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Starbucks Corporation (NASDAQ:SBUX)

F1Q 2014 Results Earnings Call

January 23, 2014 5:00 PM ET

Executives

JoAnn DeGrande - Vice President, Investor Relations

Howard Schultz - Chairman, President and CEO

Troy Alstead - Chief Financial Officer

John Culver - Group President, China, Asia Pacific and Channel Development and Emerging Brands

Adam Brotman - Chief Digital Officer

Curt Garner - Chief Information Officer

Analysts

Joe Buckley - Bank of America Merrill Lynch

John Ivankoe – JPMorgan

Sara Senatore – Sanford Bernstein

Jeffrey Bernstein - Barclays Capital

Michael Kelter - Goldman Sachs

Matt DiFrisco - Buckingham Research

John Glass - Morgan Stanley

David Palmer - RBC Capital Markets

Jason West - Deutsche Bank

Andy Barish - Jefferies

Keith Siegner - UBS

Will Slabaugh - Stephens

David Tarantino - Robert W. Baird

Diane Geissler - CLSA

Karen Holthouse - Credit Suisse

Operator

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to Starbucks Coffee Company’s First Quarter Fiscal Year 2014 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.

JoAnn DeGrande

Thanks, Mike. Good afternoon. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Joining me on the call to discuss our Q1 results are Howard Schultz, Chairman, President and CEO; and Troy Alstead, CFO. And also with us today are John Culver, Group President, China, Asia Pacific and Channel Development and Emerging Brands; Adam Brotman, Chief Digital Officer; and Curt Garner, Chief Information 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 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 be available on our website at investor.starbucks.com.

Please also note that Starbucks 2014 Annual Meeting of Shareholders will be held in Seattle at 10 a.m. Pacific Time on Wednesday, March 19th, that meeting will also be available via webcast.

With that, I’d like to turn the call over to Howard Schultz. Howard?

Howard Schultz

Thank you, JoAnn, and welcome to everyone on today’s call. I’m very pleased to discuss the record Q1 results that Starbucks announced today. Strong operating and financial performance from all business segments around the world and increase operating leverage and store efficiency enables us to deliver record quarterly revenue of $4.2 billion, record quarterly operating margin of 19.2%, record quarterly operating income of $814 million and record quarterly EPS of $0.71 per share.

Strong customer response to food and beverage innovation contributed solid Q1 comp sales growth of 5%, consisting with our previous mid single-digit guidance representing our 16th consecutive quarter of 5% comps or greater.

Noteworthy is that the 5% comp growth driven by our important EMEA region with over 2,000 stores, was a strongest growth in more than three years, demonstrating the success of our strategy to transform our EMEA business based on the learnings from our U.S. transformation.

Also, noteworthy, is that our Q1 U.S. comps were approximately twice the national retail sales average during holiday shopping period this season. And that our Q1 results do not reflect the significant future sales benefit from the year-over-year increase of $230 million in deferred revenue over $1 billion resulting from extremely strong new Starbucks Gift Card activation and Starbucks Card reloads in Q1.

At the outset, I want to take a moment to comment on two pronounced shifts in consumer shopping behavior that retailers experienced, but that we unlike many retailers or any competitor were prepared for this past holiday season and explaining why and how Starbucks global business will increasingly benefit from the acceleration and convergence of these shifts going forward. Then I will provide an overview of segment performance in Q1 and Troy will take you though Q1 financial and operating results in detail.

Holiday 2013 was the first in which many traditional bricks and mortar retailers experienced in-store foot traffic give way to online shopping in a major way. Customers research, compare prices and then bought the brands and items they wanted online, frequently using a mobile device to do so.

This was also the first holiday in which consumers embraced the convenience and flexibility afforded by physical and digital gift cards with the passion. Instead of gifting a particular item, many consumers instead choose to give the gift of choice. Starbucks was prepared for both of these shifts having invested over many years in the creation and development of proprietary world class digital and mobile payment and card technology and expertise. This expertise and the assets that support it enabled us to seamlessly process more than 40 million new Starbucks card activation valued at over $610 million in the U.S. and Canada alone in Q1, including over 2 million new Starbucks card activations per day in the days immediately leading up to Christmas and $1.4 billion of Starbucks card loads globally.

Each of these figures represented a significant increase over both last year and candidly our most optimistic projections for this year making Starbucks one of the very few small handful of retailers to benefit from the transfers of reward [ph] store sales to online sales and the gifting of choice.

Even more, the sheer magnitude of the $1.4 billion loaded with deposit cards in Q1 is the opportunity presented by the millions of customers that will be visiting our stores to redeem these cards in the future. Experience tells us that many gift card recipients are new customers for Starbucks and their visits are providing us with the unique and power opportunity to introduce them to the Starbucks experience, invite them into my cover of rewards loyalty program and inspire them to become part of the Starbucks daily ritual.

Today with only 10 million customers actively using our mobile payment app, over 7.3 million active my cover of reward [ph] in U.S. alone, over a half of them at home are gold status members and a figure approaching 5 million mobile transactions taking place in our stores each week. Some [ph] integrated mobile and world app technology is by far the undisputed leader in digital retail technology.

Together mobile and Starbucks card payments represent over 30% of total U.S. payment. This powerful technological advantage combines with our robust pipeline of food and beverage innovations and Starbucks’ recognition as one of the world’s most respected and most trusted consumer brands will provide us with a winning hand as mobile, card and online sales trends continue to converge and accelerate around the world and into the future.

Let me turn your attention to the Americas. Starbucks Americas segment now comprising over 13,000 stores had another strong quarter with revenues up 8% and comp sales up 5%, including a solid 4% increase in traffic. Contributing to Americas performance was the success of our holiday beverage offerings, including both Pumpkin Spice Latte and our holiday beverage frio [ph] and strong food sales, including increased customer acceptance and additional benefits from the ongoing rollout of La Boulange.

As we entered 2014, Starbucks Americas segment is benefitting from new store development and existing store renovation programs that are driving increased store efficiency and throughput, enabling us to deliver both an enhanced customer experience and increased profitability. The success of these app efforts are apparent with our newest class of stores on track to average over $1.2 million in year one sales, exceeding our best in class investment ratio of 2 to 1.

For example, a new class of drive-in stores is providing Starbucks with the unique opportunity to connect with customers on the go and represent a tremendous growth opportunity for us both domestically and internationally. In the U.S., highly profitable drive [ph] account for 40% of our company operated store portfolio and remain a focal point of our store development efforts. And the more we broaden and expand our drive thru program, the more we see white space and opportunity for drive-thrus in the future.

Licensed stores comprising 40% of our Americas store portfolio representing roughly half of the 600 net new stores and plan to open in the Americas in fiscal 2014, also present a compelling growth opportunity for us. We opened 50 licensed stores in Canada in Q1, including 30 in a single day. The net additions facilitating rapid growth licensed stores utilize less of our capital, provide strong insurance and floor access to otherwise unavailable high traffic retail venues such as hotels, airports, rail stations, grocery stores, big parks , and fast growing international markets such as Mexico, a market that delivered extremely strong comp growth inQ1.

Overall licensed store [ph] revenue increased 15% in Q1, the highest growth rate in six quarters. But because of the value of our global brand, we are receiving more [indiscernible] today from potential licensees than any other time in our history.

Let me turn your attention to new platforms and again with Teavana. A year after the acquisition of Teavana, we are more convinced than ever that we have the opportunities to transform the tea category to the way we have transformed coffee all around the world. Recent research confirms that Teavana now enjoys the highest level of awareness of any super premium tea brand and like Starbucks, Teavana had a solid Q1.

Now one year into the integration of Teavana, we are poised to begin the rollout of additional stores in the hills of the successful opening of our first two Teavana tea bars in New York City and Seattle. These two beautiful new stores are already providing us the key insights that will help us achieve our goal of combining and leveraging Teavana’s strength and authority around loose-leaf tea and tea merchandising and Starbucks for entertaining its prudential consumer environment, innovative, handcrafted beverages and a retail store development to create a new retail platform and a unique international premium teahouse experience.

I would now look for Teavana to bring breakthrough innovation to the tea category in the U.S. and Canada this spring and summer and to the international markets in the years ahead. Now beyond tea, another important area of innovation and interest for us is premium handcrafted, cold carbonated beverages.

This category is by far the fastest growing segment of over $140 billion global carbonation industry and the results of the tests we conducted in stores in select U.S. and Asian market last summer exceeded our most optimistic expectations.

The excitement that was created as baristas carbonated, our customer’s favorite drinks and the fantastic innovation and interaction that follow, cemented our interest in the category and the opportunity to elevate the cold carbonation category with a premium handcrafted offerings in our stores.

Look for handcrafted cold carbonated beverages in several stores that will drive full attachment, create an incremental leaf tea for our customers and create a new big pot for us in the months and quarters ahead.

Turning to China and Asia Pacific. If you want our important rapidly expanding China Asia-Pacific segment, currently comprising over 4000 stores in 14 countries, including 209 net new stores in Q1, delivered strong revenue growth of 25% and exceptional strong comp growth of 8%. These are best-in-class results for any retail or restaurant operating at our scale in Asia.

This month, Starbucks celebrated 15th anniversary in China, a market we open with one store in Beijing in 1999. We have more than 1000 stores today and China remains on track to become Starbucks’ largest and most successful market outside the U.S.

Just in time for the lunar New Year, we reached a major milestone which they view of Starbucks gift cards in China. China customers responded to the Starbucks’ card overwhelmingly in a positive way with initial sales once again far in excess of our plan and in many ways mirroring our U.S. experience.

We currently offer the Starbucks card in different aspects of our My Starbucks Rewards loyalty program in ‘12 to ‘14 China Asia-Pacific region markets in which we’d operate. In Japan and Hong Kong, we recently made it even faster and more convenient to customers to give the gift of Starbucks’ choice online with Starbucks eGift.

In India, momentum continues where in Q1, we opened a beautiful new flagship store in the Garden City of Bangalore and we continue to accelerate that growth. We now operate 34 stores in four cities and customer demand for Starbucks stores throughout India literally is at a fever pitch. We are delighted with the performance of our joint venture with Tata among the most respected companies in India and we are poised to grow sizable portfolio stores in India over the next two years.

Overall, we plan to -- overall we plan to get a total of 750 new stores across China Asia-Pac in 2014, including both our 100 stores in Singapore next month and continue to be driven by the exciting opportunity to introduce our elevated, differentiated and locally relevant Starbucks’ experience to millions of new customers in this important part of the world in the years ahead.

Let me turn your attention to EMEA which in many ways has really had a wonderful performance and I think it is consistent with the guidance we gave you year ago in terms of our confidence that we would turn EMEA around. Starbucks’ important EMEA segment now comprising more than 2000 stores had a particularly noteworthy Q1 with revenues increasing 11% and exceptionally strong comp sales growth of 5%.

We opened a total of 64 net new company operated and licensed stores in EMEA in Q1, including our first store in Monaco and [indiscernible] our first ever store aboard a train on the Swish rail line running between Geneva airport and St. John. We are on plan to open 12 of 150 net new stores in fiscal 2014.

EMEA’s Q1 performance underscores continued execution against our transnational agenda in that region and the success of the strategy that includes enhancing our new store customer experience, showcasing innovative locally relevant food and beverage products and focusing on company operated licensed and franchise stores for our new growth – for our new server [ph].

Licensed store revenue in EMEA grew by 38% in Q1 due to the combination of new stores and strong performance in several key markets, including double digit comp growth in the Middle East and North Africa where we now have 335 stores. While we continue to be very encouraged by the progress we have made in EMEA, as I previously stated, we are determined to see these projects continue till the region reached its full potential.

Turning to channel development. Our channel development segment posted total revenues of $401 million in Q1, representing solid 7% growth in Q1 over last year and continues to grow market share and [indiscernible] channels outside of our retail stores.

The strong direct selling relationship we have built with retail is enabling us to elevate and differentiate our brand, increase our presence and enhance our product position and the deepening and strengthening of these retail relationships combined with new product offerings and initiatives currently underway gives us confidence that channel development growth will accelerate as the year progresses and at the same [ph] it will deliver both double digit top and bottom line growth in fiscal 2014 and beyond.

Premium single cup is the fastest growing segment in at home coffee. We have grown our share to a current 18% of the segment over the last two years. Since launch, we have now sold way over 1 billion [indiscernible] and 200 million stick [ph] and we continue to build and expand both platforms.

In January following strong customer demand we introduced a new innovative line of [indiscernible] offerings including – over the course of this year you will see a significant expansion of our line of key cup offerings including flavor [indiscernible] in the key --. We continue to innovate and add to our leading market share of the premium package compensating as well and now really a remarkable 26% share of that segment. And we continue to build, discover refreshed [ph] platform and are already seeing the early success of our Starbucks signature, our merchandise initiative just in time for the rollout of our new ready to drink packaging in the spring.

Some of those continues to offer the world’s first and only cross-sale channel loyalty and rewards program with more 2.2 million rewards that was earned by customers in the first seven months since My Starbucks Rewards starts and [indiscernible]. Starbucks’ unique amazing of value rewards and premium positioning will enable us to continue to aid to our leading position and market share in CPG channels.

A few final thoughts before I hand the call over to Troy. I think this part of my remarks are very important. Over the last month or so, I have heard many traditional brick and mortar retailers attribute the downturn in their core business during holiday. The factors such as a shortened holiday shopping season, a weekend consumer, the U.S. government shutdown and [indiscernible] but secondly, those explanations ignore a larger fundamental truth. That truth is that traditional brick and mortar retailing is an inflection point. No longer are many retailers only required to compete with stores on the other side of the street. They are now required to compete with stores on the other side of the country. Navigating the seismic shift will continue to be very, very difficult for me.

But I firmly believe and I admit Starbucks solid 4% increase in traffic in Q1 validates that we will be among the small group of retailers to gain from the macro transfers of brick and mortar retail sales to online sales underpinning this belief are free dynamic unique Starbucks it manages.

First, Starbucks offers an experience that cannot be replicated or copy. The power of our brand, our heritage in coffee, beverage innovation, customization and the deep emotional connection we have with our customers rooted in longstanding trust and respect that our 200,000 Starbucks partner share with our customers provides us with an overwhelming competitive advantage, not only domestically but around the world.

Second, we invested and continue to invest well ahead of the curve and today have world-leading proprietary digital, social, mobile payment and card technologies and assets. These assets are enabling us to broaden and deepen our connection to customers, enhance overall Starbucks customer experience and further differentiating distance ourselves from competitors.

And we have a full pipeline of new technological innovations introducing in the quarters ahead that will fully leverage these assets and provide us with even greater benefits into the future. And we are just beginning to appreciate the full magnitude and possibilities of the Starbucks mobile payment platform opportunity. And third as our strong traffic in Q1 demonstrates the deep sense of community and human connection that our stores provide our customers as their preferred place. It is only going to become more reformed and more relevant around the world in the future.

Let me say in closing, I could not be more confident that Starbucks unique combination of physical and digital assets makes us one of the very few consumer brands with a national and global footprint to be in a position to build market share and benefit from the seismic retail and consumer shifts underway.

I will now turn the call over to Troy.

Troy Alstead

Thanks, Howard and good afternoon everyone. The strongest start to fiscal ’14 across all of our operating segments led to consolidated results that eclipsed every meaningful record.

Revenues of $4.2 billion from a 12% increase over last Q1. Our 5% global comparable store sales growth was the largest driver and particularly encouraging is the strength of sales growth around the world. In fact, this was the first quarter since Q4 of 2010 that all regions posted comp growth of 5% or better.

And traffic continues to fuel that comp growth, growing 4% in the quarter with a 1% contribution from average ticket. The strong performance from our more than 1,500 net new startups stores opened over the past year also contributed to the revenue growth in Q1.

Consolidated operating income grew 29% to a record $814 million in the first quarter. This includes a $20 million credit as a result of paying our obligation in the Kraft settlement earlier than anticipated. Operating margin expanded 260 basis points to 19.2% in Q1, far above any quarter we’ve ever had even when excluding litigation credit.

Operating margin expansion was due largely to the lasting of several non-routine expenses in the Americas segment in Q1 of last year. Commodity costs improvement and sales leverage also contributed towards the expansion.

Earnings per share grew 25% to $0.71 per share in the first quarter to a record even when excluding the $0.02 impact of the litigation credit. Our tax rate of 34% was up significantly over the last Q1, as we lost an $18 million benefit recorded at Q1 of last year, primarily from state income tax expense adjustments for returns filed in prior years.

Our performance this quarter clearly demonstrates the comp growth in the heart of our target range, resulting significant gains and profitability and margin expansion, a testament to the efficient use of capital and strong financial discipline that is competitive throughout the organization.

Now, let me take a few moments to briefly touch on the results from each of our operating segments. In the Americas, another solid holiday season and excellent operational executions drove revenue, operation margin and operating income to record levels.

Revenue grew by 8% in the first quarter as strong sales growth in existing stores and sales from 735 net new stores opened this past year, pushed Americas quarterly revenues to over $3 billion for the first time ever. Comp growth of 5% was driven by a 4% increase in transactions.

We did see some softening of traffic and comp growth in December. However, our Q1 comp growth was an extraordinarily strong delivery given the shifts in consumer behavior that we kind of faced during the holiday as Howard mentioned.

I will also mention food among our comp growth drivers in Q1. Food continues to be a disproportionate driver to our comp and product launches helping to propel those results. There have been very significant successes thus far, including for some sales that have doubled versus our prior offering.

Make no mistake, however, this is a very complex rollout. We are significantly up leveling our core food offering across more than 10,000 U.S. stores in two years time. The cost was that we are leveraging the learnings from the introduction in many markets in fiscal ’13 to quickly optimize implementation of stores launched this year. This includes labor deployment strategies, product assortment choices and marketing and display optimization.

Overall, we are as optimistic as ever about this opportunity. In addition to the solid revenue growth in Q1, Americas operating income of $732 million was 24% higher than last Q1 and operating margin of 23.8% reflected in expansion of 300 basis points. Included in the expansion was the lapping of [indiscernible] from last Q1 including our leadership conference, gate in-charges [ph] and the impacts of superstorm Sandy. However even after backing those [ph], our largest and most mature business of the Americas continue to drive margin expansion, we are also making investments in labor and food [indiscernible].

Not only with our 23.8% operating margin, the big improvement from last Q1, it was a full 150 basis points higher than any other quarter we have ever had, and opportunity remains. Labor and store maintenance are all under the microscope and we are expecting this technology to enhance the [indiscernible] schedules and robust monetization program will all deliver improvements.

As we continue to invest in our people, including maintaining world class benefits [ph] that go above and beyond requirements of the [indiscernible], we see greater stability of practically run stores. This means we can spend more time focusing our customers, ensuring they receive the one of kind personalized [indiscernible] experience that drove our solid floor balance result this quarter.

As we move now to Europe, the Middle East and Africa or EMEA, where the first one represented a continuation of the great stride we are making in the region. Revenues of $340 million in Q1 grew 11% over the prior year. This is truly a great start to the year. In fact, the $33 million in Q1 revenue growth was higher than what we delivered for the entirety of fiscal ’13.

There were contributors to our top line coverage, certainly time to a slow but positive retaining economic recovery including declining unemployment in the UK have been helpful. Beyond that there are strong signals that our strategy emulate consisting of licensed store growth along with the heightened focus on the store experience is paying off.

Licensed stores are the largest contributors to the revenue growth with company operated cost growth following closely behind. The 5% comp growth in Q1 was generated by a 3% increase in transactions. Perhaps our most solid sign out of EMEA, the fact that the improvements we are seeing are broad based. All of our major markets are showing improved, the momentum is building for a great year. Our top line momentum and disciplined stores basing across EMEA translated into a strong bottom line as well.

Q1 operating income in the region grew 34 million, 50% higher than last Q1. And operating margin expanded 250 basis points to 9.9% as the portfolio shift to higher margin licensed stores drove our highest quarterly operating margin ever. We are encouraged with the progress we are making in EMEA and excited about what is to come.

Now for China and Asia Pacific continues to be our fastest growing and highest margin region. In the first quarter, Café revenues grew 25% to $267 million. Our record number of store openings and a strong performance in Q1 were key driving force behind our revenue growth.

Additionally company operated comp growth which had 8% represented continuation of our strong consistent growth in the region [indiscernible] higher, 7 percentage points to the comp growth were due to higher transactions, the acceleration over Q4. Two year comp growth also accelerated to 19% in the first quarter. Strong brand awareness, relevant core promotional product offerings and the increased usage of the [indiscernible] loyalty program all contributed.

Café operating income grew 12% in Q1 to $81 million. Operating margin of 30.4% represented a 330 basis point reduction over last Q1. Margins were negatively impacted by a decline in profit merger venture in Japan. This was driven primarily by the [indiscernible] again but also the timing the investments made in later for upgrade and [indiscernible] by the extended cyclic traffic we experienced. As both our bases expanded in the Japanese economy re-invigorated over the past several quarters.

Excluding Japan, our café operating margin expanded slightly overlapped Q1 despite continued margin pressure resulting from the ongoing strategic portfolio mix shift [indiscernible] stores. Our outstanding performance in mainland China is a major reason – offset that impact from that shift of the portfolio composition. As China’s revenue and operating income growth easily outpaced in the region. Strong new store performance, -- leader management and sales leverage are driving our success there.

In channel development, global sales of single serve products and continued growth in food service combining our revenues higher by 7% to $401 million. These revenue drivers were partially offset by the impact of the lower pricing on packaged coffee. All we are going to share this category until we lap the list price reduction initiated last May, we won’t see full impact to our revenue growth. This is one of the reasons we anticipate higher channel development growth from the second half of fiscal ’14 and in the first half.

As far as single serve growth goes, Starbucks Teacup shared the premium single serve market in EMEA last is now over 15%, our highest point since the loss three years ago. Our new holiday Blend K-cups were extremely well-received, helping to propel sales in the U.S. food, drug, and mass channel higher by 65% in the final four weeks of the quarter, which significantly outpace the category over that same time period.

Additionally, we continue to gain traction on Verismo which delivered solid holiday sales. Unit sold grew over last few months as we nearly double the year-over-year door count with the addition of several keys special to retailers.

Verismo is an element of our strategy to capitalize on the highly competitive single cost base. We will continue to invest in the single-serve business which we believe will be an important driver of our long-term growth.

Operating income in channel also grew a very healthy 23% to $119 million in Q1. Operating margin expanded 370 basis points to 29.6% due largely the 340 basis points of favorability from more coffee cost.

Lower pricing on packaged coffee and strong promotions in the quarter partially offset our coffee cost favorability. However that was offset by favorability in other operating expenses as a result of decreased marketing due to the launch of Verismo in last Q1.

All other segments grew revenue to $159 million in Q1, up from $101 million over last Q1. And we delivered $14 million of operating income up from the $4 million loss a year ago.

The growth in both revenue and operating income was due to the addition of Teavana which was not in our prior year Q1 results. Please note that Q1 was the last quarter, we will not have Teavana in the prior period results as it was added at the beginning of Q2 of fiscal 2013.

Before I move on to our fiscal 2014 target, let me note that this quarter we corrected an immaterial error in our prior period financial statements to allow pretty more accurate comparison with current results.

Specific to Q1 the impact of last year that both revenues and other operating expenses were lowered in channel development by $5.5 million and in all other segments by $0.9 million. There was no impact to the operating income. More details including the full explanation can be found on our Investor Relations website.

On the balance sheet, we continue to maintain a conservative focus or ramping up leverage were appropriate. During the first quarter we paid in full our obligation to Kraft as a result of the other pricing outcome. This led to the issuance of $750 million of debt in December which when coupled with the $750 million we issued in September and prior issuances puts our total long-term debt at just over $2 billion. The two most recent issuances result in a meaningful increase for interest expense that is reflected in our Q1 results and that will continue.

The rapid pace of Starbucks card loads during the first quarter has pushed our quarter ending deferred revenue balance to over $1 billion for the first time ever and 29% higher than a year ago. These loads also boost our already strong cash flow which for the quarter saw unusual decline due to the cash payment.

The Starbucks Card strain proceeds from our recent debt issuance and strong quarterly results offset the Kraft payment however and we ended Q1 with $2.2 billion cash, cash equivalents that available for sale investment security. Our strong cash position and conservative balance sheet mean that we can continue to return cash to shareholders through dividend of share purchases.

In the first quarter we reinitiated our share repurchase program and we continue to target share repurchases to offset dilution of our broad based stock equity program that also include our first time store partners. With nearly 25 million shares currently authorized that available for repurchase. We’ll also from time to time be active in the market repurchase additional shares based on market conditions.

It was a very strong start for our fiscal year on many levels. In the operating results we delivered in first quarter give us continued confidence in our full year outlook. With the over delivery on EPS in Q1, we’re now targeting full year fiscal 2014 EPS in the range of $2.59 to $2.67, which includes $0.03 of additional interest expense as a result of recent debt issuances. That represent strong 18% to 22% growth over fiscal ’13 when excluding last years non-recurring gain due to the sales of equity in Mexico, Chile and Argentina in the fourth quarter recording the Kraft litigation charge.

Specific to the second quarter, we continue to expect EPS in the range of $0.54 to $0.55. Remember that traditionally, the second quarter is our lowest in terms of earnings due largely of seasonality. That means the fixed cost like our interest expense on debt issue over the past six months had a more dilutive impact on Q2 than the other quarters. Additionally, last Q2 we had a $0.03 gain on sale of equity in our Mexico business.

With respect to the second half of the year, we’re targeting Q3 EPS in the range of $0.64 to $0.66 and Q4 EPS in the range of $0.70 to $0.75. The second half of the year represents growth of approximately 20% when excluding non-routine gain and the Kraft litigation charge it reflects the strong earning momentum we’ll continue to generate.

We continue to expect a $0.09 to $0.10 whole year EPS benefits from lower coffee costs in fiscal ’14. This mandate is now pricing the interest saved in last year GPGD [ph] as well as investment tracking to our business. And with respect to fiscal ’15, we now have more than a quarter of our company’s loss that reach stable in the fiscal ’14. Given where the markets is trading at today we expect the overall impact to coffee prices to be positive in fiscal ’15 but lower than that of fiscal ’14.

All our previously announced guidance for fiscal ’14 remains unchanged, including revenue growth of 10% or greater, global comparable store sales growth in the mid single digit, consolidated operating margin expansion targeted at roughly 150 to 200 basis points, including margin improvement in the Americas and channel development, high single digit margin in the EMEA and margins moving toward the lower 37% range in café, 1500 net new stores globally, capital expenditures totaling approximately $1.2 billion and a tax rate of 34.5%.

The balance first quarter strength of our global business set us up extremely well for another remarkable year. We have a another significant growth leverage to continue the outstanding Americas performance. We have considerable momentum brewing in café in EMEA. Our channel development business is taking share from competitors and delivering more of the company profitability than ever before. And our fiscal discipline and conservative balance sheet continue to serve us well.

What we have built over the past two years is paying dividends now. Our growth investment proposition is based on strong double digit revenue fuelled by consistent mid single digit comp growth and this is based on growing earnings that are at much faster than the top line. We achieved all of that in the first quarter and we are confident not only to continue that revenue growth, margin expansion and strong earnings growth in the quarters ahead.

With that, I would like to turn the call back over to operator for Q&A. Mike?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from Joe Buckley with Bank of America.

Joe Buckley - Bank of America Merrill Lynch

Troy, for the current quarter, for the second quarter, one of the guidance was stepped up marketing, I believe around both [indiscernible] and the Starbucks card. Are you still – is that service you’re still executing that and could you give us an update on where [indiscernible] is used now in terms of store penetration?

Troy Alstead

Yes, we continue to expect the same guidance we’ve given you previously which is something about higher marketing spend as a percent of sales in the second quarter and frankly in Q3 and Q4 also anticipating morally higher marketing spend as we really continue investing, driving our business, supporting level launch for food broadly and driving innovation throughout our stores. So that will continue and that is also a – progress guidance to the second quarter.

Level launch, to be hot in terms of the lower new stores in the first quarter to largely to focus on the big holiday through the quarters. That will resume here beginning in the second quarter and we continue to expect to be fully rolled out with the first wave of this bakery program only across the U.S. by the end of fiscal year.

Joe Buckley - Bank of America Merrill Lynch

You mentioned the complexity of the level line is rolled out and really it is a huge undertaking and a major change. But has there been more complex being expected or what are the intricacies of rolling out that you discovered from your experiences?

Troy Alstead

No, nothing anymore complex being anticipated, a big change like this across a huge system like Mihow [ph], with the decline of transaction volumes we have per store is a big change, the big operational change, the big supply chain change and all that is anticipated and then of course a goodwill we are providing at a better experience, new experience on as the product innovations we learn as we go, we continue to fine tune labor deployments and working routines and product assortments, fortunately customers want broader products, you will see us a respond and track back as we learn from last year’s launches and proceed to the rest of this year. But that’s a normal part of the process. Everything – part is right on technically we expect, we are extremely pleased with the results we are seeing in terms of the uplift, the fact that fruit continues to be an incremental comp driver in our business and we think this is big an opportunity we ever had just as we continue to roll out from here.

Operator

The next question is from John Ivankoe with JPMorgan.

John Ivankoe – JPMorgan

Troy, you made a mention that there might have been some slowdown in comps in December and I was just hoping in the US – just hoping you could provide a little bit more color on that? Whether it was related to core food and beverage or perhaps other items that you saw in the store, whether you think you may see any implications of that as we enter 2014?

Troy Alstead

Thanks, John. Yes, we did see some slowing in December relative to previous quarters and relative to the early part of the quarter relative to October and November. And we really attribute that fundamentally to discussions Howard had early on in the call, which is fundamentally that significant shift in consumer behavior less retail traffic that we are all hearing about from other retailers that we are hearing about in Retail Traffic report that is published.

Now, all that’s out there has some impact on our traffic roads in December particularly. Now, as I’ve said it’s important to note, we still serve record numbers of customers. We had record traffic coming to our stores in December, had record sales volumes in the month of December and for the quarter overall. We continue to drive traffic, however just at a slightly slower system we had coming into that bigger month.

Now, with that said, no comments about the particular quarter or implications beyond that other than just to point out and acknowledge what you already know is we’re underscoring. The advantage we have, we expect that significant change in consumer behavior is the fact that we ended Q1 with more than a $1 billion of deferred revenue on our balance sheet. Dollars that customers have loaded on the card that will become revenue in our stores as we proceed from here, that’s an important advantage that we have a leadership position and we will continue to further our leadership as we proceed from here.

John Ivankoe – JPMorgan

But maybe there is an evidence in the conference I made that 1% less than average tickets or just that maybe you sold less than some of the higher ticket, maybe gift related items outside of the card in the quarter. Is that a right comment because obviously composition of the comp is not just traffic it’s also average ticket. You just had very low average ticket growth in this most recent December quarter and can you just give us a sense of what that may trend going forward especially with the addition of things like global launch and evolution and what have you?

Howard Schultz

There is no message there. In fact, I think if you look at each quarter for the last two to three years you would see our typical average 1% mini quarters, two same quarters, but more often and not within that 1% to 2% range. So you saw the first quarter coming with ticket that was sold receipts from most of our trends. That will tend to be at point or two the either way. But again that’s been evidenced by most of our countries like.

And the slowdown we saw -- the large slowdown we saw in the month of December in traffic was very broad based. It wasn’t unique to any particular region. It was unique to any particular day part or product set or product line. It clearly demonstrates, improves stuffs and there was just a fewer people out there shopping and so fewer people for us to capture and provide some great experiences in our stores.

John Ivankoe – JPMorgan

Understood. Thank you.

Operator

Your next question comes from Sara Senatore with Sanford Bernstein.

Sara Senatore – Sanford Bernstein

Very much. I wanted to follow-up on that again and I guess I just have a couple of questions about the shift in the spending habits, kind of one big and one small. In terms of the small, other restaurants have pointed to weather. Can you disentangle when you look at your data, something that tells you when weather was good your comps were better or worst, I mean is there -- are there data that you can look at and say that definitively not the case, it’s much more about the shopping habit?

And the second point is in bigger picture, can you just talk about why you think we’re seeing this inflection point now in terms of how people are spending and does this have any implications for Starbucks going forward. I always think of Starbucks as kind of a destination as oppose to a convenience, but its sounds like there is some pieces of business that gets hurt if there are just fewer people shopping.

Howard Schultz

This is Howard. Let me try and answer your questions. It is sometimes easy to kind of bifurcate what happens specifically in the quarter. It was about weather and other things, but there is no gap. Throughout the quarter, there were unusual events and don’t forget we had the government shutdown, which certainly had a adverse effect on consumer confidence and consumer behavior both before and after.

And then obviously, there was a lot of weather. But in my prepared comments I spoke specifically that I don’t think that was the driving issue here. I strongly believe that the month of December and what Troy just described in terms of John’s earlier question will go down as a turning point in the overall way in which people are shopping. I think, clearly, the month of December was the gift giving time and as a result of that people spent much more time on the web than ever before than you saw that in the online ecommerce sales. As a result of that on the margin, there were fairly less people out shopping and as a result of that, in certain day parts in the month of December, there weren’t as many people captured. Now what Troy just said in terms of the follow up, your question in terms of going forward, I do believe that there will be a real seachange for many, many retailers who are going to have a hard time navigating through what I believe will not be December-ish problem, this is going to be an ongoing issue and it’s going to have them faster than people think in terms of the way people are shopping and how they are spending their time, and the value that you can get on the web.

Now when I mentioned in my closing comments, I believe very strongly that we have the inherent benefit built in to be able not only to capture incremental traffic but to drive traffic into our stores as a result of the things that we will be doing and the combination of physical and digital assets that will get stronger over time, I do believe that although John mentioned in his comments that both traffic and average ticket, the 4% number in Q1 to me really is the number that we have looked at as really the sign of the strength and conviction that our customers have about Starbucks. I don’t know any other retailer or restaurant that drove traffic into their stores at that time and if you look at how much money we spent on consumer advertising and trying to capture customers it’s is very very de minimus compared to others.

One thing, Troy, did leave out, that I will just mention in terms of the average ticket, we did – we were a little bit more promotional in-store during the most second half of December in terms of recognizing that there was a problem in that country with traffic and as a result of that, the average ticket problem we went down a bit as a result of promotional activities. But I would say with no defensiveness that we look at the 5% comp number and the 4% traffic number in Q1 literally a stunning success given our peer group and given the macro market conditions. I do believe that there will be challenges for many, many of the retailers in calendar ’14 and Starbucks will be one of the companies that not only will be able to navigate through but will be market share as a result of the combination of assets that we have.

Operator

Your next question comes from Jeff Bernstein with Barclays.

Jeffrey Bernstein - Barclays Capital

Just two questions. Just one to follow up on the La Boulange, wonder if you can give some incremental color in terms of what you are seeing in the store that already have it, whether it be mix, frequency, average check, or what can you talk about, what the contribution is to the comp or any update on the lunch rollout and then I had one follow up question.

Troy Alstead

First, I would say, the role of the retailer we’re probably hoping for, we’re just very encouraged across all aspects of this food program. It still is a rolling in partner stores across the U.S. and it needed only the part of our new elevated food program which is basic category as you know. But all indications are we have found something that resonates service to customers, gets us a change to dramatically see their expectations around food, because it’s a chance to continue to drive food as faster growing part of our business which we have been for some time and that continues to over time elevate food as a mix of the stores overall. One part that I should that, that is connected in food is that while all day parts food for us is a healthy cliff in the first quarter, mid day and afternoon outpaced growth of the other day parts and that’s consistent with some recent trends and it’s partially fueled by food, by people recognizing that there is a fantastic food opportunity now at Starbucks in most day than the afternoon snack items, bakery choices for all day along, they are not that it used to be.

So every indication for us continues to be very positive. We’ve got a ways to go to continue this rollout around the US. The lunch program will continue to be fine tuned and which is really that stages right now and we are very excited as that will begin rolling out late in fiscal year or early next fiscal year more broadly, we are very excited about that next wave of food. And what we have seen from is a multi year elevation of food that we think give us a tailwind in comp growth and tailwind in volumes through the stores over that same service downtime.

Jeffrey Bernstein - Barclays Capital

And just follow on the earlier question thing that you have – it’s now 13,000 plus stores around the U.S. You talked about the shift from brick-and-mortar to perhaps online which obviously you guys seem that are positioned in most to deal with that. Would you say that at this kind of the holiday timeframe, where I guess that becomes pronounced. Do you think there has been a change in the underlying health of the consumer or they're really just around shopping in the holidays and therefore there hasn’t really been a change in the health of the consumer per se just the matter of how they spend or how they spend their time shopping?

Howard Schultz

I think we have a lens on consumer behavior and consumer spending perhaps unlike any other retailer with the national footprint we have. I would say this is in quantitative. It’s more qualitative and more personal. I think the health of the consumer today is better than it was a year ago. But I do think it’s still a fragile issue and what we saw with the government shutdown on October, is any isolated events of that magnitude can have a very drastic and dramatic effect on behavior and I think that's speaks to the fragility.

Now having said all that, I think one of the underlying benefits of Starbucks for many, many years is that we are an affordable luxury. We have been -- we continue to be that. And as a result of that the demography and broad-based diversification of our customer base and our store base insulates us from some of the underlying problems and may exist in one geography versus another.

I also think what Troy said is that our ability to take the fiscal asset of Starbucks and our fixed costs. If you look at store today versus even three years ago, the ability with La Boulange, carbonation coming and thing that we're going to do with tea are going to extend the date, leverage our fixed costs and give us incrementality, not only on the introduction of certain products. But many of these things are linked to the opportunity to increase food attachment not as a result only of La Boulange with the beverage and the innovation that we're bringing that are skewed towards that.

Jeffrey Bernstein - Barclays Capital

Helpful. Thank you very much.

Operator

Your next question comes from Michael Kelter with Goldman Sachs.

Michael Kelter - Goldman Sachs

I wanted to follow-up on La Boulange a bit further and there are two questions. The first are you able to rule out the possibility that any of the same-store sales slowdown may have been associated with reduce throughout during the peak sales quarter as a result of the complexities in the store associated with La Boulange?

And then the second is, can you talk to us about what you expect as it relates to hot breakfast and hot lunch that are coming next under the platform. And how far are you able to go with respect to product offerings, how it's going to be managed logistically at the stores et cetera?

Troy Alstead

Yeah let me speak to the first thing Michael and Howard may want to jump in here too. There is absolutely nothing -- nothing whatsoever to the idea that -- what’s happening with our food programs and La Boulange rule out is impacting throughout or is impacting service in the stores or have any thing to do with comp growth, still down in the quarter, absolutely nothing. We can completely rule that out. We have an opportunity and analysis to look at stores with La Boulange and stores without La Boulange.

I appreciate you don't get to see that side-by-side set of analytics that I do. There is no change in our key transaction day part, there is no impact we think to discern from that. Now perhaps in -- we’ll appreciate this. I think sometime there is a customer perception that things are different in stores, food is being warmed out, multiple order in food, the case looks different.

That change requires some adoption overtime. And I think that it may have created some case’s perception, but you could find out in the rule out, if there is any meaningful impact on what’s happening there. And at the same time, we’ll continue to deploy more labor and revise the labor routines against food that grows in our stores. We'll make sure we’re best in right parts of our business to both dry volumes, to meet the customer needs and to grow profitability on our stores as time goes on.

Howard Schultz

If you cry, one thing about that. Not only it's absolutely nothing to suggest that there is a throughput issue, but I would also remind you that because of the Starbucks card and the quick adoption of mobile payment that we are speeding up the level of service and our stores. And when you look at the amount of people that are now paying with the card and with the unbelievable rate of adoption and how accretive global payment is -- there is no issue whatsoever. This is a myth that absolutely has no legs and for all of you listing on the call, you should just eradicate that it does not exist.

Now Michael, with respect to your second question, I have only some surprises out there. I’ll tell you we've got some great new innovations coming both in that morning category around the savory items and warm items, as well as in lunch. Everything we have seen so far encourages us that we just beginning to go after where is there big, big good opportunity, both in our busy day part to drive increase the cash.

But also as I said before, it continues food as we have (inaudible) into lunch program and mid-day as an attached as we rolled out the carbonated beverage platform later December, all these things work together. Of course, we know the food as an elevated quality in our stores not only drive our food sales but by the way it drives higher beverage sale as when people come in they buy food, they also buy beverage. So the whole shift rise the level of earnings in stores and that whole product pipeline tend to increase as we find ourselves all that include. So more to come, more details, but I think you really like the food we have coming out balance of the year.

Michael Kelter - Goldman Sachs

Very helpful. Thank you.

Operator

Your next question comes from Matt DiFrisco with Buckingham Research.

Matt DiFrisco - Buckingham Research

Thank you. I just wanted a little clarification and then a question with respect to the promotion? You mentioned that for promotional side of the business, you may have impacted the average check in the most recent quarter reported. Should we read into that then in a environment where you have $1.4 billion worth of pent-up demand call it that we would probably not see as much promotional activity?

And then, just, I just want to clarify, when you keep referring to sort of the change in overall retail, doing more online sales in the brick and mortar guys softness, historically shopping happens on the weekend? So would we read into that then you anecdotal -- you literally saw then tangible evidence that the business that might have been correlated with brick and mortar traffic associate with weekend business was your weakness in December because you said pretty much that it wasn’t day part position or timing of the day or timing of the week I run into that?

Howard Schultz

I think the latter which is no evidence with specificity that there was a weekness issue. So I think this was to spread across multiple days. One thing about the issue of weather that was brought up earlier, currently any weather problem in the city where people are living and enjoying the Christmas holiday season. The initial reaction was not wow and so the weather plays I think a positive roll for the online ecommerce opportunities because it was so convenient.

But we did not see a weekend issue and I think one thing I want to go back to is we anticipated this level of change. The investments we made in the car, the investments we made in mobile payment, all these things were in anticipation of what we saw in December. They probably came at us and everybody else that they faster clip. But we were in a position to take advantage of in the best evidence of that not only $1.4 billion but the $200 million, it’s sitting in the reloads.

And that’s just underscored product, however at this point, they are in holiday period in past years. We would see elevated holiday traffic always long, not finding, just isolated to the weekends. So I think that underscores the fact that because we didn’t see it isolated to the weekend this time that does not message anything else other than that. It actually very closely matches, how we would anticipate that traffic around the holiday. And then perhaps you can help me understand your first question, were you saying that related to promotional discount that we increased a bit in the first quarter because we have Starbucks card balances, are you asking if that means it will be lesser going forward.

Matt DiFrisco - Buckingham Research

Correct. So I’m assuming that you had, you addressed December slowdown with promotional activity that given the pent-up demand you probably would be correct to assume that you would not need to do as much promotional activity and its adverse effect of the check?

Howard Schultz

Let me speak specifically on this and whether we need to do promotions or not. We can see this throughout the year at various times at various offers, particularly around now striving to get the Starbucks card balances loaded and registered so that they become an integral part of our loyalty program.

So you will see us very active in what we do. It may not be as specific around merchandised promotions as we did in the holiday period that for us is true. But it should continue to very actively to engage customer and keep traffic coming into our stores at each quarters to go.

Matt DiFrisco - Buckingham Research

Thank you.

Operator

Your next question comes from John Glass with Morgan Stanley.

John Glass - Morgan Stanley

Thanks. First a follow-up, Troy, what are the metrics around card usage in January, what portion of the cards are used in January and if you know this, what portion of those are actually used by first time customers, people that haven’t registered before. That’s the follow up.

I also just want to ask about EMEA. We haven’t talked about any places around the world? What was the inflection point, what country or what was the piece that really changed the comp momentum. I think, for the first time in awhile that -- in that segment?

Howard Schultz

John, to the first question, in years past, most of that incremental new card load tends to come into the stores predominantly in second quarter but then also continuing into the third quarter.

So going into this quarter, I won’t make any specific comments about what we are seeing in the current quarter right now, we are in the current month of January. We would anticipate that we would see that incremental load coming through the business as we progress through Q2 and even in the Q3 that would matched more of the typical historical pattern.

Now in EMEA, there has been a very meaningful steady progress. I would say, I think, the first quarter was perhaps a bit of an inflection point as a number of great things came together all at once for us. But to be clear, these are all the things we have been working in our team over in EMEA has been working on for two years now around dynamic -- achieve dynamically changing the stores experience around beverage preparation, execution within in-stores around the licensing activity, all of that, all of that, really starting to shift both in the topline now and in the middle of P&L driving that margin to the all time high that we reported in Q1.

So it’s a bit of an inflection point but its one that comes after several quarters in a row preparation and a lot of hard work. We would absolutely anticipate that improvement continues, not always at the pace that we have experience in the first quarter, just to be clear. But everything we have been saying for the last two years, we believe we can continue to develop EMEA into the very, very health strong contributor in our business, I think Q1 is a fantastic validation of that.

John Glass - Morgan Stanley

Is it just suffice to say that is it U.K. largely U.K. driven or is it some stronger performance around the peripheral that market is not as strong as the average?

Howard Schultz

No. On contrary U.K. was very strong for us, but it also broad base, so all of our major markets in EMEA company-owned U.K., France, Germany, Switzerland, we saw nice improvement prospect portfolio of markets. But the U.K was perhaps leading, we have very good quarter in U.K.

John Glass - Morgan Stanley

Thank you.

Operator

Your next question is from David Palmer with RBC Capital Markets.

David Palmer - RBC Capital Markets

Thanks. Regarding channel development, you mentioned some coffee innovation in your remarks, but you build up a stable of brands outside of coffee, for instance I suspect internal you would have big dreams brands like Evolution Fresh and where that can go? I just wanted to get a sense of those dreams and maybe just a timing about, will there be a big push beyond coffee with channel development, one of these quarters will sort of wake and you will be pushing harder and marketing more than you ever had before? Thanks.

Howard Schultz

Thanks Dave. The answer is yes. We have big aspirations for what more we can do through our standalone/ business. Particularly as we have acquired and driving our stores and really began to nurturing and integrate these new brands and businesses we have.

Now I won’t have you expect any meaningful change in any immediate quarter right in front of us, but we are progressing with the rollout of Evolution Fresh across the country, sold within the Starbucks stores but as we go building up that distribution into the CPG channel that will continue.

We have big aspirations for what we can do with Teavana in this channel with all the business in time, first priority for Teavana though is our standalone Teavana business, as well as bringing those pieces into Starbucks business. But in time as we build equities of Teavana, as we develop the following around Evolution Fresh all of these products have great opportunity within the extended into the channel development business. And really leverage on top of the infrastructure we have, the relationships and trade we have, the distribution that we built, so you will actually see us build more overtime in that space.

David Palmer - RBC Capital Markets

Thank you.

Operator

Your next question comes from Jason West with Deutsche Bank.

Jason West - Deutsche Bank

Yeah. Just going back to the discussion around the shift in the consumer over the holidays? I am just wondering if you guys have past through the store base and if you have identified maybe a percentage of the store base that would be more exposed to that shift, if you could talk about what that number might be and are there different things that you are going to do in those stores that are little more retail oriented to kind of address this issue or is it really sort of the chain-wide effort that’s going to be addressing this?

Howard Schultz

I would say that the any bricks and mortar company that is heavily skewed to malls will be more susceptible to this new change. I think we are in a unique position in that. Our mall based business is a very small component of our overall national footprint. So I don’t think that you are going to see us be at a disadvantage because of our real estate portfolio. I think we introduced this subject to you, not to create fear and trepidation but willing to share with you what we believe to be a new dynamic change in consumer behavior. But linked to that once again, it’s our strong belief that not only did we anticipate this but we have the resources, the capabilities and the assets unlike most traditional bricks-and-mortar retailers to be a beneficiary of this change.

And I think once again the Starbucks card platform and the Starbucks mobile card -- mobile transaction platform is still in its nascent stage. And we believe there is an opportunity to extend that value to our customers in ways that we have not yet shared with you. And we also think there is an opportunity overtime to take full advantage of what every other tech company is chasing with regard to mobile payments.

Jason West - Deutsche Bank

Just a quick follow-up on that, I mean the mobile ordering you guys alluded to in the past, is it something that would be sort of early stage or I guess, earlier in the pipeline to kind of be of pre-orders with your phone before you get to the store, just wondering that’s something that’s coming soon?

Howard Schultz

I’m not going to explain with specificity of when that is coming. But I can tell you that we understand the value that that will create for our customer base and also we believe is significant incrementality as a result of it. And if you look at how quick we were and how early we were to adopt mobile payment in our stores, you can assume that over time we will meet in this area.

Jason West - Deutsche Bank

Thank you.

Operator

Your next question comes from Andy Barish with Jefferies.

Andy Barish - Jefferies

Hi guys. On a margin question in the Americas, obviously the performance in the first quarter was fantastic but regard to the rest of the year, it’s sort of moderate increases which implies kind of flattening of margin, maybe even, some challenges in the two key to maintain margins with some of the investment marketing spend you spoke about, Troy. Can you give us a little help directionally there for the rest of the year on America’s margins?

Troy Alstead

Yeah, Andy. No absolutely not. We would anticipate the balance of the year to be able to moderately expand the margin in Americas. Now the first quarter was more than -- actually more than I would say it’s moderate. Remember that was fueled by some unusual events from a year ago, like the leadership conference as an example. Like Superstorm Sandy certainly had impact on us as it did all of the retailers. So the degree of expansion, life won’t be as high but balance of the year has it -- wasn’t that first quarter where we had every expectation to continue to roll the top line and improve possibility to our store system.

Andy Barish - Jefferies

Thank you.

Operator

Your next question is from Keith Siegner with UBS. Your line is open.

Keith Siegner - UBS

Thanks. I just want to follow-up on some of the comments related to the promotional activity in December. If you take it out, this is a uniquely Starbucks’ capability to leverage the dramatic increases in the amount of customers in the social and mobile and digital. Has that usage picked up? How has this advantage may have picked up. In other words like how quickly can you respond to these things. How customizable or personalized can you take initiatives and that you have so many more customers on this program. Does the uptick change or uptick change from what you would have seen in years passed. Some color on that would very…

Howard Schultz

Thanks Keith. Let me ask Adam Brotman, our Chief Digital Officer to respond to them.

Adam Brotman

Hi Keith. It’s a great question. And the answer is absolutely, we’ve never been more nimble in terms of our ability to respond using our digital assets. We saw that this -- I mean, the holiday period, where we’re able to react. A very personalized level, even some geo-targeted aspects of what we’re doing and it is significant improvement over where were in the same quarter last year. And it speaks to the number of customer participating not only in My Starbucks Rewards but on the mobile platforms. This puts in a great position to be even more nimble as we go forward.

Operator

Thank you. Your next question comes from Will Slabaugh with Stephens. Your line is open.

Will Slabaugh - Stephens

I think just a quick follow-up on Europe, a nice surprise there. I was wondering if you could break down sort of where you feel like you’re winning right now, where you turned that inflection point where there still an opportunity. And then secondarily, are you seeing a difference in your company owned traditional stores versus performance in some of the license with a more captive audience.

Troy Alstead

Thanks. Well, our license business has been a healthier component of our business in EMEA for quite sometime. We frankly struggled more over the last handful of years in our company operated business. Now as I look at the first fiscal quarter and break it down price little bit, what’s very encouraging to me is that the revenue growth we saw and the trajectory change we saw was almost evenly split between the licensed business and company operated comp growth driven.

The licensees have tipped a little bit stronger but not much. Both were very strong contributors to the increasing revenue and were built around profitability. And that’s two messages there. One is the significant focus we’ve had on store execution and operations, on management of the stores, on supply chain into the stores. All of that has been a heavy focus of ours as you’ve been hearing us talk about for a couple years now and that’s paying off. Absolutely, fundamentally, we are seeing topline response. We are seeing customers respond and bottom lines improving.

We also -- now, as we really being to mature and flush out our licensed strategy to the region, we understand much better today what component of that region should have the licensed execution as it would have accelerated that. And even over the last year and a half, we converted and sold off some former company operated stores to licensees as we made that transition that has contributed nicely and of course that has a higher margin execution. It gets us back towards the customers to your point that we couldn’t have a lot easier.

And in some cases it positions the licensee to better able to operate in a particular geography of venue that we are in currently. So both of those things are progressing and I will have to say I think we are winning right now, both in company operated and in licensed part of our business there.

Will Slabaugh - Stephens

Thank you.

Operator

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

David Tarantino - Robert W. Baird

Hi. Good afternoon. My question is on the new store development within the U.S. And it sounds like you are seeing some very good results from some of your, the newer class of openings and you mentioned there was opportunity or wide space related to drive through. So, I’m just wondering if all of that is giving you more confidence and maybe stepping up the unit growth rate as you look out to maybe 2015 or ’16 or beyond. Is this maybe a precursor for accelerating the growth?

Howard Schultz

Maybe I answered that. I spoke about drive throughs and I spoke about the $1.2 million for new stores. In addition to that, we’ve had unusual success in very unique configurations and store types. Many of you probably got red that we’ve opened up about four, five stores that are literally old containers and they are drive-through only and walk up.

So volumes on those stores against the cost to build them are -- it has given us great confidence than you have unusual opportunity in traditional stores, drive throughs and what I just previously described as unique configurations both in size and location. We’ve also done a lot of work on verticals, for example hospitals, where we do not have a lot of penetration.

So, I would say that you probably will se us go after a significant build of additional market share in the future with an acceleration of U.S. stores that are highly targeted against the return on investment and the sales that we are currently achieving in the kind of stores that we have not opened before.

And in addition to that you will certainly see traditional several stores around the country. But I think that despite commentary on key change in customer behavior that we have underestimated for the last two, three years, the opportunity that we have across North America for additional stores and specifically additional store types meeting with directors.

There is no job to drive through, has surprised all of us in terms of its volume, return on investment and the opportunity to build stores that we didn’t think existed in the past and you will see us do that in great numbers in the future, coupled with what I’ve just described.

David Tarantino - Robert W. Baird

Thank you.

Operator

Your next question comes from Diane Geissler with CLSA.

Diane Geissler - CLSA

Good afternoon. Thanks for the question. I wanted to ask on the mobile payments in China. I think it is fair to say that smartphone technology has vastly improved from when you launched this program in the U.S. But even if we look at the U.S. as sort of examples, the early years where you saw card loads certainly in the 70%, 80%, 90% range and now they’ve sort of stabilized in the 30%, 40% range? Can you talk a little bit about your expectations for China? I mean the China consumer have embraced smartphone technologies. So I think the market is bright for the launch of this type of platform? But maybe you could give a little bit of more detail about what you plan there, how it will differ from what we see in the U.S.? And then your expectation sort of how you are going to measure yourself in is it heading your goals or not? If you could give us some details around that, I would really appreciate it? Thank you.

Howard Schultz

I mean, I think, Adam, is going to answer that question. I will -- I’m not saying that I’m -- I think we’re all sitting here in surprise that we haven’t done one question with regard to the biggest opportunity in front of us in terms of geography about China and market that we have over thousand stores are best performing market outside of the U.S., you are talking about wide space, its uncharged with opportunity. Adam go ahead?

Adam Brotman

Yeah. Diane, it is a great question and the answer is, absolutely we believe the opportunity for mobile payments is something that we’ll spend not limited China but frankly there are many markets around the globe. We have already bought it to all of ten markets and China we believe will be no exception, highly technologically savvy, consumer base, one where they were talk about MSR offering and growth and we believe that China will be a great opportunities to do the kinds of things there then we are trying here in terms of mobile payment, mobile royalty, innovation of the store. So, yes, I can’t get any specific but that’s coming soon.

Howard Schultz

John, go ahead.

John Culver

Yeah. Diane, this is John Culver. With regards to just add on to what Adam is saying. Two years ago we launched the Starbucks rewards program in China and in that short period of time we now have nearly 4 million members on the platform. And to Adam’s point, we are laying the rails right now for a much more accelerated digital experience for our customers in China.

We just launched some in concert this Chinese New Year, the first ever store value gift card in our stores in China. And then, obviously, continue to rollout the opportunity as it relates to Starbucks app on both the iPhone, as well as the Android application. So a big opportunity for us to take what we’ve done in U.S., transfer that knowledge and capability into China and look at a whole new way of reinventing the experience for our customers there.

JoAnn DeGrande

Mike, we have the time for one last question today, please?

Operator

The last question comes from Karen Holthouse with Credit Suisse.

Karen Holthouse - Credit Suisse

Hi. Another quick question on the drive throughs. This is something that’s been talked about more on the last couple of calls and I’m just curious for units have already have them. Is there an opportunity to really go into those units and optimize throughput, find better ways to ensure order accuracy and if so, what’s the opportunity for that and what’s the timeline for addressing it? Thanks.

Howard Schultz

Thanks, Karen. The answer to that is absolutely yes. One of the things that we fundamentally know is that in our drive throughs, not only do we have huge opportunities for more directors around U.S. The economics are strong, they have -- as we said in past quarters cost higher than our full portfolio including the non drive-through starts.

So we see every great indication of drive throughs and including by the way to improve throughput to up-level the experience for the customers as they come through, to change how our mix engages with the customer in that line, help move that deck of cards more quickly.

We have significant work underway to do exactly that. And part of that by the way includes enhanced technologies. Some of the same things you’ve heard us talk about we would see it innovate around in terms of payment and ordering into cafe, inside the store will be very through and very beneficial in the drive through. So much more to come but we will go back to all of our existing drive through of this mix enhancements today. I’m quite confident there will be incremental drivers to our business.

Karen Holthouse - Credit Suisse

Great. Thank you, guys.

JoAnn DeGrande

Thank you, Karen. That concludes our earnings call for today. Thank you all for joining us. We will talk to you again next quarter. Good night.

Operator

This concludes today’s Starbucks Coffee Company’s first quarter fiscal year 2014 earnings conference call. You may now disconnect.

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