Q1 2020 Earnings Call
And supply chain hourly team members over a 10 week period from mid March through at least the last pay period in May.
We're also providing enhanced sick pay benefits to our hourly corporate store and supply chain team members through at least the remainder of the year.
The dominoes, we don't want anyone to have to choose between their health and their paycheck.
Now most of you probably are not familiar with the Domino's Pizza Partners Foundation, it's a registered five over one see three there was established to help dominoes team members in need during a time a crisis.
Its mission as summed up in the phrase team members helping team members.
And its primary source of funding is through payroll deduction from corporate and franchisee employees I.
Im very proud to say that our company is making a significant donation to the partners Foundation to help team members at this particular time of need across the globe.
We are grateful as a brand that we're in a position to be able to make these investments and we're very proud of our independent franchise business owners, many of whom are making similar investments in their team members.
Our supply chain centers corporate stores and franchisees are also hiring and have been looking to add more than 10000 employees across the us.
With so many Americans newly unemployed.
We feel privileged to be in a position to offer employment and a career opportunity within the Domino's Pizza system.
We're also committed to supporting the communities around the us where we live and work. We recently launched our feed the need program. This is in partnership with our franchisees to provide 10 million slices of pizza across the us, we're making a significant investment as a brand by supplying the food for this.
Program, while our franchisees in corporate stores are being generous and providing the labor.
We've been powered our franchisees in stores across the country to identify the need specific in their communities.
In some places it school children, who are no longer receiving free or reduce launch and others. Its hospital workers and first responders in some places is essential workers in grocery and retail and many other areas.
This isn't new because domino's is always given back in times of crisis.
This isn't an exception.
While these are some highlights from the US I would be remiss. This morning, if I Didnt also thank our international Master franchisees, many of whom are doing similar things in their markets.
From the UK to India to Australia, and really all over the world. The Dominoes system is stepping up to support our communities.
As a system, we're happy to make these investments in both our teams in our communities and we will continue to search for ways to invest and to feed the need during this crisis.
These investments are expected to be material during the second quarter, Jeff will comment on the financial impact of these investments in just a moment and we will provide more detail to you during our next earnings cycle in July.
So with that I'm going to handed over to Jeff who will walk you through the highlights for the first quarter and some preliminary estimated results from the first two weeks of few weight few weeks excuse me of Q2, and then after that I'll come back and share a few more thoughts with you before we move to Q anyway.
So Jeff over to you.
Thank you rich and good morning again, everyone.
But were off the first quarter financial results as well provide a brief a preliminary financial update for the business for the first few weeks of the second quarter.
Starting with the first quarter results, we continue to lead the broader restaurant industry with 36 straight quarters of positive us comparable sales and 105 consecutive quarters of positive international comps.
We also continue to increase our global store count as we opened 178 gross new stores and 69 net new stores in Q1.
Net net store growth number includes the closure of the 71 stores comprising our south African market during the quarter that was unrelated to covert 19 pandemic.
Our diluted EPS in Q1 was $3.07 an increase of 39.5% over the prior year quarter, primarily resulting from a significantly lower effective tax rate and strong operational results.
With that let's take a closer look at the financial results for Q1.
Global retail sales grew 4.4% as compared to the prior year quarter pressured by a stronger dollar.
When excluding the negative impact of foreign currency global retail sales grew by 5.9%.
This global retail sales growth was driven by both an increase in the average number of stores opened during the quarter and higher same store sales.
Same store sales for the U.S. grew 1.6% lapping a prior year increase of 3.9%.
And same store sales for our international business grew 1.5% rolling over a prior year increase of 1.8%.
Breaking down the U.S. comp our franchise business was up 1.5%, while our company owned stores were up 3.9%.
The U.S. comp this quarter was driven by ticket growth.
We continue to see robust growth in our Carryout business, while our delivery comp for Q1 was slightly negative consistent with previously discussed market dynamics.
Our international comp for the quarter was driven entirely by order growth, we estimate that the international comp for the quarter was negatively impacted by approximately 8.2 appointing a half by the Covance 19 pandemic.
On the unit Count front, we opened 30 net use stores in the first quarter, consisting of 35 store openings and just five closures.
Our International Division added 39, net new stores during Q1 comprised of 143 store openings and 100 foreclosures, including the closure of the 71 stores comprising our South African market.
Turning to revenues total revenues for the first quarter were up 4.4% from the prior year, driven primarily by higher global retail sales.
Which drove higher supply chain and global franchise revenues.
These increases were partially offset by lower company owned store revenues, resulting from the New York store sale in Q2 of 2019.
International royalty revenues were pressured by $1.4 million during the quarter by foreign currency exchange rates.
Moving now to operating margin as a percentage of revenues consolidated operating margin for the quarter increased to 39% from 38.6% in the prior year quarter and was positively impacted by the New York store sale and higher revenues from our global franchise business.
Supply chain and company owned store operating margin percentages were relatively similar year over year.
Gene a expenses decreased approximately $1 million as compared to the prior year quarter. We continue to see the benefit of improved discipline and focus in this important area, while continuing to invest in strategic initiatives throughout our business.
Our reported effective tax rate was negative 3.7% for the quarter down 18.8 percentage points from the prior year quarter.
The reported effective tax rate in the quarter included a 26 percentage point positive impact from tax benefit on equity based compensation.
We do expect to see continued volatility in our effective tax rate related to these tax benefit.
When you add it all up our first quarter net income was up $29 million or 31.2% over the prior year quarter.
Our first quarter diluted EPS was $3.07 versus $2.20 in the prior year, which was a 39.5% increase.
Here is how that 87 cents increase breaks down for the quarter.
Our lower effective tax rate, resulting primarily from higher tax benefits on equity based compensation positively impacted us by 58 cents.
Lower diluted share count, resulting primarily from share repurchases over the past 12 month benefited us by 14 cents.
Higher net interest expense, resulting primarily from higher average debt balances negatively impacted us by eight cents and most importantly, our improved operating results benefited us by 23 cents.
Now turning to cash during the first quarter, we generated net cash provided by operating activities of more than $95 million. After deducting for Capex, we generated free cash flow up almost $78 million, which was pressured by normal balance sheet movement.
During the first quarter, we repurchased and retired approximately 271000 shares for $80 million or about $294 per share on average it's important to note that these repurchases were made during the first week of the first quarter.
All in all of good quarter for the business in Q1.
As we now move away from our Q1 financial discussions.
I'd like to remind folks that we did issue of business update on March Thirtyth, which contain preliminary estimates of selected Q1 information, including comps store growth and global retail sales information.
We also inform the market that due to the uncertainty surrounding global economy, and our business operations, considering coven 19, we withdrew our twentytwenty guidance measures related to Gionee Capex store food basket pricing and the impact of foreign currency on royalty revenues.
We also announced that as a precautionary measure we borrowed the remaining funds available to us under our outstanding variable funding notes to further strengthen our already strong financial position.
I'd like to now switch gears and give a financial update on the business for the first few weeks of the second quarter for which we have available results.
This information contains preliminary unaudited estimates and is being provided to assist our stakeholders with a high level understanding of how the business is performing during these extraordinary times.
In the U.S. business comps were up 7.1% during the first four weeks of Q2.
US retail sales were up 10.7% over the same time period.
Sales trended up significantly over this four week period.
As it relates to use customer behavior. During this crisis. This is what we are generally seeing thus far.
Delivery and carry out mix are holding a relatively steady on average.
Weekday sales have been significantly up while weekend have generally been more pressure.
Lunch and dinner Dayparts are up while late night had been more pressured.
And we are seeing larger order size is throughout the week.
Again. These are initial observations regarding consumer behavior, and we marry experienced volatility in our sales going forward as a result of this dynamic environment.
In our international business comps were down 3.2% during the first three weeks of Q2.
Important to note here that we are only reporting three weeks of international sales information due to the normal reporting lag in that business.
To be very clear the international same store sales comp for the last two weeks of Q1 and the first three weeks of Q2 was negatively impacted by Coven 19.
The negative impact primarily occurred from stores.
That had sales in a week, but were limited due to a service restriction carryout and or delivery and in some markets even dine in restrictions.
Part of the week temporary closure and or a change in store hours.
If a store was closed the entire weak and had zero sales for that we however, it is not included in same store sales definition or results.
Moving on to retail sales for international retail sales, excluding ex FX were down 13.2% over the same time period, reflecting the many stores internationally that have been temporarily closed or have some other operating restriction impacting sales.
Turning now to our franchise partners, we have not provided widespread economic relief to our franchisees globally.
While we acknowledge that this could change depending on the time period that this crisis percentage overall impact on our results. We attribute our current situation to the underlying strength of our business model and the overall economics that are franchise partners have earned alongside of us over the past many years.
The strength and resiliency of the Domino's brand has never been more at hand.
As rich discussed earlier, we're making significant investments and our team members and our communities. During this time of crisis, including frontline bonuses enhanced sick pay policies community, giving in partnership with our franchisees and investments in supply such as faced coverings and gloves.
We anticipate pressure on our Q2 earnings related to these investments of approximately $15 million.
Based on trends, we've seen to date, we also anticipate pressure on our Q2 earnings of an additional approximately $5 million related to lost revenues from our international franchise stores due to those temporary store closures.
These are current estimates and their preliminary and it could very likely change.
We would also be remiss, if we didn't comment on what we're seeing in the FX markets.
If FX rates hold for the remainder of the year, we believe it could be a substantial headwind to twentytwenty cash flows and earnings of approximately $10 million.
This current estimate is preliminary and could very likely change as foreign currency rates continue to fluctuate.
Shifting now to cash and liquidity matters, we currently have more than $325 million and available cash and we note that our ongoing operations have provided positive net cash flow to the business. During this crisis so far.
Out of an abundance of caution we have not repaid amounts on our variable funding notes and that cash is included in the available cash balance I just mentioned.
We continue to invest in our strategic initiatives and we paid our shareholders. Our previously declared dividend on March the Thirtyth.
Additionally earlier this week our board of directors declared a 78 cents per share dividend to be paid on June thirtyth.
Separately, we have not repurchased any shares under our authorized share repurchase program since the first week of January.
As a reminder, we currently have $327 million remaining under our board authorization for future repurchases.
In closing we remain in good shape financially and we will continue to closely monitor all aspects of our business as we operate in these uncertain times.
We will continue to focus on doing the right thing for our team members and our communities today, while ensuring that we not only survive, but our best position to thrive coming out of this crisis tomorrow.
Thank you again for joining the call today, and I'll turn it back over to rich.
Thank you Joe.
I would now like to turn everyone's attention to our focus looking forward.
Ross the globe Dominoes will remain steadfastly focused on the health and safety of our franchisees team members and our customers.
That is always priority one.
We'll also remained focused on execution service and value as we continue to navigate through these headwinds created by cobot 19.
2020 will continue to bring more uncertainty to the restaurant industry than any of us have ever experienced.
And we do not have clear visibility into the duration and magnitude of the impact of this pandemic on our industry or our business.
And continue to assess each on an ongoing basis.
We do expect that the sales impact will continue to vary greatly across the cities in communities.
The us and in our 90 markets around the world.
Given general economic conditions, along with uncertain timing of the infection curve the shelter in place orders business interruptions School and University closings in so many other factors make forecasting sales more difficult than ever.
We do expect to see a significant impact on our store openings. This year as construction and municipal permitting have slowed down dramatically during the crisis, we should have better visibility around unit growth in the months ahead.
So given all of this as noted in this mornings release, we're withdrawing our two to three year outlook for gloop for global retail sales growth use same store sales growth international same store sales growth and global net unit growth.
I want to be clear do not mistake that is a lack of optimism about the domino's brand in our business looking forward I remain very optimistic about the long term growth and success of our brand. There is just too much uncertainty in the current operating and economic environment for us to provide.
And outlook at this time.
In this uncertain environment you can rest assured that we are carefully managing our balance sheet cash flow in all areas of the business to ensure that we're doing what we believe will help us best manage through the near term and as always position ourselves for long term success.
We are committed as a brand and as a system to managing through cobot 19 into emerging even stronger in the future.
I have extraordinary confidence in our franchisees and in our teams around the world. There is simply no group of people that I would rather stand bus side than the approximately 350000 individuals that where the dominoes logo I am proud and I am grateful to serve them each and everyday.
And now Jeff and I'll be happy to take some of your question.
Thank you as a reminder, Apple question.
Bottom line on your Paulista, and which I will question, how key and stressful time limit yourself to one question.
First question comes from Brian Bittner of Oppenheimer and company. Your line is that open.
Hi, good morning, Thanks for the question guys.
I know that Theres, a lot of moving pieces. When we look at short windows on your comps, but your trends to start to queue of clear clearly seen this measurable improvement versus one Q and I. Appreciate the color that you gave Jeff in your prepared remarks on what you're seeing from a daypart perspective et cetera.
But can you unpack. This this recent improvement just a little more for US what do you think has clearly changed recently that's driving the positive impact on your business I know the underlying restaurant industry has gotten a little better over the last several weeks, but I just want to expect there to be a huge factor for you guys. So any additional color.
Our like maybe stimulus impacts or anything else that you can provide on recent trends would be helpful.
Hey, Brian is it's rich. Thanks. Thanks for the question, Yes, I think there are several things.
That we're seeing in recent weeks and again it is a very dynamic situation that we're all living in but certainly I think some of some of the improvement results from the fact that there was a lot of pantry loading that consumers did you know as the as the pandemic really first started to.
Come to us and I think as we've seen in some of our.
Asian markets in particular that were more on the front end of this as time goes forward people start to get a bit tired of of cooking and eating leading the same thing some of the pantry loading that they've they've done.
It starts to bleed down a bit over time I also think.
We and I suspect the rest of the industry probably are seeing some near term impact here from some of the stimulus dollars that have gone out. So there are some factors that I would characterize as being more outside of our control, but then I think that there I think there's some things that are inside of our control and if you've taken a look at what we've done.
As a brand over the course of the last three or four weeks.
We have pivoted very quickly to implement contact was delivery and carry out procedures across our system to to protect our team members and also to give our customers.
Confidence in the experience that they will have with us we pivoted our advertising quite significantly to focus on those important queues, which are very important to customers right now to have a safe and pleasurable.
Food experience for their families. So Brian I think a combination of some factors outside of our control, but I think also some things that that were that we're doing.
Here at Domino's as well.
Thank you rich.
Thank you and our next question comes from Matt difference of Guggenheim. Your line now open.
Thank you, Jeff can you speak a little bit about those charges I guess or the the 15 million in the 5 million I just want to understand how you are coming about with those.
The math would suggest about 1700 stores or so is closer to 15%, but your lower than 10% on that sales and so it is a correct to assume that you're expecting me use to continue to open and not be close to the full quarter and that estimation and then also the $15 million I guess.
Can you just sort of bracket that is the one a better understand that in the new normal that this but these costs wouldn't necessarily be on ongoing quarterly charge that it's mostly frontline stuff in the bonuses.
Not necessarily new investments that are required.
Maybe investors might perceive as a normal.
Yes, Thanks, Matt I hope, you're well and appreciate the question here. The first thing I would just caution everyone on as we don't know what the new normal is going to be.
The information that we shared with you today is its preliminary its estimated.
And it's the best that we can give you are right now, but we wanted to give you our best shot at what we're seeing kind of trying to kind of lives. So I'll break it down and kind of the three big buckets that I talked about during my prepared remarks, the biggest bucket that we expect again, we don't know yet Rowley.
Four weeks into a 12 week order here. So a lot lot buildout to happen in an uncertain environment is a $15 million related to do in the right thing for the safety and well being of our team members our customers in our communities. This is the 10 million slices of Pizza. This is masks and.
In Globs. This is bonus pay for our frontline team members in our stores and in our supply chain centers and it's it's just stop that that we're proud to be able to do.
And it's going to have a pretty significant impact and we're okay with that it's the right thing to deal.
And then kind of get into that to the next bucket, which is the international business has been clearly impacted more on the whole that our singular market up the us business right. It's an average they're 90 markets. There there are lots lots of different things going on but as we look at the first up four weeks in the quarter.
Third quarter, two and knowing that we have again eight weeks to go our best gas is that we're going to take a hair cut of about $5 million in royalties.
It could be higher it could be lower its preliminary but it's super dynamic and that's what we're seeing today.
The last thing we could argue it coveted related or may be indirectly Colgate related but it's just the impact of FX and that one I gave yet at least a preliminary view for the whole year.
$10 million kind of year over year of a bad Guy there again preliminary estimated don't know thats going to be the number but when you add all three of those up it's as we look today, it's a $30 million headwind some of it within our control and we're proud to do some of it kind of happening to us so.
That's the that's the best we can give you right now we'll continue to assess whether we we give any additional business updates between now in July we're not promising anything today, but for sure you'll hear more detailed from us in July and by then I will tell yet and rich I'll tell you exactly what happened for the for 12 week.
Q2.
Excellent. Thank you so much Gallagher alone.
Thank you thanks for the question.
Thank you and our next.
A question comes from Chris Ocull at Stifel. Your line is now open.
Yes, thanks, good morning, guys.
Rich does the company still plan to launch a new product in 2020, and if so as the timing changed at all.
Hey, Chris.
Thanks to the question, Yes, we are still planning to launch new product in 2020, and still anticipating to do that in the summertime.
Obviously.
Managing through a different operating environment today, as we work to make that happen but.
We are still targeting summer for that launch.
Great. Thanks.
Okay.
Thank you and our next question comes from their Synacor Bernstein. Your line is now open.
Hi, Thank you.
Like our up on that business that you are seeing.
And.
Stronger weekday versus weekends I guess my interpretation is that.
We are benefiting on the weekends and people being at home like maybe weekend.
Perhaps lower income there are.
Something of a headline went to spend I was just hoping you could help me contextualize that whether you're seeing anything across different income.
There may be talk about in the past.
Millions of your category to rent income, while it's a little tricky because I know you're limits and the turnaround.
Bakken or nine, but just trying to understand.
It could parse that let Rowley is sort of lower income playing mercy.
Mark Thats sort of stand on smelter in place.
Hey spirits rich thanks for the question, yet where we are still assessing this literally day by day. As these is these patterns continue due in two to evolve quite quite rapidly in new Jeff highlighted some of them.
Higher sales growth during the week, then on the weekends and I think I think a lot of that is driven by the fact that there are more families at home during the week.
Eating together and then on.
By Daypart you know our late night business is down significantly while luncheon lunch and dinner are much better and.
They are just art evening gatherings of people or sporting events to watch and things like that so.
Certainly those are having some impact we haven't seen any discernible patterns across.
Income categories as you asked but interestingly enough order sizes are up significantly and I think thats because more people are at home eating together, but also we're finding dominos and I think some of some of our appears in the restaurant industry are finding.
People are ordering extra food for to have leftovers around also which is a really interesting dynamic in them in the market.
Today.
But it's really early Sarah and one of the things about this.
Cobot 19.
Phenomenon is at least for a period of time, it's I think it's up ending a lot of the patterns that we have historically seen in our business and broadly across the restaurant industry. So we're we're we're watching it every day every minute of everyday and responding in adapting as we go.
Thank you.
Thank you and then next question comes from Alex from Jefferies. Your line open.
Thanks to the question wanted to get your perspective on operations in the restaurants and discuss any potential issues with delays in delivery times are longer carry out turnaround time.
Inventory management stuff like that that has demands likely been a bit less predictable and more volatile.
Sure I am I'm really proud Alex of of.
Our corporate stores and our franchisees, who I think have just done a tremendous job with their operations in responding to this crisis as I mentioned earlier in my prepared remarks, Weve taken 60 years worth of standard operating procedures and we've had to rewrite of good many of them in just the last six weeks.
It was around contact list delivery and carry out no sitting down and dining into in our stores our drive up carry out feature which we've now been rolling out aggressively across the country.
And our franchisees and corporate stores have responded and done a terrific job even despite the more recent.
Increases in in sales they've done a very good job of continuing to provide high levels of safe.
And responsive service out there to our customers.
Thanks.
Thanks for answering that question comes from that.
I was curious your line is now open.
Thank you you guys talked about obviously the near term impact on unit openings. We could you maybe comment on on the pipeline and medium to longer term.
What some of the chaos.
Across the industry means.
For the dominant domestic unit growth rate.
We started here.
Much more favorable terms.
Better site selection and could that potentially mean higher unit growth rate.
Actually domestically in the medium to longer term for you guys.
Yes, Nick so.
On unit growth you're here in the US near term. It really is all about just the slowdown in construction and permitting.
In terms of the near term.
[music].
Slowdown in the opening.
No fundamental changes as we look out over the medium to long term in terms of the appetite.
Franchisees to open stores in the us.
Stores over the medium and long term, we're going to open based on strong unit level economics as as as they always have.
Certainly we are taking a look as we look out through the remainder of the year and into next and trying to assess what incremental opportunities might be available because of some of the changing dynamics you in the real estate market and whether or not that means some sites or may become available that weren't before or also.
Some opportunities potentially around how we think about lease extensions and in rent opportunities.
Going forward it has been a pretty tight real estate market for a while now and we don't know exactly how much that's going to open up but our guess is that it probably does open up a bit as we look out in the medium to long term.
Thank you.
Thank you.
Question comes from tier say SBT hedging your line is now open.
Great. Thanks for taking my question.
I just wanted to ask about I.
Hi, guys landscape right now.
It.
50% or so in the category.
Bye.
And then.
Well you guys.
Take share.
Anecdotally at least that you guys.
Hello.
Arjun.
Pressure on that.
I like your take share or.
The pizza category General.
Fairly healthy.
And then.
Okay.
Across the entire category.
Yes, it is still really early.
You know to tell because we don't we don't know when we take a look across the restaurant landscape. There a lot of restaurants out there that are not open right now and we don't know.
How about how many of those honestly our are temporary and how many of those will turn into permanent.
Closures and I tell you know.
Hi, good a lot of independent restaurants out there. So I think the last thing any of us in the industry want to see is is.
Dependent restaurant closures.
We do here that Domino's, we do believe that we're.
A pretty resilient brand and a timeline because I think the positioning that we have as delivery and carry out player as certainly.
Helped us in the early part of this crisis and I think we'll continue to help us because.
I don't think consumers are going to snap right back to the old patterns and behaviors I think the capability that we're building in contact with delivery and contact was carry out I think are going to continue to be important for many months to come.
When we think about how how this ultimately evolve so.
As we think about the capabilities that we're putting in place today, it's not just to just to be competitive in the next couple of months. It really is to set ourselves up in what they end up being the new normal in our industry.
Thank you very much.
Thank you and our next question comes on line Bilerman of credit, but your line is open.
Hi, Thanks for your question here point that you just made news that contact with delivery will be something that will be available permanently.
Lets delivery chain, the economics of the delivery transaction or productivity.
Thank you.
So.
Yes, more right now contact was delivery is is the only type of delivery that we do in the US we've actually made it mandatory across the across the country and I do think debt.
Even at a point if we if we pull back on that.
And no longer mandated we are still going to offer it to the customer because I think for some extended period of time theres going to be some portion of the customer base that is going to want that contact list contact less experience in delivery and or in the carry out side of the business.
As it relates to the as it relates to the economics.
Around contact list, we have we just rolled out.
An innovation, we call the pizza pedestal, which is a pretty simple.
Cardboard pedestal, so that our delivery experts don't put your pizza directly on the ground or on some other surface that we don't know if it's been cleaned or not.
So there are some minor costs associated with things like that in addition to the actual physical operation of contact list I'm also incredibly proud of our technology innovation teams, who have rapidly moved to bring that contact close experience to the customers.
Handheld device or however, they choose to order from us and that includes some rapid innovation also to make tipping of our delivery experts easier and more prominent in the ordering experience because the last thing that we want to see come out of this is any of our delivery experts to see it.
Decline in income as.
Customers move away from cash transactions and more toward digital and either credit or or debit card transactions.
Great. Thank you.
Thank you and our next question comes from Gregory Chris for a bank of America. Your line is open.
Hey, rich. Thanks. Thanks for the question just personal clarification did you say China is running positively in recent weeks I wasn't clear with.
A description and then.
In the US what do you see any differences regionally or urban versus suburban assets that are standing out in terms of how customers are using the brand or sales trends. Thanks.
Sure bread, so youre on China, we did see pattern early on in the pandemic, we're China sales were pressured but we have seen positive sales in China and improvements in the in the lab latter part of the first quarter and in here into the early.
The weeks of the second quarter and I'm going to tell you I'm incredibly proud.
Of our team in China much of what we're doing across our 17000 store footprint was based on innovations around contact was delivery.
At our team in China.
Brought forward, so really really proud of not only their business performance, but also how they've contributed to our system and then in terms of regional differences. The answer is yes, we've seen all kinds of.
Princes.
It really is based on how this pandemic has moved across the country.
With the pace of that movement and the severity of its impact in different places. If you turn if you turn the news on.
We all see that there are certain places that have been significant hot spots for cobot 19.
We've seen some places peak and start to level out while others ramp up and most certainly those have impacted some of the trends in our business performance in those geographies and it's still as we sit here on the 23rd of April it's still an evolving situation you know in many of the mini the communities that we serve.
There's also some very significant differences as I'm sure you. All are aware just in terms of how states and local municipalities have responded to the crisis and what restrictions.
They have put in place in terms of.
What business can be conducted in.
And what consumers customers can do in terms of travel and other things in those states.
Thank you.
Thank you and our next question comes from David Tarantino Baird. Your line is now open.
Hi, good morning, everyone doing well.
My question Rich is on the international business really kind of two parts to it first is related to how they're managing through are the ones that are seeing large or widespread closures, how they're managing through the.
From a financial perspective and.
Any.
By the strength.
Stress.
I'm related to that and then and then secondly.
And related.
So the outlook for dinner growth internationally with all the.
All the stress that appears occurring in the system.
A moderation.
Yes.
They work through those.
Yes, David.
The first part of your question I think going into this we were really fortunate to be in a place where we've got a significant amount of our international business that is managed by publicly traded master franchisees, who came into this crime.
Basis with very strong.
Financial positions so.
Relative to perhaps some other brands.
Strong ability to weather a crisis like this now that said most certainly when you go into in a country. When you have to in close when you have to close all of your stores are close some some substantial number or even some places as Jeff described our stores are open but with very limited.
Trading hours were very limited service methods. Those do result in significant declines in retail sales for a period of time.
Our our master franchisees are doing all the things that you would expect them to do their prioritizing first and foremost the safety of their team members and their customers, but they're also taking the appropriate steps to manage cash appropriately and to manage make sure that they're being made.
Mindful of the liquidity and they're in their operations.
There are also working really hard to get those stores reopened and we've already seen a couple of large international markets, Spain, and France would be to where we were completely closed for a period of time, but have begun to reopen stores in each of in each of those countries. We're staying very act.
Finally in touch with those international Master franchisees.
And talking with them daily about their about their financial.
Position.
And.
We will continue to do so as we as we work together through the course of this this crisis.
The second part of your question around unit growth most certainly in the near term, we will see an impact on unit growth much as I described in the US where there are construction delays and there are permitting delays the same holds true.
In many of the international markets and then certainly in some of those markets that have been under more pressure, where we've had.
A significant number of store closures or the entire market shuttered certainly that results in some near term slowdown in store growth there, but over the long term I come back to what I always talk about.
With you is that the unit economics will ultimately drive the store growth overtime and as we come out of this cobot 19.
Crisis.
No.
Which I believe we will do with a very healthy brand around the world. My expectation is that we still have a significant opportunity to grow our brand footprint across the globe. As you know we've got a lot of share growth opportunity outside the us that way.
We've got well capitalized and well managed master franchisees, who are going to be eager to get back after that as this subsides.
Thank you and our next question concern James rather for Stephen and company Your line open.
Yes. Thanks for taking the question just one for me I'm curious, Jeff if you can share how much of the us sales mix prior to cope with 19 was related to large group orders for parties event meetings in the light can I ask that.
But assume those occasions have gone down dramatically, which makes the improvement in Europe.
Other kinds of orders more impressive to drive that 7% comp here in the first four weeks second quarter.
Yeah, Jim Thanks for the question.
We were trying to be as transparent as we can can and I've given you guys a peek into the consumer behavior at least during the first four weeks of Q2 here, but.
Again, thank our anymore.
Fancy than kind of we laid it out already you can imagine that people that used to get around television to watch your favorite sporting event those orders aren't there.
If you are ordering in your sheltered in home with your family those orders are larger because you might be looking for some leftovers for the next couple of days.
If you hadn't occasion that you'd buy pizza for the folks that you work with an office building those occasions are gone. So it it really is no more.
Complicated than that although I will still tell yet it is early in this crisis, we just don't now.
How that consumer behavior.
I will ebb and flow as as we continue through that and get out of it but what I can tell yet as rich just alluded to is we believe that the global pizza industry is super resilient people are going to Lani pizza.
Before during and after this crisis and there's no one better positioned.
Our franchise partners around the world hopefully fill that demand than we do so we'll be there for all the occasions, we'll we'll continue to more for standard operating procedures as rich talked about to make sure that we give the consumers what they want now and in the future again being vertically integrated and Tac having real enough.
Business partners around the world give us a huge advantage versus a lot of the other competitors in the industry. So we feel like if anybody can get it done we can get it done and we're going to continue to put.
Our customers first our team member safe and all.
And all that we deal.
Okay. Thank you.
And our next question comes from John Glass and Morgan Stanley Your line open.
Thanks very much.
How many of the customer visits you're seeing recently are coming from new customers are lapsed users.
What are you doing to maybe capitalize on that opportunity to get new customers are you in sending them to set up in the loyalty program in a different way and maybe any metrics around that loyalty growth. During this period of time would be helpful. Thanks.
Sure John.
We absolutely are seeing.
An uptick in new customers and I'll talk about it on a couple of dimension in Chicago.
I am sure that we are seeing some folks trying this for the first time are trying us again, just given the availability of.
Of restaurants in food types out there, we're getting we're getting a shot with some customers that maybe werent doing business with us before.
Also what we're seeing is we're getting new.
Digital customers as well the digital percentage of our business has ticked up pretty significantly you know in the in the last several weeks I think our reported to you.
For the fourth quarter, we touched 70% digital in recent weeks were running 75% and we've had.
At least one week, where we were over 80% digital. So that's also another another benefit we're seeing is that customers are coming to that digital channel as we go into this contact was space that we're in and we're absolutely actively.
Working to for that we got to the first order from that customer to get the second digital order and for those customers that are ordering digitally actively working to migrate them to our a piece of the pie rewards loyalty platform as well so it's still early John but.
Certainly we're seeing some some opportunities with customers.
That.
We didnt have you know in the in the previous couple of months, leading up to cope with 19.
Thank you.
Thank you.
So Chris RBC capital markets. Your line is now open.
Hi, Thanks for taking the question I wanted to ask about Aggregators and specifically any updated thoughts on how the current environment will shift the competitive dynamically delivery. So with the rising demand for off premise here is there any more opportunity for dominoes to highlighted some value fuzzy.
And then especially in the mortgage.
Pressured macro environment.
Sure Chris well one thing I can tell you is in the current environment, we're operating in.
I'm so glad that we are not on these aggregator platforms is dominoes.
When I think about what matters to our customers.
The trust in knowing how that food, where it was prepared and who delivered it to them. It's certainly comforts me to know that is our uniformed and trained dominoes delivery experts that are bringing the food to the door in a time like this.
I'm also very glad that were that we've made the decision over time to continue to own that customer relationship on the front end, particularly now that we're talking about 70 run rate of 75% plus digital we think even more than ever that it is critical for us to continue to own that.
Digital relationship with the customers.
As well.
That said certainly in the current environment with virtually all restaurants closed to dine in there are lots and lots of customers that are trying delivery for the first time and many of them through the aggregators. So this is going to be a very dynamic environment as we look over.
The months ahead, and ultimately to two to all learn what ultimately sticks in terms of these changes in customer behavior. Because my guess is customers don't immediately go back to what they were doing before in that environment, we're staying focused on the things that.
We know are so important to the business for the long term on value staying very focused on value.
Staying committed to our.
Our delivery in our carry out value offers we're also remaining very focused on service one of the things that is happening right now across the dominoes US business is the very very aggressive hiring of additional delivery experts the labor market has been incredibly tight for a couple of years.
As that has loosened up you know in reset.
Weeks, we've just just sets.
Announcing our effort to higher 10000 team members in the US our corporate store business is higher 2500 people in that limited period of time and that is really a key element of how we continue to provide great service to our customers. During this time and then you're saying.
Out on the forefront of.
Safety through all of these contact was method through the enhanced.
Colin cleaning of our stores.
We've changed from operational audits to safety awareness visits during this time. So we believe all of those actions will continue to position us well as we move forward.
Through this crisis it into the into the time period beyond.
Great. Thank you.
Thanks, and our next question comes from Catherine Finality.
Goldman Sachs Your line Okay.
Great. Thank you.
The question and then if you can comment you mentioned a little bit of that.
Good day delivery I expect hiring.
If you could get a number of how many local system has hired and if you've seen any change in turnover either positive or negative.
The story, given the current environment and on that point wanting to get your thought.
How you view.
You will benefit package and you might even player driver.
Advantage GTV aggregators.
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Sure case, so you know on the on the 10000 folk that we're trying to hire across the system.
We don't have.
Perfect visibility into our franchisee hiring because that really is.
Their job that those their team members to higher end to end to train, but what I can tell you from the conversations that we have is that the applicant volume has increased significantly.
Since we began that effort and.
Unfortunately.
We just saw the another four to 5 million.
File for unemployment. This morning. Unfortunately, there are lot of people out there that are out of work right now.
And I am I'm certain that is contributing to the increased applicant flow.
Thats coming in into our stores.
As I think about what our value proposition is relative to someone working in the gig economy.
I think now in an environment, where so many people are losing their jobs.
Having a set schedule and having a a a job getting a W. Two from from Domino's or from one to dominoes franchisees I think is probably valued probably more than than it has been in quite a long time.
We've tried to make a very strong commitment to.
Our corporate store team members, that's drivers that everybody in the store with enhanced bonuses.
Over a 10 week period as folks work through this crisis, we've been have enhanced our sick pay benefits during that time as well.
Well. So we're also looking for opportunities here in the near term, but then also over the long term to continue to make that.
Barry.
You know attractive employment opportunity and then finally, we've talked about it so many times.
Well over 90% of our US franchisees started off as delivery drivers or folks working inside the stores and thats a career opportunity that is out there that just isn't available in the economy, but yes.
My question around 10 or are you seeing turnover.
Yes.
At or go down.
Great independent and the company's right yes.
Yes, Katy we have we haven't seen any.
Major shifts and turnover, it's still a really short.
Short period of uptime that we've been in this crisis. So we'll probably no more in the months ahead as things continue to unfold there.
Okay.
Thank you thanks.
Thank you.
Enhance often south of Longbow Research. Your line is now open.
Thank you.
Most of course seven ask but.
Just a follow up on last couple of your answers rich is there an opportunity.
Labour cost structure savings here, given the fact that they're obviously to your point are an awful lot of people, especially in Russia industry that are looking for we're currently.
Opportunity potentially for you guys Android franchisees to bring to average cost.
A little bit on labor front.
Hey, all that rich, we're going to ask you to your line was breaking up a little bit if you could just slow down just a little bit and repeat that question. We just want to make sure I think Jeff and I heard about 60% of it.
Okay, sorry about that I was just asking if there's an opportunity.
Hi, labor cost front to save money, given the fact that they're obviously, our audit people to your point, especially in the restaurant industry that are looking for work currently.
Yes. Thanks, Thanks, repeating that you know.
I want to be very very clear, we want to be very clear that this crisis is not a time to lower the rates that we pay our valuable team members and we don't think that way our franchisees don't think that way if anything we want to employ more people and as rich mentioned, we're paying bonuses were paying a more so.
On the finance Guy I would think about efficiencies and things like that but right. Now you know quite frankly, it's not about that for us it's about.
Continuing to run as an essential service taken are very seriously.
Hiring more people paying them more actually right now given people more jobs, that's really what we're focused on.
We're proud of our the small role that were planned keeping people employed and fad and.
We'll leave it for another data to get efficient on any kind of labor rate stuff.
Got it makes sense. Thanks.
Thank you and our next question comes from John.
People are going on is now open.
And John.
In line.
Thank you.
And again, our next question comes from John I think JP Morgan.
Our next question comes from Jon Taylor of Wells Fargo. Your line is now open.
Great Hope, we can hear me okay.
Just a couple of quick ones from me.
AD budgets are down across the restaurant space as a whole, but also all the advertising dollars seem to be pivoting towards that off premise or delivery channel. So can you talk about.
How how you're managing through communicating with consumers that your value there that.
Frankly, breaking through to consumers and the time when everybody seems to be focused on this one channel and then get pivoting TV.
The unit Us unit growth.
I'm curious if you could talk about.
You mentioned the health of the franchise really very strong coming into this crisis.
And we're taking a pause right now but is there any reason to believe that you can't rent growth faster on the backend, particularly rents are going to be lower and or you see some.
Yeah independent store closures at the end of this full crisis. Thank you.
Hey, Thanks, John.
On your first question around around the advertising spit out there in the market.
No.
We look we look at a couple of things around that as we think about one is we view it absolutely as it's time to continue to lead in hard on on getting our voice out there. So we're not pulling back one bit on advertising during this and frankly one of the things as you look broad.
Thirdly across not just restaurants, but across all of the folks out there has been a lot of money on advertising, yes, theres been a heavy demand out there for a lot of the same customers that we want to reach and therefore GRP delivery has been a little spotty out there in the in the marketplace over the course the last couple of years, we expect that we may see some.
Benefit in that and just getting the full delivery of the GRP that we want to buy anyway.
Then as it relates to share share of voice within the category. Most certainly all of the spend out there as you know wallet some of its come down overall it really is focused on this on the of the delivery channel. We've just got to continue.
To invest against it we've got to continue to talk about value to talk about service to talk about safely serving our customers and I'm really proud of our advertising team I mean, they have pivoted. So quickly and you look back over the last six weeks or so they produced about an add a week.
Ed normally we go through a much more prolonged cycle to produce advertising. So we're trying to stay very.
Mobile.
And we just got a terrific team that is thats, making that happen for.
And then your second part of your question was around US unit growth. We're certainly assessing what the back ended the crisis opportunity might be ultimately as I talk about all the time unit gross going to be driven by.
The cash on cash returns at the unit level and how our franchisees view.
Economics, I can tell you that for our corporate store business I would love to accelerate and go even faster and if there are opportunities to do that we are we are we're most certainly going to.
Great. Thank you very much.
Thank you.
The conference are I think how I'm thinking Morgan. Your line is that open hi, Greg can you hear me.
We can John Alright excellent. Thank you for that Okay. First a clarification and then a follow up on a nothing we've been talking about first you mentioned increased transaction size a number of different times.
You can you comment on same store transactions and delivery same store transactions and carry out I mean, it's it does sound like we got some outsized ticket gain just wanted to see what was happening in terms of transaction count.
Yeah, John So again very early very dynamic, but as we look as we look at period for.
The increase that we reported the seven 7.1 for the entire U.S. system. That's more ticket certainly that it was orders, but the important thing to remember here in this new environment is that the ticket part of the overall comp includes way more food now in the same order. So when you think about it.
Order used to be an order will now an order is kind of kind of more than in order because people are people looking to put some stuff in there zip lot bag. So again, it's early we're giving you as much as we can trying to be as as transparent as we can.
But its larger orders is what we're seeing so far.
We're happy to get that Tianna in a safe contact was way.
Yes, definitely and it would make sense to amortize them some delivery fees as well so it.
Makes sense from many different perspectives and then secondly, we have I.
I guess the economic.
Situation that many of US would have never anticipated, where a number of people will make more money on unemployment for four months being at home than they would actually working in a lot of different cases I wanted to.
Assets from you from two perspectives one.
If you are seeing kind of a pick up from a consumer perspective, and maybe that the other type of consumer that would be.
Benefiting economically from a weekly basis of they basically not working versus working and then secondly, if theres a way to comment on it appropriately has influenced or do you think it might influence on the margin your ability to attract employees that.
What you might offer them you might not be equivalent to their say plus federal unemployment benefits.
Hey, John it's rich.
On the first part of the question really too early and would be hard to tell I suspect that.
The stimulus you know that was just released out there is probably having more impact than the unemployment.
Benefits, thus far that you just described in terms of money going into consumers pockets, which they could they could choose to spend with us or or with others and then.
The second part of your question around does it does it make it harder to hire to hire folks we tried to lead into that a bit as as we mentioned.
A couple of times earlier for 10 weeks at our corporate stores and in our supply chain business.
We got.
Bonuses for our hourly team members also for our first store managers.
As well.
We've done that first and foremost to say thank you to them for.
Continuing to serve our customers in what is a relatively crazy time, but also we recognized that we've got to continue to earn their loyalty.
To work for us as there are other alternatives potentially out there as you described so.
Haven Havent seen.
Any any pullback there and as I mentioned earlier, we've actually seen a very significant increase in applicant flow.
Because even with those near term unemployment benefits I think a lot of folks are looking beyond that and.
Into August and September the months beyond the exploration to those benefits and.
I think what to make sure that they've got a job.
When they get to that point in time it it definitely makes sense enrich and maybe as a couple of quarters go maybe the second quarter of 19, we talked about.
Every service times and just overall delivery metrics I think you touched on in a number of different times this call, but on an apples to apples basis, where we had in terms of delivery delivery metrics. At this point your time in town time. The household order accuracy, just let's say your things or are not necessarily health and safety related but just the car that you will see.
Cash and core of the way you guys used to measure yourself.
Sure sure so.
Yes, John is that as I've mentioned before we Didnt get a lot better from 17 to 19 on delivery times, but it started to see some improvement there, particularly I'm really proud of our corporate store business, where we've seen a good bit of improvement with a lot of focus around delivery times and.
Look we've got some franchisees out there that are averaging every week under 20 minutes delivery time. So there are a lot of really strong proof points out there across our system.
The data like the data in every other aspects of our business can be pretty choppy here with the in this cobot 19 time and a lot of that gets driven by the fact that we see these shifts across the days and across day parts.
A lot of our franchisees are still working really hard to figure out those new patterns and make sure. We've got delivery driver schedules balanced appropriately against them. So.
What I can't tell you. The system is very focused on service, we're making some improvements there and.
We are.
Bringing safety to the forefront.
Does not also does not does not mean that were not also focused on those service times, because we do know thats going to be a critical way that we will continue to grow our business and compete against the Aggregators.
Thank you and then question concerns Jaffray from Barclays. Your line open.
Great. Thank you very much.
Rich talked about your prepared remarks, the independence and the existential crisis.
Industry is facing.
And then obviously in the impact of the future. So seems like you would have good insights into more the independent side of things in each of your franchisees in many ways as more of a mom and pop.
Your consequently solidly positive I'm just wondering how do you think about the independence.
Survival with comps down significantly whether it's within pizza or just thinking more broadly as a restaurant CEO the ability for them to keep their doors open for an extended period and kind of survival, whether that would help the industry supply demand imbalance that people have been talking about for years any thoughts on how the broader industry and the independents ability to survive would be great.
Yes, Jeff.
Yes, I'll stay fairly brief you on that restaurant businesses tough business and there are a lot of restaurants out there that we're struggling even before this crisis got here you know as labor rates of income.
Creased significantly across the across the country and so I think.
There is there's a there's a lot of pain in the industry right now as folks.
A number of independence came into it not particularly strong going in but now being faced with this existential crisis. So.
Certainly you know as.
As someone has been in the restaurant industry for a long time at someone who loves to eat out I sure hope.
Independence survive.
Because the I think all of us he'll want to be able to.
Go to an independent restaurant.
Want to be able to go to a domino's pizza, we want to be able to go to an independent restaurant as well.
Thank you and our next question comes from Andrew trials of Cowen. Your line is now open.
Great. Thanks, most my questions have been asked but rich I totally understand the fluidity of upcoming development that leads you to stem. The two to three your outlook, but just to be clear is the target for 25000 global locations by 2025 still on the table just given your continued optimism on the long term and the potential for the new developments, we made up kind of past the next two to three years.
Yes.
Yes, Andrew. Thank you. Thank you for asking that question absolutely.
Still have great optimism around our 25000 store target the brand.
Came into this crisis in a very healthy place with strong growth momentum, we're going to work our way through this but I still have a ton of optimism about the long term health the growth of Domino's pizza.
Thank you and ladies and gentlemen that cleaner question answer session I would now like turn the call that there was a rich Allison for any closing remarks.
Thank you it listen thanks, everyone for joining us on the call. This morning, you know, it's an incredibly dynamic time, when our business and across the industry, but if I could leave you with one thing. This morning it is that.
Our management team and our franchisees at Domino's Pizza have a great deal of optimism around the future of our brand one of the things that I've had a front row seat to.
For the last six weeks or so is the incredible resiliency the incredible innovative spirit.
The hustle the passion of our Domino's pizza franchisees and team members around the world. So while a difficult time for all of US I sit here today never more optimistic about this great brands.
So again I appreciate you being with us.
And Jeff and I look forward to speaking with you in July as we will then discuss our second quarter 2020 results.
Ladies and gentlemen that concludes today's conference Paul. Thank you participating you may now disconnect.
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