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We thought that the quarter was strong ex-EMEA which was clearly a significant disappointment given -1% comps for that division versus 2.3% consensus.  The two-year average trend for Starbucks' comps declining in all geographies corroborates Keith's recent view that growth is slowing. Given that the stock was up 34% YTD versus the S&P 500 up 11% when the number hit the tape, the sell-off was merited in our view.  Management is, in our view, trying to manage investor expectations for the remainder of the year, raising FY12 guidance but failing to lift it in line with the Street's expectations.

Takeaways:

*         Europe is a problem and the company's actions - sending Michelle Glass to London - indicate that they are taking all steps possible to turn things around. It will not happen overnight and the macro environment will likely remain a headwind for some time given deep recession in U.K. referenced by management.

*         Looking into FY13 and the company's position of strength in single serve, its new concepts and beverage lines, and the strong returns being generated by capital investment, there is plenty of fodder to construct a compelling bull case

*         Commodity costs turning from a headwind to a tailwind in FY13 should be a meaningful benefit, particularly in CPG where in 2QFY12, commodity pressure accounted for 620bps of 740bps total margin