Q4 2020 Domino's Pizza Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Domino's Pizza incorporated fourth quarter year end, 'twenty and 'twenty earnings webcast.
Time, all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your touch tone telephone and.
This conference call is being recorded.
I would now like to try the conference over to your host Speaker at Queens, Brandon Director of Investor Relations for Levy. Please go ahead.
I appreciate at Nora and good morning, everyone. Thank you for joining us for our conversation today regarding the results of our fourth quarter and full year 2020.
Today's call will feature commentary from Chief Executive Officer, Ritch, Allison and Chief financial officers to Levy.
As of 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 apply 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 forecasts and 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.
And our requests to our coverage analysts we as always wanted to do our best to accommodate all of you today. So we encourage you to ask only one one part question on this call. If you would please thank you.
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 Financial Officer Stu Levy.
Thanks, Chris and good morning, everyone.
We're excited to discuss our fourth quarter and annual results with you today.
Overall, we had a very strong Q4 and full year 'twenty and 'twenty. Despite the ongoing global challenges presented by COVID-19.
Before we jump into the numbers I would first like to remind everyone. Once again that our fourth quarter included an extra week. This year, which also included new year's Eve and New year's day, both of which are typically major sales days, we have an extra week and our fiscal year every five or six years, depending on how the calendar falls.
Typically our fiscal year consists of 312 week quarters, and the 16 week fourth quarter, but in 'twenty and 'twenty. Our fourth quarter consisted of 17 weeks and the earnings release, we filed this morning. The impact of this additional week has been adjusted out of our 'twenty and 'twenty results as an item affecting comparability for.
The next time and this will happen is in 'twenty and 'twenty six.
Turning to our results.
Overall, our team members and franchisees around the world generated strong operating results leading to a diluted EPS of $3 85 for Q4 and $12 39 for the full year R.
Our diluted EPS as adjusted for the extra week and our fiscal year was $3.46 for Q4 and $12.01 for the full year, here's some additional detail on the components of our earnings.
And Q4 global retail sales grew 21, 7% as compared to Q4 2019.
As a reminder, global retail sales growth includes both comp growth and unit growth, which I'll break down for you and a moment.
Our global retail sales in Q4 were benefited by the extra week and also by a weaker dollar.
And excluding the extra week and the positive impact of foreign currency global retail sales grew 12%.
For the full year, our global retail sales grew 12, 5% when excluding the extra week and the negative impact of foreign currency global retail sales grew 10, 4%.
Breaking down our global retail sales growth our U S. Retail sales grew 22, 8% during Q4 and 17, 6% for the full year.
When excluding the extra week U S. Retail sales grew 14, 3% and Q4 and 15% for the full year.
Our international retail sales grew 27% during Q4 and seven five per cent for the full year.
When excluding the extra week and the impact of foreign currency International retail sales grew nine 9% for Q4 and five 9% for the full year.
During Q4, we continued to see positive momentum and our international business, including a reduction and temporary store closures and the other operating restrictions, which contributed to sequentially stronger same store sales performance and an increase and net units, which I'll discuss in more detail momentarily.
Turning to comps.
During Q4, we continued to lead the broader restaurant industry with 39 straight quarters of positive U S comparable sales and 108 consecutive quarters or 27 years of positive international comps both truly remarkable achievements at <unk>.
Same store sales and the U S grew 11, 2% and the quarter lapping of prior year increase of $3 four per cent and.
And same store sales for our international business grew seven 3% rolling over of prior year increase of one 7% as a reminder, our same store sales growth is not affected by the extra week.
Breaking down the U S comp our franchise business increased 11, 4% in the quarter, while our company owned stores were up eight 1%.
The U S comp this quarter was driven by a healthy mix of both ticket and order growth within that mix. Our ticket growth was driven by an increase in items per order and the higher delivery mix, which often comes with an associated transparent delivery fee.
The seven 3% international comp was driven by ticket growth similar to in our U S business that ticket growth was driven by both a higher item count and the higher delivery mix.
Shifting to unit count.
We and our franchisees added 116 net stores and the U S. During the fourth quarter, consisting of 118 store openings and two closures.
For the full year, we and our franchisees opened 229 net U S stores.
And our international business added 272 net stores during Q4 comprised of 328 store openings and 56 closures.
For the full year, we added 395 net international stores.
In total, we and our franchisees opened and 624 stores globally and 2021.
We're very pleased with our ability to continue to grow units during the pandemic and particularly encouraged by our strong growth in Q4. However, we do still face some challenges opening stores and certain markets, including delays in construction and permitting which we will continue to monitor moving forward.
Regarding revenues and operating margins.
Total revenues for the fourth quarter were $1 4 billion and were up $206 million or 17, 9% from the prior year quarter.
Total revenues for the year were $4 1 billion and were up 499 million or 13, 8% from prior year.
The extra week increased revenues by an estimated $88 million. The remaining increase was driven by higher global retail sales, which in turn drove higher revenues across all areas of our business.
Changes in foreign currency exchange rates positively impacted our international royalty revenues by point $4 million and Q4 as compared to Q4, 2019 and negatively impacted our royalty revenues by $3 9 million for the full year as compared to 2019.
Our consolidated operating margin as a percentage of revenues increased to 39, 5% from 38, 9% and Q4 2019, due primarily to higher revenues from our U S franchise business, partially offset by investments made related to the COVID-19 pandemic.
Company owned store margin as a percentage of revenue decreased to 21, 9% from 24, 4% in Q4, 2019 and was negatively impacted by higher COVID-19 related labor costs as.
As we announced in December of 'twenty, and 'twenty, we paid the special bonus to our frontline workers to thank them for their contributions throughout the pandemic.
Supply chain operating margin as a percentage of revenue increased to 11, 6% from 11, 1% and Q4 2019, driven by operating efficiencies and reduce fuel expenses.
G&A expenses increased approximately $19 million and Q4, 'twenty and 'twenty as compared to Q4 2019 for the full year, our G&A was 407 million and increase of approximately $24 million as compared to prior year.
We estimate that $6 million of these expenses were incurred as a result of the extra week this year the.
The remaining increase primarily related to higher variable performance based compensation expense and professional fees and was partially offset by lower travel expenses.
Net interest expense increased approximately 8 million and the quarter as compared to Q4 2019.
We estimate that $3 million of this increase was driven by the extra week this year.
The remaining increase was driven by a higher weighted average debt balance, resulting from our 2019 recapitalization transaction and was partially offset by a lower weighted average borrowing rate our weighted average borrowing rate decreased at three 9% from 4.0% and Q4 2019 due to the lower interest rates on the debt outstanding and Q4.
'twenty and 'twenty as compared to Q4 2019.
Our reported effective tax rate was 19, 9% for the quarter as compared to 17, 8% and Q4 2019.
The reported effective tax rate in Q4, 'twenty and 'twenty included a 1.8 percentage point positive impact from tax benefits on equity based compensation as compared to a three nine percentage point positive impact in Q4 2019.
We expect to see continued volatility and our effective tax rate related to these equity based compensation tax benefits.
When you combine all of these elements our fourth quarter net income was up $22 6 million or 17, 5% over Q4 2019 for the full year. Our net income was up $90 6 million or 22, 6% over 2019.
We estimate that the 50 <unk> week positively impacted net income by $15 million in the fourth quarter and for the full year due to the additional week of sales and the associated operating leverage which is included as an item affecting comparability and our earnings release.
Our diluted EPS in Q4 was $3 85 versus $3.12 and the prior year and increase of 23, 4%.
Our diluted EPS as adjusted in Q4 was $3.46 versus diluted EPS as adjusted of $3.13 in Q4, 2019 and increase of 10, 5%.
Breaking down that 33 cent increase a bit most notably our improved operating results benefited us by 34 cents.
Our lower diluted share count driven by share repurchases during 2020 benefited us by <unk> 16 I'll.
And I'll provide more detail on share repurchases in a moment.
Higher net interest expense, resulting primarily from the higher average debt balances I mentioned earlier negatively impacted us by 10 cents.
And finally, our higher effective tax rate, resulting primarily from lower tax benefits on equity based compensation as I mentioned previously negatively impacted us by seven cents.
For the full year, our diluted EPS was $12 39 versus $9.56 and the prior year and increase of 29, 6%.
Our diluted EPS as adjusted for the full year was $12.01 versus diluted EPS as adjusted of $9 57, and 2019 and increase of $25 five per cent.
Shifting to cash.
Our economic model remains strong and it continues to generate significant free cash flow throughout the quarter.
During full year, 'twenty and 'twenty, we generated net cash provided by operating at operating activities of approximately $593 million. After deducting for Capex, we generated free cash flow of approximately $504 million.
Regarding our capital expenditures, we spent approximately 89 million on Capex in 'twenty and 'twenty, primarily on our supply chain centers and technology initiatives.
During Q4, we also repurchased and retired approximately 568000 shares for $225 million were $3 96 per share on average, bringing our 'twenty and 'twenty total repurchases to $305 million.
Subsequently, we've also repurchased an incremental 66000 shares for $25 million year to date and Q1 2021.
Related to our repurchases were also pleased to announce that as you saw in this morning's earnings release, our board of Directors has approved a new $1 billion share repurchase program, which has replaced the remaining authorization under our existing program.
Additionally, during Q4, we returned $61 million store shareholders in the form of 278 cent quarterly dividend payments and bringing our 'twenty and 'twenty total dividend payments to $122 million.
As we move into 'twenty and 'twenty, one and we're excited to announce that our board of directors has declared a quarterly dividend of 94 cents per share to be paid on March 30th and increase of 21% over the previous quarter's dividend.
When you add the share repurchases and quarterly dividends. The cumulative impact is that we returned more than $425 million to shareholders in 'twenty and 'twenty.
Before wrapping up the financial update I'd like to walk you through the impact of the COVID-19 pandemic on our Q4 results as we have done in previous quarters.
During Q for the estimated total impact from safety and cleaning equipment enhanced sick pay and other compensation for our team members and support for our franchisees and our communities was $7 million.
Yeah.
As we look ahead, we would like to remind you of the 2021 outlook items that we communicated in mid January as well as provide you with the longer range outlook.
We currently project at the store food basket within our U S system will be up two and a half to three 5% as compared to 'twenty and 'twenty levels, and we do expect some volatility around that range quarter to quarter.
We estimate that foreign currency could have a $4 million to $8 million positive impact on royalty revenues in 'twenty and 'twenty, one as compared to 2020.
We anticipate our gross our gross capex investments to be approximately $100 million as we continue to invest and strategically growing our business, including and technology innovation and new stores and supply chain capacity.
We expect our G&A expense to be and the range of 415 of 425 million keep in mind that G&A expense can vary up or down depending on among other things our performance versus our plan as that affects variable performance based compensation expense as well as other areas such as corporate store advertising.
In addition, and this morning's earnings release, we also announced our two to three year outlook of 6% to 10% global retail sales growth, excluding foreign currency impact and 6% to 8% global net unit growth.
We anticipate providing additional outlook measures if and when we have at the appropriate visibility into the broader environment such that it would be meaningful for the investment community.
And closing our business continued its strong performance during the fourth quarter and for the year and we remain at very good shape financially. Obviously, we will continue to closely monitor all aspects of our business operations given these uncertain times.
And finally as I intend to do and each of these calls I want to take a minute to thank our incredible team members and franchisees around the world. They are the reason our brand is able to generate these results. Thank.
Thank you again for joining the call. This at today and I'll now turn it over to rich.
Thanks, Sue and thanks to all of you for joining us on the call. This morning.
2020 was a milestone year for us at Domino's as our 60 at year end business and it certainly was a year like no other.
We and our franchisees entered the year with great optimism and solid plans to continue to grow the Domino's brand around the world as COVID-19 swept across the globe, we were forced to adapt quickly to a new and more challenging operating environment.
As we continue to deal with the pandemic. We were also confronted with profound issues around social justice that could not be ignored.
Throughout the year my team and I lead with our values and we stayed focused on our core stakeholders.
Those are our customers our team members.
Our franchisees.
Our communities.
And our shareholders.
And despite the many challenges our franchisees and team members rose to the occasion and delivered exceptional results during 2020.
I am so grateful for the hundreds of thousands of committed people around the world who wear of the Domino's logo every day the year like no. Other really brought out of the strength and determination that makes the domino's culture. So unique.
Now I'd like to do a few things on the call. This morning, I'll share some reflections on our performance during the quarter, but I'll focus most of my commentary on 'twenty and 'twenty in total across both our U S and our international businesses.
And I'll discuss some of the things we are focused on as we look forward into 'twenty and 'twenty, one and beyond and then following that as always we'll take some Q&A so with that as a roadmap for the morning, let's get started with our U S business.
Over the past 60 years, we've worked very hard to earn the trust of our customers built on our commitment to high quality products service and image along with our industry leading value.
In 2020 of that foundation of trust was as critical as ever.
This trust allowed us to connect with our customers and unique ways and to communicate and to execute a safe quality delivery experience for them and their families.
We never took their trust lightly and through innovation, such as contactless delivery and Domino's car side delivery. We remained focused on ensuring that our customers felt as confident and safe as ever and when they ordered from Domino's.
We gave our customers more options and expanding our menu with three new product launches and the back half of 'twenty and 'twenty.
Our new wings and sources have been enthusiastically embraced by our customers and our new cheeseburger and chicken Taco pizzas are now of among our best selling specialty pizzas.
Now the innovation wasn't just limited to our delivery options are menu in 'twenty and 'twenty. We also delivered a number of operations and technology innovations to our stores. Those included our GPS driver tracking our enhanced make line and cut table technology.
And tools.
And our AI enabled forecasting to better match demand with capacity and our stores.
These innovations are all designed to increase speed accuracy and efficiency, allowing us to continue to better serve our customers.
We along with our franchisees also remained dedicated and disciplined on the value we're known for when our customers really needed at the most of our core 599, and 799 platforms had been a reliable and important part of the Domino's brand experience for many years.
While we certainly brought new customers into the brand over the last year. The story of 'twenty and 'twenty was more about the frequency and loyalty of our existing customer base, our customers ordered more often and when they did they also ordered more items and we saw that specifically among our loyalty program members.
We now have over 27 million 27 million active members and our piece of the pie rewards loyalty program, notably we achieved continued year over year growth and our loyalty program without running any of our more aggressive weeklong promotions during the last three quarters of two.
'twenty and 'twenty.
Now despite the challenges associated with construction and permitting during the pandemic store growth was once again, a significant driver for us of growth in the U S. We and our franchisees, both new and existing continue to invest and our businesses, resulting in 229 net.
Net new stores for the year at.
If you look back over the last five years, we've opened nearly 1200, new stores and the U S and we have closed fewer than 80 over the last five years.
We continue to invest and our supply chain business to support the growth of our franchisees opening two new U S centers in 2020 on time and on budget and that's despite the challenges presented by the COVID-19 pandemic.
We opened and Columbia, South Carolina and March we opened in Katy Texas in December.
And in September we also added a thin crust production line to our existing supply chain Center and Edison New Jersey.
We also invested and the safety and wellbeing of our frontline corporate store and supply chain team members throughout 2020.
We invested in equipment and processes designed to ensure their safety and and enhanced sick pay and and benefits and enhanced hourly wages recognizing the unique challenges of working during the pandemic, including the nearly $10 million.
And bonuses that we paid to our corporate store and supply chain team members and the month of December.
And we invest in our and our communities throughout 2020 partnering with our franchisees to donate 10 million slices to first responders frontline workers and families and need responding the natural disasters by getting food to people in need and launched.
Launching at National hiring campaign to provide 30000 jobs to workers, who may have been displaced from theirs.
Committing $3 million to support black communities, and the U S, including $1 million to establish the Domino's Black franchisee opportunity fund.
And partnering with our franchisees to raise $100 million over the next 10 years for St. Jude Children's Research Hospital.
We and our franchisees raised $13 million for St. Jude in 'twenty and 'twenty alone.
Now looking ahead to 2020 and our U S business, we will continue as a work in progress brand and striving to get a little better each and every day and I'll highlight a few focus areas and not surprisingly most of these areas will not be new news to you.
First we will continue the fortress, our markets driving faster and more consistent service lower delivery costs, better economics for drivers and incremental carryout traffic.
Fortress, and we will continue to drive overall store growth and in 2021, including and our company owned markets.
We will continue to deliver new product innovation in 'twenty and 'twenty one we.
We will continue to produce world class advertising and we're excited to begin our relationship with work in progress as our new advertising agency.
We will continue to invest and technology to enable great customer experiences to drive speed accuracy and efficiency inside our stores to improve our corporate store team members the ability to support our business.
Value is always a key focus for us and that won't change in 'twenty and 'twenty, one more than ever with many Americans out of work in these uncertain economic times value matters, and we are committed to maintaining our unquestioned position of value leadership within the <unk> Pizza segment.
We're ramping up our focus on service in 'twenty and 'twenty, one getting pizza is out the door to our customers hotter fresher and more reliably than ever before through innovation within our stores, we're doubling down with technology with training and with communications.
We will continue to invest and our frontline team members across our corporate stores and supply chain centers, increasing hourly wages and many markets and enhancing our team member benefits.
We will also be taking a comprehensive look at our environmental impact within the next one to three years, we will set science based time bound commitments and accordance with the science based targets initiative process to reduce the company's total contribution to climate change.
And as always we will remain obsessed absolutely obsessed with franchisee profitability Steve.
<unk> shared our initial 2020 store level EBITDA estimate with you in January and we will share. The final number with you when that figure is ready, but we do expect it to be higher than the estimate that Stu shared with you last month.
While we believe this level of profitability and associated cash on cash returns exceeds any player and our category, we recognize that some of our franchisees and our corporate stores are under intense cost pressure.
Despite the higher overall levels of unemployment across the country. Many local labor markets remain tight and wages continue to rise across the country.
Fixed costs, such as rent and insurance also bring added pressure.
But my team and I recognize these challenges and we remain intensely focused on helping to drive efficiency and profitability at the store and the enterprise level for our franchisees just as we are for our corporate markets.
As I look back on the fourth quarter and on the full year I'm very happy with our U S performance, we achieved our 39th consecutive quarter of positive same store sales growth and we surpassed $8 billion and U S retail sales for the very first time.
And I am confident that we are well positioned to continue play and the long game and our U S business.
Now I'm going to move onto the international.
During the fourth quarter, our pandemic recovery continued as we reopened stores and delivered the strongest quarterly comp we've reported and for years, we marked our 108 straight positive quarter. That's.
And that's 27 full years and incredible run that seemed and doubt when COVID-19 struck early in the year.
And I'm, particularly pleased at our master franchisees continue to invest and the business opening 272 net stores and the quarter and 395 net for the full year now.
Now when you consider that we had about 2400 stores temporarily closed back in Q2. This is truly a remarkable achievement.
And it highlights the terrific unit level economics that our master franchisees of built in many markets around the globe.
There is no question that we had more closures in 'twenty and 'twenty and in fact, we had over 300 and then you would normally see from Domino's and a typical year. This was driven by strategic choices and several markets to close some previously underperforming units, including a number of units with formats that admittedly would of <unk>.
Struggled in the new operating environment.
Other than reopening them and after the pandemic.
So when I look forward I'm very optimistic about our master franchisees ability to ramp up our unit growth across the international business and.
And I want to thank our international partners for their engagement throughout the year, we dramatically increased our communication across the system and.
And master franchisees from all over the world really leaned in and sharing best practices throughout the year to help their peers and to help our U S team managed through the pandemic. This truly demonstrated the power of the global Domino's system.
And we cannot have responded so effectively the COVID-19 without this level of partnership.
Now I'd love to share a few 'twenty and 'twenty market highlights.
We opened for the first time and Croatia welcoming the team there to the Domino's family.
And we opened 95 net stores in China and grew retail sales by over 30% accelerating growth and this very important market.
We were also very pleased to invest and dash brands, our master franchise partner with a 40 million dollar of investment in 'twenty and 'twenty and the subsequent 40 million dollar of investment, which we completed in Q1 of this year. We are excited to partner more deeply with their terrific management team and investors and I am more.
Optimistic than ever about the potential for Domino's and China.
Japan was an incredible success story in 2020, passing the 700 store milestone with 100 net stores and over 40% and retail sales growth.
Germany is another market that saw outstanding retail sales growth of over 25% with 100.
Excuse me.
And where we are fast approaching 350 stores with much potential for future growth.
I'd also like to thank our teams that worked incredibly hard to reopen stores throughout the year following the COVID-19 driven closures and.
India, France, Spain, Mexico, New Zealand, and Panama or a few of the markets along with many others around the world that have pushed hard to bounce back from significant temporary closures and to position themselves for growth in 'twenty and 'twenty one.
Based on the latest reports, we now have fewer than 150 temporary international store closures.
Now when we look at this recovery and our international business, India deserves the specific mentioned after some strategic store closures earlier and the year jubilant food works, our master franchise partner dramatically accelerated growth with 15 net stores and their most recent reported quarter.
And as we look forward into 'twenty 'twenty, one and I remain very optimistic about the long term growth potential of our international business. The opportunity is there our unit economics are strong and our master franchisees are committed.
Combined with our corporate support and best practice sharing around the globe, we have the recipe to take this business to its full potential.
So in closing 2020 was the year like none other but domino's as a brand like none other I am proud of our franchise partners and our team members, who once again prove to me that they are the best and the restaurant business.
And as we look ahead to 'twenty 'twenty, one we arent sure exactly what the new normal will look like or when we'll get there, but we will remain diligently focused on delivering for our customers. Our team members, our franchisees our communities and our shareholders.
At Domino's, we have a long track record of profitable growth driven by a disciplined operating model. This model served us well in 'twenty and 'twenty and we will continue to be the foundation for our growth in 'twenty and 'twenty, one and beyond this gives me a great deal of confidence and our ability to grow the domino's brand over the long term.
Term.
That confidence is demonstrated in this morning's release, where we announced our new two to three year outlook of 6% to 10% global retail sales growth and 6% to 8% global net unit growth as well as our new $1 billion share repurchase program.
So I'll end my remarks, this morning with a heartfelt. Thank you to our franchise partners and team members and that's not just for your efforts in 'twenty and 'twenty, but also for your continued perseverance in 'twenty and 'twenty, one as we battled COVID-19 and the recent winter storms across the U S.
I am proud to serve you each and every day.
And with that Sue and I will be happy to take your questions.
Ladies and gentlemen, if you had the question at this time. Please press the Star and then the number one key on your Touchtone telephone you for your question has been answered all of you wish to remove yourself from the queue. The press the pound key.
A reminder, yeah. The only allowed to ask one question on your time.
Can you please stop by and while we compile the Q&A roster.
Your first question comes from the line of Brian Bittner with Oppenheimer. Your line is open.
Thanks, Good morning, Rich good morning Stu.
And I appreciate all of the remarks and I appreciate the re installment of two to three year sales outlook and I understand that this year, you'll be lapping and an unprecedented situation from 2020 and at the.
The visibility may not be as high as normal, but when youre talking about 6% to 8% unit growth of 6% to 10% retail sales growth does this view also specifically apply to how you are thinking and we should think about 2021.
At least on the unit gross side.
It seemed like you had a really nice step up and trends and the fourth quarter. So any additional color would be really helpful. Thank you.
Sure Thanks, Brian and I appreciate the question and you know.
Our our new outlook that we've published is of two to three year look, but specifically to your question on the unit growth. Yeah. We were really pleased to see.
Some significant momentum building in the fourth quarter of the year as you saw in the in the in the store growth numbers that we published both both for the U S business and for the international business and you know the.
The reality is there was a lot of pent up demand out there throughout the course of the year, where we just had challenges getting stores opened up due to due to construction and permitting and other issues, but the fundamental unit level economics in the business have never been better.
You know Stu shared a preliminary look at U S store level EBITDA last month and as we as we tabulate. The final numbers, we expect it to be at least at 158000 or higher so terrific economics and the business are approached of fortress thing and the U S and in our international.
And all markets is still a is still working very very well for us and then as it relates to the to the global retail sales growth. The number you know while Covid gave us some some tailwind on that and the U S. It was actually a headwind and the international side of the business. When you look at all of the temporary store closures that we had back.
And the and the second quarter, where we were up around 2400 units that were closed which had a significant impact as you know on on retail sales back then so we're optimistic Bryan as we look forward and and and that optimism as is reflected in our in that new outlook that we published this morning.
Your next question comes from the line of.
Sara Senatore with Bernstein Your line is open.
Alright, thank you.
And I wanted to ask about the U S kind of competitive and background and I think interested you said at the start of 'twenty 'twenty, one it's mainly about increased orders.
And spend from existing customers I know that you always kind of lot of questions about consolidation and independence and I guess my sense at the then based on what you're talking of map and your business and that maybe the whole category saw a nice tailwind Inc.
Both the competitors and independence so.
And maybe it's less about share shifts to domino's and more about and aggregate kind of a rising tide and I was just wondering if you could talk a bit up at that now that we're at a year into the pandemic and you know.
If you have a better sense of of maybe where the traffic was coming from or going to end and what the interest segment dynamics look like thank you.
Sure, Thanks, Sarah and what all of Us.
And as as I answered your question I'll I'll break it down a bit across the two businesses that we run out of each of our out of each of our boxes across the country. So if you start with the delivery business. Yes, most certainly the pandemic brought a tailwind and the delivery business you know not just for Domino's pizza.
But across the category and frankly across categories.
And and during the year we saw.
Strong growth in both the order counts and also growth and ticket and that delivery business as customers tended to order order more pizza.
And as I mentioned in my prepared remarks, we also saw that in particular are 27 million active loyalty members, who ordered more for from us their frequency increase during the year.
If you contrast that with the Carryout business Carryout in the Carryout business Covid actually brought a headwind for us in terms of of customer activity is as fewer and fewer customers during the pandemic.
We're comfortable going out and and walking into our restaurants, even to pick up Carryout. We did see some pressure on order counts and the Carryout business and the growth story there in 2020 and it was really around around ticket now prior to the pandemic that carryout business had been a terrific source.
Of of of customer acquisition, and and order count growth for us. So as we look forward into 'twenty 'twenty. One that is one of the important drivers that we see in terms of our ability to continue to grow sales in the U. S is the is the restart of that growth on the carry.
Out side of the business.
And the one thing I'd add to that is keep in mind and I think as we as we've said before and a lot of cases, the carryout customer is different from the delivery customers. So it's not necessarily a shift from carryout to delivery with the same customer base.
It's an increase and delivery and the headwind and Carryout and and that's one of the reasons that we have such a high degree of confidence and and kind of excitement about what that business can bring test moving forward.
Thank you.
Your next question comes from the line of credit for call of Stifel. Your line is open.
Thanks, Good morning, guys.
Rich several restaurants have accelerated their investments and technology, given the increase of <unk> seen and digital orders and.
And some of these companies are probably starting with newer technology that I'm guessing domino's might have even so do you believe domino's needs to ramp up its investment or accelerate plans to ensure its tech does not get surpassed by some of the competitors.
Yes, Chris Great question and the the.
Answer is yes, we've been investing for a long time, and we continue to increase that investment each and every year and technology, because you're absolutely right.
At the half life of any lead that you have is pretty short on that side of the business and our investments will continue they did in 'twenty and 'twenty and we'll continue to going forward, we're continuing to make great progress with the development of our Nexgen next generation of our pulse a software which is really the the the heartbeat.
<unk> of our of our stores, we're continuing to invest in our digital ordering platforms.
And as well and we saw a really nice growth and in digital ordering during 'twenty and 'twenty yet.
Our digital sales are for.
For the year went up about five points over 'twenty and 19, you know we ran about 75% digital sales throughout the throughout 'twenty and 'twenty. So we will we'll continue to make investments there to drive the business on the customer side, we're also ramping up our investments and technology as.
And it relates to how we operate our stores, so I've talked a little bit about GPS tracking where we invested in that in 'twenty and 'twenty substantially rolled that out across the entire U S system will continue to invest there and also additional technology tools at the make line and at the cut table inside.
At our stores to make the jobs easier for our team members and to help us to get pizza is out the door faster to our customers.
Thank you.
Your next question comes from the line of Lauren Silberman with Credit Suisse. Your line is open.
Okay.
Hello, gentlemen.
Yes.
The competition from Nebraska.
Good morning.
Yeah.
Okay.
Hey, Lauren we we can't we can't hear you here I.
And I Wonder if you could start over maybe a little closer to your Mike.
And.
Hello.
You're breaking up.
I'll go back.
Hopefully.
Yeah.
Why don't we go to the next question and Laura and we'll come back and try again later.
The next question comes from the line of Janney Vanco, the J J P. Morgan Your line is open.
Hi, Thank you I I know you guys arent going to for a lot of logical reasons give quarterly comp guidance, especially with the comparisons that are about the changed so meaningfully.
In the coming weeks, but I did just want to get your overall thoughts.
Yes, you do have some leading indicators of markets that have reopened and.
Most people talk about the reopening trade of people going back and dining and restaurants and you know a lot of the the consumer packaged food companies seem to suggest that they're not going to lose very much of their own business at they've generated through grocery and 2020.
So the question is as we think about second half of 'twenty, one versus second half of 19 or even if we think about.
22 versus 19.
But what's your sense and what's the I and I and I guess at this point. It's the guests that you guys get the make an educated guess using some of the early market data that you have you know of.
Kind of being able to gross sales versus the 19 level, even if we do it.
And say Hey, you know comping against high teens comps, it's just always going to be difficult for any business and we just shouldn't expect that but how are we feeling.
And second half of 'twenty, one and 22 versus 19, given what might be of way for at least certain groups of people to go back the dining and five of the restaurants.
Hey, John Yeah. Thanks, Thanks for the question and.
I guess, what I, what I would say at.
At a high level is that.
We see a lot of op EBIT, even with the tailwind that we had and in 'twenty and 'twenty and the delivery business, we had a headwind on the carry outside of the business as I talked about earlier, so when I look across 2021.
One important growth driver for us is going to be to reaccelerate that growth on the carry outside of the business because we know lapping some of the delivery tailwind is is going to be difficult.
We.
We're also going to continue to invest and in value and the business as we always as we always have and making sure that you know.
As our customers continue to manage their households through what is going to be at fairly difficult economic time for a lot of Americans. We believed at continuing to stay focused on value is also going to help us.
And as a lot of folks who have been paying a lot to have food delivered to their houses.
You know as behaviors start to change and other options open up we're going to continue to have domino's as the unquestioned value leader in the in the Q S. Our pizza segment, and and frankly broadly across the restaurant industry. When you think about what it costs to have food delivered to feed a family of for we really like our.
And our positioning in that space will also look throughout the year to reinitiate some of our.
Boost weeks.
Our aggressive value weeks, it had been and important part of our strategy to acquire customers you know over the last a number of years. So we're not going to do anything John just to lap of comp that's not how we are that's not how we manage the business here everything that we do is going to be around how do we continue to drive.
<unk> sustained and profitable long term growth for our franchisees and ourselves.
And the only the other thing I'd just add to that is we also think we benefit from the fact that our our store base is.
Is everywhere, we're not urban dominated or suburban dominated we hit all markets and you know when when you when you hear folks talking about the wave of people that are going to rush back into dine in restaurants, the theyre generally coming from more densely populated urban perspective.
Where those restaurants are more more prevalent as you start looking across the landscape and you look at that relative to our store footprint.
It gives us a lot of a lot of confidence to be able to weather some of that.
And do you have any evidence of markets like Georgia, and Mississippi, Alabama, Tennessee, maybe certain parts of Florida that suggests that you are.
<unk> onto that business is 19, and some of the dine in business and those areas is strong.
John.
Les we see kind of less I guess, you would say less trends about region and the country, but when you take a look at urban stores versus the second city of suburban or rural you know our business has been strongest in that our rural and suburban area. It really is the urban.
Centers, where we've seen the most pressure on our business for.
Frankly across the Carryout and the delivery businesses.
Thanks, guys.
Your next question comes from the line of David Tarantino with Baird. Your line is open.
Hi, good morning.
And I was wondering.
And I forget go back to your fourth quarter performance and while still healthy it was lower from a comp perspective, and the U S relative to the elevated levels you had during the middle of the year and I was wondering if you could just opine on what the reason of where you saw a slower trend.
Exiting the year and weather.
That has any implications related to the kind of your brand and the positioning and the market.
Sure.
So David and I I hope I have a lot of quarters, where I I can talk about you know and 11% comp.
So we're pretty proud of the cup as it is but I will talk a little bit about you know some of the some of the deceleration you know relative to the to the third quarter, there and Theres a couple of things you know one is.
That you know there is no question that.
And the stimulus dollars and the enhanced federal unemployment insurance, certainly puts money and consumers pockets and allows them to go out and and and buy food and as we move further and further away and the fourth quarter from that stimulus that had been at enacted earlier and the year. Most certainly that had an impact.
On our business as we continue to aggressively opened stores has that accelerated.
Certainly the impact of of some of those splits weighs a little bit on the comp and then frankly as we got deeper into the fourth quarter and you started to see the COVID-19, pandemic and a significant resurgence across the country that has a that has a material impact on the carryout biz.
And as when when folks get less comfortable getting out of their cars and go into visit our places of business.
Great. Thank you very much.
Your next question comes from the line of Peter Salaried BTR at <unk>. Your line is open.
Great. Thank you and thanks for taking the question Rich I wanted to ask about service times and delivery times and maybe you could just give us.
And how those trended throughout the year and into the fourth quarter, I really and the context of the fortress and the strategy that you've been implementing for a couple of years now as well as you know a pretty sizable increase in demand for delivery and the availability of drivers. So any details you can provide and that'd be helpful. Thanks.
Sure. Thanks Pete.
You know we are we've been working really hard on service times across the business and you know what I'll tell you is debt when we got the initial rush of demand back in the second quarter. We certainly saw our service times suffer a little bit but the team both on the corporate store side and and our Frac.
<unk> as well.
<unk> worked really hard to tell.
The clawback and and and improve those times relative to the first wave of the pandemic.
Service time improvement is going to continue to be a significant at not just in 'twenty and 'twenty, one credit quite frankly, but longer term effort for us that really is one of the important moats that we have to build around our business and fortress thing is certainly a big part of that and we do continue to see.
And where we fortress our markets, we do see service time improvements material improvements you know as we shrink the radius around the stores, allowing us to you know to travel fewer miles and get to our customers with.
Not just faster, but hotter fresher food.
And on top of that delivering our own food enables us to drive better service right. Because we can go from the oven out the door without having to wait for a third party to come in and pick it up.
Alright, Thank you very much.
Your next question comes from the line all John Glass with Morgan Stanley. Your line is open.
Thanks, and good morning, all I wanted to come back and skew to the market share question and I think he share at ICR and market share any of the delivery and it was if I remember correctly like 36% and that really didn't change from 19. So if that's correct or if it's not correct. Let me know, but why why do you grow share and the past and this year. When you would think would be.
A year of where you could have grown share more of just given your capabilities. So why do you think that's the case is it just everyone got better with the independence suddenly got stronger and what what is at in that dynamic debt may be changed from 2020, and and how do you think what what why and what would the causes of it.
Yes, John I think what we saw in 'twenty and 'twenty was at.
And just broad growth across the category. So while we had terrific growth and our delivery business.
The broadly across the category a lot of growth a lot of the independents that maybe didn't have the big delivery business back in 18 and 19 they jumped.
With both feet into the delivery of stay alive in 'twenty and 'twenty and you know through the use of third party aggregators to deliver their product and that certainly are certainly resulted in some delivery growth coming from some of the some of the independents and regionals that may be where it wasn't there and the past.
Thank you.
Your next question comes from the line of Eric Gonzalez with Keybanc. Your line is open.
Hey, Thanks for the question and good morning regarding the potential wage increases and I was wondering how that might impact your ability to hold onto those $5 90, 970 99 price points were set of different way recognizing that all good things might eventually come to that and what would have to happen from an inflation perspective for you to meet the back away from those platforms and what can be done to protect those price points.
Of that having to materially wide GAAP versus other items from the menu.
Sure Eric So the interesting thing is today as it relates to wage environment, we operate and a really wide spectrum of wage rates across the country as it as it is today and I know you know.
Minimum wage in particular is certainly at a topic that everybody is thinking about out there, but you know today, we operate and states that are at the federal minimum wage all the way up to places like Seattle, which are already in excess of of of.
The <unk> 15, and $16 an hour and we've still been able to offer the $5 99, and 799 platforms across the country.
And there's a couple of things that enable us to do that one is the volumes that we run at the there's no way you can stay at that value level without having a high volume business like we have today.
Second is that our franchisees at the local level have flexibility around menu pricing and around delivery fees and their transparent delivery fees at the local level and they're gonna be higher and in these higher wage markets than they are in and some of the others. So we've been able to manage.
Our way through a lot of minimum wage increases across the country and I will tell you quite honestly and our.
And our corporate.
Corporate store business, we're not paying the federal minimum wage anywhere you can't go out there and hire people at that rate anyway, we're above the minimum wage both for our folks at work inside the stores and our tip drivers on the road and then and our supply chain business were in excess of $15 an hour everywhere.
We operate.
Yes, I mean, if you think about the offers they've been you know we've had them for years and and every year, we basically have wage rate increases and food cost increases and continue to drive additional profit and you know for us. It's a we do a ton of deep market research and analytics around where that profit maximizing price.
And as for Us.
So it's not it's certainly not set arbitrarily.
And and that is certainly a place where we provide a ton of value to the to the consumer and we've been able to do it do it profitably and continue to do so.
Thanks.
Your next question comes from the line of Lauren and Silverman with Credit Suisse. Your line is open.
Thank you guys hear me better now.
Yes, much better thanks Lauren.
Sorry about that.
Coming into Covid, Domino's and the Pizza category in general is facing incremental competition from the growth in the third.
The party delivery rental demand from Covid.
The channel overall is benefited with the acceleration of adoption and as you look at the competitive environment today, do you think domino's and any better.
Any better.
The third party delivery now that restaurants will likely be more focused on bringing back and store traffic and theres some kind of regular for more regulatory requirements.
And a more challenging position and given the breadth and depth of copper.
And it has increased.
Yeah Lauren.
For us at its I guess, a little bit less about regulatory you know I think for us we and.
Be honest, we struggled a little bit understanding the long term, our economics and some of the aggregator businesses in 60 years, we've never made of dollar delivering of pizza.
And we make money on the product, but we don't make money on the delivery. So we're just not sure how others do it.
And in a world, where we're trying to shrink our delivery area to get closer to our customer for better service a lot of these third parties are trying to expand.
To reach more customers, which we think just takes away from service and and you know what.
And when you think about the the profit equation.
You get somebody who and search themselves into the value chain and they have to make their money somewhere and it's either got to come from the restaurant or it has to come from the customer.
And we think over time, that's going to put a lot of pressure, particularly on the independent restaurants to be able to continue to make margins and rising cost environments, while paying these aggregators and the customers over time are going to start looking at the free delivery of that cost them $15 to get $12 for worth.
We're at the food when they start digging in the look at service fees and service charges. So at.
We're just not sure how it all plays out and and you've seen that with some of our some of the public players in that space, who have commented about the challenge of of driving long term profitability as an aggregator so.
For us we continue to just be the low cost delivery provider provide great value.
And we think is as long as we're providing a great product with great service at a great value.
Well, we'll let everything else shake out and and you know <unk>.
Certainly we don't know how long it'll take to all shake out, but but from our perspective.
We're in a pretty good spot.
Thank you.
Yeah.
Your next question comes from the line of Danny's Geiger with UBS. Your line is open.
Great. Thanks for the question Rich and I wanted to ask a little bit more on loyalty and new product innovation as we think about 2021, and even going forward and I.
Just wondering if you could talk more about those two opportunities.
Kind of how those might allow you to keep some of the new customers that you might have gained in 2020 and or attract new customers going forward.
And how those initiatives may help you to kind of hold or even.
The gain category share going forward. Thanks.
Sure. The thanks for the question and I'll talk about loyalty, maybe even just even a little bit more you know more broadly because there were a couple of metrics that I shared earlier that I think are important on this front. What one is the increase and the number of active members of our piece of the pie rewards program, which.
Was up to.
27 million plus we also saw an increase in and engagement and frequency among that group as well, which is a big focus of ours, yet once the debt program gets to that level of scale, you know 27 million plus and we've got beyond that we've got 40 million.
And plus that at some point had been enrolled and the program and we've got 80 million plus customers that are in our and our database.
And we spend a lot of time on initiatives thinking about how can we continue to mine that treasure of customers and find ways to better serve them at their time of need to drive to drive higher frequency.
Another metric I shared earlier that is also important is the increase that we saw and digital engagement with our customers you know with with digital sales going up from 70% of 75% during the year, you know broadly across the customer base, that's yet another opportunity because those customers.
And you know 10 of our ticket tends to be higher because we do a better job with upsell on them and once they start ordering digitally they tend to be stickier with us over the long term. So we'll we'll continue of.
As we always do many efforts focused and in that space and then you asked about new products also we had as I mentioned earlier three that we successfully launched in 'twenty and 'twenty and that's going to continue to be part of our playbook going forward. We've got some exciting things that our culinary team has been working on that Ah I certainly.
Like and based on our testing a lot of our customers do as well so you'll see some board news coming from us and that are in that space during 2021 as well.
Thanks Rich.
Your next question comes from the line of Chris Korea at all with RBC capital markets. Your line is open.
Hi, Good morning. Thanks for the question. So just following up on the comments around Carryout as well as on labor costs. How are you thinking about the carry out of the opportunity and the context of carryout margins versus delivery margins, especially with the increasing focus on minimum wage and potential for income incrementally higher labor costs.
Yes, it's a great question and.
Prior to the prior to the pandemic, we had taken the.
The carryout mix up to about 45% of our orders and that mix came down a bit deer, and COVID-19 as we talked about earlier given the just the changing customer behaviors. We are.
Very.
Much focused on growing that carryout business in 'twenty, and 'twenty, one and forward and while the ticket is lower on a carryout order you know to your point there is so much less labor cost associated with each of those carryout orders that the higher the higher the average hourly labor rate gets and your market the <unk>.
More of the profitability equation tilt toward those carry out orders and this is something that we've seen frankly, and some of our international markets as well, which have much higher labor costs than the U S does drive and that Carryout business has been a really important part of continuing to grow profitability at.
The store level for our franchisees, but we are profitable on both channels absolutely.
Great. Thank you.
Your next question comes from the line of Brett Levy the MTM partners. Your line is open.
Great. Thank you good morning.
Just following up on I think at with Eric's question.
With all of the moving parts that are going on there.
Throughout the system with tough comparison, just rising costs, how flexible and what are you hearing from the franchisees in terms of how they're thinking about approaching 2021.
And whether that is from a marketing standpoint or a pricing.
For a willingness and ability to.
Add to their labor pool.
Yeah.
Sure, Yes, great Great question of what I would tell you is debt.
We have such a fantastic base of franchisees across the U S who are excited and eager to lean in in 2021, and that's been a couple of ways. One that you mentioned, you're adding team members to their stores I can tell you the everyone I go out there and talk to is aggressively.
<unk> tried to hire and add to their teams because funny thing happens would you add more delivery drivers to your business. Your sales go up over time, but.
But also franchisees are also excited about.
Continuing to invest in their businesses and build and building new stores because as we've continued to grow sales and as profits of increase the equation around those new store openings, particularly when we've got places where we're fortress singer splitting gets even gets even more attractive.
So we've got a we've got a committed and <unk>.
Committed group that that's ready to lean in and invest in 'twenty and 'twenty one.
Okay.
Okay.
Yeah.
Your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Great. Thank you very much just the follow up on the the aggregator question and.
You had previously talked about consolidation within the subgroup and maybe promoting more aggressively and.
And you guys were keen to remain so low.
With that said.
And I think we've all seen the Covid has driven large increases and at least traffic on the site. So even if you were to never allow aggregators to your delivery still mentioned, which would just allows you to retain the service levels and make sure you are still profitable but.
Would you ever think about having your brand on their platform just to reach the addition of eyeballs and generate the sales and I'm just wondering what the the risks might be on that front just to drive the traffic, but not necessarily pay the risk or pay the fees and have the risk of at impacting service. Thank you.
Yeah, Jim we've looked at at many many times over the last couple of years and as you know some of our international markets do.
And gather some of their orders through Aggregators, and we don't allow aggregators to deliver our food anywhere, but and some context in our international markets. It's made some sense every time, we look at it here and the U S. It just doesn't make sense for us of our franchisees economically and if it doesn't make sense economically it certainly doesn't make sense to.
And take the risk of sharing all of our customer data with these third parties.
Thank you.
Next question comes from the line of David Palmer with Evercore ISI. Your line is open.
Thanks.
I guess this is a follow up on a lot of questions about market share, but also the legacy of Covid.
In terms of your business going forward.
Do you view any of these market share shifts as perhaps more sticky than the others of you.
And you've shown at the ICR presentation that you gained a lot of share of overall Qs, our pizza, which probably means that the independents got hammered pretty hard on the pick up at store.
I'm wondering maybe of those scars type remain or do you expect the big Snapback and then Conversely, you've talked about delivery share remaining flat in pizza I would imagine it's down and.
Overall delivery.
And that might have some influence for some stickiness of long term or not how are you thinking about these things.
Yes, sure David So the way, we look at it and we are.
Executing against strategies to continue to drive market share in both segments of the business you know both of the delivery and the Carryout segments and certainly 'twenty 'twenty was a.
A very unique year in terms of how some of this shifted around and particular with so many restaurants.
Jumping into delivery and frankly with so many consumers having no choice, but to go pick up food or have it delivered but we feel very good about the plans and strategies that our teams have put in place to continue drive at market share and both of those segments of our business and at.
It's hard to really make.
A generalization on the independents, because it really does vary market to market and area to area and a lot of that data is not.
Not yet and are really hard to get.
I do think certainly to the comments you made before on the Aggregators, where you have the smaller independents that jumped in the delivery by using a third party.
Like I said, we have some questions about the the viability of that long term, if you're an independent paying exorbitant fees for third party day to step into your value chain. So.
When does that all shake out your guess is as good as ours.
Thank you.
Your next question comes from the line of Jared Garber with Goldman Sachs. Your line is open.
Good morning, Thanks for taking the question I wanted to know if you guys could give us an update on the part usage and how thats trended throughout the pandemic and and maybe some color around the fourth quarter and maybe what you saw and.
The potential shifting trends at the ebbs and flows of Covid.
And that the began in late night and day parts to core of of hit this.
And this year and want to know if you saw any changes of that during the fourth quarter.
Hey, Thanks, Jared Yes story has been the same.
And we've really had some downward pressure on that evening and late night day part of it.
Throughout the pandemic with with dinner and lunch stay and really strong.
Okay.
Alright. Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is opened thank you.
It looks like Youre of course, nine deliveries of them place nationally for roughly eight months at this point and I'm. Just curious if you guys can share some more color on how customer adoption is progressing more specifically.
As the continued to build with.
The awareness and could you share hopefully where youre at car side delivery mix of stood in the fourth quarter. Thank you.
Yes.
We're really excited about Domino's car side delivery and this is something that didn't even exist at the beginning of the of of 'twenty and 'twenty. It was an idea of concept that we had debt. The team just pulled forward and accelerated the development on and now we've fully rolled out across our system and not only has.
And that helped us in the pandemic to do safe Carryout for customers, but frankly over the long haul we look at a car side delivery as a.
The way, we will compete against the drive thru.
And we've only got about 10% or so of our Domino's and the U S that have a drive through window.
So this is a great way for us to serve customers without them getting out of their cars.
Post the rollout we have continued to improve our service times and car side delivery and you know our our aspiration here, which is well within reach is that we get to a point, where you can get of car side delivery at Domino's faster than you can wait in line at acuity or drive through to get your food.
Through the through the window.
And to your point on the on mix we don't.
We're not sharing that externally yet for competitive reasons, but we have seen a dramatic increase and customer usage of of Domino's car side delivery since we launched it and part of our 'twenty and 'twenty plans are going to be the drive that even higher.
Alright. Your next question comes from the line of Andrew Charles with Cowen. Your line is open.
Great. Thank you you mentioned that you guys grew the loyalty program and 2022 of record 27 million members from about $25 million at the end of 2019, but it looks like the level of growth slowed from roughly 20 million members and 2018% to 25.002 million 19 can you help reconcile this given efforts utilized in 2020 to help and roll customers and the program while there was.
And more sedentary U S population. Thanks.
Sure Andrew So part of it is you know with these types of programs at.
As they get bigger and bigger you know the grille.
Both the inactive membership gets gets more difficult year on year, but a couple of things that we were most pleased with when we look back at the loyalty program over 'twenty and 'twenty was one that we grew it without and the final three quarters. The use of any of our more aggressive boost weeks, which are an important tool to drive.
Of our acquisition and then the second thing is that we were able to grow.
The number of customers active and the program, while also still growing the frequency with which those customers ordered and and when you take a look at drive and volume in the business. It really is those two those two metrics in combination with one another that drive the overall increase and.
And and engagement and sales with those loyal customers.
Your next question comes from the line of Alex Slagle with Jefferies. Your line is open.
Hey, Thanks, good morning and on the.
And the franchisee profitability, obviously 2020 of the knocked out years.
Curious how much of the reduced discounting and promotional efforts impacted the franchisee profitability and kind of thoughts on what you think it'll it'll look like into 'twenty, one and beyond.
Yes, yes.
We did terrific year on franchisee profitability and.
In 2020, and and what it's really driven by it is driven by increasing order counts across the business.
And particularly on the delivery side of the business, but also increasing our ticket, but smart ticket non increases in prices, but increases and and the number of items that customers bought on average for each of the for each of their orders. So even in the face of some increases and labor costs and other fixed costs and the business at.
Really is that volume increase that drove that drove the uptick and profitability during the year.
And that item debt uptick and the item count really basically gets your operating leverage and the store.
Thanks.
Your next question comes from the line of James rather for the with Stephens. Your line is open.
Thanks for taking the question I'm curious about how Domino's will navigate this mix shift that youre expecting back towards carry out after the big year of delivery gain it seems like from previous comment the carry at transaction is possibly more desirable and delivery from the operator's perspective.
Given the margins, but I'd love to hear more color about the top line impact I mean to the.
And that certain customers turn of delivery order of during Covid and to a Carryout order you know for example, and the way home from work or something like that what's the typical check size difference there and what are some of things you could potentially do.
To elevate that carryout ticket without compromising the value proposition and just trying understand that potential impact to your royalty revenue stream. Thanks, so much.
Sure sure and.
The objective for us will be to grow both of those channels.
Covid.
We don't we don't have all of the data out of Covid, yet to understand to fully understand all of the customer behavior changes, but prior prior to Covid, there's only about 15% of customers that we're both delivery and carryout because customers tend to be one or the other so as we look at the business going forward and think about.
How do we grow at in 2021 at the yard it is going to be through a unique set of strategies around each of those two channels. So while we're certainly going to be aggressive on the carry outside.
The Domino's car side delivery and other initiatives that we have in place we absolutely are not.
Stepping away from the delivery side of the business also and we've got a set of strategies that we're going to continue to execute on the delivery side as well so that we could hold on to those customers that we that we that we gained during the course of of of.
Of 'twenty and 'twenty, we're not looking at at so much as the shift from one of the other is at is a reemergence or or you know kind of gaining back some of those carryout customers that have been on the sidelines.
The most notable difference obviously from a ticket perspective is just the delivery fee.
And typically the slightly a little bit lower item accounts and those orders as well, but both both channels very attractive and profitable businesses for our franchisees.
There are no further questions at this time I would like to turn the call back over the Chief Executive Officer Ritch Allison for closing remarks go ahead Sir.
Thank you at analyst and thanks, everybody for joining us on the call. This morning, and Ah Stewart and I look forward to speaking with you and late April when we will discuss our first quarter 2021 results.
Okay.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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