We do expect to get efficiencies to offset what could happen. So we are not expecting dramatic changes and we have done a good job in coffee, for example. If you look at this year, we may take a penny hit in coffee, which is good given the size of the commodity. Dairy is going to be about 3 cents for the year.

Jeffrey Bernstein (Lehman Brothers): Comment about some of the markets where you are actually seeing the greatest success?

Howard Schultz: When you look back on the fact that we opened our first international store in August of 1996 in Japan, and now in 44 countries, we have proven that the experience we have created in our stores is highly relevant and with great acceptance across very different markets, cultures, and whether we are pioneering in China or going to Western Europe where coffee has been there for hundreds of years have demonstrated great success.

We have had unique experiences in many places with the upside probably the greatest in China in terms of number of stores and the real big prize there. But then you look at a country like Mexico where we probably in the initial business plan at most probably had 100 to 150 stores.

We have been there five years. We are close to 250 stores, just named best company to work for in Mexico, fantastic business there and that business will grow north of 500 stores.

And there’s many markets like that, in the U.K. and Japan, which have about 800 and 700 stores respectively, we are still not showing any signs of hitting the wall in terms of saturation except of the near-term issue about the economy in the U.K. We are very bullish on the international opportunity.

Jeffrey Bernstein (Lehman Brothers): In terms of those most successful international markets, are you seeing operating margins above the U.S.?

Peter J. Bocian: Canada is approaching the U.S. kind of margins. There is still more challenges around the spread. From a company-owned market, the U.K. is improving but behind Canada, and then the other big market that will be company-owned will be China, and that is in the early stages.

Howard Schultz: We are beginning to leverage the relationships that we have with our partners. One of our best-performing partners is our partner in Mexico and the Middle East. In both those cases, our Mexico partner is our partner in Brazil and will be our partner as we open up Argentina. The Middle East business, which has been a great business for us with the Alshaya group is also our new partner in Russia.

Steven Kron (Goldman Sachs): How comfortable are you with the level of testing you are doing on a lot of these products before bringing them into the stores, given that it is maybe on an faster profile?

Howard Schultz: Starting with health and wellness, we did a very good job of testing that under the radar in a number of stores over the past few months, coupled with the very strong response we got from research.

That category speaks volumes to our customers need states and we believe strongly that we provide our customers with a reason to come to Starbucks that is incremental to their coffee need. The product tested well and exceeded the expectations we had in terms of units per day. –

We are creating a new platform in the company around beverages and food. And the food program is done. It is all ready to go. We will launch that in September, followed by the second tranche of food, which will come in the fall that will replace the breakfast sandwich.

The energy beverage, this is almost a $5 billion category, again leveraging Pepsi’s distribution system as well as their manufacturing capability and leveraging the fact that we have license to play in that space and perhaps we should have been in it sooner, but we also will be the first retail establishment to create that product customized for our customer.

The Italian beverage is something we discovered. We could not be more excited about it. The proof of everything is how it tastes and this is a product that is very unique in flavor, in profile, in texture and we think we have got it right.