Starbucks Corporation (SBUX) F4Q 2013 Earnings Conference Call October 30, 2013 5:00 PM ET
Howard Schultz - Chairman, President, and CEO
Adam Brotman - Chief Digital Officer
Troy Alstead - CFO
John Culver - President, China and Asia Pacific
Cliff Burrows - Group President, Americas and US, EMEA and Teavana
JoAnn DeGrande - Vice President, Investor Relations
Sara Senatore - Sanford C. Bernstein & Co.
Jeffrey Bernstein - Barclays Capital
Sharon Zackfia - William Blair
Michael Kelter - Goldman Sachs
John Glass - Morgan Stanley
Joe Buckley - Bank of America Merrill Lynch
Jason West - Deutsche Bank
John Ivankoe - JPMorgan
Brian Bittner - Oppenheimer Company
Nicole Miller Regan - Piper Jaffray
Good afternoon. My name is Mike, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to Starbucks Coffee Company’s Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.
Ms. DeGrande, you may begin your conference.
Thank you, Mike. Good afternoon. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Joining me on the call today are Howard Schultz, Chairman, President and CEO; John Culver, Group President of China, Asia Pacific, Channel Development and Emerging Brands and Troy Alstead, CFO.
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.
With that, let me turn the call over to Howard Schultz. Howard?
Thank you, JoAnn, and welcome to everyone on today’s call. I’m very pleased to discuss the record Q4 and fiscal 2013 results that Starbucks reported today. Q4 capped off what was without question the best year in Starbucks 42 year history, driven by robust innovation and disciplined operating and financial performance across each of our business segments and virtually around the world.
Continued strong comparable store sales growth of 8% in each of our Americas and China Asia-Pacific regions in Q4 combined with positive comps of 2% in EMEA to produce global comp store sales of 7% marking our 15th consecutive quarter of comp growth in excess of 5%, despite continued challenging economic and consumer headwinds in many of the global markets we serve.
Starbucks consolidated Q4 revenue rose 13% to a record $3.8 billion while operating leverage and a continued focus on controlling expenses enabled us to expand our operating margin to a full 220 basis points over last year to a quarterly record of 17.6%. And outstanding execution across the company enabled us to deliver record Q4 EPS of $0.63 a share to our shareholders, a full 37% over last year’s Q4 and the highest EPS of any single quarter in the 42 year history of our Company.
For the full fiscal 2013 Starbucks increased revenues by 12% to a record $14.9 billion, expanded its operating margin 150 basis points to a record 16.5% and draw a 26% increase in EPS to a record $2.26 per share. Noteworthy and immensely gratifying is that each one of our business segments contributed to a remarkable performance in fiscal 2013, equally significant is that each segment contributed to growing the equity and trust of the Starbucks brand around the world.
With over 3 billion customer visits to more than 19,000 stores in 62 countries around the world in fiscal ’13, Starbucks is literally firing on all cylinders like never before. Let me tell you we’re just getting started. I believe that fiscal 2013 will prove to be an inflexion point and a spring board to even greater opportunity and success in the future because of the strategic fly wheel we introduced June-July through which we leverage our global store footprint, growing CPG presence in world class digital and mobile assets is driving performance in gaining increased momentum.
I will provide a brief overview of segment performance in Q4 and then turn the call over to John Culver, Group President of Starbucks Coffee China, Asia Pacific and Channel Development and Emerging Brands to provide detail on those key businesses. Then Troy will take you through the financials in detail and provide you with an update on our fiscal ’14 outlook.
Let me pause and congratulate Troy as I look to him, on his promotion to Group President, Global Business Services in addition to his ongoing role and responsibility as CFO. Thank you Troy for your leadership, our 20 year partnership and for the tremendous contributions you’ve made to the business as CFO over the last five years.
Now turning to the Americas. The momentum we reported in Starbucks Americas segment in Q3 continued in Q4, with a stunning 8% comp growth driven by a 5% increase in traffic and a 3% lift in ticket. Noteworthy is that the 8% comp growth recorded in the U.S in Q4 an amazing accomplishment given the size and maturity of the store base we’re comping against, representing our 15 consecutive quarter of U.S comp growth in excess of 7% and that many of our over 2,000 new renovated or relocated U.S stores were the strongest performers.
Strong performance in both our U.S and rapidly growing Latin American businesses contribute to a 11% increase in total Q4 Americas revenue to a record $2.8 billion. Having just returned from a market visit to Canada, a great Starbucks market with over 1,300 stores where I witnessed first hand deep passionate sense of mission that our partners are bringing to their customers and the communities they serve and the strong leadership provided by Annie Young-Scrivner, President of Starbucks Canada is bringing to the market. In Q4 we recorded the strongest comp growth in Canada in 13 quarters, helping us exceed $1 billion of full year revenues in that market for the first time ever.
Building on a strong summer sales, in September the Americas region kicked off for its Fall promotional calendar with what has become our most popular seasonal beverage ever, Pumpkin Spice Latte. 2013 marks the 10th anniversary of PSL with customers having purchased more than 200 million PSL beverages since launch.
Despite the proliferation of Knock Off and Copycat, sales of Starbucks PSL beverages are as strong as ever and once again exceeding expectations as customers continue to embrace the quality of the original Starbucks PSL.
Also in September we debuted a new single-origin coffee from Ethiopia, the birth place of coffee and in recognition of our 42 year history are purchasing Colombian coffee and our plans to open our first store in Colombia next year, we introduced Colombia Caldas, a wonderful Starbucks Reserve.
Recently we launched a national marketing campaign around coffee entitled Starbucks Higher Arabica standards that will benefit both our retail stores and CPG businesses. These initiatives underscore Starbucks ongoing commitment to bringing the world’s most rare and exotic coffee for our customers and to constantly reaffirming our coffee leadership and authority worldwide.
In Q4, we also made solid progress against our plans to expand our La Boulange baked goods platform. La Boulange products are now available in more than 3,500 Starbucks stores in the U.S and we’re now on track off for La Boulange in all 7,000 company operated stores in the U.S by the end of fiscal 2014.
Food continues to be an important component of our growth strategy and we’re extremely encouraged by both customer response to La Boulange and the sales lift we’re seeing over the food products La Boulange we placed. Building on the success we’ve begun testing new La Boulange lunch concepts in a number of our San Francisco stores and targeting an initial rollout next fall as part of our plan to elevate and expand our lunch time day parts.
In the year since we acquired La Boulange we’ve demonstrated the significant strategic benefits of the acquisition through the enhanced quality of our food platform and the corresponding sales incrementality it is driving.
You’ve also undoubtedly heard that we’re exploring another exciting innovative concept. Starbucks handcrafted carbonated beverages, in Atlanta and Austin as well as in Japan and Singapore. These efforts are part of a larger plan to enter and innovate in the cold, carbon Asian industry and over $100 billion global category by leveraging our unique customized beverage retail platform expertise to deliver innovation and personalization to customers like no other industry participant ever has.
Customer response to our carbon, Asian innovation has been encouraging and we look forward to sharing more details around our plans for cold, carbon Asian in the months ahead. Stay tuned.
And beginning this Friday, we will begin rolling out Starbucks holiday beverages in our iconic red cups, a new Gingerbread Latte recipe and the Savory La Boulange Almond Croissant will join a wide variety of other innovative and delicious offerings that promise to make this holiday and winter season our most exciting and successful year.
Turning to the EMEA region, I’m very pleased to report that the early progress we began to see in our Europe, Middle East and African region in Q3 continued to Q4, with positive 2% comp growth in the second consecutive quarter. As I’ve previously shared with you the leverage and learning from our U.S transformation combined with strong leadership in the region are driving beverage and food innovation in efforts to elevate enhance the customer experience across the region as we open our 2,000 EMEA store this quarter.
We're particularly encouraged by the solid performance we saw in the U.K., our single largest market in the region, supporting our view that an early turnaround in EMEA may be underway and that we are moving down the correct path for sustained profitability. We also opened 34 new license and franchise stores in Q4, early progress against our plans to add more license and franchise stores in our EMEA portfolio.
Let me now turn it to Channel Development and Emerging Brands. John will be providing an update on our fast growing Channel Development and Emerging Brands business. There are a few noteworthy highlights I'd like to share with you. We have already exceeded the aggressive growth plans we laid out for Evolution Fresh upon acquiring the business and brand in November 2011. A wide selection of fresh healthy Evolution Fresh juices are now available in more than 8,000 Starbucks and grocery retailer whole cases [ph] and almost all Whole Foods locations nationwide.
Earlier this month, we reached a big milestone with the opening of our new state-of-the-art juicery in California. The new juicery will have 190 Starbucks partners and quadruple our capacity to reduce Evolution Fresh brand cold-pressed juices and enable us to accelerate our plan to significantly increase our share of the $1.6 billion super premium juice category.
As I said in the past the category of tea, a $90 billion global industry that is right for innovation is another major strategic opportunity for us to that leverages all of our core capabilities and existing infrastructure. We are making significant progress against our plans to integrate, develop and expand the Teavana retail platform. Last week we were in New York City for the grand opening of a reimagined Teavana Fine Tea and Tea Bar store on the Upper East Side and be followed by a second store in Seattle [indiscernible] shortly.
The store in New York is stunning but beyond the ascetics, the reimagined Teavana store brings the romance and theater of handcrafted beverages to the tea category like never before. We are convinced that with Teavana, Starbucks can reinvent and do for tea just what we have done for coffee and that we can grow and expand the tea industry and the Tea Bar concept by introducing the wide, innovative array of handcrafted tea beverages, tea inspired food and world-class tea merchandize. With the tea being our larger opportunity than coffee outside of the U.S. and Canada, we see a future with Teavana stores across North America and around the world.
[indiscernible] Teavana with the company's unmatched knowledge and authority around all things tea, then we learned about Teavana's extraordinary tea sourcing expertise and capabilities. In the quarters ahead you will see how we are expanding and deepening the presence of high quality Teavana branded teas within the Starbucks stores in order to leverage tea as a driver of additional customer occasions creating wide recognition for the Teavana brand and adding another layer of growth within the Starbucks stores. The opportunity to innovate within the global tea category is significant and we are poised to bring an unparallel retail experience to customers around the world.
Let me turn to mobile, digital and loyalty. Perhaps no single competency and capability is enabling us to elevate and amplify the Starbucks brand and to deliver an enhanced Starbucks' experience for our customers more than our global leadership position and continued investment in mobile, digital and loyalty innovations and technologies and no single competency is more important to the success of our proprietary strategic [indiscernible] that is adding so much value to the Starbucks brand and our financial performance.
Fiscal 2013 was another significant record year for our card program with over $4 billion loaned in globally and nearly one-third of all North American store tender paid with a service card. At the same time our loyalty program expansion continued around the world including 11 significant new markets including Germany, Hong Kong and the Philippines. We've also begun integrating our emerging brands and adding a number of exciting new features to the My Starbucks Rewards program. Members can now early redeem My Starbucks Rewards stars in Teavana stores and reading [ph] stars for Evolution Fresh juices and other bottled Starbucks ready-to-drink beverages in Starbucks stores, all of which further leverage our world-class card and mobile payment programs providing enhanced value to our customers.
Today with 11% of our U.S. and Canada in-store transitions being paid for with a mobile device, Starbucks is far away the clear leader in mobile payment. We are encouraged by how our customers have fully embraced our mobile apps as the most convenient way to pay, reload and keep track of their loyalty rewards. With the current average of over 4 million mobile transactions per week and more than 8 million customers using our mobile app, Starbucks mobile platforms are fast growing customer touch points. Through them we are communicating with and delivering innovation to our customers in a way that no other retailer can and on the horizon, our enhancement to our mobile apps that include mobile ordering and digital tipping are on its way.
As we enter the last two months of our calendar 2013, we do so with exciting plans for Veteran's Day, Thanksgiving and Christmas holiday shopping season that we know will delight our customers and further add to our operational and financial momentum. Considering there's never been a more exciting or more important time for our company. I'd like to conclude by congratulating and thanking my 200,000 fellow partners who proudly wear the green apron for the [indiscernible] results we've achieved in 2013 and extending my heartfelt appreciation to them for all they do for our customers all around the world every day.
I want to close on a very personal note. Fiscal 2013 was the year in which Starbucks recorded record financial and operating performance. It was also a year in which we delivered record value to our shareholders with over $20 billion increases in market cap alone. For the record of which I'm particularly proud of is that in fiscal 2013 our partners, our employees realized also over $230 million in value as a result of the commitment we made over 20 years ago to link returns to our shareholders and rewards to our people as well by providing equity in the company for all of our full and part-time workers who work more than 20 hours a week.
It is evident that 25 years ago when we set out to build a great enduring company, we said we want to achieve the balance between profitability and a social conscience by sharing our success with our people, by providing a great opportunity for our customers and doing everything we can to enhance the communities we are doing business with. This has been a phenomenal year, a stunning year for our company and for all those at Starbucks it is with great pride that we present Q4 and year-end results to you. John.
Thank you, Howard. 2013 was indeed an extraordinary year for Starbucks and I couldn't be more proud for the significant role for the China and Asia-Pacific region and the Channel Development business is playing in our overall success. I'll begin with the incredibly charmed results for cap, Starbucks' fastest growing region with 13 countries, close to 4,000 stores and nearly 70,000 partners serving 11 million customers every week. As you can see from our results the growth throughout the region continues to be a meaningful component of the Starbucks overall story.
For the quarter I'm very pleased to share that the region is reporting record results in three key areas; total revenue, total operating income and new stores opened. In the fourth quarter revenue grew a very healthy 29% reaching 256 million which was driven by 8% comp growth and the opening of 588 net new stores in the year. This store growth represents a 31% increase over the prior year.
In the fourth quarter we delivered 96 million in operating income which represents a 46% increase over the prior year. Operating margin increased to 37.5%, a 440 basis point improvement over last year. This was driven by a combination of strong sales leverage, lower operating costs and a reduction to our estimated asset retirement obligations on certain store leases.
Today, we have a very well balanced portfolio of company-operated, joint venture and licensed markets led by China and Japan and these results demonstrate the strength of the Starbucks brand and the relevancy we are gaining with our customers across the region. We continue to take a holistic approach to building the Starbucks brand in our markets while making the necessary investments ahead of the curve that will fuel our future growth.
We now have localized capabilities in the region not only in store operations, real estate and marketing in category but also on the critical areas of store design, R&D, supply chain and IT. Coupled with the recent announcement of Jeff Hansberry as President for the region, we’re now in a position to integrate channel development into our markets and expand the Starbucks footprint beyond our retail stores.
In the quarter we reached two significant milestones. We opened our 1000 stores in both China and Japan. The stores that we are building today across the region are some of the most unique and innovative store designs we have anywhere in the world. This is highlighted by the most recent opening of our two newest flagship stores in Beijing. These stores are designed to elevate the coffee experience for our customers and to further enhance and differentiate the third place experience from anything else that exists in the market.
Digital also continues to be a huge opportunity and focus for us in the region. We have now introduced the Starbucks Card in the aspects of our loyalty program in 11 of the 13 countries we operate in. We are seeing significant transaction with the card program in all markets as it now accounts for 23% of tender across the region. From a customer perspective our satisfaction and quality stores are achieving record levels. The frequency of our customer business continues to increase and we continue to attract new customers into our stores reflected by a 6% increase in transactions for the quarter.
Turning to China, we have been humbled by the way in which our customers embrace the Starbucks experience and recognize that we must continue to earn their trust and respect each and every day. We have seen first hand that Starbucks is increasingly becoming a daily ritual for local Chinese. Key drivers for this have been our innovative store designs, local product innovations and the My Starbucks Rewards program where in just two short years we built a base of over 3 million members and it is now grown to account for 35% of transactions in our stores.
For the year we opened 317 new stores in China and the initial performance of those new stores is very strong. The stores we opened in 2012 are currently averaging sales in excess of $700,000, while our 2013 classes stores are on track to annualize with a very similar result. Not surprisingly China will again be the largest driver of the approximately 750 new stores we plan to open across the region in 2014.
Beyond China we are accelerating growth in every other market. I’m particularly encouraged by our strong results and future growth opportunities in key geographies including Japan, Korea, Thailand and Indonesia. And I would like to also congratulate our India partners on the one year anniversary of the market. Through our relationship with Tata, we have opened 25 stores and the response of our customers has been nothing short of amazing which gives us tremendous optimism for the future growth prospects for this market.
Finally, we have a very long runway for growth across the region based on the foundation we have built for our brand and the investments we continue to make. And I remain extremely confident in our ability to drive strong comparable store growth or balancing the rapid expansion of our new store footprint well into the future.
As optimistic as I am about the future growth opportunity we have in cap, I’m just as excited about the long-term opportunity for our channel development business. With fiscal 2013 revenue of $1.4 billion, operating income of more than $400 million a very robust operating margin near 30% and a portfolio of market leading products, channel development has become a meaningful contributor to Starbucks results and is directly benefiting from the strategic flywheel as Howard mentioned earlier.
In the fourth quarter, channel development grew revenue by 13% to $361 million. At the same time operating income of $128 million grew more than two times faster than revenue in Q4, accelerating to 30% growth on the benefit of lower coffee cost and leverage from our strong top line growth.
In Q4 we were able to stabilize and grow dollar and pound share in 11 of the 13 weeks for our premium roast and ground package coffee. This was due in part of the list price reduction we took in May. We are also encouraged by the synergy we are creating with the emerging growth drivers such as linking the My Starbucks Reward program to our package coffee business where our customers have earned more than 1.5 million stars since launch.
We also continue to work with key retailers to increase our presence with the Starbucks Signature Aisle. Already in 100 grocery stores today and with plans to reach 400 by the end of the fiscal year Signature Aisle quantitatively elevates our brand while enhancing the customer experience. The combination of value, rewards and our premium positioning will allow us to continue our leadership position in premium package coffee.
Additionally premium single-serve continues to drive accelerated growth for the business with Starbucks K-Cup growing sales 42% in the prior 13 week period. We have a very diverse portfolio of K-Cup offerings that gives us the premium leadership position down the aisle. In the quarter we added vanilla and caramel flavored coffee to our K-Cup lineup and we will continue to bring new flavors and varieties to the market through our expanded relationship with Green Mountain in 2014.
It's now been a year since we launched Verismo and we’re looking forward to another successful holiday season. This year we have significantly increased the number of doors we will be in for the holidays, introduce the new machine with a fresh design and functionality and are offering several new skews to drive the success of this platform. We remain very optimistic about the large and growing opportunity we have to expand Starbucks beyond our retail stores given the performance of the business throughout 2013.
For competition down the aisle continues to increase, both in terms of the emergence of the value segment and increased promotional activity in the coffee category overall we are in a position to win. Although we may experience volatility quarter-to-quarter, we will continue to elevate our brand through market leading innovation, strong cross channel rewards which leverages our MSR program and meaningful value and differentiation. Make no mistake, we are committed to delivering double-digit top and bottom line growth for this segment in 2014 and beyond.
In closing, I’m incredibly proud and want to thank and recognize all of our partners throughout China and Asia Pacific and within our channel development business for the significant contributions they have made to the overall success of the Company. It is through their efforts that we have been able to deliver these record results and it's why we believe we are poised and positioned to capture the tremendous opportunity we have in front of us.
With that, I’ll turn the call over to Troy. Troy.
Thanks, John. Let’s turn now to the America segment where the fourth quarter represents an impressive continuation of the strength delivery in Q3. Revenue growth of 11% was driven by 8% of comp growth including 5% lift in transactions. And as the case has been for quite some time now there were a diverse set drivers behind the growth. In the U.S. food continues to boost our sales adding about two percentage points to comp in the quarter. That is a result of gains in both the tax rate and favorable mix in both lunch and bakery items. Food is a key driver behind our strength in the lunch hours of 11am to 1pm our fastest growth apart and the one with the highest incremental profit potential.
Pumpkin Spice platform now in its 10 th year once again delivered strong growth. Additionally our focus on summer refreshment and ice beverages was a success. Those promotions combined for one point of comp. Treat Receipt was a hit again this year with 16% higher redemption rate than last year, and as a result of the favorable mix shift in food as well as recent pricing actions, ticket growth contributed three percentage points to comp in Q4 its highest contribution in two years.
While food was the single largest driver of U.S. comp in Q4, La Boulange is just 15% of our stores for the entire quarter does not yet have the reach to contribute meaningfully. It has, however, been very meaningful in stores that carry it which is encouraging to us as we proceed with the rollout. Profitability remains strongly in the Americas as operating income grew 16% to $606 million in Q4 with operating margin expanding 100 basis points to 21.8%. Sales leverage continues to be the primary driver of margin expansion in the Americas.
In Europe, Middle East and Africa, fourth quarter results demonstrated the improvement that has been building over the past two years. EMEA revenue grew to 3% driven by an increase in the number of licensed stores and sales growth within them. Our largest licensed markets in EMEA are among the best performing including the Middle East and Russia. We were also able to sustain 2% comp growth in our company-operated EMEA markets despite a still challenging macro environment.
Profitability continues to improve in EMEA as well with Q4 operating income reaching $27 million, the highest level of full year income since we started reporting EMEA as a separate segment in 2010. Our ongoing store portfolio optimization effort which we embarked upon a year ago has been greatly important in several ways. We brand [ph] our store development with licensees adding stores that are delivering excellent sales, strong profitability and high return on capital. We refocused our efforts on company-operated stores to those with a strong combination of excellent real estate, a practical cost structure and demographics that support sales levels that drive profitability.
This optimization [indiscernible] closure of 72 underperforming stores and relicensing 24 more in the past five quarters. This program coupled with a renewed focus on operations and the customer experience has helped drive transaction comp growth higher by 5 and by 3 percentage points respectively the past two quarters. Work in the past year has also enhanced margins in EMEA with 9.3% operating margin reported in Q4 was the highest we've achieved in 12 quarters and we continue to make progress on our target by improving profitability each year finishing fiscal 2013 at 5.5% up from 0.6% last year. We have made real progress on our long-term cash to the mid teens margin in this region.
Across all our other segments which includes Teavana, Evolution Fresh, [indiscernible] Coffee and our digital ventures business, revenue more than doubled to $105 million driven largely by the inclusion of Teavana revenue beginning in Q2; both in our digital ventures business and Evolution Fresh also contributed. The net operating loss of our other segments was $17 million in Q4 as we continue to invest in our emerging brands. The strong revenue and margin growth in all our businesses led outstanding consolidated results in the fourth quarter. Net revenue grew 13% to $3.8 billion, strong global comp store of 7% comprised of 5% transaction growth and 2% ticket growth were the key driver.
The addition of 1,701 netting stores globally including 356 Teavana stores over the past year and strengthened license stores in Channel Development also contributed to the revenue growth. Consolidated operating income of $669 million grew 29% over the last Q4 more than doubling the revenue growth rate. This led to record operating margin of 17.6%, an expansion of 220 basis points over last year. Strong sales leverage contributed 90 basis points of favorability with the EMEA portfolio optimization adding 60 basis points and lower commodity costs adding 50 basis points. Earnings per share of $0.63 grew to 37% over last Q4.
As I indicated to you in July the fourth quarter included a $0.03 gain on the sale of our equity in Argentina and Chile which will enable further growth and enhanced profitability for both parties in these markets. Even without this $0.03 gain, EPS will accelerate in each quarter throughout fiscal '13 demonstrating the momentum we have translating our strong top line into significant bottom line growth.
For the full fiscal year 2013, our results were equally impressive. Consolidated net revenue reached $14.9 billion, 12% higher than in 2012. 7% lower comp growth in 2013 was the largest driver and was our fourth consecutive year at or above that mark. Transactions grew by 5% for the year while average ticket grew to 2%. Consolidated operating income grew to a record $2.5 billion in fiscal '13, an increase of 23% over fiscal '12. We also delivered record operating margin in 2013 of 16.5%, a full 150 basis points higher than last year. Leverage on our record sales and 50 basis points of commodity cost favorability were the key drivers.
The strong revenue growth coupled with excellent margin improvement led record earnings per share of $2.26 in fiscal '13. This represents growth of 26% over the prior year and included $0.03 each in the second and fourth quarters for gains on the sale of equity in Mexico, Chile and Argentina. Globally we had 1,701 net new stores in fiscal '13 and of course is more geographically diverse than ever before. For instance, in 2007, our largest year of store growth ever, U.S. accounted for 70% of new stores.
By contrast in 2013 the U.S. accounted for just over 20% in new stores. This ability is allowing us to be selective on real estate while celebrating growth, ultimately enhancing return on capital. The strong business results we delivered in fiscal '13 had culminated in total cash generation. This has been critical in allowing us to reinvest in the business while [indiscernible] the increase in cash return to shareholders. For the year we returned a record $1.2 billion of cash to shareholders through dividends and share repurchases.
Additionally, today we announced that our Board has approved a 24% increase to our quarterly dividend to $0.26 per share. This aligns with our commitment to increasing shareholder returns which includes growing dividends. As part of that commitment we have increased our targeted dividend payout ratio range now 35% to 45%.
Over the past several years and again in 2013, we've demonstrated the innovative capabilities and operational excellence to drive strong and consistent comparable store sales growth. We demonstrated the ability to accelerate new store development while also increasing return on capital. We've demonstrated a vision to [indiscernible] for the future in our channel development and emerging brand businesses. We've demonstrated the ability to expand operating margins and consistently drive earnings growth faster than revenue growth and we demonstrated the ability to deliver earnings above our targeted range [indiscernible] for growth.
As we close 2013 and look ahead, the strength of our fiscal 2013 results further increases our confidence in our ability to deliver another strong year. [indiscernible] 2014 outlook and as you then subsequently establish your own expectations for our financial performance in the coming year, I would ask you to both recognize the strength and consistently of our historical performance as well as recognize the challenge of the task ahead, the challenge of again driving store comp growth through this large system, the challenge of again expanding margins after several years of driving margins higher, the challenge of overcoming increased interest expense and a higher tax rate.
We are more optimistic about our future than ever before and at the same time we're realistic and practical in our expectations and I would encourage you to be as well. Targeting revenue growth in 2014 of 10% or greater driven by local comp growth in mid single digits and continued growth in channel development.
Now let me clarify a misunderstanding about our revenue guidance. That revenue growth target is no different from the guidance we provided last quarter. The 10% of greater just recognizes that we have great confidence that we can consistently drive [indiscernible] top line growth in the short term as well as the long term. Now as we said last quarter and on heels [ph] of phenomenal global comp growth in the third and again in the fourth quarter that level of high single digit comp growth [indiscernible] accomplishment for a system as large and mature as Starbucks.
We strongly believe that we have the innovation pipeline, customer trust and loyalty and operational capabilities to continue to sustainably drive same-store sales and equally strong we believe that the mid single digit level is challenging and achievable. As we move into the new fiscal year it would unreasonable to plan for or set expectations any higher.
Also contributing to our revenue growth in fiscal '14 will be our planned 1,300 net new stores. China and Asia-Pacific is now targeted to open 750 net new stores with approximately two-thirds have been licensed. EMEA is now targeted for 150 net new openings especially all licensed. We continue to anticipate opening 600 net new stores in the Americas with approximately high licensed.
Full year consolidated operating margin is expected to expand by 150 to 200 basis points at fiscal '14 as we continue to drive leverage on our strong revenue growth as well as recognize the benefit of lower coffee cups as we expect moderate improvement in operating margin driven by strong sales leverage. In EMEA we anticipate operating margin percentage reached single digits driven by the benefit of the portfolio actions taken in fiscal '13 as well as continued performance and improvements.
In cap we anticipate operating margin moving towards the low 30% range and our rapid growth continues to shift away from our historically licensed model. In channel development, lower coffee cups will provide a modest operating margin expansion in fiscal '14. Our strong revenue growth in margin expansion target gives us confidence in targeted earnings per share in the range of 255 to 265 in fiscal ’14. We are targeting EPS in the range of $0.67 to $0.69 in the first quarter with $0.54 to $0.55 targeted for quarter two, a traditionally lower quarter due to seasonality.
Contributing to the EPS growth will be another year of tail winds on coffee costs, still expected adding approximately $0.09 to $0.10 net benefit for the year. This benefit is expected to be spread evenly throughout the year and reflects the gross coffee impact partially offset by the recent pricing reduction in CPG as well as routine investments in the business.
We now have the vast majority of our coffee needs locked for fiscal ’14 and have begun selective buying of certain varietals in to fiscal ’15. Perhaps one additional comment regarding coffee, I sometimes hear speculation as Starbucks might -- significantly more from favorable coffee costs in 2014. Given that we’re essentially fully price protected now, our price reduction in CPG was executed earlier this year and our other offsetting investments throughout the business are fully planned in various stages of implementation. I would encourage all of you to take close attention to my coffee guidance just provided and not create expectations of winning more than the $0.09 to $0.10 net benefit.
Capital expenditures in fiscal ’14 are expected to remain flat with the previous year at approximately $1.2 billion. Continued investment in store renovation, new stores and other retail initiatives will continue to comprise majority of the spend. We anticipate resolution for the suit with Kraft before the end of this calendar year and believe we have adequate liquidity to cover any outcome.
And finally our cash rate in fiscal 2014 is expected to increase to 34.5%. This is meaningfully higher than fiscal ’13 which included non-routine benefits from prior year audits and state tax true-ups. At our Investor Conference last December, I summarize 2012 in one word, execution. For 2013 strong execution again led to outstanding financial performance. Record revenues in all our segments, margin growth in all our segments, comp growth at the top of our peer set, more than $1 billion in cash return to shareholders, across the board 2013 was truly the year to remember.
With all the success in 2013, the best is still in front of us. Our stores are in excellent shape. We’ve renovated nearly half of our stores in the U.S over the past two years. Our product line up is deep with premium coffee at the core and new high quality food, juice and tea to compliment it. Loyalty is on the rise and new technologies continue to enhance the customer experience.
Our growth appetite remains large and opportunity abounds in China, India, Latin America and with licensed partners globally. And our financial discipline remains strong as we balance height, return, investments in our business while increasing return to shareholders.
With that, I’d like to turn the call back over to the operator for Q&A. Mike?
Earnings Call Part 2: