Operator:

Thank you for standing by and welcome to Domino's Pizza's Second Quarter 2024 Earnings Conference Call. At this time all participants are in listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Greg Lemenchick, Vice President of Investor Relations. Please go ahead, sir.

Russell Weiner :

Thank you, Greg. And good morning everybody. Our second quarter performance demonstrated once again that our Hungry for MORE strategy, is delivering positive results. For the second straight quarter, we drove US Comp performance in the healthiest way possible through profitable order count growth. Positive order counts in our delivery business, positive order counts in our carryout business, positive order counts across all income cohorts. We also continue to see improvement in our international comps and generated earnings that were in-line with our expectations. As a result of our strong results year-to-date and expectations for the back half of the year, we remain on track to achieve our guidance for annual global retail sales growth of 7% or more and operating profit growth of 8% or more. I want to provide an update on our net store growth guidance, which we temporarily suspended this morning. First, I want to reiterate that our US Pipeline is strong and it continues to grow. We continue to expect 175 or more net new stores annually in 2024 through 2028 in the US. We now expect to fall below our net store growth target for international in 2024 by approximately 175 to 275 stores, primarily as a result of challenges in both openings and closures faced by Domino's Pizza Enterprises, DPE, one of our master franchisees. We're partnering closely with DPE, as they work through this process. Now, it's important to note that our largest expected growth markets of China and India remain on track to deliver on their growth potential. In China, DPC Dash, announced they'll open store number 1,000 by the end of this year, and then they'll increase their net openings per year to between 300 and 350 starting in 2025. Back in May, Jubilant, our master franchisee based out of India, increased its total store count potential to 5,500 over the medium-term in the six global markets in which it operates. When you think that it took Domino's over 60 years to open 5,500 stores in the United States, Jubilant's goal exemplifies the Hungry for MORE mentality, our global system is taking on. Now let's look at our second quarter results through the lens of our MORE, Hungry for MORE pillars, which continue to drive our business. As you know, M stands for the most delicious food. We know we've got the most delicious food in the industry and are focused on showcasing that with more mouth-watering food photography and all of our marketing and our sales channels. We launched our New York Style pizza in Q2, and it's what we call innovation with intent. When we launch a new product, it's got a specific role, and it's intended to stay on the menu permanently. New York Style pizza is another example of that. It's got a crust that's thinner and more foldable than our traditional crust. It was designed to appeal to pizza lovers, whose idea of deliciousness is a little bit different than Domino's Pizza Offerings in the past. The result has been a high mix of sales within our pizza offerings. In addition to being a product that showcases deliciousness in a different way, New York Style Pizza is available as part of our mix-and-match offer. Domino's Rewards members can also redeem 60 points for a free medium two-topping New York Style pizza. This new offering drives more than just deliciousness. It drives value and it drives more customers into our loyalty platform and that's why we call it Innovation with Intent. The O in Hungry for MORE stands for Operational Excellence. This is how we'll deliver on our promise to have the most delicious food, by consistently driving a great experience with our product. As I shared on our last earnings call, in 2024 we're rolling out a new service program we're calling MORE Delicious Operations. This is a series of three-product training sprints focused on our dough, how we build and make our products, and then how we cook them. In Q1, we embarked on our first sprint, which focused on our dough, and are now rolling out our second sprint around ingredients and product builds. These product sprints and last year's Summer of Service, are working together with our [DMOS] (ph) technology to drive improvements in our delivery times. In fact, estimated average delivery times were nearly 10% better in Q2 of 2024 than they were in Q2 of 2022. And we're doing all of this while our stores are handling more orders. So I wanted to congratulate our franchisees and operators, whose commitment to service allows us to deliver on the promise we are striving to make in our marketing that Domino's has the most delicious food. Our third Hungry for More pillar is R for Renowned Value. As I said before, it's not just about having the lowest price in the market, it's about providing value that's innovative and memorable. Renowned Value breaks-through the sea of standard discounts you see in the marketplace. Now Domino's Rewards is an example of that Renowned Value. It continues to perform well and was the key driver of our strong US comp performance in Q2. You will recall our objectives for the program were to drive new users, particularly carryout customers, and increase the frequency of light users. I'm happy to report that Domino's Reward continues to deliver on those objectives. Our active members are up significantly year-to-date through Q2, showing that the program is continuing to build. Redemptions across both the delivery and carryout channels are also increasing, which is contributing to the transaction growth you're seeing in each of our businesses. For example, in our carryout business, orders with a loyalty redemption in the first half of 2024 are twice as high, 2 times, as they were in the first half of 2023 under our old loyalty program. So the Americans continue to look for value Domino's is providing Renowned Value and doing it profitably for our franchises. National promotions are another way we're driving Renowned Value. In Q2, we had two Boost weeks, both of which were very successful in driving transactions and customer acquisition. As it relates to our promotional cadence in 2024, you can continue to expect around six Boost weeks. While providing renowned value through our own channels is one part of our barbell strategy, tapping into the aggregator marketplace is the other. And our launch into this space remains on track to exit the year at 3% or more of sales coming through Uber Eats. Everything we do at Domino's is enhanced by our best-in-class franchisees. They're the E in our Hungry for MORE strategy. In early May, we hosted our largest worldwide rally with almost 9,000 franchisees and team members in attendance. This year's event was appropriately themed Hungry for MORE. We brought the strategy to life across our global system and the results showed. This was our most highly rated rally of all-time. To close, I couldn't be more energized by the future of Domino's Pizza and seeing the excitement of franchisees at our rally really brought that to life for me and the leadership team. Our results show that our strategy is resonating with customers and our system. All of this gives me great confidence that we can continue to drive significant long-term value creation for our shareholders. And with that, I'll turn things over to Sandeep.

Operator:

[Operator Instructions] Our first question comes from the line of Dennis Geiger from UBS. Your question, please.

Russell Weiner:

Good morning Dennis. Thanks for the question. Yeah, I'll tell you Loyalty for us this year has just been tremendous. If you think about the objectives that we outlined in our Investor Day, we said with the new Loyalty program we wanted to drive light users and frequency there, check. We wanted to continue obviously to drive our delivery customers, obviously we're doing that, but we also wanted to engage our carryout customers, check there. So it really is doing every single thing that we had hoped it would. We'll give a number at the end of the year, as far as new users, but I can tell you the number of new users is increasing. I gave a number in my opening remarks that just to me is indicative of how this is going. So remember, one of the things we said we were going to do is, really use Loyalty to drive carryout. So orders from a carryout perspective, orders with Loyalty redemptions in the first half of this year are twice as high as they were under the old program in the first half of last year. Sandeep talked about how our carryout business is doing and this is one of the big reasons. So just really on all of the objectives, the Loyalty program is delivering what we had hoped.

Russell Weiner:

Yeah, and when you think about the health of this quarter and how order counts came in so strong. All of those customers are going into the flywheel of this Loyalty program. So today's orders are really tomorrow's sales. And that's why we're so excited about how the Loyalty program is working with everything else that's firing on the business right now.

Brian Bittner:

Thank you. Good morning. As it relates to the unit growth guidance, I understand that the shortfall is primarily related to pressures you're witnessing at DPE, but can you dive into this dynamic a bit more? It just seems like a lot has changed versus when you initiated the long-term outlook at the end of last year. So just trying to better understand how the surprise came about so suddenly versus what you were expecting seven months, eight months ago?

Russell Weiner:

And Brian, I would just add to that. I think what this shows me is how many levers we have to grow this business. And so, you know, certainly we're working with DPE, but let me just put some of this in perspective. So our sales and stores are still on target for the 7%, I'm sorry, our sales and non-profit for the 7% plus and the 8% plus. And with those headwinds in DPE, that means we have a lot of other things firing. And so just maybe I'll start with development. So at the same time as we have this DPE news, we have news that China and India are increasing their outlook. We've got today 14,000 stores, half of those stores we've opened since 2015. And so the momentum we have on our way to 40,000 stores, which is a lot more room for us, is tremendous. Then when you think about our development in the US, obviously we're, as Sandeep said in his remarks, 175 plus is still our target this year that we're going to hit. And when you think about the strength of development, openings are really important. So are closings. And in the trailing 12 months in the US, we've closed only seven stores out of a total about 7,000. And so development I think overall is pretty healthy and like I said we've got these other things firing at the same time, which is why our sales and profit numbers are still coming in at forecast.

David Tarantino:

Hi. Good morning. My question is a follow-up, Russell on your comments about the outlook for the year being unchanged. I guess we've seen signs that consumer spending is slowing certainly in parts of the restaurant industry. And it feels like the degree of difficulty in the US has increased. So I just wanted to ask you to give some commentary on why you're so confident in holding those targets for this year? And whether you think the degree of difficulty is higher or unchanged versus what you were thinking previously. Thanks.

Operator:

Thank you. And our next question comes from the line of Andrew Charles from TD Cowen. Your question, please.

Sandeep Reddy:

Andrew, thanks for the question. I think, no, it's more about what I talked about in the prepared remarks, which is we do have one less Boost week. We do have the ramp in Uber, but on a net basis it's slightly below what we saw in Q2 as our expectation for Q3. But I'll go back to Russell's previous answer. We are seeing tremendous performance in terms of transaction growth for the entire first half, and we're expecting to see that same performance in the entire second half. And so we're very confident in the ability of our business to deliver the kind of momentum that you've seen already in the first half, in the back half, including Q3.

David Palmer:

Thanks, Good morning. I guess the question is about, I'll make it a kind of a two-parter. It looks like the sales trends are pretty volatile in the US from the data that we see for example, things look like they were weaker in April, when you didn't have sort of a value forward-message like Emergency Pizza where the $3 tip. Could you kind of reflect on the quarter and what you are seeing in terms of the consumer response to stuff? And maybe give us a sense of what you think is working and not working in the US? And then separately I think people are going to be concerned about the fourth quarter if the third quarter is worse than this quarter, maybe let's say, you do a 4% in the third quarter, I think people are going to be concerned about you holding that 3%-plus in the fourth quarter given the comparison. So maybe you can address both of those. Thanks.

Sandeep Reddy:

David, I'll just try to answer -- just clarifying a couple of the points. I mean you talked about volatility in sales spend in the US, we didn't see any volatility. We saw a very steady cadence. And the steady cadence of sales is really driven by the flywheel that Russell talked about on the Loyalty program and the frequency that's continuing to build from there. We've seen that pretty consistently across the year frankly, including the second quarter. So we don't see the volatility at all. And I think the other question that you asked was the confidence in the Q4 comp, and as I said in the prepared remarks, we expect both Q3 and Q4 to be above the 3%. So -- but I just explained that Q3 maybe slightly below Q2 because of the timing of the Boost -- of the number of Boost weeks offset by Uber's ramp. Now going to Q4, one of the things we talked about earlier was that loyalty is going to be a multi-year driver for us. So sure, we are lapping in Q4, the Loyalty program launch, but we still expect to be seeing tailwinds in the compounding impact from the Loyalty program in Q4. In addition, Uber continues to build. And so with both those drivers, there is every case to look at 3% or more is very, very much within reach in the fourth quarter, and we always Hungry for MORE. So the more we do, the better it is. So we're really confident. And because this is all transaction driven, it's really driving very strong economics. So franchisee profitability continues to grow. And I think that's actually driven by a significant performance on the supply chain side also, which is you are seeing on the supply chain financials that's going into the franchisee profits. So overall, very confident of our outlook for the back half of the year.

Lauren Silberman:

Thank you very much. I wanted to ask about the value strategy. So you talked about the one Boost week in the third quarter that leads to I believe, one in the fourth quarter, clearly driving strong performance. Given the value focus in the industry, what flexibility do you have to further increase promotional activity? And then are you seeing any increase in value mix and how much is going through deals?

Operator:

Thank you. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question please.

Russell Weiner:

Thanks, Greg, and we are going to send you the Domino effect bumper sticker after this, so you want to look after that. Uber is performing as we thought it would. It is doing so in a little bit of a different way. And I talked about it last quarter, but I think it is worth bringing up again. So first, from a sales perspective, it's about 1.9% of sales. And our – we are tracking towards our goal this year of 3% of sales. How it’s coming is a little bit different. And what we've seen is really an uptick more in a high-low strategy, originally our approach was okay, if we have kind of an everyday low price, not compared to our channels, right? Still the lowest price Loyalty program in our channel. That would be the way to win. But actually, it's -- whether it's how customers shop or part of the algorithm or a little bit of both, starting out with a slightly higher price that you can discount from, is a way to get more eyeballs. And so we've continued to test and pivot that way, and you are seeing it in the results. So again, we're -- the year is folding like we thought it would. And so what that leaves us with your question about DoorDash is the current exclusivity with Uber runs through Q1. At that point, whether or not we renew is our choice, and so we'll be looking at the economics and potential at that point. But that would be the time to think about do we stay exclusive? Or do we open up to a DoorDash or other aggregators. We've talked about the $1 billion opportunity for us is really our fair share on all of the aggregators, which in about three years or so is what we hope to get to.

John Ivankoe:

Hi, thank you. Especially in the context of closures in France and in Japan. I asked about impacts of store splits in the US, you are currently at around 2.5% store growth rate in the US, which is actually high for a fairly mature brand. So talk about what you see as net I guess, cannibalization or whatever you want to call it, what negative impact on same-store sales from store splits. And is there any learning I guess, either side of the Atlantic or either side of the Pacific, as it may be in terms of who is learning for -- who is learning from who in terms of how markets can be penetrated? Is that -- that they didn't necessarily follow the same site model that you do? Or do you have any opportunities to kind of look at them in terms of how densely markets can be penetrated? I just want to I guess, have a sense of your level of risk acceptance in terms of hitting your US store targets without overly encroaching on your existing current asset base? Thank you.

Operator:

Thank you. And our next question comes from the line of Sara Senatore from Bank of America. Your question please.

Sandeep Reddy:

So Sara, let me start with clarification on pricing versus cost inflation. I think you're talking about the corporate stores, particularly. And really if you look at what happened on the corporate stores, and we had an insurance charge in the quarter that actually resulted in margins contracting. And if you actually strip out that insurance charge, margins were roughly flat and profit dollars grew. And really speaking, when we look at our franchisee profitability, that's pretty much a dynamic. We are looking at profit dollar growth, and that's exactly what we're expecting to see. And frankly, we expect to see that in corporate stores as well, as we actually go through the year. We continue to expect to see both margin improvement, as well as profit dollar growth on the corporate stores as well. And then I think specific to restaurant growth in China and India and your comment on the size of the stores, the closures that we're talking about essentially are very low-volume stores. So from that perspective, I think they're not necessarily comparable to the averages across all of the different markets. And so I think the drag is relatively small with the closures that we're talking about, specifically in Japan and France. And the growth opportunities continue to be robust. And the China stores, they've actually put out releases talking about their new store openings and the kind of record sales they're generating over there. So very exciting to see the growth coming from China.

Operator:

Thank you. And our next question comes from the line of Danilo Gargiulo from Bernstein. Your question please.

Russell Weiner:

Yes. Danilo, I'll let DPE's release kind of speak to what they are thinking about those closures. So they talked about Japan being a little bit aggressive in openings and now they are seeing kind of the results of that. What gives me confidence about the rest of the piece of the algorithm as an example, I said earlier DPC China, DASH and Jubilant, they're going to be 40% to 50% of our openings, and they each increased their outlook. And so the beauty of being in over 90 countries around the world is, look, I'm not trying to look away from what clearly was a miss in one part of the business. But a good business is able to kind of handle that. And that's what being 90-plus markets helps us do. And all of these levers, end up leading to the 7% plus on the sales basis and the 8% plus on a profit basis really show how that is made up in times like this. Anything to add Sandeep?

Russell Weiner:

Okay.

Peter Saleh:

Yeah. Great. Thanks for taking my question. I wanted to ask about the -- you guys mentioned positive order counts in both delivery and carryout in the US. Can you just talk a little bit about -- are these new customers? Are these lapsed users? And just any thoughts on that call, lower income consumer. Are you seeing -- I know you said you were seeing growth across all income cohorts. But any thoughts on what you are seeing there. Is that accelerating? Is it stable? I guess that's my first question. And then just a follow-up on that, on the store closures from DPE, Sandeep, you said they're very low volume. Is there any way to give us an order of magnitude of how low these stores are in terms of volumes just so that we understand. Thank you very much.

Sandeep Reddy:

Yes. No -- I think on the -- let me start with the second part of the question right, which is the store volumes and what's going to happen. Very low volume in relative terms to the rest of the fleet and the rest of the market in all the stores that are closing in Japan and France. So the impact is so material to the profit number. It's in a few million dollars and on a forward basis for 2025, and will have a very limited impact even on 2024, considering we’re only halfway through the year. So very small to answer your question from that Peter.

Sandeep Reddy:

And the beautiful thing, Pete, is it is so balanced across all income cohorts. And I think it really reflects what Russell is talking about. And that consistency has been seen all through the first half of the year.

Chris O'Cull:

Yeah. Good morning guys. Also. Just given the success of the New York Style Pizza, can you talk more about this innovation with intent strategy? And it is just part of that answer, can you maybe touch on whether the innovation you expect to launch later this year, we'll leverage that approach?

Operator:

Thank you. And our next question comes from the line of Brian Harbour from Morgan Stanley. Your question please.

Sandeep Reddy:

Yes. So Brian, I think the thing that the company stores is actually it's a much smaller data set, right, because we've only got about [6 DMAs] (ph) in which we're operating. And yes, there was some wage pressure that we were actually dealing with as we went through the first half. But we are getting closer to lapping some of those -- the wage pressures that we took. And overall, -- when you look at the economics of the stores, they actually, on a first half basis, still pretty good and definitely [ex the insurance] (ph) adjustment, still expanding and growing. We expect that to continue to happen. That's why I said for the full year on the company stores, I still expect our margins to be better and our profit dollars to grow. And I think being -- what I want to emphasize is we shouldn't view company stores as an analog to what's happening on the franchisee stores because the data set is so limited in relative terms. On the franchisee stores, we are seeing very, very balanced profit growth across the business. And we -- and that's what gives us confidence that the $170,000 or more is definitely on track.

Operator:

Thank you. And our next question comes from the line of Todd Brooks from The Benchmark Company.

Sandeep Reddy:

So Todd, you asked the question and answered it yourself. And really, it is exactly that. We have been seeing very consistent trends in terms of the redemption of the 20 and 40-point levels, and it is driving that frequency flywheel, as we go along because they're continuing to transact and redeem. And that's what we are very confident on continuing as we move forward into a multiyear flywheel.

Operator:

Thank you. And our next question comes from the line of Christine Cho from Goldman Sachs. Your question please.

Russell Weiner:

Yes, Christine, this was a fantastic rally. And it's not just me saying it. Here's -- I'll give you some numbers on it. We do quantative studies on everything here at Domino's, who we do it on a rally. It was the highest rally we've ever had as far as people. But the scores of attendee is we've never had a higher one. And this one blew my mind. I will get you that later if I'm sharing something I shouldn't. But one of the things we ask people is what was the -- did you take away the key message. And the results there were 98% took away a key message. We've never had numbers anywhere like that. And the cool thing was people were leaving to rally. A lot of times you do these rallies and whatever they are called, like the bumper sticker we are going to send out earlier, it really is more, what does the [t-shirt] (ph) look like or what do people shout. Hungry for MORE is more than that, folks came away knowing what jobs they needed to do. And so the really cool part for me were, for example, the US franchisees leaving and saying, I got it. I'm responsible for the M and the O. Making sure the food, we make it delicious and we deliver it the right way. We had international franchisees saying, oh, this idea of renowned value is really, really interesting. And what happened? We went back and you've seen changes in the marketing in a lot of our international markets because of Hungry for MORE. And so I just -- I believe it not only talks about the strength of our system. It is nice to have profitable franchisees all in one place, they're all pretty happy. But when they come away talking about the future, is what makes us really excited.

Operator:

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator:

Thank you for standing by, and welcome to Domino's Pizza's First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

Greg Lemenchick:

Good morning, everyone. Thank you for joining us today for our first quarter conference call. Today's call will begin with our Chief Executive Officer, Russell Weiner; followed by our Chief Financial Officer, Sandeep Reddy. The call will conclude with a Q&A session. The forward-looking statements in this morning's earnings release and 10-Q, both of which are available on our IR website, also apply to our comments on the call today. Actual results or trends could differ materially from our forecast.

Russell Weiner:

Thanks, Greg, and good morning, everybody. Our Q1 results demonstrated that our Hungry for more strategy is delivering on its promise, driving more sales, more stores and more profit. We drove strong comp performance in the U.S. that flowed through to the bottom line with double-digit profit growth. And our growth in the U.S. came through positive order counts across all income cohorts in both our carryout and delivery segment. We saw the largest growth in our lower income cohorts that are undoubtedly benefiting from the renowned value that we're offering.

Sandeep Reddy:

Thank you, Russell, and good morning, everyone. Our first quarter financial results demonstrate how powerful our model can be when we drive profitable transaction growth. The smart pricing we took in 2022 and 2023 has kept us at a great value to our customers in 2024, while being profitable for our franchisees. This has resulted in profit dollar growth versus 2023 for our U.S. franchisees so far this year. We remain on track to achieve our target of $170,000 average U.S. franchise store profit for 2024. Excluding the impact of foreign currency, global retail sales grew 7.3% due to positive U.S. and international comps and global net store growth.

Andrew Charles:

Question first on same-store sales. Just 1Q is 5.6%. Obviously, a very impressive number. Should we think of that as the high watermark for 2024 U.S. same-store sales. You talked about Q2 will sequentially moderate partially given the benefit of emergency pizza rolls off, while UberEATS picks up. But just curious if you think this performance, though, is broadly sustaining as we think about the remainder of 2024?

Operator:

And our next question comes from the line of Dennis Geiger from UBS.

Sandeep Reddy:

Thanks, Dennis. And I think that's a great question because if you really go back to our fourth quarter call, Dennis, we talked about our expectations for the first quarter to be really margin improvement and margin expansion, which we did see. And directionally, it was slightly more, and I'll get to that in a second. But I think overall, when we look at the full year, our expectations really haven't changed. We were expecting to see procurement productivity benefits for the whole year, and we were expecting to make investments that offset the procurement productivity.

Brian Bittner:

Your same-store sales in the U.S. accelerated in the first quarter about 300 basis points from 4Q. Can you just talk about how much of the acceleration was traffic -- was all the acceleration traffic? And it sounds like one of the biggest drivers of the strong comps are the rewards program. That's what you seem to be citing the most. And I realize 2Q may be a little lower than 1Q. But in general, can you just unpack why you believe the rewards program and all the improvements that you've made there can be an ongoing driver for sales trends, not just even in 2024, but how it can build on itself in '25?

Operator:

And our next question comes from the line of Sara Senatore from Bank of America.

Sandeep Reddy:

And I'm just going to add something, Sara, because I think sometimes when we talk about promotion, the subtext is what's happening to profitability. What is great for us is our profit dollar growth continues to grow as we expected it to. We are on track to the $170,000 or more for the year. And we're doing exactly what we hoped for.

Operator:

And our next question comes from the line of David Palmer from Evercore ISI.

Russell Weiner:

Maybe I'll talk big picture, and Sandeep, you can talk on the margin level. I think, David, the biggest indicator to me about both labor availability, and frankly, the improvements that we're driving operationally is the fact that we delivered more orders in Q1 than we did last year at better delivery times. And so if labor was an issue, we wouldn't be able to do that. And obviously, the flow-through to profitability front, Sandeep spoke about that a little bit. And so that, to me, should be a takeaway that is working right now.

Operator:

And our next question comes from the line of Lauren Silberman from Deutsche Bank.

Russell Weiner:

Sure. We talked -- I think, Laura, in Q4, even maybe in Q3 a little bit about what we were -- we thought was coming in 2024, and that is coming to fruition, traffic is hard to come by, orders are hard to come by in QSR. I think you're going to see that continue throughout the year. I don't think that's going to be the case at Domino's because of what we talked about before.

Operator:

And our next question comes from the line of Danilo Gargiulo from Bernstein.

Russell Weiner:

Well, you both asked and answered the question. So great job. Yes. No, look, Q1 comps were in line with our expectations. We continue to see pressure in Europe and Middle East. Sandeep had talked about this last time. The Middle East represents a relatively small percentage, less than 3% of our operating income.

Gregory Francfort:

Russell, you made a comment about just the third-party channel having more single item orders. And I think the reason for why you expected sales to build as you move through the year, was because you were still figuring out how to promote on the platform. I'm curious, what do you think has been working and what do you think still needs to be tweaked to kind of get you to where you want to be as you exit the year from a mix perspective in terms of pricing and promotional structure?

John Ivankoe:

In the context of third-party delivery, maybe being a little bit more promotional. I was hoping if you could put that in the context of your own delivery fee. We've actually seen some stores where it can be as high as $7.99. I think that's a New York example, but it's still an example.

Russell Weiner:

Yes. Thanks, John. We do price scraping on a, I think, other weekly or biweekly basis on delivery fee. And so what's important to understand is the recommendations to our franchisees are based on the competitors that are out there, kind of the ones that have stores that are more direct competitors whose pricing is probably a little bit lower than when people buy things on the aggregators.

Operator:

And our next question comes from the line of Chris O'Cull from Stifel.

Russell Weiner:

Chris, on the second one on share of voice inside versus outside the channel. I'll have to get back to you on that one. That's not something that I know off the top of my head. As far as what it is that we sell on Domino's, we have been -- I've been here a long time, and I've seen us promote just pizza on media, and I've seen us promote just our individual items like sandwiches or pasta. And really, the magic for us, the big sales becomes when -- I've used this before, this idea of Pizza Plus when you offer both. And that's really what mix-and-match is all about.

Operator:

And our next question comes from the line of Andrew Strelzik from BMO Capital Markets.

Russell Weiner:

Yes. Thanks. We've got visibility of the pipeline through the remainder of this year through next year, and I feel really good about hitting the 175 plus number. Stores tend to be a lagging indicator of performance and as you can expect with profits going up with order counts going up, we're becoming a more and more attractive proposition every day to our franchisees, but regardless of Q1, you should note, but before these results, the pipeline was clear on the 175 plus.

David Tarantino:

Russell, I had a question related to one of the comp drivers that maybe gets underplayed and that's the advertising approach. It seems like you made quite a big evolution in the advertising versus what you've done in the past in the first quarter and maybe before the first quarter, with a lot more focus on the food and the value as opposed to some other topics.

Russell Weiner:

Yes, David, I'm really glad you noticed. The team, I think, has done a fantastic job. We brought a brand-new food photographer, filmmaker on and the deliciousness on Domino's ad. I mean, it's just -- it's a different ad than it used to be. And you take that and you combine that with the talk value, the renowned value I talked about earlier. And that stuff breakthrough. I have a lot of -- people I know are saying, wow, it feels like Domino's is advertising a lot more this year than it ever did before. And the answer is not really. It's -- what's happening is what we're doing is breaking through more. And that's where you want to be. And I think when we talk about Hungry for MORE, the M and the R, the most delicious food and the renowned value were going to be the 2 things we're going to lean into.

Operator:

And our next question comes from the line of Brian Harbour from Morgan Stanley.

Russell Weiner:

Yes. Thanks. It really is about consistency. And consistency gets repeat purchase. And so the way I think of it is we -- in the U.S., we sell about 1.5 million pizzas every day. We don't want to look at it that way. We want to look at -- we sell one pizza, 1.5 million times. Every pizza that we make is a chance to delight a customer or disappoint a customer.

Operator:

Our next question comes from the line of Peter Saleh from BTIG.

Russell Weiner:

Yes. I think we've returned to where we were, what our calling card was over time, which is that this is a category that is tremendous, and it's growing kind of in line with population. What we have always done is we've been, what I call it equal opportunity share stealers. And frankly, we lost that last year, 2 years, and we're back.

Operator:

And our next question comes from the line of Jon Tower from Citi.

Russell Weiner:

Got it. Well, first, on the loyalty program, I think it's safe to say that not only new customers, but existing customers are really engaging in the program. If you're an existing customer and you had 50 points in your loyalty bank, you woke up when we launched this new program and you were able to get 2 free items instead of 0. And so there are a lot of happy customers who are existing customers there.

Russell Weiner:

Yes, that's a great point, Sandeep, which I don't like to admit when Sandeep makes a great point, but this was a good. The other pieces of the renowned value that are different than what we did before is to get this value, you have to sign up for the loyalty program, right? You can get mix and match, you don't have to be a loyalty member. But to get the carryout tips to get emergency pizza to get tipped for your delivery, you have to be part of the loyalty program. And so what these things are doing is they're working together versus working separately. And I think you just see the compounding effects of that.

Jeffrey Bernstein:

Just a question on the near-term comps for Domino's and the industry, I guess. On Domino's, I know you mentioned the second quarter comp below the 5.6% in the first quarter. I'm wondering whether that surprises you relative to plans at the start of the year. I would think that the ramp in Uber and loyalty and easier compares would more than offset the fee of emergency pizza. So just wondering whether that similarly surprises you?

Russell Weiner:

I'll ask Sandeep to talk about the near-term comps, and then I'll answer your question on transactions.

Russell Weiner:

Yes. And I think on the -- in the QSR space, Jeff, what I was talking about was really more order count. I think there's just been pricing that's been taken in the category and consumers are responding now. You're seeing it in the results and what I'm excited about for us is the pricing we've taken is really in the rearview mirror. And so we can focus on driving value, profitable value to both our customers and our franchisees. And look, I'm sure there will be others in the industry who are also doing the same, but I think we'll be a little bit of an outlier there.

Operator:

And our next question comes from the line of Meredith Jensen from HSBC.

Russell Weiner:

Yes, sure, Meredith. I mean really, what we've seen so far is some of it's very in line with what we thought going in, which was these customers, as we said earlier, would be more single users, they'd be younger they, especially on Uber, would be incremental to us and Sandeep has talked about a few months into this, it looks like they're about 75% incremental.

Russell Weiner:

I'm sorry, about 2/3 incremental, yes, sorry -- about 2/3 incremental. And so the thing on the other side is just more just the promotional nature of it. And the pricing and profit ends up being kind of what we thought, but how we're getting to it is just in a little bit of a different way. Anything to add?

Alexander Slagle:

Great to see everything coming together here. I had a question on the operations and the acceleration in delivery volumes, seemingly just starting and so forth, you're able to drive the speed improvements. But as the volumes ramp further, I guess, it's more of these individual orders on 3P and perhaps more surges of demand at certain times. I mean how much of your ability to keep up with the volumes and improve speed will require a step up in hiring drivers versus productivity and technology-driven improvements or other opportunities that you see out there?

James Salera:

Wanted to ask on the New York Style Pizza innovation. Just as how that triangulates with some of the other promotions you guys have going on? And just any color you might have on driving either new use or new consumption from people that are discovering Domino's on the third-party apps or potentially newcomers to the loyalty program and how you can tie innovation into those newer users?

Greg Lemenchick:

Thank you, Jim. That was our last question of the call. I want to thank you all for joining our call today, and we look forward to speaking to you all again soon. You may now disconnect.

Operator:

Thank you for standing by, and welcome to Domino's Pizza's Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I’d like to introduce your host for today’s program, Greg Lemenchick, Vice President, Investor Relations. Please go ahead, sir.

Russell Weiner:

Thanks, Greg. I thought you were going to sing the opening as we discussed, but I guess we'll let that path today. Welcome to your first call here on Domino's, and good morning to everyone joining us. Our strong Q4 demonstrated that our Hungry for MORE strategy is already delivering results. Our positive U.S. same-store sales and transaction growth in both delivery and carryout underscore the strength and momentum that we're building in our business. These results and the initiatives that I'll cover today give me confidence in Domino's ability to continue to drive meaningful value for shareholders. We're excited to share an update on the business through the lens of our Hungry for MORE strategy. Now as a reminder, Hungry for MORE is our new strategy around what we're going to do to deliver over the course of the next five years, more sales, more stores and more profits. We're going to accomplish this through our four more pillars, MORE, that I'll share a brief update on. Let's start with M. M is for the most delicious food. And we know we have the most delicious food in the industry, but you know what, it's time to talk about it more. It's time to show it more, and we're already doing that. We're currently on air with Pan Pizza advertising for the first time since 2014. We call Pan Pizza, our best kept secret. It's time to change that. Pan Pizza is a delicious product made with fresh never frozen dough. It also showcases the variety of crust we have to offer. You're probably also noticing a shift in our advertising as we're beginning to romance the product more to showcase the deliciousness of our food. You can expect this to continue throughout the year. The O in Hungry for MORE stands for operational excellence, and this is how we're going to deliver on our promise to have the most delicious food. By consistently driving a great experience with our products. As we've noted before, we made meaningful strides operationally in 2023 with our Summer of Service program, which has resulted in service times being back to pre-COVID levels. But we're never satisfied, and we want to continue to get better, our operators and our franchisees, we are Hungry for MORE. In 2024, we're rolling out a new service program. We're calling that MORE Delicious Operations. This program will be a series of three product training sprints focused on our dough, how we build and make our products and how we cook them. All of this is being done with a keen focus on driving more consistency in our food by providing the proper teaching, tools and processes for our team members to succeed. Our third pillar is R for Renowned Value. We've always been known as a premier value player, and we believe this can continue to be a differentiator for us in '24 through our improved loyalty program, our national promotions, and our rollout on Uber. Domino's rewards is off to a great start and was a key driver of our strong comp performance in the fourth quarter, when we saw positive sales and transactions in both our U.S. delivery and carryout businesses. We've also seen the following

Operator:

Certainly. [Operator Instructions] And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Russell Weiner:

Good morning, Brian. How are you doing? Let me talk a little bit about what we're seeing as far as the cadence of the flow of orders from Uber. Sandeep talked about the 0.4 in Q4, and we're seeing a meaningful uptick in Q1, we just turned the marketing on and so essentially, and same with Uber. So essentially, what we expect to see as awareness grows, is that percent of sales grow, and we feel like we're still in line for the 3% exit rate that we spoke about.

Lauren Silberman:

Thank you very much. Congrats on the quarter. I wanted to ask about value in January, you ran the week-long carryout promo, which I haven't seen before. Can you talk about the rationale behind that? Any commentary on how you saw that perform and to the extent that you're willing to talk about January, just given a little bit of noise across the industry? And then more broadly, how you're thinking about value and any incremental value offers through '24. Thank you very much.

Operator:

Thank you. One moment for our next question. Our next question comes from of Gregory Francfort from Guggenheim (ph). Your question, please.

Russell Weiner:

Yeah. We still feel really strongly about the guidance we gave, the 1,100 plus stores and 5,500 over the next five years. I mean you saw some really nice momentum at the end of the year in the U.S. in 2023. We expect to see more at the end of the year in 2024. Internationally, I think we've got a lot of closures behind us, that was probably one of the things that was driving down the number this year. But those closures really focused on three areas. Domino's Pizza Enterprises, and they talked about their number, Russia and Brazil. Those three were over 80% of our closures and no other market closed more than five stores. And so as we look forward, we feel really confident about openings. And I'm sure someone will ask a little bit later, but when you look at the profitability of our U.S. franchisees, you look at the fact that for the -- we had more new franchisees in 2023 than we have in the last 15 years, they're bullish about Domino's Pizza, and they're spending their money that way.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Andrew Charles from TD Cowen. Your question, please.

Russell Weiner:

Yeah. Andrew, absolutely. When I think about 2023, it was kind of a tale of two stories for us. The first part of the year was all about addressing the base and fixing things like delivery times and getting delivery times back to where they needed to be and getting franchisee profitability back where it needed to be, so that in Q4, we were able to really lean into the Hungry for MORE strategy and you saw it all in action. You saw most delicious food with innovation. You saw a renowned value from a promotional standpoint with loyalty. And so all of those things are going to be able to continue throughout 2024 with this improved base that we've got. So yeah, I expect both carryout and delivery orders to be positive.

Dennis Geiger:

Great. Thanks. Good morning, guys and thanks for all of the color on the loyalty program. Wondering if you could just talk a little more about loyalty in the U.S. and sort of expectations for the program looking ahead. I think recently, you've kind of talked about that as being the biggest contributor to U.S. same-store sales growth this year. Curious if that expectation still holds. Thank you.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of David Palmer from Evercore ISI. Your question, please.

Sandeep Reddy:

Thanks for the question, David. So I think on the company stores in the prepared remarks, I actually called out a couple of impacts in the fourth quarter that actually impacted our margins. One of them really was insurance costs. And the other one was the accrual because of the points that actually got generated with the new loyalty program. And I think when you take out those two impacts, our margins actually expanded. So the good thing about this is, I think the loyalty program has worked extremely well from a transaction perspective for company stores. And we expect this to be significantly driving profit dollars, and we expect to revert to margin expansion in 2024. And frankly, I think we expect to continue to build on our margins as we move forward even beyond 2024. And then I would go to the supply chain profit. We're really happy about our supply chain profitability that we generated in the fourth quarter. A big driver of supply chain profitability all year was the productivity improvements that we saw specifically driven by procurement and in food cost, and I think that was a big element of what we saw. As we pivot to 2024, the expectation on supply chain is, it's going to be supply chain profit dollars because it's going to be driven by our transaction growth. And as Russell talked about earlier, we're expecting to see transaction growth before and after the impact of Uber. And all of that is going to fly through the supply chain P&L and expect that to actually drive significant profit dollar growth for the Supply Chain business.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of David Tarantino from Baird. Your question, please.

Russell Weiner:

David, I'll start, maybe Sandeep, you can give some color to this one, too. Emergency pizza was a resounding success. It really was. And when I look back and just, again, giving complements to our marketing team, this is your traditional buy one get one free, that has been marketed in such a way that it really breaks through. We've done buy one get one free before. They've done nothing like this. And when I think about Emergency Pizza, what I like is not only what it did to order count, it also drove people into the loyalty program because you need to be a loyalty member in order to get your Emergency Pizza. I think last, we have a new thing in our arsenal now. Boost weeks have worked really well for us. We've got this Emergency Pizza piece now, and I expect this is ownable from our perspective. And so this is something we'll be able to use in the future as well. Sandeep, if you want to add some color?

Russell Weiner:

Yeah. That was a big learning from us for the first loyalty program we had. With Piece of the Pie rewards, we advertised on TV, hey, we have a rewards program. And what we learned over time is actually the best way to tell people that you have a rewards program is have a really compelling promotion, whether it's a new product or something like Emergency Pizza that the only way you can get it is, if you sign up for the program. And once you sign up for the program, you're in this flywheel of frequency driving point levels that we've never had before. And so I think Emergency Pizza was a highlight. But as Sandeep talked about, that type of mechanism driving people into the loyalty flywheel is something we’re going to continue to – a play will continue to run.

John Ivankoe:

Apologize. Can you hear me now?

John Ivankoe:

Okay. Perfect. All right. You're on speaker, but all right, this will work. First, in terms of the -- some of the slowdown that we saw, the brands saw in Continental Europe, were there any learning lessons that you could apply there, perhaps as Europe potentially being as a leading indicator to the U.S. of how you could get in front of some economic changes that would actually allow the perform -- the brand to perform better in the U.S. than perhaps it has in Europe, at least in the last quarter is the first good question. And then secondly, obviously, there's no direct P&L impact in advertising allocation, but there is a direct P&L impact in terms of the online ordering fee. In terms of reducing that online ordering fee or cutting it at least marginally relative to what it was in '23. I mean what was the reasoning behind that? Was that really franchise driven? Obviously, the economics at the franchise level would suggest that they could bear that higher fee, but I just wanted to have a sense of why you felt that, that reduction was necessary to make? Thank you so much.

Sandeep Reddy:

Yeah. And I'll just finish off on what Russell just said. And if you remember what I talked about in the prepared remarks, we expect to see pressure in the first half of the year on the international business. But exactly why we expect to see an improvement in the back half is because of all the more initiatives. Australia is one example. But taking those learnings and applying them across the international markets should enable us to offset any other headwinds that we have as we go into the back to our long-term guidance. And then specifically to your question on the advertising fund and the online fee. Now let's go back to about a year ago. And I think about a year ago, where we were was franchisee profitability was not in the best place. We had come off a big decline in franchisee profits in '22. And we saw an opportunity because of the buildup in the reserves of the ad fund to essentially take a 25 basis point 12-month hiatus from the advertising fund contributions, but we did want to continue investing in our technology solutions. And so we did take up the technology fee by $0.08. View that as a temporary increase and kind of an offset between the ad fund contribution and the technology fee. Now that we've actually come to the point where we think it needs -- it's time to restore the ad fund the 6%, we have actually adjusted the technology fee to $35.5. Another way to look at it is we actually went up from $31.5 to $35.5. And if you look back at our history, we've consistently increased our technology fee because we're making investments on technology for our franchisees, which drives the flywheel of their growth and eventually drives global retail sales and our royalty dollars as well. And so that is the rationale. I think where we are. All of this is included in the $170,000 or more in franchisee EBITDA that we’re expecting for 2024, and we feel very good about it.

Chris O'Cull:

Thanks. Sandy, could you break down how much of the $23 million of the year-over-year supply chain profit dollar growth came from the productivity improvement versus the volume growth? And do you expect any productivity improvements to continue in that segment into '24?

Russell Weiner:

But the nice thing about what our supply chain team has done, the productivity we gained in 2023, it's not going back and so, I would think about that as kind of accruing forward. So well done by Sandeep and the team (ph).

Peter Saleh:

Great. Thanks for taking the question. I want to come back to the loyalty conversation. Russell, I think you mentioned 2 million plus new loyalty members since launch. And I think at the Investor Day, in early December, you had mentioned there was about $1 million incremental. So just curious if you could comment, was there a meaningful acceleration in new loyalty members in December? Do you expect that trend to continue in '24? And then is there any way to parse out how many of those are coming or more carryout customers versus traditional delivery?

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Sara Senatore from Bank of America. Your question, please.

Sandeep Reddy:

Thanks, Sarah. So I'll take the first one and Russell will take the shared question. So kook, in terms of company margins, we specifically called out the impacts of those two and the margins expanding slightly outside of that. And I think it's been consistent. If you look at the first three quarters, our margins expanded. And I think in the fourth quarter, excluding the impact of those two items that we call out insurance and the loyalty liability, margins are expanded. So the great thing about the loyalty liability adjustment is it's because we expect to have incremental transactions or redemptions on the loyalty program. So you're right, look for profit dollar growth on the supply chain -- sorry, on the company stores. But I think we also do believe that there is an opportunity to expand margins in addition to driving profit dollar growth as we leverage the fixed cost structure of the company stores. So look for both on company stores is my answer.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Brian Harbour from Morgan Stanley. Your question, please.

Russell Weiner:

Yeah. Well, actually, maybe I'll start out talking about India because I was speaking over the weekend to Hari Bhartia, who's the Chairman of Jubilant. I mean that's a great example of both dynamics you talk about. And so obviously, they're pushing the business there. It's some headwinds. But what Hari talked about is what's going on in the rest of the industry and why he's bullish and while he's looking for the future. And while they're talking about 200 stores to grow in 2024 is because he's growing share. And so what I love about our franchisees is that they're future focused. And I think you see a lot of folks doing what they're doing in India. That's why we think the second half is going to return to that 3% that we talked about. Anything to add?

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Danilo Gargiulo from Bernstein. Your question, please.

Russell Weiner:

On the transactions piece, we believe that our transactions being positive is something that, like I said, is that is unique in the industry. We'll get more share information as that comes out, and we'll certainly share that with you. On speed of delivery, the biggest comparison -- the biggest comparison we have is versus ourselves. And every day, we expect to get better than the day before. So we're happy that we're back to 2019 levels. We're now moving more volume into that delivery network. And we're doing everything we can, not only to make sure that the delivery times or where they need to be. But more importantly, we haven't talked a lot about this is that the quality is there. And so when you think about our Hungry For MORE pillars, the first M is about most delicious food and so just delivering a pizza on time is one thing. It's got to be great. And one of the things that I talk about, hopefully, there are no Boston Red Socks fans on the call today of a Yankee fan. And there's a famous player, Joe DiMaggio who there's a quote Somebody asked him one, why you play so hard every game. And what he said was there's going to be someone who sees me for the first time in that game and so I'm playing for them. And that is how we need to approach making our pizza. Every pizza you're making is for your mom, right? And that's what some of these sprints are all about with more delicious operations. We're making promises in our advertising we need to deliver it, and it's more than just time. It's quality, it's consistency in all of those. And we like to say, down, we don't sell 1 million pizzas a day. Our goal is to sell one pizza a day 1 million times. And that's kind of the new thinking behind Delicious operations.

Jeffrey Bernstein:

Great. Thank you very much. Just following up from the Investor Day, you guys talked about your, I guess, Pulse 2.0 technology. And I think you mentioned there will be a complete overhaul throughout 2024 in conjunction with your Microsoft partnership talking about AI tools and whatnot, which are clearly very topical. So I'm wondering if you could talk a little bit about the greatest changes or the most likely incremental benefits to the front or the back of the house and maybe the time frame to see those benefits. Obviously, it's been, like you said, a long time coming with this major overhaul. So just trying to get a sense of what we're going to see as we look through '24. Thank you.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Andrew Strelzik from BMO Capital Markets. Your question, please.

Russell Weiner:

Yeah. Sure. I don't really like to talk a lot about competitors. I mean, a competitor we have is ourselves, and we try to get better than ourselves every day, and I think you see that in our Q4 results. I talked in general about it probably being a year that's less about order count. And we'll see how folks adjust to that and when they do, be happy to comment on that through the year. I didn't quite hear your second question. Can you repeat the second -- even though we're only supposed to ask one I'm joking. Yeah, products. Thank you very much. Yeah, on the product side, couple of things. One is we're really happy that we've got our pan pizza out there now. But that's not a new product, and you should know that is not counted among the kind of two plus new products we're going to have this year. But what you do see with that is, we haven't talked about pan pizza since 2014. So while I'm not counting it on my list of new products, it's something that's new to a lot of people and something that is really shot. If you look at the way we shot that commercial in the new way of kind of romancing the deliciousness of our pizza. So we're out with product news. News on a product for the first time in a long time, but that's not part of our two new product scheme for this year.

Chris Carril:

Hi. Thanks. Good morning. So Russell, you mentioned the U.S. system added more than 60 new franchisees. I think that was the most in 15 years, you said. On the back of this, how are you thinking about the evolution of the domestic franchisee base and just the balance of openings coming from new franchisees versus longer tenured franchisees going forward? Thanks.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Meredith Jensen from HSBC. Your question, please.

Sandeep Reddy:

Yeah, Meredith. Thank you for the question. And look, I mean, I think the way to look at this is it’s the appropriate accounting treatment if we’re going to expect to see more redemptions, and that’s the adjustment to the breakage accrual. But I think the whole point with this is our Domino’s Rewards program is working as we intended. More transactions expected to come in, more redemptions are expected to come in. And I think Sarah asked the question earlier, look for profit dollar growth in addition to margin expansion as we move forward, especially on the company stores in 2024. And we’ll continue to provide disclosure as we move forward, but that’s how I would actually measure performance on this.

Brian Mullan:

Hey. Thank you. Just a follow-up on the topic of Domino's advertising on Uber. Understanding it's just getting started, it will ramp throughout the year. Can you just discuss any learnings you've had here? Is it going how you would have thought? Has anything with the effectiveness surprised you either positively or negatively. And I ask in the context of just -- it's a new activity for Domino's, but I know you've been preparing to get ready for it. So just any thoughts on that strategy?

Operator:

Thank you. One moment for our next question. And our final question for today comes from the line of Jon Tower from Citi. Your question, please.

Sandeep Reddy:

So I'll take the first part of the question, John. And it is a onetime thing because I think the significance of the change of the new program was what was the trigger. But that doesn't mean it's never going to happen also because I think you always have to continue to monitor your breakage and if you do need to make a true-up, you will make a true up. But given the new program launching, I think this was much more of a onetime event because of the new program launching. And I think on the frequency ships, Russell will take the question.

Greg Lemenchick:

Thanks, John. That was our last question of the call. I want to thank you all for joining our call today, and we look forward to speaking with you all soon. You may now disconnect. Have a great day.

Operator:

Thank you for standing by and welcome to Domino's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Mr. Ryan Goers, Vice President-Finance, Investor Relations. Please go ahead, sir.

Russell Weiner:

Thanks, Ryan, and good morning, everybody. My remarks this morning will focus on several new initiatives that are designed to create significant shareholder value in the months and years ahead. We launched our new loyalty program, Domino’s Rewards on September 12. And here are some of the mechanics that are really meaningful to our current and prospective customers. First, we lowered the spend threshold to earn points from $10 down to $5, and this change will make us even more competitive in the carryout segment where ticket tends to be lower. Our second change was creating more attainable redemption opportunities for lower frequency customers. So in the past, they needed to order six times to get a free pizza. Our new program features redemptions at 20, 40 and 60 point tiers and offers items from eight different categories on our expansive menu. Joining pizza at the 60-point level, are the big sandwiches, pastas, and lava cakes; at 40-points, we feature our lines of bread twist and Stuffed Cheesy Bread; and at 20-points, we offer single-serve beverages, Parmesan Bread Bites and Dipping Cups. So, more items to choose from with redemption options after just two purchases. While the program just launched, we've seen meaningful redemptions at the 20 and 40-point levels. So customers are clearly engaging more with Domino's Rewards. These strategic improvements will be a significant value driver for our brand and company. We plan to grow active users and order frequency, unlocking continued share growth in both the delivery and carryout segment. Our second value-creating initiative is entering the aggregator marketplace for delivery orders. Our integration into the Uber Eats platform is proceeding as planned. We'll achieve our goal of Uber Eats providing delivery orders to all our U.S. stores by the end of the year. We expect this initiative will drive incremental delivery volume from new customers, increase our share of the pizza delivery market and create stronger economics for our company and franchisees. This will begin in a measurable way in the first quarter of 2024. We want to exceed the expectations that the incremental customers will get through Domino's Rewards and Uber Eats. Now the way to do that is through best-in-class delivery service. And that's why I'm pleased to announce that we ended Q3 of 2023 back at our pre-pandemic Q3 2019 delivery times. This improvement was achieved through many of the best practices highlighted with franchisees during our Summer of Service program. This focus is important for us to provide an excellent delivery experience for new customers flowing in from Domino's Rewards and the Uber Eats channel. We want these experiences to lead to loyal lasting customers who will provide considerable lifetime value for our brand and our company. Now I'll talk to our renewed commitment to the all-important role innovation plays in the pizza category and our ability to continue to build our brand. We launched pepperoni Stuffed Cheesy Bread on August 28. The Stuffed Cheesy Bread launch is indicative of two things that you're going to see from us going forward; bringing news to our existing non-pizza platforms and leveraging Domino's Rewards. For the launch of pepperoni Stuffed Cheesy Bread, we lowered the redemption points required from 40 to 20. It's great to see a product and technology innovation work so well together, and this is an example of the kind of purposeful innovation I've talked about in the past, innovation that serves many functions. In this case, we've got a new product that makes an existing platform top of mind with customers, all the while encouraging customers to sign up for and continue to take advantage of our improved loyalty program. So more customers, more orders and more market share, all leading to more top-line growth and greater profit. Another example of purposeful innovation is the Emergency Pizza promotion we launched just a few days ago. Customers who order Domino's will have 30 days to claim a free pizza to use in any emergency they see fit, whether dinner was burned or maybe circumstances or making things a bit tougher to afford. Customers who place an order on our e-commerce platform will automatically earn a Domino's Emergency Pizza. They'll have 30 days to redeem their Emergency Pizza and, of course, must be members of Domino's Rewards to do so. Another innovation designed to drive more customers, more orders and more profit. We're also driving purposeful innovation behind technology to improve customer service and a team member experience. On October 3, we announced undertaking this challenge with the best in the business, Microsoft. Our two companies will collaborate on Generative AI solutions that will create the next generation of pizza ordering and operations technology. Together, our teams are focused on two important goals

Operator:

[Operator Instructions] And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Russell Weiner:

Good morning, Brian, it's Russell. Thanks for the question. And we're really - I'd say very excited about how this has come out of the gate. We've done two things with the rewards program and both are working, right? Purposely, we took the dollar level down entry level from $10 to $5. That's really important, especially when you think about our carryout customer. We have a national deal at $7.99. So prior to this change, you couldn't get the national deal and loyalty points. So this has been a really nice way to bring in lighter users and carryout customers. That's on the front-end. And then on the back-end, we talked about we have eight different ways, eight different platforms now that you can use your points. It used to be that you had to buy six times in order to get a free pizza. Now you can buy as little as two times to get free items and what that does is it really plays with frequency of lighter users. So you're right, that's what we projected beforehand what I can tell you as we've moved in so far, that's exactly what we've seen. We've seen a lot of folks doing that with Domino's Rewards.

Peter Saleh:

Great. Thanks, and thanks for all the color you guys provided. Russell, I wanted to ask about the Uber Eats partnership, which you guys seem also very excited about, that really kicks into gear next year. But I think you guys have had it in a few markets so far now for either a couple of months or so. Any thoughts or any detail you could provide on the early reads there, or any - how it's performing versus your expectations, and if you've had to make any adjustments so far to the program going forward? Thanks.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Sara Senatore from Bank of America. Your question, please.

Russell Weiner:

Sure. I'll answer both your questions. I think your first question was bout closures in the U.S. In the U.S., we actually - we closed one store this past quarter. And I think Sandeep talked about franchisee EBITDA. And when you think about what drives store opens, and remember, he said that we've got visibility into over 70 builds right now. So you've got visibility into builds. You've got franchisee EBITDA at 155. These stores when they open - stay open. There's a lot of excitement about building stores at Domino's Pizza. We've been under 20 annual closures in the U.S. since 2017. So we have a strong U.S. pipeline and those stores stay open. On the loyalty side, what I can tell you, obviously, it is really early in, but what we were looking for is lower level redemption levels amongst customers, and we're seeing that in spades. So we'll have more information longer term once we get through a couple of purchase cycles, but pretty much right away, we're seeing what we wanted to see there.

Sara Senatore:

Thanks.

Dennis Geiger:

Great. Thank you. I wanted to ask another on the U.S. new open trajectory. And maybe a little more thoughts as it relates to U.S. franchisee demand to open those stores and the expected acceleration into 2024. I guess how much of this is - you've got some really compelling sales drivers. The top-line is going to look better. The returns are going to look better. How much of it maybe is the staffing is in a better place than it has been over the last 12 months to 18 months, 12 months to 24 months? If you could just kind of unpack a little bit of the sort of demand shift from what we've seen maybe over the last 12-plus months to what you guys expect in 2024 and beyond in the U.S., that would be great? Thank you.

Sandeep Reddy:

And Dennis, I'll just add on something, because I think we've – in previous calls, we talked about the build cost, right, where we expected to - the build costs have gone up about 20% versus 2019. Frankly, build costs are coming in a very similar level for 2023 from what we've seen so far. And look, profit has actually gone up. We updated last time to $150 million, now its $155. So obviously, returns are going to be more and more compelling, given that dynamic. And frankly, with the Uber opportunity coming next year, we expect to see even more growth in 2024 in terms of profitability of the stores. So our appetite is very strong.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Saransh Gokhale from JPMorgan. Your question please.

Russell Weiner:

Hi. Morning John, that's great point, as you look back in the history of Domino's, we certainly have built more things internally when it comes to competitive points of difference. I think we've always said, you can't outsource a competitive point of difference. We do outsource things that are really out there in the field that really are in a competitive point of difference what have we done here in this case. There's going to be a competitive point of difference, with Generative AI solutions. And we think we've got the resources and the pizza expertise internally. What we've got with Microsoft is the best in the field externally. And so you take those two things together, and it's not just cost, it's also an impact. This is a journey that if we could pick anyone to do it with, we would pick Microsoft. And so right now, the focus is really on two areas with them, first on transforming the consumer experience by enhancing the order process through things like personalization, and simplification. And the second is streaming - streamlining operations and quality control with some more predictive tools. So yes, this is kind of a hybrid here, best-in-class, both best-in-class pizza, best-in-class AI and our teams are very excited to work together.

Andrew Strelzik:

Yes. Good morning. Thanks for taking the questions. Maybe just a broader question on the consumer and what you're seeing there? And how maybe behaviors may be evolving, whether it's through delivery carryout, domestic international, curious what your analytics are showing you and how things are changing? Thanks.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Chris Carril from RBC Capital Markets. Your question, please.

Sandeep Reddy:

Thanks, Chris. I'll just answer that question for you. So on the retail sales outlook, I think we're taking into consideration the nine months, the three quarters that have passed plus the expectations that we have for the fourth quarter and that's incorporated in what we're talking about. As you noted, it includes an expectation of positive comps in the United States and an expectation of a strong growth in the international business as well. So I think from a unit growth standpoint, what we have taken into consideration is the closures that have happened internationally. That's the big driver of the modification that we made over there. But overall I think our U.S. business, as Russell talked about earlier in terms of visibility and trajectory, looks very solid and I think the entire change in unit growth on a global level is based on international business and the closures there.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of David Palmer from Evercore ISI. Your question, please.

Russell Weiner:

Yes. Thanks, David. I think both Sandeep and I will answer this one. On loyalty, loyalty is one of a few things. We've got loyalty, Pepperoni Stuffed Cheesy Bread, Emergency Pizza. All things that we absolutely think are going to know are going to affect our Q4 numbers, and we're seeing that out of the gate. The third party piece will start in Q4 in December and that will be ramping up certainly big time next year. From a loyalty perspective, as soon as we get more information on how that is affecting the business, we'll let you know. But I can tell you, short-term, folks are interacting with the loyalty program and our innovation at a higher level than I expected coming in.

David Palmer:

Thank you.

Brian Harbour:

Thanks. Good morning, guys. I don't think you commented just on food basket. But is it fair to assume you've seen a couple of quarters of that being lower. And as we think about store margins and supply chain profits that, that probably continues into the fourth quarter at this point?

Brian Harbour:

Thank you.

Andrew Charles:

Great. Thank you. Sandeep, I was hoping you could help just with the supply chain and how we should think about that going forward. The productivity benefits continued in 3Q as you indicated in 10-Q. With this still around the neighborhood of 70 basis points and at least versus our model, it looks like the labor cost in the supply chain business were a bit higher in 3Q than they were in 2Q. Could you speak to that the durability of that as well?

Andrew Charles:

Very good. Thanks.

Chris O'Cull:

Thanks. Good morning, guys. Russell, I appreciate your comments earlier about the importance of Domino's offering the best value to consumers. But Domino's won't be offering international deals like Mix & Match on the Uber platform. So I'm trying to understand what proposition Domino's can offer on Uber that will be as effective against the competition? And I'm also curious if you think Domino's can obtain a similar share of the 3P pizza delivery market that it has off of the 3P platform.

Chris O'Cull:

Thank you.

Joshua Long:

Great. Thank you for taking my question. When we think about loyalty and the opportunity for carryout to participate there, a lot of the conversation has been focused on third-party marketplace and some of the initiatives that have been put in place to unlock delivery. But can we circle back to other carryout initiatives and how you think about building that piece and that's been a strategic point of focus in prior calls. And just so as we think back you think forward to 2024 and beyond. Can you talk a little bit more about how you're building the awareness and scaling up the carryout side of your business as well, please?

Joshua Long:

Thank you.

Russell Weiner:

Sounds like Jim is waiting for his Emergency Pizza, so we'll make sure we get that to him.

Danilo Gargiulo:

Thank you. Can you share any feedback your franchisees are giving regarding their access to credit? Because with rising interest rates, they're seeing at their end, are there any incremental pressures outside of your control that might be slowing down the net unit growth expectations going forward? And if so, are you contemplating incremental incentive for franchisees to navigate these hard times?

Russell Weiner:

And I'd just say as an early indicator, if I look at what we've got in the pipeline this time this year versus this time last year, it's much more aggressive.

Greg Francfort:

Hi. Thanks for the question. Sandeep, last quarter you talked about some of the supply chain efficiencies you'd seen in the first half of the year. I'm wondering how that's looked in the third quarter and going forward. And then, can you just remind us the process of raising some of these fixed spreads on the supply chain cost. You've had mid-teens to high-teens inflation in the last couple of years on a cumulative basis. Obviously, there's a process through which you could raise those spreads on the franchisees, the dollar spreads over time. And I'm curious how often you look at that or how that process goes in raising those. I'm just curious, any thoughts would be helpful. Thanks

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Steven Gojak from Cleveland Research. Your question, please.

Russell Weiner:

Yes. Steven, we don't - we will not be doing another boost week this quarter that our cadence is to do it quarterly. Obviously, we'd like to keep you guys on your toes, so that's why we don't know. So we maybe we do like to keep you on your toes, but we pick strategic time periods in which to do with it. Obviously, we talk about a stepped up fourth quarter and so getting this out early, I think, makes a lot of sense. I also want to make sure that when we talk about promotional cadence that I touch on, I know this wasn't a direct question, but I know a lot of you have these questions about our product innovation. And I just want to make sure you understand that we're leaning into that again. If you look at our product innovation this year, we've had two major launches. The last time we had two major launches was 2011. And interestingly enough, one of those two launches was Stuffed Cheesy Bread, and so how fitting is it that we've got pepperoni Stuffed Cheesy Bread now in the marketplace. And we're really - and we're doing that purposely because we're seeing a change in the dynamic. If we look back several years and you think about Domino's, we didn't do a lot of product innovation. We did a lot of technology innovation. We built delivery vehicles, all of those kinds of things, and we're going to continue to do that. But we're realizing we need to do more of now is lean into product innovation. And I'll use cheesy bread as an example of how it's really, really working well for us. So we've got platforms. Like I said, we launched Stuffed Cheesy Bread in 2011. We launched sandwiches in 2008, we launched pastas in 2009. A lot of people don't know that we've got these platforms. Even though they're pretty robust mix, there are a lot of people out there that don't know we have them. And so what do we do with Stuffed Cheesy Bread. We launched a new SKU. Believe it or not, we are selling more pepperoni Stuffed Cheesy Bread s now than we are base regular Stuffed Cheesy Bread. I have - I have been doing promotion – I have been doing innovation most of my professional career, and I've never seen a line extension outperform the base. So one, when you do product innovation like this, you get sales on the new product. Two, is you bring awareness back to these great platforms that we have. And then third, what we're doing with the launch is we're leveraging our loyalty program. And so normally, Stuffed Cheesy Bread is a 40-point redemption. In this case, for a limited time, we're doing 20 points. And so you see about how we're working all of these things together is not a one-trick pony. There are kind of three levers going on at one time. I just want to make sure folks on the call know we're going to continue to lean into all types of innovation, including product.

Nick Setyan:

Thank you. Just a question on how you're thinking about company margins over the medium to longer term. And obviously, pre-COVID over 20% company margins. Just given all of the changes going forward in terms of loyalty, third-party delivery post two, three years of inflation, pricing now seems like it's going to be pretty close to flat. How should we think about company-owned margins not only in Q4 but 2024 and beyond?

Russell Weiner:

Yes. I think the way I look at it is we are going into 2024 with an improved operating model, both for DPZ and our franchisees. As I said earlier, what we had talked about where we thought Q3 would land and it's kind of landed where we expected. Think about the foundation now of this business, right, in a quarter that was essentially flat in the U.S. business, margins improved and the franchisee profit has improved. And so you take that and you bring in the orders that we expect both in Q4, but especially in 2024 that just leverages really, really nice. And so the foundation of Domino's is ready to be leveraged.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of David Tarantino from Baird. Your question please.

Russell Weiner:

Yes. I think really, the - when you think about 2024, you should think about the actions we've taken over the last couple of years, which includes the pricing we took on our Mix & Match. And while we're always going to look at pricing and if there are ways to optimize it, I think it's reflective in the franchisee EBITDA, that the pricing we took last year was the right thing to do. And it's something that, again, as reflected in their EBITDA is something that we continue to do next year. I'm so excited about pricing even through these tougher economic times. Again, we'll look at things if we need to change it, but I feel pretty bullish that this level of pricing is actually going to just be more of a relative value for customers as we get into next year. As far as Emergency Pizza, look, we always have the - there's always advertising we do and always has a promotional price or some kind of promotional effort. Again, I'm really excited about the kind of feedback we're hearing both from you and from customers because the takeaway is, Wow, this is a lot of value. And it is a lot of value, but it's no more value than we've traditionally done in prior promotion. What it means and kudos to our marketing department is these ideas are breaking through.

Jeffrey Bernstein:

Great. Thank you very much. Russell, just wondering if you could talk a little bit about the broader pizza segment, it does seem like over the past year, we were talking a lot about maybe customer fatigue, post-COVID and the consumer is keen to get out again. I'm just wondering if you could talk about where you think we are in that spectrum, maybe the current category performance versus Domino's. And if you could just remind us looking back to past slowdowns, the performance of delivery versus carryout in prior downturns, I think most investors are expecting maybe a consumer slowdown going into 2024. So I'm just wondering how you're - two components of your business have historically performed in that type of environment? Thank you.

Operator:

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Russell for any further remarks.

Operator:

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator:

Thank you for standing by, and welcome to the Domino's Pizza's Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Mr. Ryan Goers, Vice President, Finance, Investor Relations. Please go ahead, sir.

Russell Weiner:

Well, thank you, Ryan, and good morning, everybody. I'm going to open today with some brief remarks regarding our current focus and the momentum we're creating here at Domino's Pizza. Sandeep will then provide a high-level overview of our quarterly financial performance, followed by ample time for your questions and discussions. We are executing our plan to restore delivery growth here in the United States. Efforts to improve service and staffing and drive value and innovation will continue to make a difference, driving order counts in this important segment of our business. Our delivery service levels ended Q2 nearly two minutes better than Q2 of last year. And with the agreement we recently announced with Uber Eats, Domino's will benefit from a large and growing cohort of delivery customers. We believe these transactions will be incremental and provide a meaningful increase in the number of customers who leverage the Domino's delivery experience. Domino's delivered one out of every three pieces in the U.S. prior to our decision to compete in the aggregator marketplace. According to Circana, aggregator sales for delivery among U.S. quick-serve pizza restaurants has grown to almost $5 billion for the 12 months ending May of 2023. We plan to get our fair share of this market over time. The opportunity represents over $1 billion in incremental sales for our U.S. business. And our research indicates that most of the transactions we gain from participating in this segment will be incremental customers and sales. This has also been supported by what we've learned from our Domino's Pizza international master franchisees who've already developed $1 billion business taking orders from aggregators. We have here at Domino's a common sense process for making business decisions. We ask ourselves this important question

Operator:

Certainly. [Operator Instructions] And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Russell Weiner:

Good morning, Brian. Actually, what I'd say is, I think we've got three catalysts. You talked about the Uber piece, you talked about loyalty. We also talked a lot about carryout on the call. And we've gained $2.5 billion since we leaned in to carryout 2011. We've got another $2 billion just to get our fair share. Our feeling here at Domino's Pizza is if there is a category that sells pizza that we compete in vigorously, we should get our fair share, which is our share of delivery, one out of every three, and so we've got a lot more to go on carry as well. There are a lot of questions within there. So let me unpack a couple and then if I missed anything, you come back. First is the $1 billion number that we're talking about here in the U.S., $1 billion incremental. As you know, we're first starting with Uber. We're really excited to them as exclusive partners for the first 12 months. After that, we've got optionality in the contract that we can choose to take however we'd like. The $1 billion is a signal of our fair share of the entire $5 billion U.S. aggregator pizza delivery business. And so obviously, that's something that would happen when we get on to the broader competitors in the platform, which we intend to do at some point. On the loyalty program -- by the way, you really listened to Ryan's one-part question. I'm totally joking with you. On the loyalty -- from the loyalty standpoint, the way I like to think of it is how do I feel as a customer when most brands redo their loyalty programs. Usually, as a customer, I'm on the short end. A new loyalty program for a company usually means they're trying to drive a little bit more profitability, which means things are taken away from me as a customer. We're doing the exact opposite here. And so the changes we're making in the loyalty program are there to scope the changes and the opportunity in our business. So we talked about carryout being one of the catalysts. One of the things that's going to be true in the new loyalty program is we're going to recognize that a carryout customers' ticket is lower, and so the hurdle for getting points will be lower. Secondarily, we want to engage people at all levels. We expect to have a big influx of new customers coming in today. And our current program, you need 60 points, there'll be points at various levels from a redemption standpoint. So, we think this is a truly new and improved program for our customers and a profitable one for our franchisees.

Russell Weiner:

Sure.

Peter Saleh:

Great. Thanks. Russell, I just wanted to come back to the conversation around the loyalty program and the changes that are happening in September. Can you elaborate a little bit? Are we moving from a transaction-based to a spend-based model? Or how is this going to be configured, I guess, come September? Just trying to understand if there'll be -- if you do change from transaction-based to spend-based, do you anticipate any sort of additional pressure on order counts? Or just trying to understand the structure here on the new loyalty program.

Peter Saleh:

Thank you.

Sara Senatore:

Great. Thank you. FYI, I guess I have another two-part, one-part question. The first is I'm just trying to understand the sort of carryout opportunity. I guess I always thought the distinction between Domino's and independence was perhaps a little bit more evident in delivery, just because of the speed of service and things like the tracker. So, from a carryout perspective, I guess, is it harder to make inroads because perhaps the advantages are less pronounced, or how are you thinking about that? And then, a separate question is just on pricing and the gap versus the industry, and it sort of seems to me that it keeps widening, the industry ahead of you. Is that going to translate into better traffic trends, or is there an opportunity to price? Thanks.

Sara Senatore:

Thank you.

Dennis Geiger:

Thank you. And thanks for all the details on the sales drivers, definitely helpful. The third-party partnerships, the carryout and loyalty all seem quite impactful. But Russell, wondering if you could just speak to some of the other maybe slightly less-impactful sales drivers, that e-commerce upgrade, the Summer of Service, some of the tech and the menu innovation that you spoke to and seemingly will be a bigger part of the business going forward. Just curious if you could sort of help frame up how impactful you think about some of those other drivers are. Thank you.

Dennis Geiger:

That's great. Thanks, Russell.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question, please.

Russell Weiner:

Yes. Sure, Greg. On the data standpoint, it was really important for us to get the data that we need to have in order to analyze the incrementality of the platform. And so, we are getting that. We appreciate that in the partnership. The other thing and it probably hits you over the head, of course, but we are delivering the pizzas. And if we deliver the pizza, that means we need every piece of information in order to deliver that pizza, which is the customer's name and address and contact information. And so maybe those two things, the ability to analyze the incrementality and the fact that we're delivering the product, hopefully gives you a sense of what kind of data we'll be getting here.

Andrew Strelzik:

Hey, good morning. Thanks -- excuse me, thanks for taking the questions. I guess this is a question really about value, but also about food costs. And I'm curious if you expect to continue realizing food deflation going forward? And I guess where I'm coming from is if the broader environment for delivery is pressured by price sensitivity or something like that, I mean, do you see an opportunity to maybe leverage deflation to alleviate some of those consumer pressures, or how do you think about that? Thanks.

Russell Weiner:

Yes. And I would just add to Sandeep's answer. Now that we're in -- we're going to be in this incremental channel of aggregators, I think it's important to really understand that we have a new unlock for value. So, the best value, the best prices, the best offers will be at dominos.com or our apps. The only way to get our great new loyalty program will be our apps or dominos.com. The only way to get Pinpoint Delivery. That's going to be our value channel. But essentially what the aggregator platform opens up for us -- maybe let me give you my point of view on it. I don't think we need to get every customer on that platform. I think we need to get the right customers. So like I said, the value customers, we want them to come to dominos.com. But this will be a premium price channel for us, and specifically the higher income customers that they've got are the ones that we're going to be targeting here. And so, I think if anything, this gives us more levers to unlock value for customers, but also value from our franchisees as far as kind of a higher income, higher price marketplace.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Chris Carril from RBC Capital Markets. Your question, please.

Russell Weiner:

Great question, Chris. I'll take that one. I think internationally -- I know your question was on the U.S., I'll get to that in two seconds. But when you think about it on a global basis, every eight hours somewhere around the world, we're opening up a Domino's Pizza. And I just think the magnitude of that is something that our team takes a lot of pride on. As Sandeep said, we certainly expect the store growth to inflect towards the end of the year and especially into 2024. And let me give you some kind of perspective why, and what I ask is just put yourself in the seat of our franchisees or as an investor and say -- and now I'm specifically talking about the U.S. per your question. It's okay, if I'm going to open up a store, if I'm going to spend my money on a store, what do I want to ensure? I want to ensure profitability, right? And Sandeep said, we expect to be at least at $150,000 this year for our franchisees, which is up $11,000 versus last year. So, you want to see growing profits. The other thing you want to do is you want to look at the track record. And so let me tell you a little bit about the track record of Domino's Pizza. And when I say track record, look, there are always going to be hiccups, right? But the one thing that I think is really special is if you look at our domestic business over the last 12 months, we've only closed 16 stores. And so, 16 stores, that's 0.2% of our base. I think the QSR average is about 1.5% to 2%. And so, we closed only 16 stores. Actually, the last time we closed more than 20 stores was in 2016. And so that, to me, is the reason to believe why we're going to take a system that's already opening up more stores than its competitors, and really lean in more because the profitability is better and the track record is fantastic.

Chris Carril:

Great. Thanks so much.

Brian Harbour:

Yes. Thank you. Good morning. So, just on the aggregator partnership, could you remind us again, it sounded like the $1 billion number you've cited was over multiple years. And as you perhaps, at other partners, have you thought about any sort of incrementality internationally? And then related to that, you talked about kind of fighting for your fair share on those platforms. How else will you kind of do that besides just appearing? Do you intend to market that heavily? Do you intend to emphasize kind of service times relative to some of your peers? What are the other ways in which you actually compete against most of your peers who, of course, are already on those platforms?

Operator:

Thank you. One moment for our next question. And our next question comes from the line of David Palmer from Evercore ISI. Your question, please.

Russell Weiner:

Yes, David. The loyalty program is really not just focused on carryout. I mentioned the carryout piece because that's really the front end on ticket. We expect, obviously, through this deal as well, to get a lot of customers really interested in Domino's Pizza. And so, we want to have interactions for delivery customers at the low end, and that's one of the incremental things that we're driving here.

David Palmer:

Thank you.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of John Ivankoe from JPMorgan. Your question, please.

Russell Weiner:

Hey, John, thanks for the question. Yes, on the -- I'll start with the attraction of delivery drivers. We actually have more applications coming in now for delivery drivers than we did back in 2019. And so, we're excited about that. And some of that is what's translating to the improved services. We've got more drivers, and I haven't really spent a lot of time talking about our electric fleet vehicles, and we've got about 1,000 of them coming on. And actually, we have over 1,000 non-electric fleet vehicles. And what that's done is it's really opened up -- not every store really needs them, but the ones that are having trouble getting delivery drivers, there are plenty of people with driver's licenses that don't have access to vehicles that want to drive for Domino's Pizza, and we're really seeing that make a difference. And so that's part of why you're seeing the current increase in momentum. And the desire with Summer of Service is to continue to drive that, in a few ways, right? One of it is just bringing it top of mind, every franchisee in the U.S. is coming to Ann Arbor to do this, and so driving the importance in top of mind, driving the accountability what it is that we expect from the delivery experience. And then lastly, driving some best practices. And these are best practices that already exist in the system, but new ones. And so, I'm really looking forward to sharing some of the things that we're sharing with our franchisees now in Summer of Service during Investor Day. And what you'll see is the circle of operations for a Domino's Pizza today is very different than it was even just a couple of years ago. And those changes are really impacting service. And then, there's the technology aspect of it. And so, we've got systems -- new systems that are going to be running in our store as part of our next-generation store system to really upgrade the level of service because we're helping our franchisees and our team members more. And so these systems are running in many of our stores today. So for example, our -- many of our stores are making pizzas before customers actually complete their orders online. And some of them are dispatching orders to drivers before those orders -- those drivers are even back in the stores. And so if you're making pizzas before people finish ordering them and you're dispatching them in a way that doesn't require your driver to come back into the store and find a parking spot, that's going to help. And so, Summer of Service is about best practices, but it's about introducing these kind of AI-enabled suite of services to help our franchisees and team members do their job more efficiently.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Brian Mullan from Piper Sandler. Your question, please.

Sandeep Reddy:

Hi, Brian, thanks for the question. Look, we're really excited about the China market. I think we're doing extremely well. I think now that we've actually come out of the COVID years, we've actually seen a very strong growth in productivity over there. Great development actually happening and huge potential for runway in terms of future development. And it is going to be one of the biggest growth opportunities in the international portfolio. We are super excited about it.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Joshua Long from Stephens. Your question, please.

Russell Weiner:

Yes, sure, Josh. I think what's really important to understand is there is a common marketing message really throughout which is -- I'm not going to go in detail, I think it's a little bit of our special sauce. But suffice it to say, what a customer is looking for is a great overall pizza experience, no matter what channel they're ordering through. And that drives the consistency and the strong brand messaging we've had for the last 10, 15 years. What I think -- and actually, we're in a great place in the world now because there are so many different mediums out there. And so there's the marketing message, but also then there's the media buy. And what we can do with the media buy is being very, very targeted. And so, yes, that carryout customer that wants control and value, we can reach out to them that way. If a delivery customer that's looking for maybe quick delivery times and a big bundle for a birthday party or whatever, we can do that as well. And so, I think Domino's as a brand is -- will have a singular meaning to customers. But what we'll do is we're going to leverage media and really what I think is a best-in-class marketing -- or highest-in-class marketing budget in order to more personalize the message. And that probably gets me to the last part of your question, which is what am I excited about that we're going to -- that we're doing today, but we're going to lean into a little bit more, and that is just personalization. As you said, we've got millions of users on the database and we're personalizing our message today. But the tools are just getting better, and that's where our investment is going and we're going to be at the forefront of that.

Russell Weiner:

Thanks.

Andrew Charles:

Great. Thank you. I'm trying to fuse a two-part question on Uber into one-part, so please bear with me here. But first, just given the reduction in ad fund earlier this month, will Uber Eats be funding advertising the platform in 2024? And then, secondly, I appreciate that you're structuring the partnership with franchisee profitability at the center. And so, what I'm curious about is qualitatively, not quantitatively, will the commission borne by franchisees be a fixed fee for these orders or a percent of the order volume?

Sandeep Reddy:

Yes. And I think it's a really good question, and there's quite a few things that are in there. And so, I'm going to actually kind of unpack them a little bit for you. So, I'll start with the tech fee itself. Well, the tech fees based on order counts. So every incremental order that actually comes through the platform, a tech fee will apply, same with any other order. So I think that's one. And I think the rest of it is what will royalties be payable on basically in terms of what we report. It's really the food sales as well as the delivery fee. So, our calculation of same store sales and retail sales will include those. And if there are any service fees or service charges that Uber actually charges, those really won't to appear in our numbers, those will be directly from Uber. So hopefully that helps you kind of understand the structure of how this is going to work.

Jim Sanderson:

Hey, thanks for the question. Just wanted to follow up to the discussion on Uber and marketing programs. I'm wondering if you plan to participate in some of the free delivery charges or free promotions that we see often on third-party aggregators? And if there's any concern that, early on, you might see some cannibalization of your own delivery business? Thanks.

Jim Sanderson:

That would be at their expense?

Sandeep Reddy:

And just...

Sandeep Reddy:

Just to clarify one thing, I just want to make sure we touch on it. But any promotional activity on the platform would have to be agreed with us. And I think we'll do that in partnership with them. So, I think that we'll be thinking through the holistic lens of those promotions.

Danilo Gargiulo:

Good morning. Russell, you started the call saying staffing levels are going to be important, and you're making improvement in staffing. So, I wonder if you could comment on the level of staffing at -- in the Domino's stores, and whether you see any staffing challenges to the service -- to service the incremental demand from aggregators if kind of the opportunity come to fruition as you were expecting.

Operator:

Thank you. One moment for our final question. And our final question for today comes from the line of Jeffrey Bernstein from Barclays. Your question, please.

Russell Weiner:

Sure. Thanks, Jeff. Really for us, it came down to three elements

Russell Weiner:

Well, thank you so much, everybody, for joining the call this morning. Sandeep, Ryan and I, we really look forward to speaking with you again in October to discuss our Q3 2023 results. Have a great day.

Operator:

Thank you for standing by, and welcome to Domino's Pizza's First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Ryan Goers, Vice President, Finance, Investor Relations. Go ahead, sir.

Russell Weiner:

Thank you, Ryan, and good morning, everybody. Thanks for joining us on today's call. I'd like to start this call where we finished our last one, looking back on what we said we were going to do. I am really proud of the actions that our team and our franchisees have taken and the positive results that they delivered. You'll recall that there were three themes we discussed last quarter, the first one was the continued evolution of the Domino's brand from a U.S. delivery business to a global pizza company with leadership in both delivery and carryout. And we continued this progress since our last call. Let me start off with China. We're proud to welcome our partners DPC Dash, our master franchisee there to the growing list of public companies that are developing and operating Domino's Pizza stores across the globe. On March 28, CEO, Aileen Wang and her team completed their IPO on the Hong Kong Stock Exchange. We have got tremendous potential in China where the Dash team believes they've just scrapped the surface of their total opportunity with stores operating in only 17 cities in China. Now speaking of public companies, as of the end of Q1 2023, six of the top 20 public QSRs in the world as measured by market cap, are part of the Domino's family. DPZ is joined by our master franchisees, Jubilant Foodworks, Domino's Pizza Enterprises, ALSEA, Domino's Pizza Group and Alamar, all in the top 20. This to me exemplifies an important strength of our brand. We've got a diverse portfolio of more than 90 markets around the world. So our international business has both scale and balance. And what this affords us is the ability to weather any short-term headwinds in certain markets should they come up. We've seen this dynamic play out in Q1 with markets performing exceptionally well, balancing out others that are facing more pressures. All of this, though, resulted in positive international same-store sales growth for the first quarter. Now on to the U.S. In the U.S., we believe that the QSR pizza delivery and carryout businesses continue to be incremental to each other with limited overlap. We're number one in both segments and believe we've strengthened our position during the first quarter. The balance we have in our stores would carry out contributing around half the orders and 40% of sales has allowed us to mitigate the more recent macro headwind in the delivery category. The second theme we discussed on our last call was the need to maintain value in what is a competitive marketplace where our customers decide every day where to spend their hard-earned dollars. Value has to do with the right balance of price and service. Our U.S. business delivered on both of these things in Q1, and I'll start with pricing. On pricing, I mentioned that we and our franchisees have got to be mindful that value on our menu exists outside of our national offers. Menu prices and delivery fees were relatively stable throughout Q1 that means most of the menu pricing increase we saw in the first quarter versus prior year was carryover from changes that were made in 2022. On service and capacity, our stores and our franchisees continue to make progress on both fronts. Estimated average delivery times in the first quarter were over a minute better than the first quarter of 2022. While our goal is to get back to and improve on our delivery service levels from 2019, I'm really encouraged by the continued improvement we and our franchisees have made in this critical measure. Our system understands that to be the best, you need to beat the best, even when the best may be yourself. And that's why we're launching an important initiative. We're calling it our summer of service training program. We're inviting all of our U.S. franchisees to come to Ann Arbor to be part of one of the largest system training efforts in our history. Look, we've driven significant improvements in our back-of-house technology and our circle of operations over the last few years and we've got more coming. The summer of service program will allow us to share best practices with our franchisees, who we expect will leave Ann Arbor with specific plans that they create to positively impact service for every one of their stores. I think these changes will also improve the experience for our customers and our team members in our corporate and franchise stores. Our third theme from the last call was around the need to drive more innovation. While new products are certainly one way to do that, our brand has a history of bringing news to all aspects of the business. We dialed up innovation over the last few months and anticipate this will continue throughout the year and into the future. Let's start with product innovation. On the product side, we're really pleased with the launch of our Loaded Tots. For consumers, Loaded Tots offer a craveable potato side that delivers extraordinarily well. They also fit nicely into our Mix & Match menu, providing great value and even more variety when consumers build their orders. For franchisees, tots drive healthy ticket, given they've been largely incremental and have a strong margin profile. Early signs point to Loaded Tots performing even better than our last two product launches Dips & Twists and the Chicken Taco and Cheeseburger specialty pizza. To drive news and ordering convenience in our carryout business, we launched a convenient way for consumers to place their orders while they're on the go with Apple CarPlay. This innovation allows customers to place and track their orders on CarPlay via our iOS app. CarPlay ordering is a great alternative to drive-through, because it allows customers to avoid long lines by placing their orders while they're on the go, so their food is hot and fresh and ready when they arrive at their local Domino's. As important as the ordering platform is itself, CarPlay ordering will help drive what we call our techquity, short for technology equity. We've got a history of leveraging technology to improve customer experiences and Domino's CarPlay ordering continues that tradition. On the delivery innovation side, Domino's fleet of electric vehicles has been expanding. We announced on our last call that the initial order by our corporate stores and franchisees made us the largest electric fleet of pizza delivery vehicles in the country with 800 cars. Today, Domino's has committed to over 1,000 EVs and counting. The EV fleet is great for our stores and the environment, all while growing the potential pool of drivers by offering opportunities to individuals that may not have access to a car. All of this news contributed to positive U.S. same-store sales growth in Q1 and will provide momentum for Domino's into the future. Now for more detail on the quarter, I’d like to turn it over to our CFO, Sandeep Reddy. Sandeep?

Russell Weiner:

Thanks, Sandeep. Before we close out the call, I want to touch on a couple of areas that are important as we move forward in 2023. The first one is store growth. As Sandeep mentioned in his comments, we expect that the U.S. store development pipeline will continue to be pressured by permitting and store construction supply chain challenges before seeing a gradual recovery beginning in the second half of the year. In my conversations with franchisees and discussions with our team on new commitments to store growth by our system, I’m confident that we will see an inflection in trend towards the end of the year and into 2024. Domino’s franchisees came out of a challenging 2022 with estimated store EBITDA of almost $140,000. This proves to me and more importantly to them, that building a Domino’s store remains one of the best investments in the restaurant industry. The second point I want to highlight is innovation, giving you a little bit of insight into our e-commerce pipeline. It’s not a comprehensive list, but it should help you understand that we’re bringing news to our customers while also improving our ability to drive loyalty and a more personalized experience, leveraging our robust customer database. As I mentioned on our last call, we’ll be refreshing and improving our Piece of the Pie loyalty program. When we launched it back in 2015, we were more of a delivery company with our carryout business still gaining momentum. So naturally, our loyalty program was designed more around the delivery customer. One of the key objectives of the refreshed Piece of the Pie program will be to explicitly cater to the carryout customer in addition to the delivery customer. We’re excited to add more value and rewards for everybody. We’ve also started to work on a redesign and rewrite of our entire e-commerce platform. This work will continue into 2024, and we will update you on progress along the way. Our digital ordering clients and tech stack have been a huge part of our strategy and a competitive advantage for us over time. So, we need to invest in these forms to ensure we remain in a leadership position. In closing, when I look back on the first quarter, I can’t help but be encouraged by the resilience of our business model and the competitive advantage that our franchisees and team members bring to Domino’s Pizza. I remain bullish on our future and look forward to telling you more of our story and our long-term strategy at our Investor Day, which will be held in late Q4. With that, we’ll open the call to questions.

Brian Bittner:

Thank you. Good morning. Just first, a clarification question from you, Sandeep. As it relates to your outlook, in 2023 for total retail sales to be at the lower end of the 4% to 8% range. Can you talk to us about what the implied same-store sales outlook embedded in this guidance is? And then, Russell, my main question to you, just as it relates to delivery and the ongoing weakness in this segment, I appreciate the macro pressures that you outlined during this call and previous calls. But – what are – are you currently taking market share? And can you just further elaborate on actions that you are taking inside the company to improve your competitive advantage within delivery to set that business up for a strong turn when these macro pressures recede?

Russell Weiner:

Thanks, Sandeep. Morning, Brian. On the delivery side, it really is – to answer your question really in two parts. First, we grew delivery QSR pizza market share last year. We're continuing to do that in Q1. And so the point that you ask is what can we do in addition to drive that. And it's kind of the same basic things we outlined on the same call. It's driving value, delivery service were a minute better than we were a year ago. Innovation in all areas, not just product, but we have actually delivery innovation out there now with the electric vehicles. We're up to 1,000 vehicles. This new loyalty program is going to do a really good job in driving transactions. And then the majority of our delivery customers were online. And so I think what you're hearing when we're talking about redoing our e-commerce platforms, that's certainly going to help there as well.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Peter Saleh from BTIG. Your question, please.

Russell Weiner:

Sure. I mean the point at the end of the day is we take a holistic look at the franchisees' P&Ls. And we just think that this is a better investment over the course of the next year, because of where we are in our marketing budget. So I don't expect an impression decline, I just think that this is a great overall use of their money for the year.

Peter Saleh:

Great, thank you very much.

Sara Senatore:

Okay, thank you. A question and a quick follow-up, you said the boost week won't be continued tailwind. Your outlook on same-store sales in general strikes a note of caution. I was wondering if you can quantify what you think that tailwind was? I'm just trying to understand the underlying run rate might be or what the drivers that Russ highlighted, the magnitude of those might look like as we go forward? And then just quick follow-up on the comment about shifting back to dine-in. Delivery across the industry is a lot higher than it was as a share of sales pre-COVID. So do you have any thoughts on how long this shift might last? I would expect dine-in probably ends up as a lower share of the total mix. But trying to again, understand how long that headwind persists in your view? Thanks.

Sara Senatore:

Thanks.

Dennis Geiger:

Thank you. Russell, you spoke to stepping up the pace of innovation, and you gave some good examples. Just wondering if you could touch a little bit more on what that means? Perhaps how long it takes to kind of get innovation going to where it was a few years back? And anything more you can share in thinking about innovation across menu and technology? And if I could flip a related part in there, is there any update with respect to how you think about third-party aggregator relationships as we think about technology and evolution of the brand? Thank you.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question, please.

Russell Weiner:

Yes. Sure. Good morning and thanks for the question. Actually, I think when we talk about broadness and competitiveness, what I'd like to start out with is carryout. We talk a lot about the fact that there's not a lot of overlap between delivery and carryout historically about 15%. And so if you look back at the last three years on our U.S. carryout business, it's up almost 30% in same-store sales. So to think that that's a very incremental piece of growth for our business, should hopefully help you understand how we think about diversifying and differentiating and growing ourselves as not only a pizza delivery company, but as a total restaurant. And I think – on the delivery piece, again, I’ll point to we are growing pizza delivery market share, but we think we can do more. And a lot of it is because certainly, the competition is different. But I think we’ve learned a lot, Greg, over the last few years. You think of what we learned through COVID. We went through some capacity constraints. We went through driver availability issues. And they say the necessity is the mother of invention. And that’s why we’re doing this summer of service program here. We’re inviting our franchisees up, because we’ve made significant improvements and innovations because of all of this learning, we will now be better in our circle of operations and in our technology, and these are substantial enough that it’s not something that we can train people in a video. Every single Domino’s U.S. franchisee is coming up here to Ann Arbor for this training, and they will leave with individual plans that they’re putting together for their stores when they go back. And at the end of the day in order to really step change ourselves when these macro things go away, it’s going to be stepping up service. And I think, hopefully, this is an example of how we’re leaning in there.

Chris Carril:

Hi thanks and good morning. So on pricing, Sandeep, you noted the lapping of delivery mix and match pricing in March. And with that pricing should moderate here in the 2Q. But appreciating your continued focus on value here. If transactions were to remain stable or potentially improve, how open are you to taking further pricing, particularly if you do see those service levels begin to improve with all the initiatives you have in place? Thanks.

Operator:

Thank you. [Operator Instructions] And our next question comes from the line of Brian Harbour from Morgan Stanley. Your question please.

Sandeep Reddy:

Brian are you there?

Sandeep Reddy:

Yes. Sorry, we had a blip on the last question. Do you mind repeating the question, please?

Russell Weiner:

I don’t think we’re going to go into – by the way, sorry, good morning. I don’t think we’re going to go into the detail of the specific numbers of our dayparts. But your answer is – or your – the answer to your question is absolutely. Finding incremental drill sites has been key for this brand. I remember when I joined in 2008, the majority of our stores weren’t open for lunch. We gave them a product with sandwiches and then later pasta. And now that’s a pretty significant piece of our business. We also weren’t a big carryout company and obviously now carry out half of the orders that come through Domino’s. So what we’re – what our job is to do every day is to find incremental drill sites and dayparts are absolutely one of those areas that we look.

David Palmer:

Thanks. Just a follow-up on the previous question about third-party sites and marketing and collecting orders from those in the U.S. You noted how you do it overseas. But your previous answer, you said you’re looking for stickier sales or you found that those have the highest value. Is that your way of saying you’re kind of closing the book on this and that you’ve kind of made up your mind? Or are you evaluating this still? And if you are evaluating it still, what sort of factors and timing should we be thinking about that you’re thinking about? Thanks so much.

David Palmer:

This is something you haven’t closed the book on but perhaps some changes that you’re making might enable you to pursue that path, not that you’re committing at this point, but is something that you haven’t closed the book on.

David Palmer:

Thank you.

Joshua Long:

Great. Thanks for taking my questions. Excited to hear more about the summer service program, understanding that all the franchisees are going to be walking away with an individualized plan – but this is certainly exciting, but curious if you could talk a little bit more about some of the big pieces that have either already been in test, maybe what you’ve learned from that? And just help us kind of contextualize what franchisees to be walking away with as they all come up to an later this year.

Joshua Long:

Understood. Thank you.

Chris O’Cull:

Thanks. Good morning guys. Sandeep, you mentioned comparison benefits in the first quarter that won’t benefit the second quarter. But I was under the impression that transaction declines were also just as weak in the second quarter last year. Implying the comparison should continue to be favorable. And I’m just wondering if that was true. And then if you could just help us understand how meaningful the ticket growth should slow in the second quarter. That would also be helpful. Thank you.

Operator:

Thank you. [Operator Instructions] And our next question comes from the line of Andrew Charles from Cowen. Your question please.

Sandeep Reddy:

Yes. So Andrew, I think – thanks for the question. And like I said on the last call, we’re not going to look at stacks as a way of measuring our business. And I think it’s fair enough that you can actually ask the question, but really, what we want to look at is something’s that are more near term, and that’s why we’ve really talked about the current care comp and the comparison that we’re overlapping. So what we really see is a terrific carryout business, a really terrific carryout business. And to basically be lapping 11% last year, it’d be doing 13.5% or 13.4% this year was a great result for us. And look, delivery, there’s a number of things that we’re working on. You heard all about the initiatives on value and service and innovation that we’re working on. So we are doing everything within our control to drive an improvement in the performance on that on that part of the business. And even there, look, sequentially, it improved from minus 6.6% in Q4 to minus 2.1% in Q1. We’re not happy with negative comps. We want to actually inflect the positive comps. So we’re going to keep on working on that. And we have talked about the macro. It’s not gone away, and that is impacting us to some extent. But we don’t want to keep making excuses about the macro. We want to focus on what’s in our control, and that’s why we’re really putting our foot forward and actually driving all of those initiatives to get to the outcomes that we need. So super bullish on the long-term. I think we just have to work for some of these short-term issues.

Lauren Silberman:

Thank you. Over the past few years, there’s been the shift in delivery carryout mix and differences in performance between the channels. Can you just help us understand the differences in average order size as well as profitability per order between the two. And then just more recently, have you seen any changes in check management across either of the channels? Thank you.

Operator:

Thank you. [Operator Instructions] And our next question comes from the line of Shreya Gokhale [ph] from JPMorgan. Your question please.

Russell Weiner:

Hey John, it’s a great question. We are making improvements in, call it, kind of the tweaking of it through A/B testing, Multivariate tested things like that. I think the reason we’re leaning into a new loyalty program and a redo, I don’t think I know and a redo of our e-commerce business is there are certain things that we want to be able to do that we’re not doing right now. And this will really let us lean into personalization in a much bigger way. So great question, and the timing is perfect.

John Parke:

Hey, good morning guys. This is John Parke on for Zach. Thanks for taking my question. I mean, I guess, again, you guys talked about the lower income demo kind of shying away from delivery a bit given the macro pressures. Can you just provide some color on how that different income cohorts kind of performed within delivery versus takeout.

Russell Weiner:

And I think what I’d add to that is a lot of times we’re asked on these calls, do you see any trade down from delivery to carryout. I talked earlier about how there’s a little overlap between the two. We’re seeing a lot of trade down from non-Domino’s carryout into Domino’s carryout. And I think it’s those consumers we’re talking about. So certainly, from a delivery standpoint, there are macro pressures, but I think that’s actually an advantage for us on the carryout side.

Todd Brooks:

Hey, thanks for squeezing me in. Just on the unit growth side. I know Sandeep, you talked about just timing of fiscal quarter end versus some international openings. Is there any way that you can maybe size how many of those openings did occur in the first couple of weeks of the quarter here. Any commentary about what gives you confidence that the frictions on the U.S. construction side will ease in the second half? And then do you continue to be comfortable with at least reaching that low end of that 5% to 7% unit growth guidance? Thanks.

Todd Brooks:

Thank you.

Operator:

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

Company Representatives:

Russell Weiner - Chief Executive Officer Sandeep Reddy - Chief Financial Officer Ryan Goers - Vice President, Finance, Investor Relations

Ryan Goers:

Thank you and good morning. Thank you for joining us today for our conversation regarding the results for the fourth quarter and full year 2022. Today's call will feature commentary from Chief Executive Officer, Russell Weiner; and Chief Financial Officer, Sandeep Reddy. As this call is primarily for our investor audience, I ask all members of the media and others to be in a listen-only mode. I want to remind everyone that the forward-looking statements in this morning's earnings release and 10-K also applied to our comments on the call today. Both of those documents are available on our website. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our filings with the SEC. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. I'll request to our coverage analysts, we want to do our best this morning to accommodate as many of your questions as time permits. As such, we encourage you to ask only one one-part question on this call. Today's conference call is being webcast and is also being recorded for replay via our website. With that, I'd like to turn the call over to our Chief Executive Officer, Russell Weiner.

Sandeep Reddy:

Thank you, Russell, and good morning to everyone on the call. I'll begin my remarks with updates on the actions I've previously outlined to improve our long term profitability. First, we are continuing to examine and evolve our pricing architecture. During the fourth quarter, the average year-over-year price increase that was realized across our U.S. system was 6.3%. The realized pricing for full year 2022 was 5.4%. Second, efficiencies in our cost structure as we seek to ensure that revenues consistently grow faster than expenses. We saw another sequential improvement in year-over-year operating income margin as a percentage of revenues, as margins expanded to 130 basis points in Q4 versus the 160 basis points contraction in Q3. Even if you exclude the 150 basis points benefit to operating income margin from the $21.2 million refranchising gain recognized in the quarter, the contraction in year-over-year operating income margin as a percentage of revenues in the quarter sequentially improved by 140 basis points versus Q3. Third, we had positive same store sales growth, excluding foreign currency impact in both our U.S. and international businesses, for the first time since Q4 2021, contributing to improving our operating income leverage. Now, our financial results for the quarter in more detail. When excluding the negative impact of foreign currency, global retail sales grew 5.2% due to positive sales comps and global store growth over the trading four quarters, lapping 9% global retail sales growth, excluding FX and the 53rd week impact in 2020 in Q4, 2021. As we have discussed in the past, we believe it has been instructive to look at accumulated stack of sales across the business, anchored back to 2019 as a pre-COVID baseline. With the evolving macro-economic conditions, we do not currently believe it will be relevant to anchor back to 2019 going forward, and anticipate returning to evaluating the business on a one year comp basis in 2023. Looking at a three year stack, our Q4, 2022 global retail sales, excluding foreign currency impact, grew over 26% versus Q4 2019. Breaking down, total global retail sales growth, U.S. retail sales increased 2.7%, rolling over our prior increase of 4.6%, excluding the impact of the 53rd week in 2020, and are up more than 21% on a three year stack basis relative to Q4, 2019. International retail sales, excluding the negative impact of foreign currency grew 7.5%, rolling over a prior increase of 13.2%, excluding the impact of the 53rd week in 2020 and are up more than 30% on a three year stack basis relative to Q4, 2019. Turning to comps, during Q4 same store sales for the U.S. business increased 0.9%, rolling over a prior increase of 1% and were up 13.1% on a three year stack basis relative to Q4 2019. This represented a sequential deceleration of 4.5% from Q3 on a three year stack basis, as we saw clear evidence of softening demand from delivery customers in particular, given the challenging macroeconomic environment during the holidays. The estimated impact of fortressing was 0.5 percentage points during the quarter across the U.S. system. Going forward, we will only update the impact of fortressing if the change in impact is material. The increase in U.S. same store sales in Q4 was driven by an increase in ticket, which included a 6.3% in pricing actions I mentioned earlier, partially offset by a decline in order counts. As we have previously shared, we believe it is instructive to break U.S. stores into quintiles based on staffing levels, relative to a fully staffed store, to give a sense for the magnitude of the impact of staffing. Looking at Q4 same store sales, stores in the top 20%, those that are essentially close to fully staffed, on average outperformed stores in the bottom 20%, those that are facing the most significant labor shortages by less than 2 percentage point. This is down sequentially from the approximate 6 percentage point gap we saw in Q3. Now, I'll share a few thoughts specifically about the U.S. Carryout and delivery businesses. The Carryout business was strong in Q4 with U.S. Carryout same store sales 14.3% positive compared to Q4, 2021. On a three year basis, Carryout same store sales were up 31% versus Q4, 2019. The gap for Carryout between the top and bottom quintiles based on staffing levels, remain small during the quarter. The delivery business continued to be more pressured. Q4 delivery same store sales declined by 6.6% relative to Q4, 2021. Looking at the business on a three year stack, Q4 delivery same store sales were 3.3% above Q4 2019 levels. When we look at the same quintiles relative to the delivery business, the gap between the top and bottom quintile stores closed considerably. We saw only a 2 percentage point gap in delivery same store sales between stores in the top 20% percent and those in the bottom 20%. This represents a sequential improvement from the 8 percentage point gap in the third quarter. The 2 percentage point gap is in line with the expected gap end performance in a normal operating environment, and we believe is no longer a significant driver of sales performance. We do not intend to continue disclosing the performance by staffing quintiles in the future. Our U.S. Carryout business is going from strength-to-strength, and our pizza QSR Carryout market share is up close to 200 basis points in 2022 and up close to 500 basis points since 2019. Our market share in total pizza QSR, which includes Delivery, Carryout and Sit Down continued to hold steady over the past year, and it's still up close to 300 basis points versus three years ago Before I conclude my comments on market share, I would like to touch on channel dynamics for pizza QSR versus non-pizza QSR based on data we receive from NPD. As Russell mentioned earlier, delivery in 2022 was done in both pizza QSR and non-pizza QSR while Sit Down was up significantly in both. In the case of pizza QSR, this was driven more by a shift from delivery to Sit Down and cooking at home. In the case of non-pizza QSR growth in Sit Down was potentially driven by a shift from delivery, but also from Carryout. Domino's business model in the U.S. has historically been focused mostly on the delivery and Carryout channels, so the shift to Sit Down hurts us relative to others in the non-pizza QSR who historically have had business models that include Sit Down and Carryout, but have now added delivery to their distribution channels. We expect this dynamic to continue to play out in 2023, as Sit Down despite recent growth is still below 2019 levels. Shifting to the unit count, we and our franchisees added 43 net new stores in the U.S. during Q,4 consisting of 50 store openings and seven closures, bringing our U.S. system store count to 6,686 stores at the end of the quarter, which brought our four quarter net store growth rate in the U.S. to 1.9%. This deceleration in growth was expected in light of the permitting and store construction supply chain challenges we have faced all year. While we expect the first half of the year for U.S. store openings to continue to be challenging due to a continuation of these same factors, based on our current pipeline, we expect a gradual recovery starting towards the second half of 2023. Domino's unit economics remain strong relative to the many pressures faced throughout the year, including staffing challenges and high inflationary environment for food and labor. The average Domino’s store in the U.S. generated more than $1.3 million in sales during 2022 We currently estimate that our 2022 average U.S. franchise store EBITDA was close to $137,000, not much below the 2019 estimated EBITDA of $143,000. In fact, estimated average store profitability was higher in Q4, 2022 than Q4 2019. We will update the final number on our Q1 call. With our continued strong four wall economics, we remain bullish on the long term unit growth potential in the U.S. and we maintain our conviction that the U.S. can be an 8,000-plus store market for Domino’s. New store openings paybacks remained strong with stores opened in 2019, averaging around three year paybacks similar to the 2018 vintage. Same store sales excluding foreign currency impact for our international business increased 2.6%, rolling over a prior increase of 1.8% and were up nearly 12% on a three year stack basis relative to Q4, 2019. We continue to face the headwind of the negative year-over-year impact of the expiration of the 2021 VAT relief in the UK, our largest international market by retail sales. The fourth quarter impact was around half the magnitude of the second and third quarter, as the UK VAT relief was reduced from 15% to 7.5% in 2021 on October 1. The year-over-year impact of exploration of the UK VAT relief will continue while we lap the reduced rates that were in place through March 31, 2022. Our international business added 318 net new stores in Q4, comprised of 406 store opening and 88 closures. Our closures were driven by another round of closures in Brazil as our master franchisee there continues its work to optimize the store base in the market, as well as some closures in Russia, where our master franchisee as previously announced by them, continues to explore opportunities to exit the business in that market. This brought our current fourth quarter net store growth rate in international to 7.4%. When combined with our U.S. store growth, our trailing fourth quarter global net store growth rate was 5.5%. The 5.5% is impacted by a significant increase in international closures this year, as compared to our historical run rate, including in Brazil, Italy and Russia. Turning to EPS, our dilutive EPS in Q4 was $4.43 versus $4.25 in Q4, 2021. Breaking down that $0.18 increase in our delivered EPS, our operating results benefited us by $0.27, changes in foreign currency exchange rates negatively impacted us by $0.22. Our lower effective tax rate positively impacted us by $0.20, driven by the discrete impact from the reversal of our tax reserve, based on recent tax law change, related to one of our foreign subsidiaries during 2022. Lower net interest expense benefited us by $0.04. The refranchising gain recognized to our fourth quarter store transaction, benefited us by $0.46. The unrealized gain recognized on our re-measurement related to our investment in Dash in 2021, negatively impacted us by $0.68 and a lower diluted share count driven by share repurchases over the trading 12 months benefited us by $0.11. Transitioning to the full year, I would like to hit on a few financial highlights for 2022. Global retail sales grew 3.9% for the year, excluding the impact of foreign currency. Same store sales in the U.S. declined $0.08 and international, excluding FX grew $0.01. We and our franchisees opened 1,032 net new stores during, despite significantly higher closures this year in our international markets as previously discuss. Our food basket for the year was up 13.2%,, reflecting the strong impact of inflation. Our G&A for the year was $417 million, down 2.8% versus $428 million in 2021. Operating income was down $12 million versus 2021, including the $21 million impact of the refranchising gain. Operating income margin was positively impacted by 50 basis points due to the refranchising gain, but this was fully offset by the negative impact from foreign currency. If foreign currency remains at current levels or increases as a headwind going forward, we expect that this will be a barrier to recovering to our pre-pandemic operating income margins. Although we faced operating headwinds in 2022, we continue to generate sizable free cash flow. During 2022 we generated net cash provided by operating activities of approximately $475 million. After deducting for capital expenditures of approximately $87 million, which consisted of investments in our technology initiatives and supply chain centers, we generated free cash flow of approximately $388 million. Free cash flow decreased $172 million from 2021, due primarily to changes in working capital, including accrued liabilities and income taxes, as well as higher advertising funds spend and lower net income. During the year, we returned over $450 million to shareholders through share repurchases of $294 million and dividends of $158 million. As to the end of the year we had approximately $410 million remaining under our current board authorization for share repurchases. Our board has also approved a 10% increase from our prior quarterly dividend to $1.21 that is payable on March 30 of this year. Looking forward to 2023, we would like to provide our annual guidance measures for the year. We currently project that the store food basket within our U.S. system will be up 3% to 5% as compared to 2022 levels. We expect the first quarter food basket increase to be higher than the rest of the year. We estimate that changes in foreign currency exchange rates could have a $2 million to $6 million negative impact on international royalty revenues in 2023 as compared to 2022 if foreign exchange rates remain at current level. The negative impact of currency is expected to be higher in the first half of the year based on current rates. We anticipate our CapEx investments will be between $90 million and $100 million as we continue to strategically invest in our business and prioritize our spend. We expect our G&A expense to be in the range of $425 million to $435 million. Our tax rate excluding the impact of equity based compensation is expected to range from 22% to 24%. Finally, given the current macroeconomic headwinds that are impacting our U.S. delivery business in particular, we are updating our two to three year outlook from 6% to 10% global retail sales growth to 4% to 8% global retail sales, and unit growth from 6% to 8% global net unit growth to 5% to 7% global net unit growth. We expect 2023 to come in towards the low end of the ranges for both metrics. We look forward to providing more details at our Investor Day we will hold before the end of calendar 2023. Thank you all for joining the call today, and now I will turn it back to Russell.

Operator:

Certainly. [Operator Instructions] And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Sandeep Reddy:

Good morning, Brian. Thank you for the question, and so let me start first with the rationale for the unit growth update from 6% to 8% to 5% to 7%. As we said in the prepared remarks as well, I think the U.S. delivery business and the constraints that we see in front of us on the U.S. delivery business are a big driver of this decision to actually slow down the expectations from a unit growth standpoint. And as you also noted from my prepared remarks, the headwinds that we saw throughout 2022 are expected to continue into the first half of 2023 and that is going to put pressure on the unit growth that we expect to see as we go forward in 2023. And I think in terms of what the catalyst would be, the answer is a little bit in terms of what I talked about on the U.S. growth itself and the cadence. So the first half of the year is going to continue to be pressured for the same reasons that it was pressured in 2022. But as we move into the second half of the year, the pipeline that we have for 2023 looks really encouraging, and I think this is at the back of economics that continue to be very compelling. We’re delivering $137,000 in EBITDA with all the pressures that were faced from an inflationary standpoint on food costs, labor and just general costs in the P&L and that's literally within $6,000 of 2019 levels. And most encouragingly, the exit rate from Q4 had the EBITDA levels that we are estimating above 2019 levels. This is really a manifestation of the price increases that we took on the natural offer for Mix of Match in the fourth quarter, in particular for Carryout beginning to flow through. The flow through benefits for the franchisee P&L are very compelling, and we feel that if this continues, this cadence as we move forward in ’23, notwithstanding the 3% to 5% food basket increase that they're looking at. Franchisee is in a very good place to continue improving their profitability, and that's why we feel so confident with the pipeline that we’re seeing in 2023, economics back it up, paybacks continue to be very strong at roughly three years.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Peter Saleh from BTIG. Your question, please.

Russell Weiner:

Sure. Good morning and thanks Peter. As I said during my remarks, we've been pleased with this program. We launched in 2017. We've got over 30 million active members, 77 million total members, and really at this point as we think about the evolution of the rewards program, it is about taking the best and keeping the best of what we have and then continuing to dial up on where the opportunities are, and so – and we're not going to talk to the specifics of it now. But I think when you see us launch it later on this year, you'll see those who are joining the program continue to – are going to continue to enjoy the positives of it, and probably some of our less frequent customers are going to be incented to do more. And I should tell you, I'm sorry I misspoke. The launched central loyalty program was 2015, not 2017.

A - Sandeep Reddy:

Thanks. Thanks Peter for that question. Now, in terms of where we were, in terms of restaurant level margins on the franchise's side, what you did see from a cadence standpoint was the profitability. It really went up pretty significantly between 2019 and 2021 from 143 to 174 I believe in 2021. But I think the cost increases that have actually come through have been really significant, and I think until that kind of beds in and the price increases that we've taken basically start normalizing, it's going to take them some time. Over time of course, I think we’ll get back to those levels of profitability and absolute dollars. But I think in the short term we're looking at small steps and I talked about Q4 specifically, because we're now inflicting, we're now inflicting the trend, and I think with the adjustments that we made on the pricing architecture, we're in a good place with the franchisees, and we hope that as we move into 2023 this continues to accelerate and helps them actually see even better profitability in ‘23.

Sara Senatore:

Yes, can you hear me? Thank you. I wanted to ask about sort of the comments on the comp and the macro environment. You know we're really not seeing very much softness or evidence of price sensitivity across the rest of the industry, and I understand delivery might be different, but I guess the question is two-fold. One is, is there any reason to think that maybe your pricing could be higher? You seem to be lagging the industry by 2 to 4 points, and that's roughly where your comp gap is I would say. So you know as you think about pricing, is there room to maybe take more on the menu and perhaps less on delivery fees. And then separately, does this increase the likelihood or the attractiveness of partnering with aggregators, not delivery as a service, but as a marketing platform. You know virtually everybody who has done that has suggested that the income cohort is higher on aggregator platforms and that it's incremental to the – you know to remember maybe ordering through the proprietary ordering. So I'm just trying to piece together everything that's happening in the context of pizza being a very good value in absolute, but the lag versus the overall industry and maybe some drivers. Thanks.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Jeffrey Farmer from Gordon Haskett. Your question, please.

Russell Weiner:

Yes, thanks for the question. Look, we're satisfied with the improvement. We're never going to be satisfied until every delivery is there as expeditiously as we can get it. So we're satisfied, but what I'd say is we have more work to do, so our service times are better. They are not better than they were in 2019 and that's the place we need to go. When you look at our corporate stores, it’s trying to think about that as a proxy for what's going on in the rest of the business. Corporate stores, our hires are at pre pandemic levels now, turnover is down, job applications are up and we're getting people through the system faster on applications. We talked about call centers. I wouldn't really mention it on this call, but about half our stores are on call centers right now. Not every single call goes through the call centers, but they are there to help and that makes the job easier for our team members. We have a lot of operation simplification processes that we put into place that we're really excited to share with you guys when you come in for Investor Day. And then something that I'd point to that we just launched was this EV fleet. So we have an EV fleet of 800 vehicles, but that actually is part of a larger kind of strategic shift you're starting to see with our franchisees and corporate stores and purchasing vehicles. And what that enables us to do is attract folks who've got driver's licenses, but maybe don't have access to vehicles. So when you put all that stuff together, you're seeing a more efficient inflow of people, more efficient operations, new pools of driver, that's why you're seeing the sequential improvement in the first and fifth quintile. And that's why you know we got another boost week coming up, back to the regular cadence as we said we would do in Q3.

Brian Mullan :

Hey! thank you. just a question on the Carryout business in the U.S. In the quarter same store sales were up 31% versus ’19. It's very, very strong on an absolute basis. It sounds like that trend versus ’19 did decelerate a little bit, a few hundred basis points versus the 35% you saw in the third quarter. Just wondering if you could speak to the dynamics you think were at playing in the quarter in Carryout and what might have been behind that deceleration, if anything worth noting.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Dennis Geiger from UBS. Your question, please.

Russell Weiner:

Yes, sure. Look. I mean, I think part of the answer your question was in our question. The delivery pressures are a macroeconomic thing, and so like I said it, while it's not a pretty way to grow share, when you're growing share in a category that has got headwinds, that means you're kind of outperforming the rest of the category. Now that's not what we like to see in our overall numbers, but you're really talking about macro pressures. And so the way I look at is all the things that we're doing now to get better in delivery with hiring folks, with having a tighter circle of operations, with innovating, with technology, all of these things, so that what is now a share increase in a category that’s got headwinds, when those headwinds will subside – and look, I joined during the time during, during the last recession. We boomed out of that recession, because I think as we said last time, we knew this, delivery because of delivery fee and because of tips, if they're going to have extra headwinds during these economic times. So I like to look at how are we performing during these times? Are we getting better during these times, so when that pressure is gone you should see us to accelerate.

Andrew Strelzik :

Hey! Good morning. Thanks for taking the question. Mine is actually a follow up to your prior answer, and I guess my question is about balancing, kind of maybe being more aggressive and kind of creating a bridge through the macro challenges instead of maybe what sounds like a more incremental approach is kind of how I'm understanding what you're talking about, it. Kind of incremental steps and then a real acceleration as the macro improves. So how do you think about potential opportunities to be more aggressive to smooth out that cadence rather than kind of the dip and the boom? Thanks.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question, please.

Russell Weiner:

Yeah sure, thanks. Well, I just want to reiterate our positive look to the change we made in our mix and match, moving to $6.99 both delivering Carryout. It was absolutely the right thing. You know, as you know our franchisees and local stores control their own menu pricing and delivery fees and things like that and all the models in the world, all the experience in the world with the headwinds and changes in food cost and labor and things like that [inaudible]pretty quick. And I think if we were to look at some of our stores, things that are not on promotion. So, menus and maybe some case delivery fee our price may have got a little bit of a head. We need to be of value, not just international offer. Sometimes people want medium two type pizzas, a lot of times they want medium two types pizzas, but sometimes they want other things too. And it's just making sure that we have the right value across the other pieces of our menu. We'll be working with our franchisees on that.

Lauren Silberman:

Thank you for the question. I appreciate all the commentary on franchise EBITDA and payback. Can you just level set where development costs are running today? I think they were around 3,500 in – those were in 2019. Just to figure out what that is now. And then, Sandeep, I think you might have said franchise EBITDA could actually grow in ’23, versus ‘22. Did I understand that correctly?

Operator:

Thank you. One moment for our next question. And our next question comes from the line of John Ivankoe from JPMorgan. Your question, please.

Sandeep Reddy:

Sure I'll start off on the impact on the unit growth and a split impact of fortressing basically that you're referring to John. As you – we started already get updating again during the course of ’22 and if you saw we went from I think 0.7% of fortressing impact in the second quarter to 0.5% now. So the impact on fortressing is becoming less and less in terms of what effects it's got on the same store sales. We don't see it being a very, very significant impact as we move forward. But as we said again, we going to update it if it really deviates from that. There is plenty of growth still that we actually seen in our runway. We have the opportunity mapped out by our internal teams, and we know that we can definitely go after that in the pipeline that we have from franchisees is on the back half. Knowing what that opportunity looks like, the economics that they see coming out of it, and so I think we feel pretty good that we had the right balance on that.

Operator:

Thank you. One moment for our final question. And our final question for today comes from the line of David Tarantino from Robert W. Baird. Your question please.

Sandeep Reddy:

Yeah, so that's a great question, David. So look, I mean as far as we're concerned, the guiding principles that we've actually outlined is revenue should be growing faster than expenses. So when you look at the guidance range on global retail sales and you look at our guidance range on G&A, can see that essentially, even at the low end our G&A is basically below that in terms of growth at the midpoint. And so I think straight away that gets you into a place where you can be margin accretive, so that's point number one. Point number two is, we actually experienced a lot of headwinds this past year from foreign exchange, and I think that actually had a 50 basis point negative impact on our operating margin in ’22. Unfortunately, given where we are, we still see a little bit more headwind, but not in the same magnitude given where current rates are. And so that would be an offset to some of that operating improvement. But from a mix standpoint, with the corporate store sales that have actually happened, we’ll now get three or more full quarters from that, that helps our margins. So I think overall when we look at the margins, my expectations for margins is that margins will improve. But I think when we talked about pre-pandemic margins or 2019 margins with the currency headwinds that we experienced in ’22, that's probably further away than ’23, but it's not something that we're saying its unattainable. It's more a question of time and some of the other factors that hit the P&L.

Russell Weiner:

Well, thank you, and thank you everybody for joining the call this morning. Sandeep and I look forward to speaking with you in April to discuss our first quarter results. Until then, we'll talk soon.

Operator:

Good day and thank you for standing by. Welcome to the Third Quarter 2022 Domino's Pizza Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today to Ryan Goers, Vice President of Finance and Investor Relations. Please go ahead.

Russell Weiner:

Thank you, Ryan. And thanks to all of you for joining us this morning. I'm encouraged by our global performance during the third quarter. Excluding the negative impact of foreign currency, global retail sales grew almost 5% in the quarter, resulting in a three-year stack of plus 28% versus Q3 of 2019. We and our franchisees over 200 net new stores during the quarter and over 1,100 over the trailing four quarters. 44 of our international markets opened at least one net new store, demonstrating the continued strong global demand for Domino. Our team members and franchisees around the world have continued to show the agility and perseverance required to operate in a volatile macroeconomic environment. I wanted to start the call by going a little bit more in depth on our U.S. business, and some key initiatives. First and most important, the Domino's brand is as strong as ever. Our research shows the brand health remains at pre-pandemic levels, and we have maintained our lead over relevant QSR competition, and critical brand health metrics like net promoter score, and taste and value. All of these are key indicators of short and long-term performance. Next, our same store sales. Same store sales in the U.S. were up 2% versus Q3 of last year. And when we look at our business on a three-year stack, which will continue to do for as long as it remains useful to put in perspective any COVID impact, same-store sales were up almost 18% versus Q3 of 2019. This represents a sequential improvement in three-year comps, from Q1 and from Q2. Now Carryout. Carryout continues to be a growth lever and a massive opportunity for us. As you know, while Domino's started as a pizza delivery company, we began targeting the Carryout segment with specific offers in 2011. That effort has paid off, as NPD shared data shows that we became the number one Carryout pizza brand in the U.S. at the end of last year. We continue to grow the Carryout business in the third quarter. Carryout same-store sales were up almost 20% versus Q3 of 2021 with a three-year stack of plus 35% versus Q3 of 2019. Most importantly, we continue to see tremendous runway ahead in our carryout business. On the Delivery side, the pricing we took on our national offer for Delivery performed as our proprietary research predicted. Going from $5.99 to $6.99 on our delivery mix and match deal was the right move. Given the continued inflation we have seen our analytics now indicate we should take pricing on our national Carryout deal as well. We will continue to balance customer value and franchisee profitability by taking our Carryout mix and match deal from $5.99 to $6.99, starting on October 17. From a delivery capacity perspective, we saw progress throughout the quarter resulting from our initiatives in this area. While we only have visibility to our corporate stores, the number of job applications and new hires have increased throughout the year. At the end of the quarter, we were more or less back to 2019 levels as far as applications and new hires per week. Staffing remains a constraint, but my confidence in our ability to solve many of our delivery labor challenges ourselves has grown over the past few quarters. Our delivery service also showed improvement throughout the quarter. While we still have work to do to get back to our highest standards for delivery service, I am encouraged by the progress we've made so far. Estimated average delivery time has improved every quarter this year. Additionally, our system is all in on another boost week for Q4, indicating their confidence in handling the increased volume. A boost week in each of three consecutive quarters represents a return to our pre-pandemic boost week cadence. Finally, with regard to phone orders, around half our stores in the U.S. are now connected to call centers to help answer at least some of their calls. Now moving on to our corporate stores. Our corporate stores there we are continuing to make moves to strengthen that business and the Domino's brand. We re-franchised corporate stores in Utah and Arizona after the end of the quarter. These transactions provided the opportunity to bring in several fantastic existing franchisees, who will further evolve and accelerate growth in these markets, as well as three new franchisees ready for the opportunity to own and grow with Domino's brand. These transactions aligned with our strategy to utilize our corporate store platform to unlock growth by buying stores such as our transaction earlier this year to purchase stores in Michigan and selling stores, such as the 2019 transaction to re-franchise in New York. I visited our corporate stores in Houston in Q3 and it was happy to see progress and get feedback on some of the operational initiatives we're testing. As we have said, it is critical that we drive efficiency and effectiveness to benefit our customers and simplify jobs for our employees. I look forward to sharing more about these initiatives as we continue to learn. Now for more detail on Q3 results, I'd like to turn it over to our CFO, Sandeep Reddy. Sandeep.

Russell Weiner:

Thank you, Sandeep. Before we open the call for questions, I wanted to talk a little bit about the macroenvironment and the potential impact on the QSR industry, particularly delivery. There are a couple of dynamics that we're watching in the broader restaurant delivery segment. First, as consumers returned to some of their pre-COVID eating habits, the sit down business that was once a source of volume for restaurant delivery over the past few years is rebounding and bringing back with it, some of the orders that were delivered when sit down was constrained. The second dynamic is inflation. We believe that inflation will impact delivery more than carryout, due to the added expenses of fees and tips in that channel. Our research shows that a relatively higher delivery costs might lead some customers to prepare meals at home. This could be exacerbated as consumer spending becomes more constrained around the holiday. As we begin Q4, I believe Domino's is poised to emerge from these volatile times stronger than ever. This is what our business model was built for. I joined Domino's in 2008 during another tough economic environment. What I learned then is even more true today now that we're the number one pizza company in the world. In a world where consumer confidence is shrinking and inflation is high, Domino's will succeed, because we have strong profitable franchisees, a team that makes disciplined decisions based on insight, and have the digital supply chain and delivery expertise to offer best-in-class value and customer experience. We delivered around one out of every three pizzas in the United States before the pandemic, and we deliver around one out of every three pieces today. One important thing we have today that we didn't have in 2008, is a strong Carryout business. As a more complete restaurant company today, I have never been more confident in the future of Domino's Pizza. With that, we'll open the call the question.

Brian Bittner:

Good morning. Russell, I want to ask about the promotional strategy. And I know you touched on a tougher macro at the end of your prepared remarks, but specifically, you've had the 20% off everything discount in place since around September 6 and it's been happening at a time where I think staffing still does remain a headwind even though it's been improving. And I would think franchisees margins are also being pressured by inflation. So, can you just help unpack the strategic thinking around this strategy? When is still in place, from what I can see so is it accomplishing what you initially wanted it to accomplish?

Sandeep Reddy :

And Brian, I'll just add something to that. The 20% off promotion, or the mix and match promotion from a profitability standpoint is not significantly different. It's just a different way of delivering a promotion to the consumer. So from a margin standpoint, our franchisees and our corporate stores have not been really impacted in a significant way through this transaction, through this promotion. And so we feel really good about that piece of it as well.

Operator:

Thank you, one moment for our next question. And our next question comes from line of Peter Saleh from BTIG. Your line is open.

Russell Weiner:

Peter, thanks for the question. For us here at Domino's, our approach to whether it's an inflation environment or non-inflation environment is, we need to be the best relative value out there in the QSR industry, interestingly enough, and it was exactly what our internal research predicted. When we went from, $5.99 to $6.99, we still remained a great relative value on the delivery side. Things have changed, prices -- cost inputs have changed. And our research now indicates we can do the same thing on the carryout side and will still remain a large relative value. So really, that's our role within this inflationary environment is to be a strong relative value in QSR for our customers.

Operator:

Thank you. One moment for our next question. Our next question Sara Senatore from Bank of America. Your line is open.

Sandeep Reddy :

Hi, Sara. I'll take the first part of the question and then Russell will pick up on the second piece on the refranchising opportunity. So I think on the company margins or what we saw there was a multitude of headwinds, definitely the food basket and some investments in labor that we had to make over there. But I'm just going to step back a little bit and talk about total company margins. And number one, the refranchising of these two markets essentially will be margin accretive to total company margins and it will start showing up in the fourth quarter. But I think specifically talking about corporate stores margins, we've talked about this in the previous quarters as well, but from a pricing standpoint, I think we were slightly behind where the franchisees were and taking pricing. And I think as the inflationary headwinds have actually built, whether it's the food basket or the investments in labor that we have to make in our stores, that has been a pinch point for company operating margins. As we've talked about, we're evolving given the national offers right now on the carryout side, and this benefit will come into the company-operated stores as well as the franchisee stores, obviously. And I think with what we've actually done in terms of changes that we've talked about since the last quarter, we're really pleased with the sequential improvement that we saw in same-store sales. It went from minus 9% to minus 1.9% between the second quarter and the third quarter. So that's very encouraging. And this ends up being a leading indicator of where we can take our profitability of the corporate stores going forward. So it's not going to be an overnight fix, but a lot of the actions, including pricing, already underway. So I think it's more a question of time to actually see this play out in terms of total profit margins. So pass on to franchising.

Operator:

Thank you. One moment for next question. Our next question will come from the line of John Glass from Morgan Stanley. Your line is open.

Sandeep Reddy :

John, this is Sandeep. And I think on the outlook for global unit growth, we're really bullish. I think things are looking very strong in terms of where the potential for growth exists. We've talked previously about 10,000 potential stores in our top 15 markets. That hasn't changed in terms of the calculus. Looking at the more specific recent quarter, we've already flagged that in the U.S. be between the permitting and construction delays that we're dealing with, we're going to see a slowdown. The slowdown has come. So we saw that as a part of it. And I think specifically internationally, we talked about the exit of the Italian market by a master franchisee as a key driver of the decline. And I think in Brazil, we had our master franchisees there continuing to optimize the market. There were some stores that closed in the first quarter, and they close some more stores in the third quarter. So I wouldn't really read too much into this in terms of where the long-term international trends are going. It is very strong in terms of potential. I talked in the prepared remarks about the paybacks on our U.S. stores. They're very compelling. They're around three years from more recent years like 2018 and 2019 seems to be on track as well. I can assure you that the international paybacks are even better. So the runway that we've got over there is very, very strong, and we're very confident of that.

Brian Mullan :

Yeah. Thank you. I think in the prepared remarks, you said it was an eight-point gap between the top quintile and the bottom quintile of stores this quarter and delivery, another sequential improvement. My question is, can you give us a sense of what the historical gap between the top and bottom quintile for delivery was prior to COVID? And when you get back to that normal gap, is that an indicator that the driver issue is getting close to solved in your mind? Just talk about that or measuring that internally as you make progress.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of John Ivankoe from JPMorgan. Your line is open.

Sandeep Reddy :

Thanks, John. Appreciate the questions. Now I think in terms of the U.S. units, we flagged this back at the end of the second quarter when we talked about the expected slowdown due to the permitting and construction delays that we were seeing. I think it's expected to impact definitely the balance of the year, as we've talked about earlier. And frankly, until we see the permitting and construction delays completely abate, it is going to be a head. But I think what we do see is once we get past that headwind, the demand is very strong from our franchisees. So we should see that to work to prior norms in terms of growth rates. And that's why we're really very convinced that we're on our way to that 8,000-plus mark. And I think it's more a question of getting past these macro disruptions that we are seeing over here. And then I think when it comes to the G&A and CapEx adjustments to guidance, I'll take the G&A one first. The G&A is impacted a little bit by the refranchising of stores that we talked about. So with the -- some of the -- with the corporate stores in Arizona and Utah are now moving into the franchise P&L, the G&A structure that was going with those stores vendor corporate stores wouldn't really hit our G&A, and that's part of the driver of it. And there are some other small elements of adjustments in terms of expenses that actually went into that as well. So -- but it's not major. It's just more of a reclass between corporate stores and franchise stores. And I think on CapEx, if you look at our run rate on CapEx, the $120 million was a bit of a tick up. We expected to have heavier spend on some of our supply chain investments. We're just pretty much sliding it forward. So I don't think it's going to change the cadence of how much spend we're going to have. It's just more of a timing impact starting forward.

Gregory Francfort :

Hey, thanks for the question. Russell, also, I had a question about just pricing elasticity and I think it's interesting that a lot of your competitors have taken the delivery prices up 25%, 30% above their in-store prices. And you guys, it's pretty consistent, but you guys, I think, have a little bit higher delivery fees. Is that because of maybe some work on the elasticity of pricing in the delivery fees versus in the menu? And is there an opportunity to widen out maybe the delivery prices versus the in-store prices over time for Domino's? Thanks.

Operator:

Thank you. One moment for next question. Our next question will come from Andrew Strelzik from BMO. Your line is open.

Sandeep Reddy :

So Andrew, thanks for the question. In terms of efficiencies in the cost structure, I think from the beginning of the year, we've been talking about continuing to look at it. I think it's a combination of other costs that actually could be eliminated if they make sense to eliminate. But more importantly, it's resource allocation, how do we redeploy resources to the best returns. And so I think in terms of the journey that we're under, it's not really changed that much from what we talked about when I first talked to you in April. And I think we'll continue to do this as we move forward, not just in the fourth quarter but into '23 as well. And so from that standpoint, there's nothing more than that. But I think from a technology and supply chain standpoint, if you had a question, Russell some comments to add on that.

Operator:

One moment for next question. Our next question will come from the line of Andrew Charles from Cowen. Your line is open.

Russell Weiner :

Yeah, Andrew, thanks for the question. I mean you're right, certainly during the last couple of years, we were adjusting as things kind of came our way. So the long-term planning and kind of the stories you're used to seeing from Domino's maybe took a little bit of a back seat to just trying to adjust to what was going on in the environment. But I fully expect, obviously, we can't talk about the future. But what you've seen from us before, which are these OUS, we did stories that are adjusting to what's going on in society, technology innovation, not only for the customer but in store. From an innovation standpoint, I think we're really unique and we will continue to be unique and that we just don't launch products for products sake that we're spending all this money and then they come out of the market. We launched incremental platforms and those platforms work really well into our mix and match deal. And we know when we work them into our mix and match deal, it increases items per order, and that's a healthy way to drive ticket. So I think you're right on in how you assessed the way we've grown the business, and that's how we're going to be focus moving forward.

Patrick Johnson:

Thanks, guys. This is Patrick on for Chris. My question relates to the supply chain. Am I right in thinking that unit volumes remain down year-over-year, along with transactions? And if so, what opportunities are there to improve volumes outside of unit and transaction growth in that segment? Would you consider adding new products or potentially some other alternatives that make strategic sense for the business as a whole?

Operator:

Thank you. One moment for next question. Our next question comes from the line of Lauren Silberman from Credit Suisse. Your line is open.

Sandeep Reddy :

Thanks, Lauren. I think what's really important is really think about the philosophy on how we look at pricing in the company, and it's not new, it's not stock side of this year, it's been happening over the last decade or more. And I think there's key elements to it. One is I think we would look at our input costs and essentially what that does in terms of long-term store profitability for the franchisees and our own corporate stores. But then we also look at the relative consumer price points and competition in the market. So when you actually peel back to the decision to adjust the delivery mix and match back in March, all of these factors were taken into consideration. But I think we saw that there had been some hardening in cost was in the labor side. And because delivery is a more labor-intensive channel of business, we had visibility to that where the increases tend to be more permanent in nature. And to drive the contribution margin that was needed on the delivery side, we believe it was needed to make that adjustment to the mix and match price on delivery in March. While food basket had already started going up, what has happened historically is it's been very volatile. It can go up, but it can also reverse. So we wanted to make sure that the increasing costs that we are seeing on the food basket were likely to sustain. And also, we've examined over the last six months how competitive pricing has actually evolved in the marketplace. So when you take both those elements under consideration competitive price shift as well as the fact that the food basket has continued to harden, we believe now is the right time to make the change on the carryout mix and match as well to drive that profitability for the franchisees and process.

Jared Garber :

Hi. Thanks for the question. Russell, you made some comments around maybe the shift that you're seeing or potentially we'll see in the delivery business versus the carryout business as it relates to consumer demand and some more pressure on the consumer. Can you talk about that dynamic in international markets as well and maybe give us a little bit of a sense of the breakdown on carryout versus delivery there? And I know we heard some good color on the UK market, some of the bad impacts there, but certainly, the macroeconomic outlook in broader Europe is a little bit more challenged as we go forward. So any color on how we should be thinking about that or how you're thinking about that and what you're hearing and seeing from franchisees would be great. Thanks.

Russell Weiner :

Yeah. I would add to that what Sandeep said is when pricing hits on the delivery side, people tend to more go to cook at home. When pricing hits on the carryout side, folks tend to look at relative value. And that's really where we win. And a lot of the growth, I mentioned earlier, we're the number one carryout pizza brand, at least in the U.S. But the fact is we also source a lot of our carryout volume from other QSR. So during times globally, where pricing is going up, on our carryout business is actually should be a source of volume.

Dennis Geiger :

Thanks for the question. Sandeep, you spoke to a strong franchisee demand to open new stores in the U.S., particularly as you get past the supply chain and the permitting delays. So I'm just wondering if you could speak a little bit more to sort of franchisee health across the U.S. as we think about the cost pressures that the industry has been facing as well as now sort of higher interest rates. Just sort of where sentiment is now broadly for your franchisees here in the States?

Russell Weiner :

And I would just add to that. For me, working with Domino's franchisees, is the best part of my job. Next week, we have our franchisees coming in. Annually, we have an economic summit. And so this is something we do every year, and I'm looking forward to seeing them again. And I thought maybe as we get towards the end of the conversation, I would tell you a little bit about what I'm going to be talking to them, how excited I am at what they're doing. So Sandeep talked about sequential improvements. That means Q3 better than Q2 better than Q1. So same-store sales one year and three year. Q2 is better than Q1, Q3 is better than Q2. Service times, they got better in Q2, into Q1, they got better into Q3 than Q2. The gap between the first and fifth quintile is shrinking every quarter. The boost week performance, their service time in the second boost week was better than their service time in the first boost week and they are all in on future boost weeks getting back to how we used to do them prior to the pandemic. They delivered one out of every three pizzas before the pandemic, and they deliver about one out of every three pizzas post. What is new and what they should be congratulated for is we've emerged now as the number one carryout brand. And so from a total pizza market share standpoint, we're up 200 basis points versus three years ago, and that's just an amazing accomplishment. Maybe one more question?

Alexander Slagle :

Hey, thanks. Just a follow-up question on the G&A. As you have ratcheted that down the outlook fairly meaningfully through the year and talked about the refranchising impact, but curious if there's a deeper structural change beyond this that can extend past this year? And is it possible we see G&A spend next year ramping less than typical? Or conversely, is there -- are there some timing shifts that might drive more of an increase in '23?

Operator:

Thank you. That's all the time we have for Q&A. I'd like to turn the call back over to Russell for any closing remarks.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Operator:

Good day and thank you for standing by. Welcome to Domino's Pizza Q2 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today to Ryan Goers, VP of Finance and Investor Relations. Please go ahead.

Russell Weiner:

Thank you, Ryan, and thanks to all of you for joining us this morning. As Ritch Allison and I communicated back in April, we expected the second quarter to be challenging. We continue to navigate a difficult labor market in the U.S., especially for delivery drivers, in addition to inflationary pressures, combined with COVID and stimulus fuel sales costs from the prior two years. Our results for the quarter were consistent with the challenges we outlined at that time. However, the strength of our franchisees and team members along with the strategies we're putting into place, make me feel confident that we're on the path to overcome these short-term obstacles, make the Domino's brand and business stronger than ever. Back in May, my team and I gathered with more than 8,000 of our franchisees and team members from around the globe at our 2022 worldwide rally. Due to COVID, we had to cancel our last rally. So it was our first time back together as one global team in four years. We used this time to share best practices, a lot on goals and commit to continue growth that will drive meaningful value creation for all of our stakeholders. The energy, the commitment, passion for the brand and confidence displayed at this year's rally was truly inspiring and reinforces my belief that our best days lie ahead. I can assure you that nobody at Domino's is happy with our recent performance. However, I have tremendous confidence in the team that we have assembled to leverage some of our current successes, address our current pressures and proactively work to mitigate the negative impact of those external factors that we can't control. As always, we will make discipline decisions and we'll focus on doing what is right for our customers, our franchisees and our brand. This approach has served our stakeholders well over many years and I don't see any reason to the verdict from this proven approach. We have high expectations for what we can achieve and we will hold ourselves accountable for meeting and often exceeding those objectives. I plan to provide you with more specific on the strategies and plans we have for the business after our CFO, Sandeep Reddy walk through the results of the quarter. Sandeep?

Russell Weiner:

Thank you, Sandeep. I'm going to start my comments with the U.S. business. The performance during the quarter started slow as we were lapping – fueled comps on a one and two year basis. These dynamics ease throughout the quarter as we move further away from the government payments distributed March of 2021. During the quarter, we continued innovative ways to engage with our consumers through our carryout tips promotions, where we rewarded our carryout customers with a $3 tip good for the purchase of another carryout order within the next week. We also launched our Mind ordering app, which created a fun ordering experience for – into the new season of stranger things, one of the most popular shows on TV and streaming. In addition, the second quarter marked our first full quarter, since we evolved our national offers to include $5.99 mix-and-match for carryout customers and $6.99 for delivery mix-and-match. On the last call, I laid out some of the action plans that we’re taking to meet customers demand, including returning to core hours, utilizing call centers to ease constraints in the stores and bringing back those suite promotions. I'd like to take some time to provide additional color on each of these actions. If you recall out of necessity, many stores have had to flex their hours of operations because of the labor constraint from the staffing challenges and the Omicron surge early in the year. During the first quarter, when we added up all the lost operating hours, we estimate the stores cumulatively closed the equivalent of almost six days across the entire U.S. business. During the second quarter of this number improved a little over four days. The stores primarily flexing hours could be closed during non-peak times. The impact on orders of less than the number of days closed as a percentage of the total days in the quarter, while we and our franchisees continue to make progress on a full returns of all stores to core hours as we start to lap the service disruptions from last year, this metric will become less meaningful as a driver of the year-over-year of sales performance. Another key action is utilizing call centers to take phone orders. This allows team members to focus on making and delivering pizza without having to worry about answering phones, especially during the busiest times in the store. At the end of the quarter, around 40% of our U.S. stores were utilizing call centers in some capacity. As a result, headwinds from unanswered calls were lower than we experienced during the first quarter. The third action is bringing back boost weeks. We promise we would bring back these important customer acquisition and loyalty enrollment activities this summer. And as you saw, we ran our first boost week in more than two years in early June, I am extremely proud of our franchisees, team members and supply chain for executing at a very high level during what was our busiest week of the year. Consumer reaction was strong and we planned to do another boost week by the end of the summer, before we evaluate future cases. Turning now to corporate store performance, our corporate stores continue to lag franchisee performance during the second quarter. As I mentioned during the last call, we are committed to restoring our corporate store's leadership position among the U.S. system of store. As such we have put into place an operations recovery plan with 30, 60 and 90-day milestones. Now, last month we made a leadership change designed to positively impact our corporate store business. Frank Garrido, our Executive Vice President of Operations who also led corporate store before taking on his current role in February of 2020 will have that team report directly to him. So he can more closely assess and address the needs of this business. We will continue to provide updates on the progress of our corporate stores and look forward to them resuming their leadership role among our U.S. system of stores. Now, finally, I'd like to provide an update on our ongoing delivery labor market fee cut. We continue to believe that many of the answers to the labor shortages we are facing are already in our system. We see that our top quintile stores, they can meet the demand and outperform the system. We also saw the gap in performance, which between our top and bottom quintile stores improve during the second quarter. We know from our work that one of the key issues for delivery drivers is flexibility. And for many, this is even more important than compensation. Flexibility includes the ability to work shorter shifts, fewer hours in a week, and sign up for shifts with short lead time. These are the areas where we are continuing to evaluate and evolve our practices. The question remains, can we close the gap in performance and get back to fully meeting demand, utilizing our current delivery model as it has evolved over many decades. Until we've fully answered this question, all options will remain on the table. Now let's turn to international. The international business displayed strong fundamental growth opening over 200 net new stores during the quarter as well as positive order count growth. During the second quarter, 44 of our international markets opened at least one net new store demonstrating the strong demand for Domino’s around the world. As Sandeep mentioned, we had some short term pressures from the UK VAT relief overlaps that drove the comp to go negative in the quarters, snapping our long running streak of consecutive quarters with positive same store sales growth. I remain confident – extremely confident in the long-term growth potential for our international business. Opening more than 1, 000 net stores over the trailing four quarters is an outstanding accomplishment by our team and our international master franchisees. I'll now highlight a few international markets of notes. I'd like to congratulate DPC Dash. DPC Dash, our master franchisee in China for opening their 500th store during the second quarter. Also as you may have seen Dash brands recently made it A-1 filing for a listing on the Hong Kong Stock Exchange. We saw strong sales growth in the Middle East, especially in Saudi Arabia. Also Alamar Foods, our master franchisees across 11 markets in the Middle East and North Africa announced its intention to go public through an IPO on the Saudi Stock Exchange. Other markets have noted with strong growth in the quarter, including India and Mexico, Spain, Turkey and Guatemala. We have a long runaway for growth in the U.S. and around the world in both our delivery and our carryout businesses. We will continue to mitigate challenges within our control and take steps to proactively confront external factors. We can't completely control with strategies and plans to minimize their impact. We're now happy to take some questions.

Brian Bittner:

Thank you. Good morning. Question on the same store sales in the U.S., your same store sales in the second quarter, as you said accelerated by over 500 basis points first. The first quarter when we look at it on a three year stack basis, so clearly a meaningful improvement in the quarter. Can you just unpack the drivers of this improvement in a little bit more detail and help us understand maybe, how much of this improvement came from improved staffing levels through the quarter versus maybe some other sources of improvement, just so we can understand the underlying health of this improvement in the second quarter? Thanks.

Operator:

Thank you. And our next question comes from the line of David Palmer from Evercore ISI. Please go ahead.

Russell Weiner:

Sure. Thanks and good morning. On the customer service side really at the end of the day, what we like is things have gotten sequentially better in the second quarter over the first quarter. We certainly still have capacity things we're dealing with, but at the end of the day, demand is strong and our ability to serve in that capacity is getting better. To your second question on the evaluation, what I tell you is we are 100% committed to getting this done ourselves. We think the answers to some of the capacity issues lie within the system and until we get though where we need to be, our responsibility is to understand all the options available and that's what we're going to do.

David Tarantino:

Hi, good morning. I had a question on the carryout versus delivery business, I guess first, if you could maybe give us an update on what the mix of businesses today, given the big changes you've seen in the carryout business. And then I guess, secondly on the carryout business, the strength that you saw in the second quarter was very impressive. And I'm wondering if you could at least offer some thoughts on the sustainability of that or whether you think it was just a great promotion with the offer that you are in there? If you think that this is a more durable layer of sales with new customers or new occasions? Thanks.

Russell Weiner:

Yeah. Thanks David. We have seen sustainability and continuing momentum and convenient growth in carryout not just over the last three years, but over last decade or so, since we decided to really focusing on that area. One of the reasons that's so important for us is, it's very incremental to delivery. We see maybe 15% or so overlap between carryout occasions and delivery occasions. Interestingly enough, the carryout sourcing of buy-in we have is lesser from pizza on a percentage basis and more so from other QSR. So enables us to not only grow in the larger carryout pizza segment, but the larger carryout QSR segment.

Brian Mullan:

Hey, thank you. Just question related to domestic development. As you think about restoring the pace of growth domestic growth back up to that 45 to 5% rate. What are the most important factors for investors to consider right now in regards to the pipeline for next year? Do you think you can get back to that pace in 2023, or is this going to be a little bit of a longer path to the pre-COVID run rate in your view? And if it's a little longer, what are kind of the key gating factors right now?

Operator:

Thank you. And I show our next question – our next question comes from the line of John Glass from Morgan Stanley. Please go ahead.

Russell Weiner:

I think John for the question I just also want to reiterate that success of that boost week, it was the biggest week for us for the year and on the carryout side, it was our biggest week in history. And so when you think about a boost week, it's not just about the delivery business, it's also about the carryout business and we did an incredible job doing it there. Look, we have the best franchisees in the business and we gave them enough time and our supply chain enough time to prepare for this thing. We were ready. I think they're also right. It is showing that we're making some of the things that we're doing, improving, Sandeep talked about the sequential decline in the difference between our top and bottom staff quintile. So we wouldn't have done this if we didn't think we could handle it. And I think our system did a great job.

Operator:

Thank you. And I show our next question comes from the line of John Ivankoe from Morgan Stanley[ph]. Please go ahead.

Sandeep Reddy:

Thanks John for the question. So I think what you did here on the prepared remarks was, yes, we expect to see a slowing down of the trailing 12 months unit growth, definitely through the balance of the year and as long as we see the headwind. So we didn't say 12 months, but we said until the headwinds is subside. But I think in the international business, we're super excited because it's a plus 9% trailing 12 months growth. And that's very, very solid. And I think if you look at the quarter and you unpack it, it was really driven by this UK VAT impact and the overlaps. And in fact, if you include, basically it's been a positive comp for the international division. And so what I would say is look at the three-year stacks on international. It's 13%, very healthy. And we are very confident with that. And so I think we are very comfortable with the range that we provided the 6% to 8% on average across the global footprint of growth and international at 9%. That sounds we've demonstrated that with all these comps, we've been able to deliver very strong unit development. And we see no reason for that to change.

Unidentified Analyst:

Thank you.

Andrew Charles:

Great. Thank you. I wanted to follow up on an earlier question, U.S. same-store sales accelerated by an impressive, I think you said 530 basis points from 1Q to 2Q on a three-year basis. I know you guys called out 6% price in 2Q and first, it's very helpful. Thank you for disclosing that. But we estimate nearly 5% price was taken at the end of 1Q. Back when the mix and match platform for delivery orders was raised from 5.99 to 6.99. We know the 10-Q called out a higher number of items per order in addition to that higher pricing at the end of 1Q. So I'm curious if you can speak to the sequential change in traffic from 1Q to 2Q on a three year basis that our math suggests was perhaps flat, perhaps deteriorated amid some encouraging updates that you guys shared on staffing and carryout.

Andrew Charles:

Thank you.

Jared Garber:

Good morning. Thanks for the question. I wanted to revisit the U.S. unit growth commentary. I know it's been asked a couple times, but if we look back historically the unit growth annually has certainly continued to decelerate. Even if we look back to several years ago into the 2018 or 2019 timeframe so, can you just help us understand what gives you the confidence that pace of development can reaccelerate, maybe it's a 2024 kind of timeframe, given some of the headwinds you talked about, maybe there's a way to frame what the pipeline of demand looks like from franchisees. And then as a follow-up, just as we think about the carryout opportunity, is that changing how the discussions are going with franchisees, maybe in terms of site location, making those a little bit more accessible to consumers versus I think the base delivery business is one that doesn't necessarily need to be main and main to drive that delivery business, but that may change to carryout as a greater focus going forward. Thanks.

Russell Weiner:

Yes, Sandeep, I think I would just add, there is every incentive for our franchisees to continue to build, obviously the EBITDA per store is still a very strong place. The returns on a new store still in a very strong place, when we look at the top quintile stores on delivery, the ones that are really doing well, those are the ones that have fortress the most. And so what happens when you're fortress is you get closer to your customers, getting closer to your customers from a delivery perspective, during a capacity constrained, labor constrained environment helps delivery. We also know the majority of the carryout volume, the overwhelming majority of the carryout volume when you open up a new store is incremental. So there's every incentive financially and also in helping us deal with capacity to go ahead and continue to do that.

Operator:

Thank you. And I show our next question comes from the line of Andrew Strelzik from BMO Capital Markets. Please go ahead.

Sandeep Reddy:

Yes, Andrew, thanks for the question. And so I think the opportunities are multifaceted, right. So I think we talked about three different components. On the first one, we talked about the consumer pricing architecture and I think there, it's really about looking at given the different cost measures that we are dealing with. How do we make sure that we deliver terrific value to the consumer, but at the same time, taking up price where it makes sense, and it still delivers that value to the consumer. And so we'll keep on looking at that as time goes along. The second was, just making sure that operating revenues are going faster than – revenues are going faster than expenses. And from an operating margin standpoint, we did see some sequential improvement. We went from a 270 basis points decline in Q1 to 180 basis points decline in Q2. So that includes some G&A discipline as well, that we talked about. And you saw that we lowered our guidance for the year on G&A based on that. And it’s really about prioritizing as to expenses to make sure that we’re making investments and opportunities that are driving near-term growth, and actually continuing to invest in critical areas like technology and supply chain, which we have over the years, will keep doing that. But it’s that prioritization that is critical. But the most important thing honestly, is the third one that I talked about, which is how do we accelerate our capacity to serve the demand that we see. And that’s what Russell talked about earlier in the call. And I think that’s been very encouraging to see the progress that we’ve actually made in the last quarter. We continue to work on similar drivers in the coming quarters as well. So as much as we can make progress on that I think we’ll be able to get to much better place.

Unidentified Analyst:

Great. Thank you very much.

Dennis Geiger:

Great. Thanks for the question. Appreciate all of the commentary on your efforts to address the driver staffing challenges and sort of the – a lot of the metrics that you provided as a result there. Just wondering if you could speak a bit more to sort of where you are on the journey to address the challenges? Is the plan to address the driver situation internally? Is that finalized or are you still kind of tinkering with different opportunities internally to address that? And I guess really the question is, if you could kind of frame up what inning you think you’re in with respect to addressing those challenges internally, maybe before you look at other options, if there’s a way to frame that up? Thank you.

Dennis Geiger:

Thank you very much. Go Yankees.

Lauren Silberman:

Thanks for the question. I had one on the boost week. So one was run in early June, and I think you talked about plans to do another one by the end of the summer, which I believe is more frequent than historical. So can you talk about how you’re thinking about the cadence of boost week promotions from here? And is there any read through, an underlying demand? Or do you see this more of a catch up from not running promotions over the last couple of years? Just trying to understand how that all plays out?

Operator:

Thank you. And I show our next question comes from the line of Chris Carril from RBC Capital Markets. Please go ahead.

Sandeep Reddy:

So Chris, it’s a great question. And I think it really ties back to what I talked about in the prepared marks, which is in the end pricing in itself is fine, but it’s about making sure there’s a terrific value to the consumer. And that really is the key threshold for us. And so we continue to do testing. And by the way, the testing’s been done for the last decade, not just the last quarter. And that’s a process that is always going on inside the company. And look, when the macroeconomic situation is as volatile as it is, things keep on shifting and we continue to do consumer testing to ensure based on the shifting sense, what makes sense and what doesn’t make sense. We’re pretty clear that there is definitely a decreasing cost environment. So there’s a balance between making sure that terrific value is being delivered to the consumer. And then making sure that from a profitability standpoint, our franchisees are able to make the profits on their stores to deliver the paybacks they need from a long-term perspective. And we and our franchise partners basically look at it from a long-term perspective because most of them have been with us for decades or a number of years and find long-term commitments with us. And it’s a shared journey. So we work on it together with them. And I think there’s – that thoughtfulness will continue to go into what we do.

Chris Carril:

Okay. Thank you.

Jon Tower:

Hello?

Jon Tower:

There we go. Sorry, you cut out for a minute there. Yes. I appreciate you taking the question. First, a clarification and then a question. I’m curious if you could clarify or at least explain perhaps the check differences in the Carryout business versus the Delivery business and what that might mean for your same-store sales just in a normalized environment? And then I guess the question is, you did the Stranger Things promotion in this quarter, and I believe it’s the first time since I won’t say Batman in 2008, but you’ve done anything with really any other brand at least in the TV or streaming businesses. So I’m curious to know if this is a one-off or if you believe this is something that could persist with other TV shows or whatever in the future?

Russell Weiner:

Yes. And on Stranger Things, I just – you have an amazing memory. My first day, I remember looking at the Batman box, wow, that’s pretty amazing. You’re right though, interestingly enough, we have not done a tie in, in a big way since then. And that’s because, I believe – we believe that we really don’t have any interest in getting lost in a laundry list of brand high. And most of the time nowadays, whether it’s with sports or with movies or what have you, that’s what it is. At the end of the day, I’m not sure if anyone knows what brand is associated with what. I think you just get lost there. And I think that was one of the reasons why this promotion was so strong because we don’t do it a lot. And Netflix, and particularly the Stranger Things property, they don’t do that a lot. And so when two brands that are really strong brands in and of itself without being borrowed equities come together and do something like this is so powerful. And so, yes, an opportunity like this comes around, again, you can see us do this, but our logo will not be paved at the bottom of a dozen others in a partnership.

Russell Weiner:

Hey, thanks so much everybody for joining the call this morning. Sandeep and I look forward to speaking with you in October to discuss our third quarter 2022 results. Have a great day.

Operator:

Good day and welcome to the First Quarter 2022 Domino's Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder this call is being recorded. I would now like to turn the call over to Jenny Fouracre. You may begin.

Ritch Allison:

Thank you Jenny and thanks to all of you for joining us this morning. Before getting into the details of the first quarter, I would like to publicly welcome our new CFO, Sandeep Reddy to the Domino's leadership team. Sandeep officially joined us on April 1st and we are thrilled to have found such an accomplished finance leader. You will hear from Sandeep in a few minutes. You'll also hear from Russell Weiner on today's call. Russell will officially step into the CEO role three days from now on May 1st. With Russell and Sandeep in place alongside our outstanding leadership team I have enormous confidence in the future of this company and of our great brand. Let's now turn our attention to the first quarter. As you saw in our release this morning, Q1 was a challenging quarter particularly on the top line for our US business. We got off to a slow start in January due to the Omicron surge, which impacted our stores and supply chain centers, further limiting our capacity to serve customer demand particularly in the delivery channel. After a return to modestly positive US same-store sales in February, we turned negative again as we began to overlap the impact of the 2021 federal government stimulus in March and have continued to face that overlap in April. While we saw momentum continuing to build in Q1 in our US carryout business and in particular digital carryout, we are disappointed in our Q1 delivery results and still have a lot of work to do to restore growth in that important channel. I will also acknowledge that we are not satisfied with the sales or the margin performance in our corporate store business in the first quarter. Our team is fast at work on a comprehensive assessment and recovery plan to restore that business to the leadership role in our US system that we expected to play. Consistent with our communications during our prior earnings call, we faced significant inflationary cost increases across the business in Q1. Those cost pressures combined with the deleveraging from the decline in US same-store sales resulted in earnings falling short of our high expectations for the business. While the quarter was certainly challenged, we also saw the solid foundation of the Domino's brand and business model on display as evidenced by our robust global store growth that continues to demonstrate the strength of the Domino's operating model along with our franchisees' ongoing commitment to investing in growth. During the quarter, we reached another significant milestone with the opening of our 19,000th global store. We have action plans in place that are designed to address the issues in our US business as well as other initiatives that we are developing. But that work will take some time. And we believe that we will continue to face pressure both on the top line for our US business and on our bottom line earnings over the next few quarters. While we remain very optimistic about our ability to drive long-term profitable growth in the near-term 2022 is shaping up to be a challenging year. Now with that as a backdrop, I'll share a few additional observations on the US business, followed by a brief review of our international performance. We have completed our analysis of U.S. franchisee P&Ls from 2021 and are pleased to share that our average estimated 2021, US franchisee store level EBITDA came in at $174,000. With our strong four-wall economics we remain bullish on the long-term unit growth potential in the US. And we maintain our conviction that the US can be an 8,000-plus store market for Domino's. But we believe it may take some time to accelerate the pace of US store growth beyond the current four-quarter run rate, given some of the continued development, supply chain staffing and inflationary headwinds, we expect to continue to see in the quarters ahead. Staffing challenges continued during Q1 resulting in reduced operating hours and other service-related challenges in many stores across the US business. To give you a sense for the magnitude, when we add up all the lost operating hours during the first quarter, US stores were cumulatively closed the equivalent of almost six days across the entire US business. As I shared last quarter, we believe it is instructive to break our US stores into quintiles based on staffing levels relative to an essentially fully staffed store. When we compare sales performance across the quintiles in the first quarter, it gives us a sense for the magnitude of the impact that staffing continues to have on our US business. Looking at Q1 same-store sales, stores in the top 20% those that are essentially or close to fully staffed on average, outperformed stores in the bottom 20%, those that are facing the most significant labor shortages by 12 percentage points. When we look across the US business, we continue to believe that consumer demand for Domino's remains very strong across the country. It is our current capacity to serve that strong demand, particularly for delivery customers that has continued to be our greatest near-term challenge. Now, I'll share a few thoughts specifically about the carryout and delivery businesses. The carryout business was very strong in Q1 with US carryout same-store sales 11.3% positive compared to Q1 2021, driven by both ticket and order growth. On a three-year basis, our carryout same-store sales were up over 24% versus Q1 2019. As of January 31, our $7.99 national carryout offer is now available online only. This supports a balanced approach of bringing value and a great experience to our customers online and is aligned with our goals of growing the digital carryout business and enhancing the profitability of our carryout orders. Online carryout orders generate a higher ticket and require a lower cost to serve than phone carryout orders, in addition to driving digital engagement and the opportunity to add members to our loyalty program. Thus far, we are very pleased with the initial results in our carryout business with positive impacts on order counts, ticket, store-level margins and in particular digital penetration. During the quarter, we began a strategic campaign to support a transition to online carryout for our customers by offering a $3 tip for each online carryout order. This approach also aims to drive repeat purchases as the tip comes in the form of a coupon that the customer can use on their next order, which must be used the week after the initial purchase. Tying back to my comments earlier around the staffing quintiles, it's useful to note that we saw almost no difference in carryout same-store sales performance across the quintiles in the first quarter. We believe the relatively low labor intensity associated with carryout has largely insulated this business from the staffing challenges we see impacting delivery. Turning now to the delivery business. Q1 delivery same-store sales declined by 10.7% relative to Q1, 2021, driven by order count declines offset in part by higher ticket. Looking at the business on a three-year stack, Q1 delivery same-store sales remained almost 6% above Q1 2019 levels. When we look at the same quintiles relative to the delivery business, we see the stark impact that staffing had during the first quarter. We saw a 17 percentage point gap in delivery same-store sales between stores in the top 20% and those in the bottom 20%. It is this disparity in delivery performance that is driving the overall contrast in performance across our US business. The gap between our top performers and our bottom performers has widened over the past year and we are keenly focused on lifting up the underperforming stores. On March 14, we evolved our long-running $5.99 mix-and-match offer for the first time in over 12 years. Our delivery mix-and-match offer is now $6.99 each for any two or more items on the mix-and-match menu. We believe that $6.99 is still a great relative value for our delivery customers, offering variety, great taste and a competitive price, while also reflecting the increased costs inherent in a delivery order. This approach can allow our franchisees to achieve balanced growth across ticket and orders, which is key to driving profitable long-term growth for their businesses. We are also bringing more value to our customers by adding three great products to the mix-and-match menu

Russell Weiner:

Thank you, Sandeep and good morning, everybody. I want to start-off by thanking our franchisees and their teams for continuing to work incredibly hard to serve their communities during the pandemic. Domino's franchisees are the best operators in the business delivering around one out of every three pizzas in this country every day. COVID and Omicron in particular required that they balance this volume with customer service and team member workload. And we were faced with the same situation in many of our corporate stores. While none of us were satisfied with US sales in Q1, I am confident in our ability to get back to the growth levels we and our franchisees expect. As indicated by our carryout performance and the strength of our business in stores that were less constrained by labor shortages, we believe the demand for Domino's remains strong. Our focus now is on addressing the capacity constraints that have impacted our ability to fulfill this demand. Those constraints have led to demand shaping activity across the US business things like reducing store hours, not answering phones and restricting online orders. These bottlenecks are largely in our and our franchisees' control. And as we distance ourselves from the peak of Omicron's impact, we're addressing them together with our franchisees. First, we'll be returning to our core standard operating hours. Knowing the last thing our franchisees want is to be closed, we're working with them closely to return to standard hours. This will be monitored along with online ordering uptime. Second, we have worked with third-party call center providers to facilitate and add capacity that will allow our stores to utilize call centers to take phone orders when necessary. This will allow stores to focus on production and delivery when they're short staffed during peak hours. By the middle of May, we believe between 2,500 and 3,000 stores will be leveraging call centers in some capacity. That number can grow depending on our needs. Our corporate stores will be testing phone center options as part of this process, so we can understand the impact on operations, on store team members, customer service and the P&L. Third boost weeks will return this summer and we expect they will continue moving forward in the cadence similar to our pre-COVID practices. Boost weeks are key to building our business. They drive customer acquisition and grow our loyalty program. Now, while these actions will begin to take effect in Q2, we know from the quintile analysis that stores need to solve for different levels of staffing challenges. So, it will take some time for our entire US system to get back to pre-Omicron levels of staffing. Additionally we're facing two-year same-store sales overlaps of 19.6% in Q2. As such we expect Q2 to be another quarter where same-store sales will continue to be pressured. Next, I'd like to talk about our corporate stores. We are disappointed in the results of that business. As we've said in prior calls, our current mix of corporate stores, they are concentrated in areas more impacted by staffing shortages. That said when adjusting for uncontrollables these stores have underperformed similar stores owned by our franchisees. This has not been the case historically and the gap is being addressed by our leaders of that business. They are already several weeks into operations recovery plan with 30, 60, and 90-day milestones. While corporate stores represent only 2% of our footprint around the world, they remain a critical strategic tool to develop talent and to test and refine innovation and in some instances, to accelerate the growth of an under-penetrated market. We must restore their leadership from a performance perspective. Next, I wanted to talk through staffing and some of our plans to address it as a headwind on our performance this year. First, we're seeing an improvement in delivery service in many Domino's stores. By the end of Q1, delivery service has improved versus the same time last year in 42% of stores. This number improved sequentially in each period during the first quarter. Second, while it may take some time to get to full staffing levels, the majority of our franchisees support the boost week and a return to more aggressive promotions that drive customer acquisition. I believe this is an indication of their confidence that staffing and service will continue to improve. Third, with Omicron interruptions largely behind us we were able to roll out a new service assessment program at the end of the quarter. The service assessment provides each store with its own specific service improvement objectives based on individual results. The service assessment also comes with tools to help stores identify and address where they have opportunities. We really expect this new program to help our franchisees as the year progresses. Finally, as Ritch mentioned during our last call, we are continuing our deep dive on driver labor. A lot in the world of delivery has changed because of the pandemic. And we're thoroughly analyzing what all these shifts mean for our business. We're still doing the work of this important initiative and believe many of the solutions for how we can evolve and improve our driver staffing already exist within our system as is evidenced by the performance of our top quintile stores. That said we're coming at this analysis with an open mind and are exploring all avenues at our disposal. I am excited for what's ahead at Domino's. And I'm honored at the opportunity to lead the continued evolution of this great brand. Together with Sandeep and the rest of our leadership team, we will leverage the learnings from these headwinds we're facing today and we'll use them to become even better. I look forward to talking with you about this in future calls. And with that said I'll send it back to Ritch for some final words.