CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements herein, including statements regarding trends in or expectations relating to the expected effects of our initiatives and plans, as well as trends in or expectations regarding earnings per share, revenues, operating income, operating margins, comparable store sales, sales leverage, expenses, dividends, share repurchases, other financial results, capital expenditures, scaling and expansion of international operations, profitable growth opportunities, strategic acquisitions, changes to the organizational and leadership structures, commodity costs and our mitigation strategies, the transition from our distribution arrangement with Kraft to a direct distribution model, liquidity, cash flow from operations, anticipated store openings and closings, the health and growth of our business overall and of specific businesses or markets, benefits of recent initiatives, increased traffic to our stores, operational efficiencies, product innovation and distribution, tax rates, and economic conditions in the US and international markets all constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, coffee, dairy and other raw materials prices and availability, successful execution of our initiatives, successful execution of internal plans, fluctuations in US and international economies and currencies, the impact of competitors' initiatives, the effect of legal proceedings, and other risks detailed in our filings with the SEC, including in Part I Item IA "Risk Factors" in the 10-K.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
This information should be read in conjunction with the condensed consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the 10-K.
General
Our fiscal year ends on the Sunday closest to September 30. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted.
Overview
Starbucks results for the third quarter of fiscal 2012 continue to demonstrate the strength of our financial foundation and diversified growth model. Total net revenues increased 13% to $3.3 billion driven by global comparable store sales growth of 6%, comprised of a 5% increase in traffic and a 2% increase in average ticket. Also contributing to the revenue growth was an increase in revenues from our Channel Development segment (formerly "Global Consumer Products Group" segment) of 45%, driven by the launch of Starbucks® and Tazo® branded K-Cup® portion packs and increased packaged coffee sales due primarily to the launch of Starbucks® Blonde Roast. Diluted earnings per share increased 19% to $0.43, despite continued pressure from commodity costs, which negatively impacted operating income and operating margin by approximately $38 million and 110 basis points, respectively.
The Americas segment performed well for the third quarter with a 9% increase in revenues over the prior year, primarily due to strong comparable store sales growth of 7%, driven by an increase in traffic of 5%. Contributing to the comparable store sales growth was the continued expansion of our warming program, incremental sales from our new Starbucks® Blonde Roast and continued store efficiencies in the morning daypart. In addition to growth in company-operated stores, revenues from licensed stores grew 24% in the quarter. This success gives us confidence in our licensed operations as we continue to expand our licensed store portfolio. While the growth in our Americas segment remains encouraging, we are mindful of the impact that

ongoing economic challenges will continue to have on this segment. As a result of a weakened consumer environment in June, while sales and traffic growth continued in our target range, the rate of growth slowed. However, we believe our plans for continued store efficiencies, accelerating new store development, and expanding our pipeline of new product offerings to increase revenues throughout all dayparts will drive growth in the future.
EMEA segment results reflect both the investments we have begun making as part of our transformation plan for the region, as well as the macro-economic headwinds we, and others, face there. We are starting to see the benefit of our consumer driven initiatives, including our focus on improving the quality and local relevancy of our products and overall store experience. While we recognize that this turnaround will not be a quick one, these early indicators are encouraging. Our EMEA segment delivered flat comparable store sales and operating income of $2.6 million for the quarter. We expect the investments we are making will result in improved operating performance as we progress on our plan towards mid-teens operating margin; however, this turnaround will take time to gain traction.

CAP segment revenues increased 31% compared to the same quarter in the prior year, driven by net new store growth and comparable store sales growth of 12%. This segment continues to grow rapidly and is becoming a more meaningful contributor to overall company profitability. We expect continued growth will be from a mix of store openings and comparable store sales growth. China continues to be a significant growth opportunity for us as we remain on track to reach our goal of 1,500 stores in 2015. In addition, other key markets such as Japan, Korea, Thailand, Singapore and Indonesia all continue to be profitable and provide a solid foundation for continued growth in the region.
Our Channel Development segment represents another important, profitable growth opportunity for us. Channel Development results continued to be a solid contributor to overall revenue growth with a 45% increase in revenues primarily due to sales of Starbucks® and Tazo® branded K-Cup® portion packs. High commodity costs continued to be a significant drag on operating margin; however, despite these higher costs, operating income increased $17 million to $86 million for the third quarter of fiscal 2012. We expect continued innovation and new product offerings such as the Verismo™ system by Starbucks and Starbucks Refreshers™ beverages will drive further growth and profitability within this segment over time.
Comparable Store Sales
Comparable store sales for the third quarter and the first three quarters of fiscal 2012 are as follows:

                                  Quarter Ended Jul 1, 2012                          Three Quarters Ended Jul 1, 2012
                        Sales            Change in          Change in          Sales            Change in          Change in
                        Growth         Transactions           Ticket          Growth          Transactions           Ticket
Consolidated                6 %              5 %                 2 %              8 %                6 %                1 %
Americas                    7 %              5 %                 2 %              8 %                6 %                1 %
EMEA                        - %              - %                 - %              1 %                - %                - %
China / Asia Pacific       12 %              8 %                 4 %             17 %               12 %                4 %

Our comparable store sales represent the growth in revenue from company-operated stores open 13 months or longer. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates. Fiscal 2012 - Financial Outlook for the Year For fiscal year 2012, we expect revenue growth driven by mid-single-digit comparable store sales growth, net new store openings and strong growth in the Channel Development business. Licensed stores will comprise between one-half and two-thirds of new store openings in the Americas, EMEA and China / Asia Pacific regions.
We expect modest consolidated operating margin and EPS improvement compared to fiscal 2011, given our current revenue expectations, along with ongoing higher commodity costs.
We expect increased capital expenditures in fiscal 2012 compared to fiscal 2011, reflecting additional investments in store renovations and in manufacturing capacity.
Fiscal 2013 - Financial Outlook for the Year For fiscal year 2013, we expect revenue growth driven by mid-single-digit comparable store sales growth, approximately 1,200 net new store openings, and continued strong growth in the Channel Development business. Licensed stores will comprise approximately one-half of new store openings in the Americas and approximately two-thirds of new store openings in China / Asia Pacific and EMEA.

We expect full-year consolidated operating margin improvement of 50 to 100 basis points and EPS growth of 15% to 20% compared to fiscal 2012.
We expect approximately $1 billion in capital expenditures in fiscal 2013, reflecting both new store growth and an increase in production capacity to support recently-announced initiatives.

Results of Operations (in millions)

Revenues

                                     Quarter Ended                   Three Quarters Ended
                             Jul 1,       Jul 3,        %        Jul 1,       Jul 3,        %
                              2012         2011      Change       2012         2011      Change
Company-operated stores    $ 2,615.6    $ 2,417.3      8.2 %   $ 7,868.6    $ 7,162.1      9.9 %
Licensed stores                308.2        248.7     23.9         905.1        740.8     22.2
CPG, foodservice and other     379.8        266.2     42.7       1,161.7        765.8     51.7
Total net revenues         $ 3,303.6    $ 2,932.2     12.7 %   $ 9,935.4    $ 8,668.7     14.6 %

Total net revenues for the third quarter and the first three quarters of fiscal 2012 increased $371 million and $1.3 billion, respectively, primarily driven by increased revenues from company-operated stores (contributing $198 million and $707 million, respectively). An increase in comparable store sales was the primary driver of the increase in company-operated store revenues for both periods (approximately 6%, or $149 million, for the third quarter and approximately 8%, or $532 million, for the first three quarters).

Also contributing to the increase in total net revenues was higher revenues from licensed stores of $60 million and $164 million, for the third quarter and the first three quarters of fiscal 2012, respectively. These increases were primarily due to higher product sales to and royalty revenues from our licensees, resulting from improved comparable store sales and the opening of 383 net new licensed stores over the last 12 months.
CPG, foodservice and other revenue increased $114 million and $396 million, for the third quarter and the first three quarters of fiscal 2012, respectively. These increases were primarily due to sales of Starbucks® and Tazo® branded K-Cup® portion packs launched in the CPG channel on November 1, 2012 (approximately $55 million for the third quarter and approximately $174 million for the first three quarters). For the third quarter of fiscal 2012, increased packaged coffee sales (approximately $20 million), driven by the launch of Starbucks® Blonde Roast, and increased foodservice revenues (approximately $14 million) also contributed. For the first three quarters of fiscal 2012, the benefit of recognizing full revenue from packaged coffee and tea sales under the direct distribution model (approximately $78 million) and increased foodservice revenues (approximately $43 million) also contributed. Operating Expenses

                                     Quarter Ended                               Three Quarters Ended
                       Jul 1,        Jul 3,      Jul 1,    Jul 3,      Jul 1,        Jul 3,      Jul 1,    Jul 3,
                        2012          2011        2012      2011        2012          2011        2012      2011
                                                    % of Total                                      % of Total
                                                   Net Revenues                                    Net Revenues
Cost of sales
including occupancy
costs                $ 1,446.1     $ 1,237.5      43.8 %    42.2 %   $ 4,354.1     $ 3,601.0      43.8 %    41.5 %
Store operating
expenses                 976.0         917.1      29.5      31.3       2,928.3       2,672.2      29.5      30.8
Other operating
expenses                 105.9         100.0       3.2       3.4         317.9         289.0       3.2       3.3
Depreciation and
amortization
expenses                 136.7         129.5       4.1       4.4         408.6         386.1       4.1       4.5
General and
administrative
expenses                 199.0         190.2       6.0       6.5         597.4         557.0       6.0       6.4
Total operating
expenses               2,863.7       2,574.3      86.7      87.8       8,606.3       7,505.3      86.6      86.6
Income from equity
investees                 51.7          44.3       1.6       1.5         148.8         116.9       1.5       1.3
Operating income     $   491.6     $   402.2      14.9 %    13.7 %   $ 1,477.9     $ 1,280.3      14.9 %    14.8 %
Store operating
expenses as a % of
related revenues                                  37.3 %    37.9 %                                37.2 %    37.3 %

Cost of sales including occupancy costs as a percentage of total net revenues increased 160 basis points and 230 basis points for the third quarter and the first three quarters of fiscal 2012, respectively, driven by increased commodity costs (approximately 110 basis points for the third quarter and approximately 210 basis points for the first three quarters), primarily due to higher coffee costs.
Store operating expenses as a percentage of total net revenues decreased 180 basis points for the third quarter and 130 basis points for the first three quarters of fiscal 2012, primarily due to increased Channel Development revenues and licensed store revenues. Store operating expenses as a percentage of company-operated store revenues decreased 60 basis points for the third quarter and 10 basis points for the first three quarters, primarily due to increased sales leverage. For the first three quarters of fiscal 2012, the favorability from increased sales leverage was partially offset by higher debit card transaction fees (approximately 20 basis points).

Other operating expenses as a percentage of total net revenues decreased 20 basis points for the third quarter and 10 basis points for the first three quarters of fiscal 2012. Excluding the impact of company-operated store revenues, other operating expenses decreased 400 basis points for the third quarter and 380 basis points for the first three quarters. The decrease was primarily driven by increased sales leverage for the third quarter. For the first three quarters, the decrease was primarily driven by the absence of charges in fiscal 2012 related to the Seattle's Best Coffee store closures in Borders bookstores (approximately 140 basis points) and increased sales leverage.
Income from equity investees increased $7.4 million for the third quarter and $31.9 million for the first three quarters of fiscal 2012, primarily due to improved performance from our joint venture operations in Japan and China, as well as in our North American Coffee Partnership joint venture which produces, bottles and distributes our ready to drink beverages.
Also contributing to the operating margin favorability for the third quarter and the first three quarters of fiscal 2012 was sales leverage on general and administrative expenses and depreciation and amortization. The combination of these changes resulted in an increase in operating margin of 120 basis points for the third quarter and 10 basis points for the first three quarters of fiscal 2012.

Other Income and Expenses

                                       Quarter Ended                               Three Quarters Ended
                         Jul 1,      Jul 3,      Jul 1,     Jul 3,      Jul 1,        Jul 3,       Jul 1,     Jul 3,
                          2012        2011        2012       2011        2012          2011         2012       2011
                                                    % of Total                                        % of Total
                                                   Net Revenues                                      Net Revenues
Operating income        $ 491.6     $ 402.2      14.9  %    13.7  %   $ 1,477.9     $ 1,280.3      14.9  %    14.8  %
Interest income and
other, net                  9.7        16.0       0.3        0.5           68.2          50.3       0.7        0.6
Interest expense           (8.9 )      (8.5 )    (0.3 )     (0.3 )        (26.2 )       (23.5 )    (0.3 )     (0.3 )
Earnings before income
taxes                     492.4       409.7      14.9       14.0        1,519.9       1,307.1      15.3       15.1
Income taxes              159.1       129.9       4.8        4.4          494.2         417.2       5.0        4.8
Net earnings including
noncontrolling
interests                 333.3       279.8      10.1        9.5        1,025.7         889.9      10.3       10.3
Net earnings (loss)
attributable to
noncontrolling interest     0.2         0.7         -          -            0.6           2.5         -          -
Net earnings
attributable to
Starbucks               $ 333.1     $ 279.1      10.1  %     9.5  %   $ 1,025.1     $   887.4      10.3  %    10.2  %
Effective tax rate
including
noncontrolling interest                          32.3  %    31.7  %                                32.5  %    31.9  %

For the third quarter and the first three quarters of fiscal 2012, net interest income and other decreased $6 million and increased $18 million, respectively. The decrease in income for the third quarter of fiscal 2012 was primarily due to the absence of the gain recognized in the third quarter of fiscal 2011 resulting from the sale of our Hong Kong investment. The increase in income for the first three quarters of fiscal 2012 was primarily due to the recognition of additional income associated with unredeemed gifts cards in the second quarter of fiscal 2012 (approximately $29 million), following a recent court ruling related to state unclaimed property laws.

The effective tax rate for the quarter ended July 1, 2012 was 32.3% compared to 31.7% for the same quarter in fiscal 2011. The increase in the rate was primarily due to benefits recognized in fiscal 2011 from releasing certain tax reserves. The effective tax rate for the three quarters ended July 1, 2012 was 32.5% compared to 31.9% for the same period in fiscal 2011. The increase in the rate was due to benefits recognized in fiscal 2011 from releasing certain tax reserves, partially offset by increased income in certain foreign jurisdictions with lower tax rates in fiscal 2012.

Segment Information
Segment information is prepared on the same basis that our management reviews
financial information for operational decision-making purposes. The following
tables summarize the results of operations by segment (in millions):
Americas
                                     Quarter Ended                               Three Quarters Ended
                       Jul 1,        Jul 3,      Jul 1,    Jul 3,      Jul 1,        Jul 3,      Jul 1,    Jul 3,
                        2012          2011        2012      2011        2012          2011        2012      2011
                                                   % of Americas                                   % of Americas
                                                   Net Revenues                                    Net Revenues
Total net revenues   $ 2,471.2     $ 2,275.9                         $ 7,424.4     $ 6,768.8
Cost of sales
including occupancy
costs                    965.1         880.8      39.1 %    38.7 %     2,913.4       2,602.3      39.2 %    38.4 %
Store operating
expenses                 858.1         813.3      34.7      35.7       2,570.3       2,378.9      34.6      35.1
Other operating
expenses                  20.2          18.9       0.8       0.8          59.4          55.5       0.8       0.8
Depreciation and
amortization
expenses                  97.2          96.3       3.9       4.2         291.4         292.5       3.9       4.3
General and
administrative
expenses                  18.5          15.7       0.7       0.7          53.7          43.1       0.7       0.6
Total operating
expenses               1,959.1       1,825.0      79.3      80.2       5,888.2       5,372.3      79.3      79.4
Income from equity
investees                    -             -         -         -           2.1           1.6         -         -
Operating income     $   512.1     $   450.9      20.7 %    19.8 %   $ 1,538.3     $ 1,398.1      20.7 %    20.7 %
Store operating
expenses as a % of
related revenues                                  38.0 %    38.7 %                                37.9 %    38.0 %

Revenues
Americas total net revenues for the third quarter and the first three quarters of fiscal 2012 increased 9%, or $195 million, and 10%, or $656 million, respectively. These increases were primarily driven by increased revenues from company-operated stores (contributing $154 million for the third quarter and $530 million for the first three quarters) and licensed stores (contributing $41 million for the third quarter and $125 million for the first three quarters). An increase in comparable store sales was the primary driver of the increase in company-operated store revenues for both periods (approximately 7%, or $139 million, for the third quarter and approximately 8%, or $486 million, for the first three quarters). The increase in licensed store revenues was primarily due to increased product sales to and royalty revenues from licensees (approximately $40 million for the third quarter and approximately $116 million for the first three quarters), primarily resulting from improved comparable store sales. Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 40 basis points and 80 basis points for the third quarter and the first three quarters of fiscal 2012, respectively. These increases were driven by higher commodity costs (approximately 70 basis points for the third quarter and approximately 150 basis points for the first three quarters), primarily due to higher coffee costs, partially offset by increased sales leverage on occupancy costs (approximately 50 basis points for the third quarter and approximately 60 basis points for the first three quarters).
Store operating expenses as a percentage of total net revenues decreased 100 basis points for the third quarter and 50 basis points for the first three quarters of fiscal 2012. Increased licensed stores revenues contributed approximately 30 basis points and approximately 40 basis points for the third quarter and the first three quarters, respectively. Store operating expenses as a percentage of company-operated store revenues decreased 70 basis points for the third quarter and 10 basis points for the first three quarters of fiscal 2012. These decreases were primarily due to increased sales leverage. For the third quarter, decreased

marketing expenses (approximately 30 basis points) partially offset by higher debit card transaction fees (approximately 10 basis points) also contributed. For the first three quarters, the increased sales leverage was partially offset by higher debit card transaction fees (approximately 30 basis points). Also contributing to the change in operating margin for the third quarter and the first three quarters of fiscal 2012 was increased sales leverage resulting in lower depreciation and amortization expenses as a percentage of total net revenues (contributing 30 basis points for the third quarter and 40 basis points for the first three quarters). The combination of these changes resulted in an overall increase in operating margin of 90 basis points for the third quarter of fiscal 2012. Operating margin for the first three quarters of fiscal 2012 did not change from the same period in the prior year.

EMEA

                                Quarter Ended                             Three Quarters Ended
                  Jul 1,      Jul 3,      Jul 1,     Jul 3,     Jul 1,      Jul 3,      Jul 1,     Jul 3,
                   2012        2011        2012       2011       2012        2011        2012       2011
                                              % of EMEA                                     % of EMEA
                                            Net Revenues                                  Net Revenues
Total net
revenues         $ 282.0     $ 257.9                           $ 857.5     $ 756.7
Cost of sales
including
occupancy costs    149.8       133.1       53.1 %     51.6 %     444.2       377.4       51.8 %     49.9 %
Store operating
expenses            88.2        82.1       31.3       31.8       274.0       236.3       32.0       31.2
Other operating
expenses             8.4         9.0        3.0        3.5        26.0        24.9        3.0        3.3
Depreciation and
amortization
expenses            14.3        12.4        5.1        4.8        42.8        37.6        5.0        5.0
General and
administrative
expenses            18.7        18.2        6.6        7.1        54.1        48.7        6.3        6.4
Total operating
expenses           279.4       254.8       99.1       98.8       841.1       724.9       98.1       95.8
Income from
equity investees       -         1.8          -        0.7         0.3         6.0          -        0.8
Operating income $   2.6     $   4.9        0.9 %      1.9 %   $  16.7     $  37.8        1.9 %      5.0 %
Store operating
expenses as a %
of related
revenues                                   37.2 %     37.0 %                             37.3 %     36.1 %

Revenues
EMEA total net revenues for the third quarter and the first three quarters of fiscal 2012 increased 9%, or $24 million, and 13%, or $101 million, respectively, primarily driven by increased revenues from company-operated stores (contributing $15 million for the third quarter and $80 million for the first three quarters). These increases in company-operated store revenues were primarily due to the acquisition of the remaining interest in our previous joint venture operations in Switzerland and Austria in the fourth quarter of fiscal . . .