about 6 million My Starbucks Rewards customers. As we extend the program into channels we’ll be able to reach an audience and make My Starbucks Rewards available and create awareness for the program to an audience that is 10 times larger than our current My Starbucks Rewards audience. The way we’ll bring that to live is, in the store there will be point of sale material and there will be material on each and every package of roast and ground coffee to create rapid awareness with both our loyal customers and with new customers as they become aware of the program. We will thread MSR trough everything we do in channels and will become an integral part of every promotion that we run going forward. So, we have great expectations in how it will transform the way our customers experience the brand and their loyalty to the brand.
Jeff, maybe you can also say, the benefit we have about the stores within all of these stores, 1000’s of licenses.
Yes, yes. Thanks, Howard. So, we’ve got over 3000 license stores that sit within some of the best grocery and mass merchant real estate in the U.S. What that allows us to do is to create an ecosystem within the store where our customers have the opportunity to buy hand-crafted Starbucks beverages and also their packed coffee needs down the isle. And as Howard, mentioned in his comments; every time you buy a Starbucks roast and ground coffee you’ll earn My Starbucks Rewards stars that can be redeemed for Starbucks food or Starbucks drinks. And now with those 3000 stores in the best grocery stores around the U.S. that makes it more relevant, it helps to thread it through or blueprint for growth more easily.
Your next question comes from the line of Sara Senatore from Sanford Bernstein. Your line is open.
Sara Senatore - Sanford Bernstein
Hi. Thank you very much. I wanted to just talk about the channel development business briefly, obviously you said that you're pleased with the share gains, but would've liked to seen a little bit more growth in the biggest part of your business. I'm just trying to reconcile sort of the slower top line growth with, I think, what is continued confidence that there will be – that ultimately this business will be as big or bigger than retail, and if you could just talk about the cadence you see and maybe when some of these other initiatives will start to look a little bit or be a little bit more present to offset what appears to be sort of a slower growth core package business? Thank you.
Hi, Sara, it's Jeff Hansberry again. We remain very confident in the future of channel development. Q2 was a challenging quarter. In that we saw both a slowing in the roast and ground business overall combined with a lot of competitive activity on our largest segment, roast and ground. That said, we feel strongly that we have the right mix of value and promotion and merchandising and loyalty activity to reignite growth in our roast and ground business with the list price reduction that we announced this month that will take effect in May with the activation of the My Starbucks Rewards program with some new additional innovation that will be hitting the market in Q3 and Q4 to include a 40% increase in the number of SKUs of K-Cups across the Tazo Tea brand as well as the Starbucks Coffee brand, additional innovation hitting the market in VIA as well as our ready-to-drink portfolio with Starbucks Iced Coffee and some other new innovations that will come later in this year. So we remain very optimistic. And layered on top of what we're seeing in the U.S. business, we continue to be in the nascent stages of our international expansion. I think I've shared previously that today the channel business only operates in about 20 of the 62 countries where Starbucks has retail operations and we're working aggressively toward expanding beyond the U.S. with our CPG portfolio.
Sara Senatore – Sanford Bernstein
Your next question comes from Greg Badishkanian from Citigroup. Your line is open.
Gregory Badishkanian - Citigroup Inc.
Great. Thank you. In the press release, you mentioned that you had considerable momentum in business as you entered the second half, which is very encouraging and I'm just wondering, what's the read through of that comment to April same-store sales?
Greg, we won't speak specific about April at all. What we can say with confidence is the great strength that we came through the first quarter, the holiday period that we've reported on previously as you know and then as we progressed through this quarter with a backdrop of, as you know, very choppy and mixed results broadly in the retail environment and with many other retail companies, we produced very steady, healthy strong growth and traffic growth and in same-store sales growth in the U.S. and consistent ability to leverage that strong top line into profit growth at the bottom. So no specific comments about April, but we exited Q2 in a very healthy place and that's given us confidence in terms of the low momentum combined with the pipeline of what's to come in the third quarter and the fourth quarter, the lineup of innovation across all channels encourages us that leads to our confidence in the momentum and that leads to our ability to speak with such confidence about the back half of the year.
Greg, I'll add one other thing. I think it's hard to perhaps really get underneath what's going on with social and digital media, the loyalty card and mobile. What I can tell you though is that we as a company have cracked the code on being able to leverage those platforms in a number of ways. To create awareness in trial of new customers who are not in the Starbucks franchise, to lower our cost of customer acquisition as a result of the fact that we're using these channels as opposed to conventional advertising. And then thirdly, we can analyze with great specificity that the loyalty and the stars that now will be leverage on to the CPG channel is significantly relevant to our core customers. When you combine that with what we've been able to do during peak periods in terms of efficiency and productivity plus creating new need stakes for customers in dayparts that in the previous years we have not been as busy as Troy said, gives us great confidence that the 7% comps that we sold in the first quarter and second quarter is stunning accomplishments when you look at the backdrop of the economy and what other people are reporting, especially given the environment we are in. So, I would say that the ecosystem that Jeff talked about and what we're going to be able to do with these programs going forward gives us the optimism that we are in very good shape for the balance of the year.
Gregory Badishkanian - Citigroup Inc.
Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.
Jeffrey Bernstein - Barclays
Great. Thank you very much. It's a question on more so balance sheet, in terms of cash or even looking at the cash flow statement and after CapEx spend, obviously there is no shortage of cash. I'm just wondering if you can give us kind of an update in terms of forward discussions as it relates to and how you determine the right balance first of all this is the share repurchase and dividend, what is the right level there, because obviously you could be a doing a lot more of both. And then the potential whether its considered an increase in leverage obviously right now may be it is not your priority, but rates are fairly compelling, so I’m wondering whether you consider boosting leverage or how you even think about the leverage – the right leverage level perhaps once the settlement is complete? Any thoughts on that front will be great.
Sure Jeff. I think the first thing I mentioned is where you ended which is we are awaiting resolution of our dispute with Kraft and as we come through that, which we now expect for sometime in the second half of this fiscal year, that will bring clarity to allow us to then formulate a little bit more specifically our go-forward plans. But I will say that we are very committed to sustainable dividends and growing the dividends through two metrics. One is by at earnings grow over time, the payout ratio where we have been paying since initiation at 35% to 40% payout ratio; I would expect to grow dividends just as earnings growth. But I would also expect to look at that range over time, not immediately but we are well aware of whether as an industry payout and I would anticipate at elevating that payout ratio at the appropriate time, which I think the strength of our cash flow in the business. Similarly with share repurchases, we are committed to a balance of dividends and repurchases. Of course repurchases are much more opportunistic, but we’re committed to the program and our Board has authorized continued opportunities for us to being more active in the open markets, so we will take advantage of that as we believe market conditions exist for that. Now with respect to, Jeff what I will tell you is, I’m looking closely at debt on our balance sheet and while we certainly have very, very strong cash flow position, we do recognize that we got opportunities to optimize that balance sheet and bring some additional debt on to leverage over time. And I’m well aware of where the market conditions are today and again looking very closely, we had nothing to announce today, but its definitely something close thing on the radar screen.
Jeffrey Bernstein - Barclays
Your next question comes from the line of Jason West from Deutsche Bank. Your line is open.
Jason West - Deutsche Bank
Yeah, thanks. Just a question on EMEA. If you guys can talk about this thinking on holding on of the company stores there, it’s a business that’s not earning much of a margin today and just wondering, you mentioned some refranchising, but I think that’s for new growth. Just if you revisited the thoughts on refranchising some of the company business to try to pull more profits out of that market?
Michelle is sitting in London; I think she is going to answer the question.
Yes. Hi, Jason. Michelle here. Excellent question. Actually Howard spoke to, we’re actually now looking at franchising not only for new growth, but sale of some of our existing base. And we’re – we’ve begun to do that in London and Africa with some learning, then on U.K we will look for other opportunities across the continents. So to clarify, its not just about new store growth, it is actually by looking at the sale of some of our existing base. And we’re confident that this will dramatically shift the profitability of the market.
Your next question comes from the line of David Palmer from UBS. Your line is open.
David Palmer - UBS
Hey guys. Congratulations on the quarter. Obviously, unbelievable performance, especially at the core U.S. retail. Last year Starbucks did a $10 card for $5 with living social and I’m not acquainted with all the details on these deals, but that seems that the time to be a way to nudge the sales higher during – after what was a tough June last year. This year I think you did one with Groupon at the end of March when the retail momentum seems very strong. So I'm wondering if you're doing things like this maybe more strategically as you're trying to think about broadening that rewards user base, or maybe just what were you thinking with these types of things? Thanks.
It's true that the success that we enjoyed with LivingSocial coupled with the learnings that we had in terms of analyzing it, gave us great confidence that during the right time of the year there was an opportunity to do this again. I think the Starbucks brand and the frequency and the relevancy of the Starbucks experience puts us in the unique position to leverage these kinds of opportunities versus a traditional retailer or restaurant. I think you're exactly right, the momentum in this quarter there was no specific need to be a catalyst, but we felt there's no reason to embrace the status quo. We learnt a great deal from LivingSocial, so we had planned to do it again. I think that Starbucks is in a unique position in that we are a super-premium brand. You don't have to go to Starbucks as a discretionary purchase, but at the same time we've been able to find ways to provide a value proposition throughout the menu system and take advantage of these kinds of offers. When you couple that with the incrementality that we have gotten from our rewards program, we have a new level of analytics that we feel is a significant competitive advantage going forward domestically and internationally, and we're now going to apply that to other channels of distributions specifically the grocery. And I want to go back to one question that was asked earlier about, is in fact the other channels going to be as large as we've said in the past? And no one on this call should doubt whatsoever the commitment we have and the ambition for the multiple channels of distribution to live outside of our stores that will rival the scale of the U.S. business. We have an opportunity as we've demonstrated with VIA, as we've demonstrated with Evolution to introduce products in our stores, create the brand and then draft off that into the grocery channel. These are early, early days but the evidence that we have about what I've just described, coupled with this new level of analytics and the benefit from these loyalty programs gives us great confidence that we have the tools, the resources and the multiple channels of distribution that no other consumer brand or retailer has to do things that have not been done before. And this loyalty program that we're going to launch into CPG is a significant idea both for the consumer and I also should say for the trade that we have been in close contact with. And I'm stunned that no one has asked the question about the CPG opportunity in China. Did you not hear what I said? We are looking at the opportunity to take the CPG business into the largest growing market into the world leveraging the equity of the brand and our 1,000-store retail footprint in China.
Your next question comes from the line of John Ivankoe from JPMorgan. Your line is open.
John Ivankoe - JPMorgan
Howard, I will – be a follow-up on that last statement and then another question, if I may.
John Ivankoe - JPMorgan
How many points of distribution do you think you could have in the CPG market in China? I mean is it like the U.S. in terms of grocery stores? I don't know exactly what the numbers are there?
I think the type of distribution that we'll ultimately have in Mainland China will be different than the core distribution we have in the U.S. That channel does not have the nationwide grocery businesses. However, the demand for Starbucks coffee and coffee products that we've had from customers and from people interested on the trade side has been growing. And so we believe very strongly that we can take advantage of that. And when we look at products like Bottled Frappuccino and the success of Blended Frappuccino in China, which has been a significant opportunity for us, we think we can leverage Bottled Frappuccino in the same context that we’ve done in the U.S. which is a $1 billion brand. So, this is a big long-term idea and it’s built off the unique trust and confidence and the relevancy of the Starbucks retail brand in China. And for any of you who have been to Mainland China, you’ve seen that the people who are going into our stores in now over 70 cities in China are Chinese nationals who are using our stores in the same way that Starbucks customers have for years in the U.S. They’re drinking Starbucks coffee, they’re drinking espresso beverages and they’re using our stores as an extension of home and work.
John Ivankoe - JPMorgan
Okay. And if I may, follow-up on a slightly different topic. There was, I guess some discussion on the last conference call that in your early quarter sales, your March quarter sales may have been helped by very high Starbucks card redemptions because of the heavy gifting that happened in the December quarter. So, I was hoping that you could, kind of comment whether that was the case, also comment – I don’t think I saw the number anywhere, what the end of quarter, March quarter Starbucks card balance was and you’re kind of in the thought just – in case I don’t get, I cut off Troy, if there was anyway that we can tighten up the coffee cost guidance for ’14 and ’15 as appropriate they need to be that?
Well, there is no doubt that we got a boost from the sale of Starbucks holiday cards, following the holiday season. But the one thing that has happened over the course of time is that the velocity of Starbucks card sales are much more significant in the off peak holiday season than ever before, coupled with the fact that we now have a significant spike in other smaller holidays, Mothers Day, Fathers Day, Graduation, Birthdays and Gift giving. So the card itself is growing at over 30% and we expect that we continue and we just – we’re just getting started with it. I think Troy is going to give you the answer to the other question.
Yeah, John. Specifically we had on the balance sheet at the end of March, at the end of the second quarter, deferred revenue on the P&L is $668 million. That largely reflects Starbucks card balances as it does in each quarter. And our overall loads during the quarter were 32% higher than the same period time last year. So a couple of metrics that I think tell you two things. One is, the huge up tick in Starbucks card in all forms. Mobile, physical card in a loyalty program in the holiday period very profoundly came through our business in the second quarter. Card overall added roughly two percentage points of the comp growth during the second quarter, very powerful for us and not unlike what we’ve seen over the past couple of years that that program has built tremendously. I think as encouraging as anything is the fact that in the second quarter not only will we benefit from that big holiday slew of cards that came back into the stores. We also though turned new card users into loyalty program members that now allows us to connect with there much more meaningfully, and we believe gives us trajectory even more significantly into Q3 and Q4. So the card was very important to us in the quarter. Now specific to your question about coffee cost. We have now purchased a little bit more than or priced -- a little bit more than half of our coffee needs for fiscal ’14. We have been doing some incremental buying given current market conditions. So we have got about half -- a little bit more than half of our needs locked up for ’14 and given what we’ve locked as well as visibility we have in the market conditions and how we might price the balance of the year, we expect that as I’ve told you before about $100 million of commodity tailwind we would expect to come through the P&L in fiscal ’14. That’s the year-over-year benefit in fiscal ’14. Now we’re not meaningfully priced at all in the fiscal ’15 yet, but I would just point out that given where the market has been trading and where we believe it will go from here, we’ve got opportunity in fiscal ’15 to experience another year-over-year commodity tailwind. Not a specific number yet, but it could be a meaningful tailwind coming our way again in fiscal ’15.
John Ivankoe - JPMorgan
Your next question comes from the line of Mitchell Speiser from Buckingham Research. Your line is open.
Mitchell Speiser - Buckingham Research
Great. Thanks very much. And my question is on the food program in general in the U.S. a couple of parts of the question. First, have the same store sales continue to grow quicker in food versus the overall business. And secondly, I sometimes get the pushback where that food is a lower margin product, so as it grows it could hurt margins, but is the offset a higher ticket and kind of how that works? And then the last part of the food question is just on health and wellness and the bakery product looks great, I wouldn't consider it under the umbrella of health and wellness. If you can maybe give us a little sense of where you might be going with health and wellness in the Starbuck stores? Thank you.
Thanks, Mitch, for the question. Firstly, we are seeing strong continued growth from food. And that has been the case now from the past 12 months. So really reporting a very strong growth in food in the U.S. Obviously, overall, it's a balance between food and beverage which is really important to us. On the margin, I think the – we're getting healthy margins out of our food. The opportunity here is if we can increase (indiscernible), which historically has been one in three transactions, vacancy is a big opportunity. The other side is it increases the relevance of Starbucks as a place for people to come to whether it's food on the way to work or indeed for their lunch. So we see that continuing and we'll support increased beverage sales throughout the dayparts as well. So that is part of our strategy on food. If I talk about the health and wellness as it relates to new bakery products, the fantastic thing with those new bakery products is they are all natural ingredients while we're taking out any non-artificial ingredients, we use natural sweetening. That's where we can reduce sugar. So when there is buffering there, finest ingredients, calories are managed both by the balance of those ingredients plus portion size. So that is a good part of it and health and wellness remains an important part of our strategy going forward. And you'll see in the coming months that we'll supplement a lot of launch products with other products which will give that balance. It's important to us for both food and for better customer choice and in all parts of our range of beverage and food to give healthy options.
And, Mitch, I'd like to just underscore Cliff's point about margins. While food has a lower gross margin than does our beverage platform, on a net margin level, so at the store level, food is actually additive to margin we would expect over time. And the reason for that is if we're selling incremental food and as we will be increasingly successful, we believe that increasing mix of food in our stores, the rent is already paid, the lights are on, staff is in place, our partners are in the stores, so we have an opportunity to very incrementally, perhaps see that impact of gross margin very moderately, but I would expect it to be neutral to most likely positive to margin at the store level.
Mitchell Speiser - Buckingham Research
Your next question comes from the line of Joe Buckley of Bank of America. Your line is open.
Joe Buckley - Bank of America
Thank you. Just a question on the China Asia-Pacific operating income performance for the quarter being flat. I know you mentioned making investment in the platform to grow the business, but could you talk a little bit about that for the quarter and what we should – how should we think about that going forward?
Joe, this is John Culver. With regards to the operating income and the impact that we saw when you look at it on a year-over-year basis, there are really three things. First was, the portfolio mix shift that [Technical Difficulty] fact that more and more of our growth is coming from our company-operated markets, and in particular China. So, in the quarter, as Troy mentioned, we grew store count 35% on a year-over-year basis. The second big item that hit us was this non-routine income and Troy quoted that at $6.7 million. That was the joint venture income that we took last year in the quarter…
Ladies and gentlemen, this is the operator. I apologize but there is a slight delay in today's conference. Please hold and the conference will resume momentarily. Thank you for your patience.
This is Starbucks. We're back on the call, operator.
Your line is open.
Do we have a question?
Joe Buckley - Bank of America
Hi, Howard, this is Joe Buckley, I don't know if you can hear me, but we can hear you but John got cutoff…
John, do you want to take another shot at that?
Yeah. So, with regards to the operating income and what we saw in the quarter, there are really three factors playing into it. First, with the portfolio mix shift and the fact that more and more of our growth is coming from our company-owned markets. The second big piece was the investment that we continue to make in accelerating new store growth. And as Troy shared with you, we grew our new store base over 35% on the year-over-year basis. At the same time while we make those investments, we continue to see very strong returns from a sale to investment ratio. And those metrics continue to exceed our expectations. And then the last big item, which was a non-routine item, was some joint venture income that we have to lap over from last year. It was an accounting adjustment that took place last year. It was a $6.7 million accounting adjustment in the quarter and that was the other big non-routine item that we had to lap over for the year.
We take one more question, JoAnn?
Yes, one more question please, operator.
Your last question comes from the line of Matthew DiFrisco from Lazard. Your line is open.
Mike, please (indiscernible) please.
Your last question comes from the line of Brian Bittner from Oppenheimer. Your line is open.
Michael Tamas - Oppenheimer & Co., Inc.
Great, thanks. This is Mike Tamas on for Brian. Just wonder if you can talk about the consumer habits a little bit, that you’re seeing for people that aren’t using the Starbucks card. I thought I heard something mentioned about those users purchasing premium beverages and alike. So I'm just wondering kind of what the spending habits look like when people aren’t using the preloaded money? Thanks.
I will try and answer that Mike. What we are trying to come by was that we were seeing incrementality in terms of the afternoon daypart from cardholders and also we are seeing an increase in their purchasing of the indulgent beverages. We were not making and I certainly didn't intend to make any inference about the changing habits of customers who pay by other means and they remain a – the majority of our customers and they remain very consistent in their habits.
Thank you very much. We wind up today for our second quarter earnings call. We appreciate your time and we will talk to you again Q3 call in July. Thank you. Have a good day.
This concludes today's Starbucks Coffee Company’s second quarter fiscal year 2013 earnings conference call. You may now disconnect.
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