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 2015 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Ms. DeGrande, you may begin your conference.
Thank you, Mike. Good afternoon. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Thank you for joining us today to discuss our first quarter fiscal 2015 results, which will be led by Howard Schultz, Chairman, President, and CEO, and Scott Maw, CFO. Also joining us for Q&A are Troy Alstead, COO, Cliff Burrows, Group President, U.S., Americas, and Teavana, John Culver, Group President, China, Asia Pacific, Channel Development, and Emerging Brands, Adam Brotman, Chief Digital Officer, and Matt Ryan, Global Chief Strategy Officer. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K.
Starbucks assumes no obligation to update any of these forward-looking statements or information. Please refer to our website at investor.starbucks.com to find the reconciliation of non-GAAP financial measures referenced in today's call with their corresponding GAAP measures. This conference call is being webcast, and an archive of the webcast will be available on our website at investor.starbucks.com. Before I turn the call over to Howard, please note that our annual meeting of shareholders, which will be webcast, will be held at 10:00 A.M. Pacific Time on Wednesday, March 18th, here in Seattle. With that, let me turn the call over to Howard.
Thank you, JoAnn, and welcome to everyone on today's call. Starbucks' performance in Q1 was exceptional by any standard or metric. Financially, each of Starbucks' principal business segments and each of the regions around the world in which we operate contributed meaningfully to record Q1 revenues of $4.8 billion, record Q1 operating income of $916 million, and record Q1 EPS of $1.30 on a GAAP basis, and record $0.80 when excluding non-routine items, principally the gain on our acquisition of Starbucks Japan. Operationally, we delivered the best in-store holiday experience to customers in our history, bar none, with comp sales accelerating through the quarter and December's performance reflecting the success of our holiday lineup.
For the quarter, we drove nearly 9 million more customer transactions through our U.S. stores than we did in Q1 last year, almost 12 million more globally, our global comp store sales grew 5%, with 2% coming from increased traffic, representing our 20th consecutive quarter of comp growth of 5% or greater. Every geographic region contributed to our performance this quarter, with Americas delivering 5% comp growth, EMEA 4%, and CAP 8%. These results are nothing short of stunning, particularly when you consider that our comps were calculated off of a U.S. store base of almost 7,000 stores and a global store base of almost 10,000 stores. Our Channel Development segment grew sales 10% and delivered strong profitability. At the same time, we increased our share of premium single-serve, premium packaged coffee, and premium packaged tea.
We delivered record non-GAAP operating margin across the company of 19.5% for the quarter, an 80 basis points increase over Q1 last year. I'll be discussing a number of strategic initiatives and innovations that took shape in the quarter that will further extend our global coffee authority and leadership in retail and mobile technology and set us up to continue to lead and win around the world into the future. I'll turn the call over to Scott, who will take you through our Q1 financial and operating results in detail. I'll start with our reimagined in-store holiday experience that integrated and leveraged food and beverage innovation with all of Starbucks' digital, loyalty, card, mobile, store footprint, and partner assets to deliver the most successful holiday in our 40-plus year history.
Our new holiday seasonal beverage, Chestnut Praline Latte, was a huge hit with customers and one of our most successful LTOs ever. Our food platform, driven by new and innovative holiday offerings, as well as our new lunch program, continued to gain momentum during the quarter, contributing to incremental traffic and daypart growth. Our Dot Collection of premium, highly styled merchandise performed very well as well. The really big news is how powerfully the innovation of our card wall and vastly expanded selection of proprietary Starbucks gift cards enabled customers to give the Starbucks gift of choice throughout the season. To put the success of our holiday card program into perspective, consider these following metrics. This holiday, one in seven American adults received a Starbucks gift card, up from one in eight last year.
Roughly 2.6 million Starbucks cards were activated on December 23rd alone, $1.6 billion was loaded on cards in the U.S. and Canada in Q1, up 17% over last year. The strength and success of our Starbucks card program reflects both the power and the growing relevancy of the Starbucks brand, as further demonstrated by the fact that over a 31-day period, more than 13 million customers entered into our first ever It's a Wonderful Card sweepstake for the chance to win Starbucks for Life. Going forward, we know that increased Starbucks card sales drives My Starbucks Rewards membership, in turn, traffic in our stores. We added almost 900,000 new MSR members in Q1 alone, bringing our total membership to over 9 million, 23% over above where we were at this time last year. 5.5 million of our MSR members are Gold members.
We are already seeing and realizing the benefit of increased activity in our stores as gift cards received over holiday are redeemed and have additional enhancements to the MSR program plan that I'm confident will continue to result in even further acceleration in MSR membership in the future. It should be noted that MSR is one of the most important business drivers as new members contribute not only short-term increases in revenue and profit, but also long-term loyalty for years to come. We continue to see broad customer acceptance and adoption of our mobile payment technologies. Today in the U.S. alone, over 13 million customers are actively using our mobile apps, and we are now averaging over 7 million mobile transactions in our stores each week, representing roughly 16% of total tender, more than any other bricks-and-mortar retailer in the marketplace.
In December, we introduced Mobile Order & Pay into 150 stores in Portland, Oregon. The Starbucks Mobile Order & Pay experience is a proprietary, fully integrated technology that allows customers to order their food and beverage selections through their mobile device ahead of time, go to their preferred store to pick up the completed order, and pay automatically through the same mobile device that they ordered from. Mobile Order & Pay saves our customers time by enabling them to avoid the lines and waiting for the orders to be filled, resulting in shorter lines, faster service, improved in-store execution, and an elevated Starbucks experience. Mobile Order & Pay has been extremely well-received by customers in the Portland market. We will be launching it now in over 600 stores in the Pacific Northwest in the months ahead and will be rolled out nationally later in calendar 2015.
Our experience to date confirms that once fully rolled out, Mobile Order & Pay will drive a significant increase in mobile payment transactions in our stores overall and have a flywheel positive effect on our overall business, driving both increased MSR membership and app usage and creating significant additional one-to-one marketing opportunities. As previously discussed, we are also preparing for the introduction of delivery in the second half of 2015 and are finalizing plans for two distinct delivery models, one of which utilizes our own people, Green Apron baristas, and the other of which leverages the capabilities of a third-party service. We'll have more to share with you on our plans for delivery in the months ahead. Rest assured that delivery, like Mobile Order & Pay, will drive incrementality and increase customer loyalty.
Global leadership around all things coffee is and will always remain at our core as we continue to innovate and invest to enhance and elevate the premium, highly differentiated, but locally relevant coffee experience we deliver to our customers around the world. This month, we successfully introduced Flat White, an espresso-forward, handcrafted beverage that combines premium coffee quality with creative artistry to deliver a unique and elegantly delicious hot beverage. While it's very early and it's early days for Flat White, we've already seen great attachment for our customers, and we are exceeding the early expectations. Many of you on the call today had the unique opportunity to experience the Starbucks Reserve Roastery and Tasting Room firsthand when you were in Seattle for our Investor Day.
Well, I'm delighted to report that the Roastery has received an overwhelming response from our customers and has been the strongest opening in the 40-plus history of our company, well exceeding even our most optimistic projections. The Roastery is setting new records every week at the same time as it draws both repeat customers and visitors to Seattle at all hours of the day and evening. Personally, I feel that the Roastery is the finest, most creative, and immersive experiential retail environment of any in the world today. It should be no coincidence that the Roastery opened in the same year that we identified and shared with you the urgent need for retailers to elevate, deepen, and ultimately redefine how they were emotionally connecting with their customers. The Roastery represents both premiumization of the coffee experience and a new chapter for Starbucks.
The additional small-batch coffee roasting capacity provided by the Roastery is enabling us to source, roast, blend, and market spectacular, limited available coffees from around the world, elevate the coffee experience we deliver to our customers, and expand availability of super premium micro lot Starbucks Reserve coffees to ultimately 1,500 Starbucks locations. Customer response to the Roastery has been so strong that in addition to the second Roastery we have planned to open in Asia in calendar 2016, we are now actively looking at real estate in another major U.S. market as well. The Roastery is also supporting the launch of our new Starbucks Reserve brand and the opening of 100 dedicated Starbucks Reserve stores over the years to come, devoted entirely to showcasing rare, limited premium small lot coffees as we continue to execute against our plan to elevate the consumer coffee experience globally.
At the same time, we are continuing to invest in smaller alternative store footprints that respond to the continued urbanization of retail. We will soon be launching a pilot project around express locations in New York that will offer a streamlined assortment of food and beverage offerings and integrate Starbucks mobile payment and Mobile Order & Pay functionality in order to enhance customer convenience and provide even faster service in these locations. Turning to tea and Teavana. As we previously discussed, tea represents a massive strategic opportunity for Starbucks around the world, and with the integration of Teavana complete, we are now executing our plan to double our tea business to $2 billion over the next five years.
We will accomplish this goal by further elevating the Teavana in-store experience, expanding into targeted select global markets with a focus on regions within our China and Asia Pacific segment, entering multiple new channels of distribution for Teavana, and further developing Teavana's e-commerce platform. We are already seeing lift in revenue generated by the sale of handcrafted tea beverages in Starbucks retail stores, driven in large part by the very strong customer response to the launch of Teavana-branded shaken iced tea and Teavana tea lattes. This month, we launched Teavana hot brewed teas in Starbucks stores in U.S. and Canada to extremely favorable early results. We'll be sharing additional specifics around our plans for Teavana in the months ahead. Our fast-growing China Asia Pacific region delivered strong sales, profits, and a company-leading 8% store comp in Q1, and continues to be a focal point of our future growth.
As we shared with you at the Investor Day, we have plans in place to double our CAP store count to roughly 10,000 locations and triple our revenue to over $3 billion, and our operating income to over $1 billion by 2019. China, our largest market outside the U.S., is a big part of our CAP story, and we are well on our way to achieving our goal of having 3,400 stores in China by fiscal 2019. We now have a presence in 86 cities in China, and we will be adding seven more cities in 2015. To give you a sense of the size of the China opportunity, last month, we opened our 1,500th China store and now have over 320 stores in Shanghai alone, making Shanghai the city with the most Starbucks locations in the world today. We have plans to open many more.
We expect to take full ownership of Starbucks Japan by the end of this quarter, providing us with the opportunity to accelerate growth across all channels, both in and out of our stores, in ways not previously feasible. Our EMEA segment demonstrated continued progress against its transformation plan, delivering comp growth of 4%, with key U.K. markets outpacing the EMEA region overall. I'm particularly delighted to share with you that the EMEA segment delivered its most profitable quarter in company history in Q1. Special recognition goes out to Kris Engskov and all of our EMEA Starbucks partners for delivering these extraordinary results. Channel Development. Our relationship with Keurig Green Mountain continues to strengthen at the same time as our K-Cup business continues to grow. Approximately 100 million Starbucks K-Cups were shipped in December in 2014 alone, our largest single shipment month ever, up 20% over December 2013.
Customers have now made Starbucks the number one coffee K-Cup in the category, and we had another record share week during the key week before Christmas. Starbucks' already industry-leading share of premium packaged roast and ground coffee continues to increase as well. Together, accelerating sales combined with strong operating leverage enabled our Channel Development segment to deliver 10% revenue growth and strong profit in Q1. Delivering the complete Starbucks experience for our customers and creating an authentic, emotional connection between our customers and our partners has been and continues to be at the heart of everything we do. This month, we are making the single largest new investment we have ever made in our partner, our employee experience. It will touch 135,000 partners across our U.S. store base.
Changes include increases in barista and shift supervisor pay rates, enhanced recognition programs, a new food benefit, and updates to our dress code, among others. At the same time, we are investing in technologies that will help our partners deliver a consistently elevated Starbucks experience for our customers, including introducing technologies to ease and simplify required store tasks, improving access to core business tools and resources, and introducing partner apps with information and resources to facilitate viewing work schedules from a personal mobile device. We will continue to listen to our partners, and we will endeavor to continue delivering enhancements to the partner experience that exceed their expectations, so they in turn will continue to exceed the expectations of our customers. We are making similar investments in locally relevant ways to improve our partner experience elsewhere around the world as well.
In closing, Starbucks is off to a fantastic start in fiscal 2015. Together, our record-shattering holiday quarter's financial and operating results, the historic opening of the Roastery, and the undeniable success of our card, mobile, and digital strategies underscore the increasing strength of the Starbucks brand around the world, and ideally and uniquely positions us to thrive in the face of this seismic shift in consumer behavior that is underway. I could not be more proud or appreciative of our partners and our teams around the world for delivering the record results we reported today, and I cannot be more optimistic about our future. I'll now turn the call over to Scott Maw, who will take you through our Q1 financial and operating results in detail, and then I'll be back with Troy to share details on the transition. Thank you.
Thanks, Howard, and good afternoon, everyone. Starbucks had a very strong start to fiscal 2015, with each of our reportable segments contributing to record consolidated revenues, operating income, and earnings per share. Revenues grew to $4.8 billion, a 13% increase over the prior year, driven primarily by incremental revenues from the acquisition of Starbucks Japan, 5% global comp growth, and incremental revenues from the 1,641 net new Starbucks stores opened during the past 12 months. This was partially offset by unfavorable foreign currency translation. As Howard mentioned, we saw global traffic increase 2% during the quarter, reflecting the strength of our brand and progress in many of the areas we discussed during Investor Day. On a GAAP basis, operating income grew 13% over Q1 to $916 million, resulting in operating margin of 19.1% for the quarter and earnings per share of $1.30.
When excluding non-GAAP items, operating income was $935 million, or 18% higher than the prior year first quarter. Non-GAAP operating margin was 19.5% compared to 18.7% in Q1 FY 2014, primarily due to sales leverage, including meaningful COGS leverage. After adjusting for certain items for comparability purposes, we also saw G&A leverage in Q1 as we continue to gain traction early in our efforts in both of these areas. Non-GAAP EPS grew 16% to $0.80 per share over the prior year first quarter. Before going into specifics, I'd like to provide a quick update on the status of the Starbucks Japan acquisition. During Q1, with the closing of the first tender offer, Starbucks assumed majority ownership of Starbucks Japan, and a second tender offer to the public shareholders was commenced.
We completed the second tender offer early in the fiscal second quarter, and the transaction is expected to close as planned during the first half of calendar 2015. As of today, we own approximately 94% of the outstanding shares of Starbucks Japan. Therefore, our Q1 2015 financials reflect a consolidation of Starbucks Japan into our financials for the last eight weeks of the quarter and pre-acquisition JV accounting treatment for the first five weeks. I also want to explain our non-GAAP adjustments for comparison purposes. For Q1 2015, we have excluded several items related to our acquisition of Starbucks Japan, including an acquisition-related gain of $391 million that was partially offset by certain expenses related to the transaction. Combined, these items increased first-quarter earnings by a net $0.41 per share. For Q1 2014, we have excluded the litigation credit related to the Kraft arbitration.
You can see the amounts, timing, and description of these items in the detailed reconciliation table provided at the end of the earnings release. In the Americas, the strong holiday season and excellent execution by our partners drove increases in revenue, operating income, and operating margin to record first-quarter levels. Revenue grew by nearly 10% in the first quarter, driven by a 5% growth in comps and revenues from 766 net new stores opened this past year. Americas delivered its 20th consecutive quarter of comp growth of 5% or greater. The notable 2% increase in transactions in Q1 was testament to the success of the traffic-driving initiatives we discussed during our last earnings call and at our Investor Day. Increased operational focus helped drive transaction growth across all day parts, including strong growth at peak and accelerated during holiday.
For the fourth consecutive quarter, food contributed 2% to comp growth, including the excellent performance by our breakfast sandwiches, with net sales growing 29% in Q1 versus the prior year, and strong holiday limited-time food offers. Sales of our lunch offerings increased 15% over the prior year, driven by our warm sandwiches, which included three new items year-over-year. Moving on to beverages, our core and limited time offerings contributed almost half of the U.S. comp growth during Q1. Holiday beverages delivered 9% year-over-year growth, and total tea sales in our U.S. stores increased 17% over Q1 2014. The significant momentum gained from Teavana's handcrafted iced teas this summer continued in Q1. In addition to the solid revenue growth in Q1, operating income in the Americas grew 12% over the prior year to a new all-time high of $818 million.
Operating margin expanded by 50 basis points to 24.3%, a new Q1 record due primarily to sales leverage. Margin opportunity still exists in the established Americas business over the balance of the year, even when considering the additional investments in 2015 for our U.S. store partners. As you know, Target Corporation has made the decision to close all of their Canadian stores. We have a very good relationship with Target North America, and our 132 Canada-based licensed stores have been profitable and growing. However, given the impact on our operations and to the customer experience from Target's decision, our stores will close tomorrow, January 23rd. We don't expect these closures to impact our guidance for 2015, nor will they be material to our Americas business results. Moving on to EMEA, where the momentum and remarkable results from fiscal 2014 continued into the first quarter.
Revenue grew by 3% after adjusting for $15 million of unfavorable foreign currency exchange impact. Revenue growth was driven by 4% comps in the first quarter, including 3% traffic. Among the most positive signs from EMEA is the record two-year comp of 9% that was achieved in the first quarter. EMEA operating income in Q1 grew 49% over the prior year to $50 million, a new all-time high. Operating margin expanded 510 basis points to 15% as sales leverage and continued cost management, driven by the portfolio shift to higher-margin licensed stores and other operational improvements, drove the segment's highest quarterly operating margin ever. We now expect EMEA operating margin to be at the high end of the 10%-12% target range we gave to you last quarter.
Momentum continues to build in EMEA. We are very encouraged by the broad-based improvements in both our largest company-owned markets and our licensed stores. Across EMEA, Q1 licensed store comps were in the high single digits with comps in the Middle East in the double digits. Turning to China, Asia Pacific, CAP revenues grew 86% over prior year in Q1 to $496 million, principally the result of the Starbucks Japan acquisition. Revenue growth was also driven by 767 net new store openings over the last 12 months and strong comp growth of 8%, all of which resulted from increased traffic. China comps continue to trend higher than CAP comps as a whole. Adjusting out the net revenue increase of $172 million attributable to Starbucks Japan, CAP revenue grew over 20% for the 18th straight quarter.
On a GAAP basis, CAP operating margin grew 34% to $108 million in Q1. Operating margin declined 860 basis points to 21.8%, driven by the impact of the ownership change for Starbucks Japan. Noteworthy is that under the previous joint venture ownership structure, our Japan margin was over 100%. Our Japan store-level margin remains among the highest in our global portfolio. The acquisition of Starbucks Japan was immediately accretive on a non-GAAP basis. We continue to believe that the CAP margin for 2015 will be in the high teens. Excluding the amortization of intangibles associated with the Japan acquisition, CAP operating income on a non-GAAP basis increased by 43% over Q1 last year.
Operating margin, excluding the full 1,060 basis point impact of our ownership change in Starbucks Japan, increased by 200 basis points, driven principally by strong sales leverage and a continuing emphasis on improving operations in the region. Strong performance from China's new stores and overall revenue and margin expansion contributed significantly to CAP's excellent performance in Q1. Starbucks China launched eight Reserve stores in five cities during the quarter, including a world-class flagship store in Chengdu. Across the region, digital assets such as mobile apps, e-gifting, Starbucks cards, and My Starbucks Rewards continue to gain significant momentum. In Channel Development, Q1 was very strong as we gained market share in our U.S. business despite significant competitive pressure. Robust sales of K-Cups and healthy growth in packaged coffee drove revenues to a new quarterly record of $443 million in Q1, a 10% increase over the prior year.
Operating income for Channel Development grew 33% in Q1 over the prior year to $158 million, another quarterly record. Operating margin was 35.6%, a 600-basis point increase over last year. Coffee cost favorability and efficiencies in cost of goods sold were the primary drivers of this improvement. As we mentioned last quarter, we expect modest improvement in Channel Development margin for the full year compared to 2014, with commodities and COGS favorability lower in the latter quarters of 2015. Starbucks K-Cups gained a leadership position in the category in December, with an 18% share during the last five weeks of Q1, our highest share since launch. Overall, we shipped 232 million cups in Q1, 17% greater than last year, driven by strong customer response to new flavors such as Cinnamon Dolce and Mocha, and limited time offers such as Fall Blend and Holiday Blend.
Our recently launched single-origin K-Cups, including Rwanda Rift Valley, also contributed to growth, demonstrating customer demand for these excellent varietals. Starbucks packaged coffee also gained share during the last five weeks of Q1, growing to 28% and exceeding 30% for the first time during the key merchandise week of the month. Our cross-channel loyalty program, Stars Down the Aisle, also played a role in these results, with 1.7 million MSR members entering codes through grocery in Q1. Almost 12 million codes have been entered since the launch of the program less than two years ago. Teavana's performance, which is included in the All Other Segments, was relatively flat to the prior year. As Howard mentioned, sales of Teavana handcrafted beverages through our Starbucks stores in the Americas segment has driven exceptional growth in tea category revenue year-over-year.
Regarding taxes, our Q1 tax rate was 24.2%. The decrease in the rate was primarily due to the impact of the gain related to the Starbucks Japan acquisition, which is almost entirely non-taxable. As I mentioned at the outset, Starbucks had a very strong Q1, with both solid revenue growth and margin expansion. This performance gives us the confidence in now targeting non-GAAP EPS of $3.09-$3.13, thus moving the bottom end of our range up slightly from our previous target range while retaining the top end. A higher gain on the Japan transaction results in our raising the 2015 GAAP EPS target up to $3.53-$3.58. Revenue growth is also expected to remain within our previous target range of 16%-18%.
Noteworthy is that based upon where exchange rates are today, a stronger dollar will adversely impact revenue growth and operating income growth by about one point each. We are confident that we will be able to offset this foreign exchange impact given the strength of our Q1 global operating results and the progress we will continue to make in leveraging COGS and G&A. It is also important to note that the vast majority of this currency impact represents only the effect of translating our foreign earnings into the U.S. dollar for reporting purposes. We actively hedge our largest real economic cross-currency cash flow risks. We are now expecting Q2 GAAP EPS in the range of $0.63-$0.64, and non-GAAP EPS in Q2 is expected to be in the range of $0.64-$0.65.
The second quarter is when the majority of our U.S. store partner investments begin in earnest, including our new food benefit and the changes in wages Howard mentioned earlier. This will have some impact on Q2 Americas' margin. I also want to acknowledge that we see many external analyst projections for Q2 EPS growth above 20%, higher than the Q2 earnings range I just mentioned. I suspect that this difference is driven by our increased partner investments in Q2 and some seasonality that we always see in our second quarter. I want to reiterate that our fiscal 2015 non-GAAP EPS growth remains the previously targeted 16%-18%. We expect the first half of the year to be near the lower end of this range and the second half of the year to be closer to the upper end.
Increasing revenues, strong global comp growth, new innovation, including Mobile Order & Pay, and the strong momentum we are seeing across our business gives us confidence in this slight acceleration despite additional foreign translation impact. In addition, we expect some acceleration in the benefit from our COGS and G&A leverage over the course of the year. Moving on to commodities, we have recently priced a significant amount of coffee as prices have moved down within our target range over the past six weeks. As such, we now have 94% of our 2015 coffee needs priced, and therefore, we expect commodity costs to be roughly flat to 2014. We will continue to provide updates as we price our coffee needs for fiscal 2016. We continue to expect to add approximately 1,650 net new stores globally.
Of the 1,650, we expect 650 in the Americas, 150 in EMEA, and 850 in China Asia Pacific. The outlook for our effective tax rate continues to be around 31%, and we expect capital expenditures of $1.4 billion for fiscal 2015. In closing, Q1 represented another quarter of excellent global growth for Starbucks by any metric. Our strong results in the quarter and confident outlook for the year reflect many of the critical strategic growth initiatives we outlined during Investor Day. We expect EPS growth to accelerate as we move into the back half of the year and coffee costs remain well under control. Our financial forecast includes an appropriate level of investment in our store partners and in food, beverage, and technology integration.
We consider this as an investment and not an expense, as it is integral to our continued growth in sales and profits over the long term. We look forward to updating you on our progress as we move throughout the year. With that, let me turn this call back over to Howard. Howard?
Scott, thank you very much. I have one more important announcement to share before moving on to Q&A. Today, I am extremely pleased to announce that Kevin Johnson, former CEO of Juniper Networks and former President of Microsoft's Platforms Division and a 5-plus-year Starbucks board member, will be joining the Starbucks Senior Leadership Team as President and Chief Operating Officer effective March 1st. Welcome, Kevin. Kevin has worked closely with the Starbucks Senior Leadership Team and me as a board member since 2009, collaborating and providing deep insights and wise counsel in connection with our transformation in 2009 and many of the strategies we've outlined at our investor conference last month and will be executing against over the next several years.
Kevin and I have been discussing his coming to the company in order to contribute his insights and expertise and help us as we grow our business in North America and around the world for some time. These discussions were independent of Troy's subsequent decision to take a sabbatical. Kevin will be reporting directly to me. Now, as I said at our Investor Day, and I want to underscore here, my passion and personal commitment to Starbucks has never been greater. I also want to make it clear that Kevin's addition is not part of some unannounced succession arrangement because it's not. Instead, Kevin's public company experience and his deep management technology, global operating company, supply chain, mobile, and digital expertise will be a fantastic addition to already the strongest and most talented management team in our history.
Please join me in congratulating Kevin, who's with us this afternoon, and welcoming him to Starbucks, and I've asked him to say a few words of introduction. Kevin?
Well, thank you, Howard, and greetings, everyone. For nearly six years now, I've had the great privilege of working closely with Howard and the SLT in my role as a Starbucks board member. Through this involvement, I've gained a deep and unique insight into Starbucks business, its values and culture, and the critical role that our 300,000 passionate partners play in delivering an elevated Starbucks experience to millions of customers around the world each and every day. In December, I attended the Starbucks Investor Day, at which time we outlined our strategies for the next several years. I'm fully committed to working with Howard, the SLT, and our partners around the world to fully operationalize those strategies and to deliver results consistent with the expectations we shared, our core values, and our culture. As always, performance-driven through the lens of humanity.
Troy and I are already engaged to ensure a smooth handoff as he begins his sabbatical on March 1st. My prior business experience leading global organizations, combined with my Starbucks board experience, should enable me to quickly ramp up in my new role. I want our partners and shareholders to know the deep sense of responsibility and accountability I feel to fulfill our aspirations and deliver results. Howard?
Kevin, thank you so much. On behalf of all of us today, this is a wonderful opportunity to welcome you to Starbucks. This also marks Troy's last earnings call before he takes his sabbatical, a coffee break in Starbucks parlance. Troy has been a true friend, a great leader, and a passionate 23-year Starbucks partner who is beloved inside our building and around the world. I'm going to miss Troy and my daily conversations and collaborations and look forward to the day when he is ready to return to the company.
Troy wanted to say a few words to all of you in the financial community before taking his leave. Troy?
Thank you, Howard. I have had the incredible opportunity to be part of Starbucks for 23 years, starting from the early days as a small, privately held coffee company with stores primarily just here in the Northwest. While very difficult to step away from this place that I know and love so deeply, I recently made the personal decision to dedicate the next years to my family with four school-aged children. What gives me great comfort in stepping away right now is the incredible strength of the organization and momentum of the business. As we demonstrated during the Investor Day here in Seattle in early December, the performance of the business around the world is stronger than ever, the opportunities ahead of us are greater than ever, and the aspirations of the company are higher than ever before. The holiday quarter we just reported underscores that strength and opportunity.
We are fortunate to have a leader of Kevin's caliber and experience able to join Starbucks at this time. I've worked with Kevin in his role as a board member for many years and have benefited from his experience and insights. His experience as a public company CEO, combined with his years on the Starbucks board, position him to hit the ground running. Kevin and I have already spent much time together in the transition and will engage further together over the next month to ensure everything transitions smoothly. Most of you on the call today I have come to know very well over the years. Thank you for your engagement and your support of Starbucks and of me. I assure you that the best days for Starbucks are still ahead.
I'd like to say thank you to Howard for giving me incredible opportunities and support over many years, and for supporting this personal family decision at this time. Thank you, Howard. With that, we'll turn the call back to the operator for Q&A. Mike?
At this time, I would like to remind everyone, if you would like to ask a question, press star then the number one on your telephone keypad. In order to allow as many of you as possible the opportunity to ask a question, we ask you please limit yourself to one question only at a time. We will come back to you for follow-up questions as time allows. We'll pause for just a moment to compile the Q&A roster. The first question is from Jeffrey Bernstein with Barclays.
Great. Thank you very much. Congratulations, Troy. A question on the mobile payment platform. I know it got a lot of attention at the Analyst Day, and it seems like that's probably the biggest opportunity from a traffic-driving standpoint. Sounds like Portland must have gone reasonably well. It sounds like you've identified the next few markets and the rollout by the end of fiscal 2015. Just wondering whether you can give us some color on maybe early learnings over the past couple of months in terms of any challenges or nuances you've had to overcome, or whether there's any insight into what kind of incremental sales or how it helps speed of service. I saw there was some quotes from Scott earlier this afternoon in terms of the significant benefits that it provides.
Trying to get some insight in terms of your early learnings and what we can expect in the year or so to come.
Thanks, Jeff. This is Adam Brotman. I'll answer that. First of all, we're not breaking out specifics, but what I can tell you is we have completely hit the ground running in Portland, and the experience for both our customers using the app as well as the partners operationally, has met and even exceeded our expectations. We are full steam ahead in terms of rolling this out around the country, as you mentioned, over the course of the rest of this calendar year. What we've learned is that this is absolutely every bit of what we thought it would do in terms of helping us add convenience for our customers, integrated fully into not just our technologies, but our operational flow.
We're as confident as the day we launched it that this is going to help drive incremental transactions, improve throughput and capacity, and even help us accelerate MSR.
Great. Thank you.
The next question is from John Glass with Morgan Stanley.
Thanks very much. Scott, you outlined $1 billion in cost savings over the next 4 years, and there's several buckets. How much of that is in your thinking for 2015 guidance? Specifically, you commented on you're expecting a second half acceleration in earnings growth. Is that largely due to these cost savings coming in, or do you believe that there's like a sales benefit, an uptick in sales in the back half to drive that?
Yeah. Thanks, John. Maybe I'll answer the back part of that first. There's a number of things as we look into the second half of the year that will help us accelerate profit. It includes cost of goods sold leverage, which I'll get to in a second, also some of the work we've done around support costs, then what we believe will be accelerated revenue opportunities through things like Mobile Order & Pay, some of the things we have around innovation with beverage, and some of the things we see in our international operations. All of that is driving what's a slight acceleration in our earnings growth in the back half of the year, and we're pretty confident we're going to see that. As far as the COGS savings, we think it'll be about $200 million this year.
You may remember from Investor Day in 2013, we had $100 million that we booked. In 2014, it was $140 million, in 2015, it's getting up close to $200 million. Great work by the supply chain team and all the business units, and we're well on our way to recognizing most of that. Most of that is already in the run rate.
Thank you.
The next question is from Karen Short with Deutsche Bank .
Hi. Congratulations on the quarter, and Troy, on what comes next. Kind of a little bit of a deep dive question. If you look in the Americas Segment, we've now had a couple of quarters where licensed store revenue growth has been pretty meaningfully exceeding unit growth plus comp growth. At the same time, coffee prices are going down, you would think that that would be the opposite. Is there something in store composition or anything else in the model that we might be missing there?
Karen, hi. It's Cliff. The significant difference is with our approach to food. For the first time ever, most of our licensees are now taking the incredible La Boulange range of food, plus our breakfast sandwiches, and that has allowed us to increase our revenue stream through our licensed stores. It's been extremely well-received. It also helps us improve our offer to the customers with greater consistency than we've ever had before. Food is the meaningful change.
I would just add to that, we are seeing comp growth in our licensed stores that's equal to or greater than what we're seeing in our company-owned stores. It's the combination of those two things that's driving revenue.
Great. Thank you.
The next question is from John Ivankoe with J.P. Morgan.
Hi, thank you. I wanted to see how much of a change there was in this enhanced partner experience, and maybe what was driving that, just you're in a position of strength where you can just improve how you treat your employees and how you attract and retain the absolute best talent that was out there. Just wanted to understand a little bit more substantive, how their day to day or their year to year is going to be affected. Maybe if you are beginning to see some tick up in turnover or in execution consistency as the labor market for the better people is starting to get a little bit tighter.
John, this is Howard. You probably better than almost anyone on the call, you've covered the company since the IPO. You know firsthand that the culture, values, and guiding principles of our company are directly linked to the equity of the brand. The equity of the brand is defined purely by the relationship we have with our customers, which is defined by our people. There's no issue of increased turnover or anything like that. We are in the business of doing everything we can, not only to invest in customer-facing experiences and enhancements, but we have to do everything we can to do the same thing with our people. Starbucks has had a long history, as you know, of equity in the form of stock options, healthcare, now college achievement, in which we're providing free tuition for juniors and seniors.
We want to do everything we can to demonstrate the humanity of the company, we have felt since day one that investing over the long term in our people is the best investment we can make in the customer experience. We're taking these steps not because we have a problem. We're taking these steps because it's the right thing to do.
The next question is from Sara Senatore with Sanford Bernstein.
Thank you very much, I'll add my congratulations both to Kevin and to Troy on these new stages. I actually wanted to sort of ask about this transition, in the context of a couple of things. First of all, how Kevin's responsibilities might be similar to or different from what Troy had in the sense that it sounds like Kevin has a lot of experience, but not in retail or restaurants per se. Then, I don't know if you can talk at all about this, obviously, Kevin has been a board member since 2009, not really new to the story. I guess, is there any sense of maybe what kind of initiatives he might undertake or where he might see the opportunities there?
Well, look, this is Howard. I'll start, then I'll give Kevin his initial opportunity to share his own thoughts with you. If we were hiring someone from the outside who did not have almost six years of experience with the company, I think this would be a different story. The transition would be longer, the learning curve would be longer. Kevin has lived and worked in Seattle for many years at Microsoft, he's been a customer of Starbucks for many years. As a board member, he's been the kind of board member that has been deeply involved in the strategies of the company and specifically aligning himself and helping the digital side of the transformation of the company, which has been so successful with Adam.
His responsibilities, in many ways, will mirror Troy's, with the exception that he's picking up digital with Adam, he'll have IT as well as supply chain, which Troy had. Scott Maw, who had been reporting to Troy, will be reporting to me, Kevin will have the geographies which are represented at this table with John and with Cliff. I spent many, many hours with Kevin over the many years, sharing with him the aspirations we have with the company, he's very, very well versed in what we're trying to do and the opportunity that lies ahead. We are very, very fortunate.
In many ways, I said to a reporter a couple of hours ago, having Troy leave the company is in no doubt a significant loss, but we are so fortunate at the same time to, in a sense, have a number one draft choice in Kevin Johnson. Kevin, I'll give you your own opportunity.
Yeah. Well, thanks for your question. I think, clearly my professional experience has been in the tech industry at companies like IBM and Microsoft and Juniper. But in that experience, I've had the opportunity to work with many retail industry customers on technology-based solutions and ways to help them drive their business. Certainly, as Howard mentioned, my experience on the Starbucks board since 2009, has provided me a solid understanding of the strategy and the culture and the leadership talent that we have here at Starbucks.
Certainly, Troy and I are working closely together on the transition just to ensure that this is a seamless, smooth transition. In terms of what initiatives to undertake, I think at the Starbucks Investor Day in December, we outlined strategy. My focus is going to be working with the SL team, working with our partners to operationalize that strategy. That's going to be my priority. Thank you, Kevin.
Thank you.
The next question is from David Palmer with RBC.
Thanks. Congrats on the quarter, Troy, congrats on your career. Last year, Starbucks talked about a significant falloff in results after Black Friday. How did the growth rate change through this last quarter, and perhaps, what did that tell you about your business? Separately, Scott, with regard to your COGS commentary, dairy and energy prices, they've come off lately. Is that a factor in the back half? Thanks.
David, I'll take the holiday question and then give it to Scott. You're exactly right. I think we were here last year at this time, and I think I said for the first time that the U.S. retail environment and the consumer, we are experiencing a seismic change in consumer behavior. As a result of that, bricks-and-mortar retailers would have to redefine their relevancy. We went to work at this time last year in completely redefining and transforming not only our holiday season, but in many ways, the calendar year 2015 with leveraging all the assets we have, specifically understanding how we could utilize MSR, our digital platform, to lower our cost of customer acquisition and emotionally build a relationship with them that was not only based on them being in our stores, but driving traffic in our stores.
The results that we posted today is a manifestation of all that, specifically, the merchandise relationship that we built around the Dot Collection, the Starbucks Card, and we got very fortunate in once again hitting a bullseye with Chestnut Praline Latte. We may have another winner of that magnitude with Flat White. Don't know yet. Clearly, the beverage resonated with our customers, and we were in a position, unlike many other retailers, to demonstrate such relevancy in-store with a beverage that created demand and experience that was spot on in terms of the card and the gift of choice, Starbucks for Life just added to all of that in terms of the excitement.
I would just add that our people were so proud of how we went to market for holiday, and they rose to the challenge and were able to really develop that kind of relationship with our customers. I mean, serving millions of customers more than we did last year, we should not underscore, we're talking about 9 million more customers. It's an unbelievable number, that was U.S. alone, we saw the same level of accretion worldwide with 12 million more customers. It's a stunning number in any environment, especially when you consider the environment we're in with a different type of consumer who's really turning away from traditional bricks-and-mortar retailers. Scott?
On the commodity piece, the way that it shapes up for the year, David, is we saw some significant coffee favorability in the first quarter, not much on dairy and diesel, you can see that coffee favorability in the channel development margin improvement. That coffee favorability at that level is not going to continue in the back half of the year, you'll see channels margin growth come down. However, we do see offsetting that, some favorability in dairy and diesel. When you add that all up across the year, we think commodities will be roughly neutral year-over-year, that's kind of how it shapes up.
Thank you.
The next question is from Keith Siegner with UBS.
Thank you, similar congratulations to everyone involved. I just want to circle back and ask one more question on the MOP or the Mobile Order and Pay, since it's such an exciting part of the story for this year. Scott, maybe you can help me think about this. When we think about that pace of rollout, we know kind of what the completion date is, how does the pace of the rollout happen? Is it a slow build and then we get a big boost right at the end? Similarly, how do the costs associated with this roll? Do they come a little early? Maybe is that part of what leads to some of the cadence of the year? If you could help me with those two pieces, it'd be very helpful. Thanks.
Adam, why don't you start, then Scott can jump in.
Okay. Keith, in terms of the rollout pace, it's going to be fairly evenly spread out throughout the year. It's neither front-loaded nor back-loaded. That's how we're thinking about it. Far, everything seems on track for that.
As far as the cost goes, because of the rollout, the cost is pretty evenly spread as well. I'll just remind you, there's not a lot of cost. There is some incremental cost that'll happen this year. Because of how integrated this is with our existing technology and how seamlessly it works with our existing systems, that cost is manageable.
Can I do one thing also? There's lots of companies who are ringing the bell about Mobile Order & Pay. In my prepared remarks, I specifically talked about this is a proprietary integrated relationship that we're building with our infrastructure and in turn with the customer. Adam, if you or Matt just touch on that for one minute.
Well, yeah. I mentioned this at the Investor Day. What's so unique about what we're doing is we're not starting from a cold start. We already have 13 million active mobile users. We have the POS and payment capabilities. We have MSR now up to nine million plus. For us, we are simply adding on mobile ordering onto that stack of proprietary integrated technology that allow us to do something like that. It sets us up, frankly, for delivery as well. The kind of pace of innovation, our ability to roll it out, and positively influence our business overall is because we have built this and integrated this in the way I just mentioned.
The other thing I just want to say one more time is that traditional advertising and marketing, to try and overcome this seismic shift in consumer behavior is probably not going to work for most people. The relationship that we have built with our customers through mobile payment, through MSR, through Gold members, and now Mobile Order & Pay and delivery, is a significant driver in not only elevating the relationship we have with our customers, but significantly lowering our traditional cost of customer acquisition, especially when you compare it to other national retailers.
Thank you much. The next question is from David Tarantino with Robert W. Baird.
Hi, good afternoon, and congratulations again to everyone. My question is a follow-up on the Mobile Order & Pay experience you've seen so far in Portland, really, I wanted to focus on the operations side of this. I know there were some potential, I guess, changes in how the back of the house or the baristas operate and some potential conflicts with how customer timing and pickup might work. I was wondering if you could comment on your experience so far, and if your operations are running as smoothly as you would have envisioned at this stage of the game.
David, it's Cliff here. It's been incredibly smooth. We did a lot of work up front. As Adam's already said, we built off existing platforms. We integrated it with MSR. It is totally intuitive. We took the existing flow in the store, have built a printer into the register lineup, it is an absolutely seamless experience for our baristas, it doesn't change the routine for the bar. There's a consolidation area for food and beverage to come together. Quite frankly, I say it without fear of contradiction from any of my colleagues here, it has been seamless. We're delighted by the way the customers from day one, when we were down in the market, and our partners have embraced this, that's why we're so confident we can meet this 2015 rollout.
I guess one quick follow-up. Have you run into issues with the timing of the order being prepared and the timing of the customer picking it up? I know that was one potential watch-out, is there any issues like that you're still working through, or is it working pretty smoothly?
No. We have had, David, incredible smoothness in this. There are obviously individuals who are learning. It's a new technology. We didn't go in with a narrow test or pilot. We went in replicating our final rollout plans. We're learning along the way, but it's improved every day. Adoption has grown from day one, and we are extremely confident about this.
Great. That sounds great. Thank you very much.
The next question is from Matt DiFrisco with Buckingham Research.
Thank you. I just had a follow-up, and then a question. I just wanted to understand, you made a comment, Scott, regarding the investment in your partners and how that's going to be a little bit more, or it comes into 2Q, and that's somewhat of the 16% or the lower end of the full-year guidance in 2Q, and then the somewhat ramp in the back half. I'm just curious, isn't that, though, like wages? I don't know, is there a level of investment that's going on in 2Q or a conference of sorts or one-time training or something that's weighted in 2Q, if you could give some color on that? My question was with respect to Portland and the digital.
I'm curious on if you've had an early read in the first six weeks or so of the rollout or four weeks of the rollout, what you're seeing in winning over more people. Has Portland outpaced bringing people onto the mobile app versus other regions? Obviously, everyone's moving over, but are they moving over faster because of the added benefit of Mobile Order & Pay? Thank you.
I'll go first, then I'll turn it over to Adam. Matt, what I was referring to was if you look at analyst estimates for the second quarter, they're north of 20% on average. I was trying to speak to what might be missing in those forecasts. I think this investment that's starting really in January, and you're right, continuing all year in our forecasts, in partner wages and other benefits might be an explanation for that difference between what we're seeing and what you're seeing.
What's really driving the second half acceleration in earnings, and by the way, it's a pretty slight acceleration from 16%-18%, is all the things that we talked about on the top line, the momentum we see in the business, the things we're doing in the middle of the P&L, both within the stores and within the supply chain and support costs. We see that picking up a little bit in the back half of the year. Adam?
Again, while I can't get into specifics, the answer is yes. We are seeing incremental driving of MSR membership, usage of our app, and what's so exciting about that is this is still in beta mode in terms of we haven't even put this on our Android platform yet, which is coming soon. We have additional features to come. We're just getting started, we like what we see early on in terms of all the drivers that we talked about at the analyst conference.
Matt, while I'm clarifying some comments that I made earlier, I want to make sure everyone's clear that Target stores that we're closing in Canada are licensed stores, that I want to make sure the amount of non-GAAP EPS related to the Japan transaction is $0.49. I may have said $0.41, we'll clean all that up.
Thank you.
The next question is from R.J. Hottovy with Morningstar.
Thanks. I had a question about lowering the cost of customer acquisition, specifically the success of the holiday promotions like Starbucks for Life and other things you were running during the period. Just wanted to get a sense of how you plan to keep this momentum going, and other promotional activities that you might have planned for the rest of fiscal 2015. Thanks.
Matt Ryan here. The reason why customer acquisition will continue to come down in terms of cost is a confluence of a number of factors. As we add more features that are meaningful to the customer, things like Mobile Order & Pay, down the road delivery, we're going to be giving the customer added reasons to sign up for MSR. That is an organic thing that happens. The second thing that happens is, as we sell more and more gift cards, we naturally get through the process of registration, incremental MSR customers. Those are probably the two most important things we see rolling out, and that along with increased focus within our stores, which is a low-cost customer acquisition opportunity, builds out MSR as a platform. The acceleration in MSR growth you saw last quarter was the result of all three of those things.
Thanks.
The next question is from Nick Setyan with Wedbush.
Thank you. Congrats again on a great quarter. My question is on the China Asia Pacific. We saw a very meaningful acceleration from last quarter, both on a one and two-year basis. There's a lot of focus on the U.S. comp drivers. Maybe you can give some color on the various drivers in China, Asia Pacific and whether it's market by market or one product or another, that'd be great. Thank you.
Yeah, Nick, this is John. Thanks for the question. I think really we saw obviously 8% comp growth in the quarter. It was all driven by traffic. What I would say is that we have more customers now coming in our stores than ever before in our history across the 15 markets that we operate in. That is being driven in large part as well in China. When you look at the China comp, and I'm not going to quote any specific number, but China comp actually outpaced the entire region. We opened our 1,500th store there. We opened eight new Reserve stores there. The relevance of the brand in China has never been stronger. We did a consumer study in China, what we've seen is that we are looked at as the coffee leader in the market.
Our products, the localization of our products are locally relevant, and we are building a strong trust between our baristas as well as with our customers. What we've been able to do is we've been able to take the awareness that we've built around Starbucks in China as well as in other markets. We've been able to translate that into traffic into our stores. We've done a very good job of converting that awareness to actual visits. We had a very strong holiday season. Our promotional beverages did very well, and we feel that we're in a position to continue the momentum. When you look at our two-year comp across the region, it's at about 16%. Starbucks Card and Mobile does very well in China.
Right now, over 40% of our transactions are done on the Starbucks Card in China, as well as two other major markets. Japan had a very strong quarter as well, given the tough economic environment that's going on in Japan. The acquisition, as Scott said, was accretive in the quarter, and we're in a good position in Japan to accelerate the growth through new stores, through channels outside of our stores, as well as aggressively going after the digital platform in Japan as well. Feel very good about the job our team is doing across the region.
John, thank you.
Thank you.
Last question.
We will take one last question. The last question comes from John Ivankoe with J.P. Morgan.
Follow-up.
John, you don't get two questions. Go ahead. Kidding .
I know a lot of people will probably ask this, I'll just take the opportunity to ask it publicly. It sounds like December was the high month of the quarter, if I'm listening to your comments the right way. I think in your prepared remarks, you made some comments that you're already seeing and realizing the benefit of increased activity in the stores, which I assume is January. Should I interpret the right way, or are you saying that there was further acceleration in January relative to December? Just trying to get a sense of what you're trying to communicate regarding March in general year-over-year, and relative to the first quarter, if I can ask that.
Yeah. Thanks, John and Scott. We haven't said anything about January. You are correct that within the quarter, we did see some acceleration. At the holiday period, our busiest period, we actually saw the highest transaction comps we had in the U.S. That is certainly encouraging as it relates to the first quarter.
Okay, thanks.
This concludes Starbucks Q1 fiscal 2015 earnings conference call. Thank you very much for joining us today. This concludes Starbucks Coffee Company's first quarter fiscal year 2015 earnings conference call. You may now disconnect.