Q2 2022 Domino's Pizza Inc Earnings Call
Presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today to Ryan <unk> VP of Finance and Investor Relations. Please go ahead.
Speaker 1: The conference will begin shortly. To raise your hand during QA, you can dial Star one.
Thank you Dylan.
Thank you for joining us today for our conversation regarding the results of the second quarter of 2022.
Today's call will feature commentary from Chief Executive Officer, Russell, Leaner, and Chief Financial Officer Sandy Bryan.
As this call is primarily for our investor audience.
I ask all members of the media and others to be in a listen only mode.
I want to remind everyone that the forward looking statements in this morning's earnings release and 10-Q 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 forecast for more information. Please refer to the risk factors discussed in our filings with the SEC.
Speaker 2: Press Star one on your telephone.
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.
Speaker 2: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, to Ryan gore's vpoo, finance and Investor Relations. Please go ahead.
A request to our coverage analysts we wanted to do our best this morning to accommodate as many of your questions as time permits.
Speaker 3: Thank you, dilem and defendse morinning. Thank you for joining us today for our conversation regarding the results of the second quarter of 2020 -two.
We encourage you to ask only one one part question on this call.
Speaker 3: Today's call will feature commentary from Chief Executive Officer Russell wianer and Chief Financial Officer Sandy Freddie.
Today's conference call is being webcast and is also being recorded for replay via our website.
With that I'd like to turn the call over to our Chief Executive Officer Russell leaner.
Speaker 3: As a calls primarily for our Investor audience. I ask all members of the media and others to be in a liston-only mode.
Thank you Ryan and thanks to all of you for joining us this morning.
As Ive Ritch, Allison as I communicated back in April we expected the second quarter to be challenging.
We continue to navigate a difficult labor market in the U S, especially for delivery drivers. In addition to inflationary pressures combined with Covid stimulus fuel sales comp from the prior two years.
Our results for the quarter were consistent with the challenges we outlined at that time, however, the strength of our franchisees and team members along with our strategy. We're putting in place make me feel confident that we're on the path to overcome these short term obstacles make the domino's branded business stronger than ever.
Back in May my team and I gather with more than 8000 of our franchisees and team members from around the globe and our 2022 worldwide rally.
Due to Covid, we had to cancel our last rally. So was our first time back together as one global team for years.
Use this time to share best practices, a lot of goals and commit to continued growth that will drive meaningful value creation for all of our stakeholders.
The energy that commitment passion for the brand and competent displayed at this year's rally was truly inspiring and reinforces my belief that our best days lie ahead.
I can assure you that nobody at Domino's as happy with our recent performance. However, I have tremendous confidence in the team that we have assembled.
Leverage some of our current successes address our current pressures and proactively work to mitigate the negative impact of those external factors that we can't control.
As always we will make disciplined decisions and we will focus on doing what is right for our customers our franchisees and our brand.
This approach has served our stakeholders well over many years and I don't see any reasons to vote to differed from this proven approach we have high expectations for what we can achieve and we will hold ourselves accountable for meeting and often exceeding those objectives.
I plan to provide you with more specifics on our strategies and plans we have for the business after our CFO Avi Reddy.
<unk> through the results for the quarter.
Sure.
Thank you Russell and good morning to everyone on the call.
Before I get into the details of the quarter I wanted to share. Some of my initial observations of my first full quarter as Domino's CFO .
I see some exciting opportunities to improve our long term profitability.
First while we continue to explore options to further optimize our consumer pricing architecture in the United States.
It is important to highlight that the average price increase we realized in the second quarter across our U S system.
Only 6%.
We have successfully improved menu pricing levels, including our standard menu pricing, our national <unk>, a local office and our delivery fees.
This has helped US cover some of the cost increases we're incurring in both the food basket and legal market. While also ensuring we continue to deliver terrific value to our consumers.
Our work continues on the right pricing our products, while keeping a compelling value proposition for our consumers.
With more opportunities to pursue.
Secondly, if.
Efficiencies exist in our cost structure as we seek to ensure that revenues consistently grow faster than expenses.
We saw a sequential improvement of the year over year contraction.
Okay.
From 270 basis points from Q1 to 180 basis points in Q2.
We need to continue this trend.
Third as a result of the actions we are taking to increase our capacity to meet demand.
We realized a sequential improvement in U S same store sales declines from minus three 6% in Q1 to minus two 9% in Q2.
Now our financial results for the quarter in more detail.
Global retail sales decreased 3% in Q2 2022 as compared to Q2 2021.
When excluding the negative impact of foreign currency global retail sales grew one 5% due to sustained positive store growth.
Over the trailing four quarters lapping 17, 1% of global retail sales growth excluding FX in Q2, two dose in mid 'twenty one.
As we have discussed in the past we believe it remains instructive to look at the cumulative special skills across the business anchored back to 2019 as a pre COVID-19 baseline and we'll continue to do so for as long as we believe it is useful in understanding our business performance.
Looking at the three year stack, our Q2 2022 global retail sales, excluding foreign currency impact grew nearly 27% versus Q2 2019.
Breaking down total global retail sales growth international retail sales, excluding the negative impact of foreign currency grew three 7% rolling over a prior year increase of 29, 5% and are up almost 30% on a three year stack basis relative to 2019.
Sure.
U S retail sales declined 6% rolling over a prior year increase of seven 4% and op.
Almost 27% on a three year stack basis relative to 2019.
Turning to comps joined.
During Q2 same store sales, excluding foreign currency impact for our international business declined two 2%.
The rolling over a prior year increase of 13, 9% and were up 13% on a three year stack basis relative to 2019.
Order growth was slightly positive during the quarter demonstrating continued global demand.
However, this growth was more than offset by declines in ticket driven by the euro impact of exploration of the 2021.
Please in the UK.
Our largest international market by retail sales.
This resulted in a negative comp for the quarter for international versus a slightly positive comp without this unfavorable impact.
The year over year impact of exploration of the 2021 <unk> relief will continue where we left the reduced rates from 2021 through the rest of the year.
Same store sales for our U S business declined two 9% rolling over a prior year increase of three 5%.
We're up 16, 7% on a three year stack basis relative to 2019, representing a sequential five three percentage point improvement from Q1 on a three year stack basis.
Breaking down the U S comp our franchise business was down two 5% in the quarter, while our company owned stores were down nine 2%.
We believe the difference in the topline performance in our company owned stores as compared to our franchise stores continues to be driven by more substantial operational challenges in our company owned stores that Russell will address later on the call.
The estimated impact of forecasting or 0.7 percentage points during the quarter across the U S system.
This impact will continue to trend lower as our U S store base grows.
The decline in the U S same store sales in Q2 was driven by a decline in order counts, which continued to be pressured by the challenging staffing environment, which had certain operational impacts such as shortening store us and customer service challenges in many stores, both company owned and franchise along with tough.
Covid stimulus fuel comps from the prior years.
The decline in order counts was partially offset by ticket growth, which included nearly 6% and pricing actions I spoke about earlier.
We saw a similar trend on a three year stack basis with a 16, 7% growth in same store sales driven by growth in ticket and partially offset by a decline in auto.
As we have previously shared we believe it is instructive to break our U S stores into Quintiles based on staffing levels relative to a fully stocked stone could give a sense for the magnitude of the impact of stuffing.
Looking at Q2 same store sales stores and the top 20%.
Those that are essentially fully staffed on average.
<unk> stores in the bottom 20%.
Those that are facing the most significant labor shortages.
Seven percentage points.
This is down sequentially from the 12 percentage point gap, we saw in Q1 between the top and bottom quintile of showing improvement in the lower quintile store's ability to meet consumer demand.
Now I'll share a few thoughts specifically about the counting up and delivery businesses.
The carrier business was strong in Q2 with U S. Carryout same store sales 14, 6% positive compared to Q2 2021.
On a three year basis, our carrier same store sales were up 33% versus Q2 2019.
The gap between the top and bottom quintile based on staffing levels remained small during the quarter highlighting both strong consumer demand and the lower cost to serve relative to delivery orders.
We are incredibly pleased with our carriers momentum, especially considering carryout as a much larger segment of <unk>, giving us a significant runway for growth in the future.
The delivery business continues to be more pressure.
Q2 delivery same store sales declined by 11, 7% relative to Q2 2021.
Looking at the business on a three year stack Q2, delivering same store sales remained more than 8% above Q2 2019 levels.
When we look at the same quintiles relative to the delivery business. We've continued to see a more pronounced difference in performance.
We saw an 11 percentage point gap in delivery same store sales between stores and the top 20% and dosing the bottom 20%.
While we continue to see a significant gap in performance between the top and bottom quintile.
This does represent a sequential improvement from the 17 percentage point gap, we observed in the first quarter.
Shifting to unit costs.
And our franchisees added 22 net new stores in the U S. During Q2 <unk>.
Consisting of 24 store openings and two closures, bringing our U S system store count to 6600 19 stores at the end of the quarter.
With a strong four wall economics, we remain bullish on the long term unit growth potential in the United States and we maintain our conviction that the U S can be an 8000 plus store market for Domino's.
The pace of U S store growth may decelerate slightly from the current full quarter run rate of 3% the rest of the our ore until the headwinds subside given some of the continued development supply chain staffing and inflationary headwinds.
Our international business added 211, net new stores in Q2 comprised of 249 store openings and 38 closures.
This brought our current full quarter net store growth rates in international to 9%.
When combined with our U S store growth, our trailing four quarter global net store growth of nearly 7% continues to fall within our two to three year outlook range of 6% to 8%.
Turning to revenue and operating income.
Total revenues for the second quarter increased approximately $32 7 million or three 2% from the prior year quarter, driven by higher supply chain revenues, resulting from a 15, 2% higher market basket pricing to stores.
Our market basket pricing is up approximately 20% on a three year basis now.
The increase in supply chain revenues was partially offset by declines in our company owned stores revenues.
Changes in foreign currency exchange rates negatively impacted international royalty revenues by $5 $9 million during Q2.
Our consolidated operating income as a percentage of revenues decreased by 180 basis points to 16, 7% in Q2 from the prior year quarter, primarily driven by a crude basket and labor cost increases.
These impacts were partially offset by pricing actions and G&A leverage.
Our diluted EPS in Q2 was $2 82.
$2 <unk> in Q2, 2021, or $3 12, with adjusted for the <unk> impact of the recapitalization transaction in the prior year.
Breaking down the 30 cent decrease in our diluted EPS as compared to adjusted diluted EPS.
Our operating results negatively impacted us by <unk> 14.
Changes in foreign currency exchange rates negatively impacted us by 12.
Our higher effective tax rate negatively impacted us by <unk> 14.
<unk> <unk> of which was driven by changes in tax impact of stock based compensation.
Higher depreciation negatively impacted us by <unk>.
Higher net interest expense negatively impacted us by <unk>.
And a lower diluted share count driven by share repurchases over the trailing 12 months benefited us by <unk> 14.
Although we face operating headwinds, we've continued to generate sizable free cash flow.
During the first two quarters of 2022, we generated net cash provided by operating activities of approximately $153 million.
After deducting for capital expenditures of approximately $33 million.
Which included investments in our technology initiatives, such as our next generation point of sale system and investments in our supply chain.
We generated free cash flow of approximately $121 million.
Free cash flow decreased to $142 million.
From the first two quarters of 2021, primarily due to changes in working capital as a result of the timing of payments of accrued liabilities.
Speaker 4: Higher depreciation negatively impacted us by two cents. Higher net interest expense negatively impacted us by two cents and the lower diluted share count driven by share repurchases over trading 12 months benefited us by 14 centalthough we faced operating headwinds, we continue to generated sizable free cash flowduring the first two quarters of 2020 -two. We generated the net cash provided by operating activities of approximately 153 million dollarsafter developing for capital expenditures of approximately $33 million, which included investments in our technology initiatives, such as our next generation point of sale system and investments in our supply chain. 10, we generated free cash flow of approximately hundred and 21 million dollarsfree cash flow decreased one hundred and forty two million dollars from the first two quarters of 2021 , primarily due the changes in working capital as a result of the timing of payments of recruit liabilities and receipt on accounts receivable and lower net incomeduring the quarter, we repurchased and retied approximately 148 thousand shares for $5 million, an average price of $337 per shareas of the end of Q2, we had approximately $606 million remaining under our current pard authorization for share repurchasesbefore a close, we would like to update the guidance we provided in April for 2020 -two.
And receipts on accounts receivable and lower net income.
During the quarter, we repurchased and retired approximately 148000 shares for $50 million at an average price of $337 per share.
As of the end of Q2, we had approximately $606 million.
The remaining under our current board authorization for share repurchases.
Before I close we would like to update the guidance we provided in April for 2022.
Based on the continuously evolving macroeconomic environment, we now expect the increase in the store food basket within our U S system.
To range from 13% to 15%.
As compared to 2021 levels, an increase from the 10% to 12% we were expecting in April .
Changes in foreign currency exchange rates are not expected to have a negative impact of $22 million to $26 million.
Compared to 2021.
An increase from the $12 million to $16 billion, we were expecting to see in April .
We anticipate that we will continue to see fluctuations in commodity prices, including wheat and fuel costs and foreign currency exchange rates, resulting from geopolitical risk and the resulting impact on the overall macroeconomic environment.
Thank you all for joining the call today and now I will turn it back to Russell.
Thank you Sandeep I'm going to start my comments with the U S business the performance.
Speaker 4: bascent on the continuously evolving macroeconomic environment. We now expect the increase in the store cool basket within our U's system to range from 13% to 15% as compared to 2021 levels, and increase from the 10% to 12% we were expecting in April .
During the quarter started slow as we were lapping.
<unk> fueled comp on a one and two year basis.
These dynamic ease throughout quarter as we move further away from the government payments distributed in March of 2021.
Speaker 4: Changes in foreign currency exchange rates are now expected to have a negative impact of $22 million to $26 million compared to 2021.
During the quarter, we continued innovative ways to engage with our consumers through our carryout promotion, where we rewarded our carrier customers with a $3 for the purchase of another Carryout order within the next week.
Speaker 4: An increase from the $12 million to $16 million we were expecting to see in April .
We also launched our mind ordering app, which created a fun ordering experience.
Speaker 4: We anticipate that we will continue to see fluctuations in commodity prices, including weak and fuel costs and foreign currency exchange rates, resulting from geopolitical risk and the resulting impact on the overall macroeconomic environment.
Into the new season, a stranger thing one of the most popular shows on television and streaming.
In addition, the second quarter marked our first full quarter since we evolved our national offers to include $5 99 mix and match for carrier customers and 699 delivery mix and match.
Speaker 4: Thank you all for joining the call today, and now I will turn us back to Russell.
Speaker 5: Thank you, Andy. I'm going to start my comments with the? U's business.
On the last call I laid out some of the action plan that we're taking to meet customer demand.
Speaker 5: The performance during the quarter started slow as we were lapping a little bit fuel. Come on a 1, two -year basis.
Including returning to core hours.
Utilizing call centers with these constraints in the stores.
Speaker 5: These dynamics e throughout the quarter as we move further away from the government payments distributed in March of 2021.
And bringing back with sweet promotion.
Like to take some time to provide additional color on each of these actions.
Speaker 5: During the quarter we continued innovative waysave to engage with our consumers to our carry T tips promotion, where we rewarded our carryt customers with a three -dollar tip good for the purchase of another carryt order within the next week.
If you recall out of necessity many stores have had a flex their hours of operations because of the labor constraints through the SaaS and challenges and Omar Khan surge early in the year.
Speaker 5: We also launched our mine ordering app, which created a fun ordering experience for into the new season is a stranger thing. one of the most popular shows on TV and streaming.
During the first quarter when we added up all the lost operating hours, we estimate over cumulatively or the equivalent of almost six days across the entire U S.
Speaker 5: In addition, the second quarter Mark our first full quarter since we evolved our national offers to include 599 mix match for carry out customers and 6: 99 delivery mix.
During the second quarter. This number improved a little over four days.
The stores, primarily reflecting hours to be closed during non peak times.
The impact on orders.
Speaker 6: Nine.
That's less than the number of days close as a percentage of the total days in the quarter.
Speaker 5: On the last call I laid out some of the action plans that were're taking meat customer demand.
While we and our franchisees continue to make progress on a full return of all stores the core hours as we start to lap the service disruption from <unk>.
Speaker 5: Including returning to core hours.
Speaker 5: Utilizing call centers have used constraints in the stores.
Speaker 5: And bring that good F promotion.
Last year this metric will become a less meaningful as a driver of year over year sales performance.
Speaker 5: I'd like to take some time to provide additional color on each of these actions.
Speaker 5: If you wouldrecall out of necessity, many storires have had to flectx their hours of operation. siderable labor constraints from the fastion challenges and omercon surgeed early in the year.
Another key action is utilizing call centers to take phone orders.
This allows team members to focus on making and delivering pizza without having to worry about entering from especially during the busiest times of the store.
Speaker 5: During the first quarter, when we ended up all the lost operating hours, we estimate tif AR Le cunitatively both the equivalent of almost six stage across the entire U ssystem.
At the end of the quarter around 40% of our U S stores were utilized in call centres in some capacity.
As a result headwind from unanswered calls were lower than we experienced during the first quarter.
Speaker 5: During the second quarter, this number improved a little over four days.
The third action is bringing back those tweaks, we promise we could bring back these important customer acquisition and loyalty enrollment activities. This summer and as you saw we ran our first post we have more than two years in early June .
Speaker 5: The stores primarily flectxing hours to be closed during non-peak time.
Speaker 5: The impact on order.
Speaker 5: The less than the number of days closed as a percentage of the total days in the quarter.
Speaker 5: alwe on our franchisees continue to make progress on a full return of all stores to core hours. As we start to lap the service disruption from last year, this metric will become less meaningful as a driver of year-over-year sales performance.
I am extremely proud of our franchisees team members and supply chain for executing at a very high level during what was our busiest week of the year.
Consumer reaction was strong and we plan to do another booth week by the end of the summer before we evaluate future cases.
Speaker 5: Another key action is utilizing call centers to takeick phone orders.
Speaker 5: This allows keam members to focus on making and delivering Pizza without having to worry about entering phones- especially during the busiest times- to the store.
Turning now to corporate store performance, our corporate stores continue to lag franchisee performance during the second quarter.
Speaker 5: At the end of the quarter. Around 40% of our U's stores we're utilizing call centers. In some.
As I mentioned during our last call. We are committed to restoring our corporate stores leadership position among the U S system of stores.
Speaker 5: As a result, headwinds from unanswered call were lower than we experienced during the first quarter.
As such we have put into place in operations recovery plan with 30, 60, and 90 day milestone.
Speaker 5: A third action is: bring that foodse week.
Last month, we made a leadership change designed to positively impact our corporate store business.
Speaker 5: We promised we have brw back to see the important customer acquisition and loyalty enrollment activities this summer and, as we saw, we ran our first bookpst week in more than two years in early June .
Frank <unk>, our executive Vice President of operations will also lead corporate stores before taking on his current role in February of 2020, we'll have that team reporting directly to him. So he can more closely assess and address the needs of that.
Speaker 5: I am extremely proud of our franchisees, team members and supply chain for executing at a very high level during what was our busiest week.
Speaker 5: isethese team members and supply chain for executing at a very high level during what was our busiest week of the year.
We will continue to provide updates on the progress of our corporate stores and look forward.
Speaker 5: Consumer reaction was strong and we plan to do another goodo week by the end of the summer before we evaluate future case.
To them resuming their leadership role among our U S system of stores.
Now finally, I'd like to provide an update on our ongoing delivery labor market deep dive.
Speaker 5: Turning now to corporate store performance, our corporate stotorres continued to lay a franchisee performance during the second quarter.
We continue to believe that many of the answers to the labor shortages. We are facing are already in our system with.
Speaker 5: As I mentioned during the last call, we are committed to restorw our corporate stores leadership position among the U's system of stores.
We see that our top quintile stores, they can meet the demand and outperformed the system.
Speaker 5: As such, we have put into places and operations for recovery plan.
We also saw the gap in performance between our top and bottom quintile stores improve during the second quarter.
Speaker 5: With 30, 60 and 98 milestones.
Speaker 5: nowlast month, we made a leadership change designed to positively impact our focus store business.
We know from our work that one of the key issues for delivery drivers is flexibility and for many this is even more important in compensation.
Speaker 5: franaro, our Executive Vice President of operation, who also led corporate stores beforeort, taking on his current goal in February of 2020, who will have that team report directly to him So he can more closely assess and address the needs of business.
Flexibility includes the ability to work shorter ship fewer hours in a week and five per shift with short lead times.
These are the areas, where we are continuing to evaluate and evolve our practices.
Speaker 5: We will continue to provide updates on the progress of our corporate stores and look forward.
Question remains can we close the gap in performance and get back to fully meeting demand utilizing our current delivery model as it is as it has evolved over many decades.
Speaker 5: To them resuming their leadership role among our? U's system of stores.
Speaker 5: Now finally, I'd like to provide an update on our ongoing delivery labor market detime.
Until we fully answered this question all options will remain on the table.
Speaker 5: We continue to believe that many of the answers to the labor shortages we are facing are already in our system.
Now, let's turn to international the.
The international business displayed strong fundamental growth opening over 200, net new stores during the quarter as well as positive order count growth.
Speaker 5: We see that our top putinile stores. They can meet the demand and outperform the system.
Speaker 5: We also saw the gap in per focus which, between our top and bottom quinteile stores, improved during the second quarter.
During the second quarter of <unk> 44 of our international markets opened at least one net new stores demonstrating the strong demand for domino's around the world.
Speaker 5: We know from our work that one of the key issues for delivery drivers of flexibility and for many. This is even more important than compensation.
As Sandy mentioned there were some short term pressure from the UK Vap relief overlaps that drove the comp to go negative in the quarter snapping our long running streak of consecutive quarters with positive same store sales growth.
Speaker 5: Flexibility includes the ability to work shorter shift if fewer hours in a week, and sign for shift with short lead time.
Speaker 5: These are the areas where we are continuing to evaluate and evolve our practices.
I remain confident extremely confident.
And the long term growth potential for our international business.
Speaker 5: The question remains: can we close the gap in performanceing, get back to fully meeting demand, utilizing our current delivery model as it has evolved over many decades?
Opening more than 1000 net stores over the trailing four quarters is an outstanding accomplishment by our team and our international Master franchisees.
Speaker 5: Until we fully answe this question, all options will remain on the table.
I'll now highlight a few international markets of note.
I'd like to congratulate <unk> dash PTC dash, our master franchisee in China for opening their 500 store during the second quarter.
Speaker 5: Now let's Turning to international.
Speaker 5: theinternational business displayed strong fundamental growth, opening over 200 net new stores during the quarter, as well as positive order capital.
Also as you may have seen das brands recently made a filing for listing on the Hong Kong stock exchange.
Speaker 5: During the second quarter, 44 of our international markets opened at least one net new store, demonstrating the strong demand for dommos around the world.
We saw strong sales growth in the middle East, especially in Saudi Arabia.
Speaker 5: As fonbe mentioned, there were some short-term pressure from the? U kbat relief overlaps that prorove the comp to go negative in the quarter, snapping our long-running streaks of consecutive quarters with positive same-store sales room.
Also albemarle with our master franchisees across 11 markets in the Middle East and North Africa announced its intention to go public through an IPO on the Saudi stock exchange.
Other markets of note with strong growth in the quarter included India, Mexico, Spain, Turkey in Guatemala.
Speaker 5: I remain confident, extremely confident.
Speaker 5: In the long-term growth potential for our international business.
We have a long runway for growth in the U S and around the world and both our delivery and our Carryout business.
Speaker 5: Opening more than 1000 net stores over the trailing four quarters is outstanding accomplishment by our team and our international master print.
We will continue to mitigate challenges within our control and take steps to proactively confront external factors, we can't completely control with strategies and plans to minimize their impact.
Speaker 5: I'll now highlight a few international markets of note.
Speaker 5: I'd like to congratulate PPC dash, PPC Ash, our MRO franchisev in China, for opening their 500 store during the second quarter.
We're now happy to take some questions.
Speaker 5: Also as you may have seen, Dash brands recently made it a one filing.
Thank you Sir.
As a reminder to ask a question you will need to press star one on your telephone.
Speaker 5: For listening on the Hong Kong Stock Exchange.
Speaker 5: We saw strong sales growth in the Middle East, especially in Saudi Arabia.
Due to the essence of time, we ask that you. Please limit yourselves to one question. Please.
Speaker 5: Also almark was our master franchisees across 11 markets in the Middle East and North africa- announced its intention to go public through an IO on the vali stock exchange.
Please standby, while we compile the Q&A roster.
I show our first question comes from the line of Brian Bittner from Oppenheimer. Please go ahead.
Speaker 5: Other markets of noed with strong growth in the quarter included India Mexico Spain, Turkey and guatemal.
Thank you and good morning.
Question on the same store sales in the U S same store sales in the second quarter.
Speaker 5: We have a long runaway for growth in the? U's and around the world in both our delivery and our carry-t business.
As you said accelerated by over 500 basis points versus the first quarter. When we look at it on a three year stacked basis, so clearly a meaningful improvement in the quarter can you just unpack the drivers of this improvement in a little bit more detail and help us understand maybe how much of this improvement came from improved staffing led.
Speaker 5: We will continue to mitigate challenges within our control and take the steps to proactively confront external factors we can't completely control with strategies and plans to minimize their impact.
Speaker 7: We're now happy to take some question.
Through the quarter versus maybe some other sources of improvement just so we can understand the underlying health of this improvement in the second quarter. Thanks.
Speaker 2: Thank you, sir.
Speaker 2: As a reminder: to ask a question, you need to press star one on your telephone.
Speaker 2: Due to the essence of time, we ask that you please limit yourself to one question.
Good morning, Brian Thanks for the question.
I think a lot of it is actually in some of the prepared remarks that we went through but I'll just.
Speaker 2: Please stand by while we compiled with the quna roster.
Tried to persuade it up a little bit of volume because the answer is already.
Speaker 2: Sure our first question comes from the line of Brian bitner from Oppenheimer. Please go ahead.
Sequential explorations were showing the Carryout business, where we went from 11% increase in the first quarter to supporting 6% increase in the second quarter. So.
Speaker 3: Thank you, good morning. Question on the same-store sales in the? U': s- your same-store sales in the second quarter.
The momentum that we saw in fact on a three year stack basis, we went from 24% to 33% so significant acceleration and strengthened the carryout business very excited.
Speaker 3: As you said, accelerate by over 500 basis points. First, the first quarter, when we look at it on a three -year stack basis, So clearly of meaningful improvement in the quarter. Can you just unpack the drivers of this improvement in a little bit more detail and help us understand maybe how much of this improvement came from improved staffing levels through the quarter first, maybe some other sources of improvement, just so we can understand the underlying health of this improvement in the second quarter.
I think on the delivery business. If you look at what happened in the quarter, we were up against much more significant overlaps last year. So even though we had 11, 7% decline on a three year stack basis were up 8% compared to the plus 6% that we had last quarter.
And so sequentially a lot of initiatives that we talked about on the last earnings call started playing in and delivery did improve sequentially as we have more work to do but we definitely have some progress that we saw in the quarter. So said another way the sequential improvement of $5 530 basis points.
Speaker 4: The morning Brian thanks to the question and I think a lot of it is actually in some of the prepared remarks that we went through. But I'll just study try to presmit it up a little bit for you because the answers are really a sequential acceleration for sure the carry out business where we went from a 11% increase in the first quarter to 15% increase in the second quarter. So definitely the momentum that we saw impact a three attack basis we went from 24% 33% So.
It was driven by both Carryout and delivery with both making meaningful progress.
Thank you.
And I show. Our next question comes from the line of.
Speaker 4: Significant acceleration and strengthen the carriter of business is pret excited.
David Palmer from Evercore ISI. Please go ahead.
Speaker 4: I think on the delivery business if you look at what happened in the quarter. We were up against much more significant overval acts last year. So even though we had 12% decline on a three -year-stack basis where up 8% compared to the plus 6% that we have last quarter and so sequentially a lot of the initiatives that we talked about on the last earnings call started playing in and delivery didn't improve. Sequentially we have more work to do but we definitely had some progress that we.
Thanks.
First of all just maybe a two parter here, you mentioned customer service issues and that being a drag.
Wonder what does that look like what's the customer experiencing any numbers that describes what that is and how you measure the impact on the business and then relatedly. It sounds like Youre still in the evaluation phase with regard to other options to alleviate pressure to labor labor in the delivery.
Speaker 4: We saw in the quarter. So another way that the sequential improvement of five five 1, 30 basis points was driven by both carrier and delivery, with both making meaningful progress.
Could you could you talk about some of the things that Youre most evaluating at this point.
Maybe things that are in test right now thanks, so much.
Sure Thanks, and good morning.
Speaker 8: Thank you.
On the customer service side really at the end of the day, what we like as things have gotten sequentially better in the second quarter for the first quarter. We certainly still have capacity things, we're dealing with but at the end of the day demand is strong and our ability to serve that capacity is.
Speaker 2: And I share. Our next question comes from the line of David Palmer from Evercore isi. Please go ahead.
Speaker 3: So thank somefirst of just maybe a two part. Here you mentioned customer service issues and, that being a drag, I wonder what does that look like, mean? What does the customer experiencing any numbers that describes what that is and how you measure the impact on the business. And then relatively, it sounds like you're still in an evaluation phase with regard to other options to alleviate.
Getting better when to your second question on the evaluation of what I would tell you is.
We are 100% committed to getting this done ourselves we think the answers to some of the capacity issues lie within the system.
And until we get though where we need to be our responsibility is to understand all the options available and thats what were going to do.
Speaker 3: Pressure to labor, labor in the delivery sense. Could could you talk about some of the things that you're most evaluating at this point, maybe things that are in test right now? Thanks so much.
Thank you.
And our next question comes from the line of.
David Tarantino from Baird. Please go ahead.
Speaker 5: Sure I thank. Good morning on the customer service side. Really, at the end of the day, what we like is things have gotten sequentially better in the second quarter. For the first quarter. We certainly still have capacity things we're dealing with But at the end of the day, demand is strong and our ability to serve that capacity.
Hi, good morning.
Had a question on the Carryout versus delivery business I guess first if you could maybe give us an update on what the mix of businesses today.
Given the big changes Youre seeing in the Carryout business and then.
Speaker 5: Is that is getting better. When to your second question on the evaluation, what I tell you is we are 100% committed to getting us done ourselves. We think the answers to some of the capacity issues live within the system, and until we get though, where we need to be, our responsibility is to understand all the options avail, and that that's what we to do.
I guess secondly on the Carryout business.
The strength that you saw in the second quarter was very impressive.
Wondering if.
If you could help.
At least offer some thoughts on the sustainability of that or whether you think of as just a great promotion.
The offer that you ran there or if you think that this is a more durable.
Layer of sales with new customers or new occasions.
Thanks, David for your question Thats really a good one I think there is a politically in two parts. The Russell will cover the second piece and I'll just talk about.
Speaker 8: Thank you.
Speaker 2: And I should. My next question comes from the line of David tartino, from barret, Please go ahead.
The carryout versus.
Speaker 5: Good morning, had a question on the carryyouout versus delivery business, I guess first, if you could maybe give us an update on what the mix of businesses today, given the big changes you've seen in the carryyouout business, and then I guess secondly, on the carryyouout business, the strength that you saw on the second quarter was very impressive. I been, I'm wondering.
Delivery dynamics.
Asked about so I think overall when we look at carrier because of delivery from a mix standpoint, clearly the comps actually are.
It's an acceleration in carrier mix carryout comps versus delivery declining the mix is shifting towards carrier. We typically update on me at the end of each year.
I think we will we will give you a further update at the end of the year because things are moving around quite a bit but we will be rolling thrilled about is the momentum on the carrier business because.
Speaker 5: If you can at least offer some thoughts on the sustainability of that or whether you think it was just a great promotion with the offer that you're in there, if you think that this is a more durable layer of sales with new customers or new occasions.
As we said in the prepared remarks.
Operating trends on a business that has a significantly larger business.
<unk> space, So theres a lot of runway for growth for us on that business.
And then Russell do you want to talk about is sustainable.
Yes.
Speaker 4: Thanks dav. The progress- and it's a really good 1, I think- is we'll take it in two parts us, we LL cover the second piece and I'll just talk about that, the carryrier versus delivery dynamic that we you asked about. So I think overall when we look at carrier as a delivery from a mixed standpoint, clearly with Ther comps she are an acceleration in carry mix by a carry ER comps was a delivery declining the mix, shifting towards carry out.
Thanks, David.
We have seen sustainability.
And continued momentum in growth and carry out not just over the last three years, but over the last decade or so since we decided to really focus in on that area. One of the reasons is so important for us it's very incremental to delivery, we see maybe 15% or so overlap between carryout occasion and delivery occasion interest.
Tingly enough the Carryout.
Sourcing of volume we have is less so from pizza on a percentage basis. It more so from from other <unk>. So enables us to not only grow in the larger Carryout pizza segment, but the larger Carryout <unk> segment.
Speaker 4: We typically update ononly at the end of the each year and I think we will give you a furtherupate at the end of the year because things are moving on quite a bit. But what we really thrilled about it- the momentum on the carry out business- because as we said in the prepared remarks, it's an accelerating trend on a business- is a significantly larger business and in the curious our space. So there's all of runway for growth for us on that business. And and then russe LL we want to talk about is sustainably.
Thank you.
Our next question comes from the line of.
Brian <unk> from Deutsche Bank. Please proceed with your question.
Speaker 5: Yes I think dav, we have seen sustainability in the.
Hey, Thank you just a question related to domestic development.
Speaker 5: And continued momentum in growth and carry out, not just over the last three years, But over the last decade or so since.
As you think about restoring the pace of growth domestic unit growth.
Back up to that $4 to 5%.
Speaker 5: We decided to really focus it on that area. one of the reasons that's so important for us is it's very incremental to deliver. We see maybe 15% or so overlap if we carry out occasions and delivery occasions.
What are the most important factors for investors consider right now in regards to the pipeline for next year do you think you can get back to that pace in 2023 or is this going to be a little bit of a longer path to the pre COVID-19 run rate in your view and if it's a little longer what are kind of the key gating factors right now.
Speaker 5: Interestingly enough, the carryyout sourcing of volume we have is less So from Pizza on the percentage basis and more so from from other QSR. So enables us to not only grow in the larger carryyout Pizza segment with a larger carryyout QSR segment.
So Brian Thanks for the question I think when we look at the U S potential the Russell this touched on something really important with the carrier momentum back and the acceleration that we're seeing there and the opportunities that we have in terms of of the <unk> space and how they can actually penetrate into that so then I'm going to actually go back to what we've talked.
Speaker 8: Thank you.
About previously is our goal.
Speaker 2: I show our next question comes from the line of.
The U S of 8000 stores.
Speaker 2: Brian mullen from deutcha Bank. Please proceed with your questions.
That was $66 619 stores already so the gap is.
Speaker 5: And thank you. Just question related to domestic development. You know, as you think about restoring the pace of growth, domesticutun growth, back up to that four cent to 5% rate, you know one of the most important factors for investors consider right now in regards to the pipeline for next year, do you thinking get back to that pace in 2023 or is this going to be a little bit of a longer path to the precored run rate in your view? And if it's a little longer, what are kind of the key gating factors right now?
Massive.
So after about this year from the beginning I think on the last call itself, which mentioned that we would probably going to see some some headwinds basically in terms of the pace of development.
The supply chain problems, just beneficiary environment et cetera.
This continues to be the factor and I think even though we're the trailing 12 months.
3%.
We see some potential deceleration relative to that in the short term until all of these headwinds subside.
Speaker 4: So bright backs to the question and I think let me look at the U's potential. Think Russell is touched on something really important with the carrier momentum net and the acceleration that we're seeing there and the opportunity that we have in terms of the QSR space and now we can ER. You penetrate into.
It doesn't change the long term trajectory of where we can take this but I think we can use these.
These headwinds to subside before we can accelerate and I think from our franchisees. They have really fantastic industry getting profitability. The returns are very compelling average three years in terms of cash on cash payback.
Speaker 4: So then we'll actually go back to what we've talked about previously as our goal for the of the U's of 8000 stores.
As they see the potential path to future growth so.
Let me confident that the 8000 unit objective is is that could be very achievable, especially with the momentum that we've seen on the carrier business.
Speaker 4: Relative ative. Of that basic six covered in 19 stores, or allegus of the gap is is not massive and, as we've talked about this year from the beginning, on the last call itself, which mentioned that we're probably going to see some headwinds, basically in terms of the space of development, because the supply chain problems, just the fishery environment, et cetera, this this continues to be the factor and I think, even though we are the trading 12 months of 3%.
We actually are hybrid offside without purchasing strategy and thats actually that gives us a lot of upside and Ludwig and subsequent development.
Thank you.
Okay.
Okay.
I show our next question.
Our next question comes from the line of John Glass from Morgan Stanley . Please go ahead.
Speaker 4: We see some potential deceleration relative to that in the short term until all of these head been subside doesn't change the long term trajectory where we can take this. But I think we need this. These headwinds to subside before we can excelerate and I think from our franchisees. They have a really fantastic industry getting profitability. The returns are very compelling the average three years in terms of cash on cash pay back and they see the potential part to future growth. So.
Hi, Thanks, very much why did you run a boost week during a time when you had.
Ever.
Constraints still I mean, I would think that would risk disappointment of customers was that a signal that towards the end of the quarter, you've just been getting better than maybe what was when you still have capacity constraints and already too much demand to deal with.
Speaker 4: We are really confident that the 8000 unit objective is definitely very achieve more and especially with the momentum that we seeing on the carrier business, if we actually have brid more, upset our focusing strategy and actually actually that gives us a lot of upside in one way in terms of the development.
Yes.
I think Sean for the question.
I just also want to reiterate that success of that boost it was the biggest week for us for the year and on the carry outside with our biggest.
We get in our history.
Speaker 8: Thank you.
Speaker 8: Thank you.
And so when you think about abuse weak it's not just about the delivery business. It's also about the carrier business and we did an incredible job doing it there.
Speaker 2: And I show our next question. Our next question comes from the line of John Glass for Morgan Stanley . Please go ahead.
Look we have the best franchisees in the business and we gave them an uptime and.
Speaker 9: I Thanks very much. Why did you run a boost week during a time when you had?
In our supply chain enough time to prepare for the things we were ready I think Youre also right. It is showing that we're making some of the things that we're doing.
Our improving sandeep talked about.
The sequential decline in the difference between our top and bottom depth of.
Speaker 9: Constraint still. I mean I would think that would risk disappointment of customers. Was that a signal that toward the end the quarter just for getting better? I mean, maybe what would when you still have capacity constraints and already too much demand to deal with?
Quintile. So we wouldn't have done this if we didn't think we could handle it and I think our system did a great job.
Okay. Thank you.
Thank you.
And I show our next question.
Speaker 7: I think Sean for the question. I just also want to reiterate the success of that loo suek. It was the biggest week for us for the year and on the carry outside was our biggest.
Comes from the line of John Bank Koh from Morgan Stanley . Please go ahead.
Hi, Thank you from J P. Morgan.
I think I heard in your prepared remarks that the U S would see I guess that's.
Speaker 7: Weak in history, and so when you think about a boost week, it's not just about the delivery business, it's also about the care of business, and we did an incredible job. Good there.
A downtick and development for the next 12 months relative to this last 12 months can you could you just clarify that I heard that and then secondly, if youre willing to give that I guess soft guidance for the U S. I mean can you do something similar on international, especially with the negative same store sales in the second quarter comps are.
Speaker 7: What we have the best franchisees in the business and we gave enough time and our supply chain enough time to prepare for this thing. We were ready. I think they're also right is showing that we're making some of the things that we're doing are improving. But we talked about the sequential decline in the difference between our top and bottom staff of queenile, So we wouldn't have done this if we didn't him. We could handle it and I think our system did a great job.
Often.
Leading indicators of development should we expect the next 12 months of international to be same higher or less than what the 1000 or so stores that you hit that in the previous 12 months.
Thanks, Thanks, John for the question.
Speaker 8: Thank you.
So I think what you did hear on the prepared remarks, whereas yes, we expect to see a slowing down of the trailing 12 months unit growth.
Speaker 8: Thank you.
Speaker 2: And I show a next question.
Speaker 2: Comes from the line of John evanco from Morgan famley. Please go ahead.
Currently through the balance of the year and as long as we see the headwinds so I've been say 12 months.
Speaker 9: Hi Thank you. From JP Morgan I was, I think I heard in your prepared remarks that the U's would see, I guess, a downtick in development for the next 12 months relative to this last 12 months. Can you, could you just clarify that? I heard that. And then secondly, if you're willing to give that, I guess, soft guidance for the U's, I mean, can you do something similar on international, especially with the negative same-store sales in the second quarter? Comps are very often.
We said Charles.
Julie.
Headwinds subside.
But I think in the international business, we are Super excited because it's a plus 9% trailing 12 months growth and that's a very very solid and I think if you look at the quarter and you unpack it.
It was really driven by boots UK.
In fact, the overlaps in fact, if you basically build.
But in a slightly positive comp for the international Division and so what I would say is look at the three year stacks on international it's 13% very healthy and we're pretty confident with that.
So I think we're very comfortable with the range that we provided the 6% to 8% on average across the global.
Global footprint of growth and international that 9% that sounds.
We've demonstrated that with all these comps we have been able to deliver.
Speaker 4: Definitely through the balance of the year and as long as we see the headwinds So I didn't say 12 months but we said to do headwinds subside one I think in the international business we're superly TR it because it's it's a plus 9% trading 12 months growth and that's very very solid and I think if you look at the quarter on unpacket.
Very strong unit development and we see no reason for that to change.
Yes, I think Ed to.
Sandeep pointed.
The level of context on the hotel side first.
So proud of our system. If you look back at the last five years, you look both in the pizza industry in the <unk> industry as far as actual number of net store and percentage.
Speaker 4: It was reallyly driven by this U K VAT impact and the overlaps. In fact, to so basically be build able have been a slightly positive.
Wheat, Domino's as a leader in that and still with these numbers, we're going to continue to be a leader. So just some context. There also I think what that tells me is while we continue to lead in development. Our franchisees are doing exactly what they need to do which is balancing the capacity needs with between the current stores they have and.
Speaker 4: With the international division and, and so what I would say is: look at the three stacks. On international, it's 13% very healthy and we're very confident with that, and so I think we're very comfortable with the range that we veprovided: a six percentto 8% on average across the global, global footprint of growth and international, and 9% that sounds we've demonstrated that with all these comps we've been able to deliver.
Stores they need to open.
Thank you.
Thank you.
And I show. Our next question comes from the line of Andrew Charles from Cowen <unk> Company. Please go ahead.
Speaker 7: It's very strong the development and you see no reason for got to change now I think at at cess sunundthese's points of the conttes on the telement by first. I M is so proud of our's And if you look back in the last five years need look both in the peak industry and the Q SR industry as far as actual number of net stores and percentage where we dominoes as a leader in that and still with these numbers we're going to continue to be.
Great. Thank you I wanted to follow up on an earlier question on U S. Same store sales accelerated by an impressive I think you said 530 basis points from <unk> on a three year basis, and I know you guys call it 6% price in <unk> and for US. It's very helpful. Thank you for disclosing that but we estimate nearly 5% pricing was taken at the end of <unk>.
Back when the mix and match platform for delivery orders was raised from 599 to $6 99.
The 10-Q caught out a higher number of items per order. Additionally, higher pricing at the end of Q2.
Speaker 7: A leader. So just some context there. Well also, I think what that tells me is: while we continue to lead in development, our franchisees are doing exactly what they need to do.
I'm curious if you could speak to the sequential change in traffic from <unk> and a three year basis that our math suggests with perhaps flat perhaps deteriorated.
Speaker 7: Which is balancing the capacity needs with between the current stori they have and stories that need to open.
Some encouraging updates you guys shared on staffing and Carryout.
Okay.
Speaker 10: Thank you.
There's a lot to unpack the question itself so.
Speaker 11: But.
Speaker 8: Thank you.
Overall less upward pricing.
Speaker 2: And I show. Our next question comes from the line of Andrews Charles from counend company. Please go ahead.
Pricing.
We have multiple levers on pricing mix and match was one of them and as part of the National office, but I think this menu pricing, which I think would have been activated logo for any of the changes on national level that we talked about the rationale for our fixed vector with Lilly made in the first quarter and then I think local pricing is actually an option that the franchisees have at their disposal and delivery.
Speaker 9: Great Thank you. Want to thought up an earlier question? Know U's same-store sales accelerative by impressive I think is it 530 basase points from one Q to qone Q on a three year basis and I know you guys cau 6% price in two Q and first is very helpful. Thank you for disclosing that. But you know we estimate nearly 5% price was taken at the end of one Q back when the mix match platform for delivery orders raised from 5: 99 to 6: 99. you know we know the 10-Q called out a high ER number of items per order addition at a higher pricing at the of one Q. So I'm'm ious. spe can speak to this.
Fees are something that has been activated all the time with the franchisees. So all of those elements that have gone into pricing effectively pulls in the first quarter as weather in the second quarter.
Not just national pricing. So the average of all of that was about 6% in the second quarter. So that's that's one thing I would ask do you take away from that.
And so I think when we when we look at.
Pricing.
Ticket versus order count.
What we had in the second quarter was order comp was definitely down and I think when you look at the pressure that we actually face the pressure was going to be significantly more on the delivery side.
Sure.
And then when I look at the overall offset we saw ticket offsetting overcome declines to end up with a minus two 9% that we saw in the quarter.
Speaker 4: Have been acvated by ING the changes on national offer that we talked about, the national offer updates that were made in the first quarter, and and then I think, local pricing has actually an option that the franchisees haven't. Their disposal and delivery fees are something that has been activated all the time with the franchisees. So all of those elements that have gone into pricing effective peopleples in the first quarter is leven the second quarter and it's not just national pricing. So the average of one of that was about 6% in the second quarter. So that's that's one thing I would actually take away from that.
Even though we have these headwinds I think sequentially same store sales did accelerate to the point that we made and I think we're very we're very happy because.
From a sequential standpoint, it's clear that the actions that we're taking to address the issues in terms of capacity to serve on the delivery business.
Hoping us and.
And we are seeing the demand coming through and Thats why we saw the acceleration because it's reflective both of the other comments, whether it's as long as the ticket and the combination of both so happy.
Speaker 4: And so I think when, when we look at the pricing and ticket versus order account, what we had in the second quarter was order count was definitely be down and I think when you look at the pressure that we actually facased, the pressure was really significantly more the delivery side and cur. And then when I look at the overall offset, we saw ticket offsetting order count declines to end up with the minus 3% that we saw in the quarter.
Happy with what we're seeing but.
But I think as we go through subsequent quarters, we will have more information on all of them from me on all the drivers have been talking about all year.
Thank you.
Okay.
Thank you.
And I show. Our next question comes from the line of Jared Garber from Goldman Sachs. Please go ahead.
Good morning, Thanks for the question I wanted to revisit the U S unit growth commentary.
Speaker 4: Even though we have these headwinds that think sequentially in So sales they'll accelerate to the point that we made and I think we we're very happy because from a sequential standpoint it's clear that the actions that be taking to address the issues in terms of capacity to serve on the delivery business are helping us and when we're seeing the demand coming through and that's why we saw the acceleration because it's reflected both of the oraccount as well as.
It's been asked a couple of times, but if we look back historically the unit growth annually has certainly continued to decelerate, even if we look back to several years ago, instead of 2018 or 19 timeframe. So can.
Can you just help us understand what gives you the confidence.
That pace of development can reaccelerate maybe.
After 24 kind of timeframe given some of the headwinds you talked about.
Speaker 4: As well as the take in the combination of those So happy with what we're saying. But, but I think as we go through the subsequent quarters, we'll have more information on all the D toate, on all the drivers that we'been talking about all year.
Maybe there's a way to frame what the pipeline of demand looks like from franchisees and then as a follow up just as we think about that.
Carryout opportunity is that changing how the discussions are going with franchisees maybe in terms of site location, making those a little bit more accessible to consumers versus I think the base delivery business.
Speaker 10: Thank you.
Speaker 8: Thank you.
Speaker 2: And I show. A next question comes from the line of jeric garbber, from Goldman Sachs. Pleases go ahead.
Is one that doesn't necessarily need to be main and main to drive that delivery business, but that may change that carryout as a greater focus going forward. Thanks.
Speaker 12: Good morning. Thanks for the question. I wanted to revisit the? U's unit growth commentary I. I know it's been asked a couple of times, But if we look back historically, the init growth annually has certainly continued to decelerate, even if we look back to, you know, several years ago, into the 2018 or 19 time frames. So can you just help us understand what gives you the confidence that that piece of development can reaccelerate? Maybe it's you know, after it's a 2024 time frame, given some.
So Jonathan.
Sure. Thanks for the question this two pretty significant components in that so let me start with the second one I'm going to go into the post because.
From a carrier momentum standpoint, I think Russell talked about earlier in one of the previous answer of Israel.
Our business in the delivery business are two separate businesses.
We are seeing is very significant acceleration of the carrier business, which is very encouraging for us because basically we are able to penetrate a new market.
I think a much a significantly larger market. In addition to the delivery business the delivery business. One in three features like Russell for the large vendors, presumably by us. So we have a very strong position in that so the thesis in terms of unit development is based on both businesses being fulfilled from the box and the potential that we have.
To be very strong if anything because actually it gives us even more runway in terms of unit development versus what was there before but in no way is this a trade between carryout and delivery. The two separate businesses the carrier should be incremental to the delivery business and we're doing all the work that we're doing on the deliberate business.
Speaker 12: Delivery business, but that may change if carry out as a greater focus going forward. Thanks the.
Speaker 4: So Jack B? Er question is two pretty significant components in that. So let me start with the second and I'm going to go to the first because the fromoma carrier momentum standpoint I think brusseselll talked about early in one of the previous answwer as well, the carrier business in the delivery business are two Shepherd businesses.
So in terms of U S unit growth.
The deceleration thats been happening.
A few puts and takes that are going on in Libya.
Years ago, we had to reclassify alliance and some other markets Thats basically out of the United States into.
Speaker 4: What we are seeing is very significant acceleration of the carrier business, which is very encouraging for us because we basically are able to penetrate a new market and, I think, a significantly larger market, in addition to the delivery business.
Auto internationally to design stage, which help the United States.
With the one year it ticked about five.
But other than that it's been in the four ish range pre pandemic.
Speaker 4: The delivery business one and three weeks like rossus totalthe life time is the delilivered by IO. We have a very strong position in that, So that the thesis in terms of unit development is based on both businesses is being fulfilled from the box and the potential that we have continues to be very strong. If anything, this actually gives us even more runway in terms of unit development versusis what we VE that before. But in no way there's a trade between carryout and delivery, the two separate businesses. The carryouts should be incremental to the delivery business.
I think the trailing 12 months of three is more of a flexible with some of the headwinds that we've been seeing since the pandemic started in terms of.
Last name for economic factors, including staffing.
So overall I think once we get past these headwinds there's no reason, we can't get to a normalized unit development growth, especially given the drivers I just talked about.
This carryout business being an incremental opportunity that we seem to be seeing.
Gathering steam as big as the Golar and delivery business being based on pieces was about anything. So that's that's answering both of your questions and I Hope. We gave you enough information on that I think I would just add.
Speaker 4: And we're doing all the work that we're doing on the delired business. So in terms of U's unit growth and the deceleration that's been happening, there's a few puts and takes that are going on with there. I think it's a few years ago. We have the reclass of the hawaiand and some of the market that's basically other of the United States into other of the international of the United States, which helped the United States. That was the one year. It ticked ababout 5%, but other than that it's been in the forest range, repandemic.
There is every incentive for our franchisees to continue to build obviously.
EBITDA per store is still a very strong place the returns on our new store still in a very strong place when we look at the top quintile stores on delivery are the ones that are really doing well those are the ones that have quarters from us and so what happens when a fortress as you get closer to your customers getting closer to your customers from a delivery person.
Speaker 4: And I think the trading T VE months of three is more reficiable on some of the headwinds that' been seeks thependonic traed in terms of far.
Speaker 4: I say economic factors, including staffing, and so overall, I think once we get past these headwinds, there's no reason we can't get to a normalized unit development growth, especially given the drive are distorct about it, this carry of business being an incremental opportunity that we seem to be seen gathering scheme as as to go out, and the delivery business being what the based on pieces was about anything. So that's, that's answering both of your questions and I hope we give you enough information of that.
During a.
Capacity constrained labor constrained environment helps delivery.
We also know the majority of the Carryout lightened the overwhelming majority of Carryout value. When you open up a new store is incremental so there's every incentive financially and also in helping us deal with capacity to go ahead and continue.
Hi.
Thank you.
Thank you.
And I show. Our next question comes from the line of Andrew <unk> from BMO capital markets. Please go ahead.
Speaker 7: Yes Y I think I would, as that there is every incentive for our franchisees to continue to build. Obviously that.
Hi, good morning, Thanks for taking the question I just wanted to follow up on the comments Andy that you made in your prepared remarks about after that.
Speaker 7: Ebitda per store is still a very strong place for returns on a new store, still in a very strong place. When we look at the top wilele stores on delivery, the ones that are really doing well, those are the ones that have portrous the us.
First full quarter excuse me seeing.
Seeing a lot of efficiency opportunities can you elaborate a little bit on what youre seeing maybe where the biggest opportunities are and the timeline to which we might see that start to come through the P&L. Thanks.
Speaker 7: And so what happens? When your forttrust is, you get closer to your customers. Getting closer to your customers from a delivery perspective during a capacity constrained labor, constrained environment, helps delivery. We also know the majority of the carry out 5, the overwhelming majority- to carry it by when you open up new store is incremental. So there's every incentive, financially and also in helping us deal with capacity.
Yes, Andrew Thanks for the question and so I think the opportunities are multi faceted, Brian . So I think we talked about three different components on the first one business that we talked about the consumer pricing architecture, and I think there it's really about.
Looking at given the different cost pressures that we're dealing with.
Speaker 13: Go an and do that.
Do we make sure that we deliver terrific bargain to the consumer but at the same time taken off price, where it makes sense and it still doesn't move that leverage of the consumer look keep on looking at that as time goes along.
Speaker 8: Do that, Thank you.
Speaker 8: Thank you.
Speaker 2: And I' show. A next question comes from the line of Andrew striic, from bmmo capital markets. Please go ahead.
The second was just making sure that operating revenues are growing faster than <unk>.
Speaker 3: Good morning. Thanks for taking the question. I just wanted to follow up on a comments and that you made in your prepared remarks about after the first full quarter, excuse me, seeing a lot of efficiency opportunities. Can you elaborate a little bit on what you're seeing, maybe where the biggest opportunities are and the timeline to which we might see that start to come through the piano?
Revenues are growing faster than expenses and from an operating margin standpoint, we did see some sequential improvement. We went from a 270 basis points decline in Q1 to 180 basis points decline in Q2. So that includes some G&A discipline as well as as we talked about.
We lowered our guidance for the year on G&A.
Based on that and it's really about prioritizing our expenses to make sure that we're making investments.
Speaker 4: Yes and thank. Thanks for the question and so I think the opportunities are multifaceted right. So I think we talked about three different components: 1, the first one bus list. We talked about the consumer pricing architecture and I think there it's really about looking at, given the different cost pressures that we're dealing with, how do we make sure that we deliver terrific B to the consumer But at the same time taken up price where it makes sense and it still deliver that values of the consumer will keep on looking at that as time goes ong.
And the opportunities that are driving near term growth and actually.
But could you need to invest in critical areas like technology and supply chain, which we have over the years, we'll keep doing that but it's bad proposition that is critical but the most important thing honestly is the third one that I talked about which is how do we accelerate our capacity to serve the demand that we see and then thats, what Russell talked about earlier in the call.
And.
And I think that's been very encouraging to see the progress that we've actually made in the last quarter. We continue to work on similar drivers in the coming quarters as well so as much as we can make progress on that I think we'll be able to get to much better place.
Speaker 4: The second was just making sure that operating revenues are grow faster, revenues going faster than expenses- and from an operating margin standpoint we did see some sequential improvement. We went from a 2- 70 basis points decline in Q1 two one hundred and eighty basis points a decline in Q2. So that includes some gna discipline as well that we talked about when you saw that we lowered our guidance for the year on GA and based on that, it's earli prioritizing us to expenses.
I would just add sandy talked about efficiency answers your question from a financial standpoint.
Maybe do that also from to add some color on the operation standpoint, essentially on the delivery side.
<unk>, what we need to drive simplification.
What we need to drive so our folks in the stores our focus on the most added value parts of their jobs and if you think about a couple of the.
Speaker 4: To make sure that we're making investments an opportunity, that are driving near term growth, and actually continuing to invest in critical areas like technology and supply chain, which we have over the years. We'll keep doing that but, but it it's that provisation that is critical. But the most important thing, honestly- the third one that I talked about, which is how do we accelerate our capacity to serve the demand that we see?
The programs, we talked about last quarter, and we continue to give some.
And put on here for example, one of those things is taking calls out of the store we ended last quarter.
With 29% of our stores on a call center, we ended this quarter at 43%.
Speaker 4: And then that's what usse'll talk to earlier in the call, and- and I think that's been very encouraging to see the progress that we've actually madekingin the last quarter- we continue to work on similar drivers in the coming quarters as well, So as much as we can make progress on that, I think we'll be able to get too much better place.
Our operation simplification projects.
There are many of them one we spoke about last time.
Which is eliminating multiple box folding times within a store, which doesn't sound like a lot of actually adds up to 40 hours of store a week.
Speaker 7: The obue of to add So somedden talk about efficiency answered your question from a financial standpoint. I would maybe do that also from to have some color on the operations standpoint.
And that program is now in 90% of our stores around the country. So efficiency on the operation standpoint leads to unlock our capacity and then that flows down to the financials.
Speaker 7: Essentially on the delivery side. efficiencycieswill need to drive simplification.
Great. Thank you very much.
Speaker 7: Is what we need to drive, So our folks and stores are focused on the most added value parts.
Thank you.
I show. Our next question comes from the line of Dennis Geiger from UBS. Please go ahead.
Speaker 7: Of their jobs and if you think about a couple of the program we talked about last quarter and we continue to give some input on here. For example, one of those things is taking call out of the store. We ended last quarter with 29% of our stores on call center. We ended this quarter at 43%.
Great. Thanks for the question I appreciate all the commentary on your efforts to address the driver staffing challenges and then sort of the there are a lot of the metrics that you provided as a result, there I'm just wondering if you could speak a bit more to sort of where you are on the journey to address the challenges is the plan to address the driver situation.
Speaker 7: Our operations simplification project are there are many of them when we've spoke about last time which is eliminating multiple box folding times within a store which doesn't sound like a lot. It actually adds up to 40 hours of store a week and that program is now in 90% of our stores around the country. So efficiency on the operations standpoint leads to an unlock of capacity and then that flowed down through the financial.
And internally is that finalized or are you still kind of tinkering with different opportunities internally to address that and I guess the question is if you could kind of frame up what inning. You think you are in with respect to addressing those challenges internally maybe before you look at other options, if there's a way to frame that up I.
I don't know about any Dennis.
All star break.
Speaker 8: Cha crepe. Thank you very much.
Although I am pleased with the statin won the MVP itself.
We're pretty happy we're pretty happy there.
Speaker 8: Thank you.
Speaker 2: I show. A next question comes from the line of Dennis Geiger, from U VS. Please go ahead.
We are a work in progress brand and we are just we are never going to be satisfied with our ability to fulfill capacity until we can fulfill every single order.
Speaker 7: Great thanks for the question. Appreciate all of the commentary on your efforts to address the driver staffing challenges and sort of a lot of the metrics that you provided as a result there. Just wondering if you could speak a bit more to sort of where you are on the journey to address the challenges.
That is coming our way so in that case, we will never be in the final three innings as far as I'm concerned.
Can we can always get better.
Speaker 5: Is the plan to address the driver situation internally? Is that finalized? Are you still kind of tinkering with different opportunities internally to address that? And I guess really the question is if you could kind of frame up what any you think you're in with respect to addressing those challenges internally, maybe before you look at other options. If there's a way to FR that, upthank.
We did say, but we do think in our first priority is to try to fulfill this stuff internally. We have a lot of stores, who are doing that a lot of franchisees are doing that we are 100% committed to getting this done ourselves and we're seeing improvement but.
Until we get where we need to be at.
We will.
Continue to explore all options.
Speaker 7: I don't know about any denef city is the allthar break, So over my dyankees with the sant one and be peizz, So they don't look. For we're pretty, Y're pretty happy there.
But.
Big focus there.
To be able to serve our customer.
Got it.
Thank you very much.
Speaker 7: We are a work in progress brand and we are. We are never going to be satisfied.
Okay.
Thank you.
And I show. Our next question comes from the line of Lauren Silberman from Credit Suisse. Please go ahead.
Speaker 7: With our ability to fulfill capacity until we can fulfill every single of order that is coming our way. So in that case we will never be in the final threeand invento. I'm concern because we we can always get better. We did say we do think in our first prior is to try to fulfill this stuff and interally. We have a lot of stores who are doing that on a franchisees. They RE doing that.
Thanks for the question I had one on the.
This week. So one is ran early June and I think you got that plans to get another one.
End of the summer, which I believe is more frequent than historical so can you talk about how youre thinking about the cadence of promotions from here and then is there any read through them.
Your line demand do you see it as more of a catch up from not running promotions over the last couple of years, just trying to understand how that all plays out.
Speaker 7: We are 100% committed to getting this done ourselves and we're seeing improvements, but until we get where we need to be at, we will continue to explore all options and but our big focus there.
Yes, no I mean, if you look historically we ran.
Call it three to four weeks a year.
Obviously, we are planning one at a time.
So we want to work with our franchisees obviously, everyone last one went well we can see on the next one goes and we will announce anything further after the after after that happened so nothing more than just.
Speaker 7: It's rough to be able to serve our own customers.
Speaker 14: Thank you very much, coex.
Speaker 14: Go ex.
Speaker 8: Thank you.
One step at a time one piece at a time.
Speaker 2: And I show. A next question comes from the line of laurece Silverman, from credit sues. Please go ahead.
Thank you.
Speaker 15: Thanks for the question. I'd want to boost the boost week. So one was runan early June and I think about that planans to do another one by the end of the summer, which I believe is more frequent than historical. So can you talk about how you're thinking at the cadence of boost promotion from here, and is there any read through an underlying demand? Or do you see is more of the catch up from not running promotions over the last couple of years to trying to understand how that's all plays out?
And I show. Our next question comes from the line of Chris <unk> from RBC capital markets. Please go ahead.
Hi, Good morning, Thanks for the question and thanks for the detail and thoughts on pricing so far.
Following up on those earlier comments, though can you tell us how youre thinking about pricing power today.
Do you see greater risk to any potential further pricing action given that there is more pressure on the consumer today or do you see yourself as well positioned.
Speaker 7: Yes no, I mean, if you look historically, we ran- call us three a core- two weeks a year. Obviously we are planning one at a time and so we want to work with our franchisees. Obviously everyone thought last one and went: well, we're going to see how the next one goes and we will announce anything further. We after their after, after that happened. So nothing more than just once. Step at a time. What pizz at the time.
<unk> pulled that pricing lever if necessary.
Sure Chris It's a great question and I think it really ties back to what I talked about in the prepared remarks wishes nbn pricing in itself is fine, but it's about making sure that the terrific value to the consumer.
And Thats really is the key thresholds for us and so we continue to do testing and by the way. The testing has been done for the last decade, not just the last quarter.
Speaker 8: Thank you.
Speaker 2: And I share. Our next question comes from the line of Chris carll from RBC Capital Markets. Please go ahead.
That's a process that there is always going on inside the company and look what the macroeconomic situation is as volatile as it is things keep on shifting and we have continued to do consumer testing to ensure be sort of a shifting sands, what makes sense and what doesn't make sense.
Speaker 3: Good morning. Thanks for the question and thanks for the detailed thoughts on pricing so far. Following up on those earlier comments though, can you tell us how you're thinking about pricing power today? Do you see greater risk to any potential further pricing action, given that there is more pressure on the consumer today, or do you see yourself as well positioned should you pull that pricing lever if necessary?
We're pretty clear that there is increasing.
Increasing cost environment, so there's a balance between.
Making sure that terrific value is being delivered to the consumer have been making sure that from a profitability standpoint, our franchisees are able to make up the profits on their stores doesn't want the feedback.
Speaker 4: So questionris, it's a great question and I think it truly ties back to what I talked about in the prepared remarks, which is, in the end, pricing in itself is fine, but it's about making sure that the terrific magage to the consumer, and that really is the key threshold for us, and so we continue to do testing- and, by the way, the testthing's been done for the last decade, not just the last quarter, and that's that's a process that that is always going on inside the company. And look when the the macroeconomic situation is as volatile as it is.
From a long term perspective.
We and our franchise partners basically look at it from a longer term perspective, because most of them have been with us for decades or over a number of years and signed long term commitments with us. It's a shared journey. So so we work on it together with them.
I think there is.
That's helpful and this will continue to go into what we do.
I'd just add to that point.
On balance the balance for us if we go into this quantitative testing and like I said, we've done this over a decade is essentially the balance how do we.
Speaker 4: Things keep on shifting and we continue to do consumer testing to ensure based of the shifting sense. What makes sense and what doesn't make sense we're ty clear that there is a increasing cost environment. So is a this a balance between making sure that terrific values we deliver to the consumer and then making sure that from a profitability standpoint our franchiseities are able to make the profits on this stores is T what that they Max they need from a long-term perspective that.
And as for the EBITDA.
Also how do we optimize value to the customer and all of those inputs is helpless.
Get to where we want to be we know at the end of the day, though order counts are much more correlated to profitability that ticket is about driving order count will talk about the macro environment.
To me.
I started at $1 right.
In the middle of a.
Speaker 4: And we and our franchise partners basically look at it from a longer perspective because most of them are been with us for decades or a number of years and sign long-term commitments with us and it's a shared journey, So we work on it together with them and I think there's the thoughtfulness will continue to go into what we do.
The session by 14 years ago.
As a category where.
For folks who want to continue to eat out when times are tough they will maybe down switch from a sit down or what have you into into pizza.
So we actually think.
We're our concept our business is strong.
Speaker 7: Yes I just add to that. So Sun needs to point on unbalance. The balance for us as we go into this quantitative testing- like he said, we've done this over a decade- is essentially the balance. How do we off the MO twentdy ebitd?
As we as we need to go through more difficult times.
Okay. Thank you.
Thank you.
Speaker 7: But also how do we optimize value to the customer, and all of those inputs would help us.
And our last question will come from the line.
Mr. Jon Tower from Citi. Please.
Speaker 7: Get to where we want. Maybe we know. At the end of the day though, order counts are much more correlated to profitability, to tickets- sort about driving order countswhat about the macro environment? To me- and I started it down on those rights in the middle of ourover the session by 14 years ago, this is a category where, for folks who want to continue to beat out when, when times are top, they will maybe down, switch from a sit down or would have you into, into Pizza.
Please proceed with your question.
Hello, Mitch.
Your line is open.
Hey, guys. How are you kind of affirmative, yes, I. Appreciate you taking the question first a clarification and then a question I am curious if you could clarify.
Or at least explain perhaps the.
Check differences in the Carryout business versus the delivery business and what that might mean for your same store sales just in a normalized environment and then I guess the question is.
Did the stranger things promotion this quarter and I believe it's the first time since.
Speaker 7: So we actually think where our concept, our business is strong, as we need go through more difficult times.
I want to take that band in 2008 that you have done anything with really any other brand.
At least in the television or streaming businesses. So I'm curious to know if this is a one off or do you believe this is something that could persist with other TV shows or whatever in the future.
Speaker 10: doesthat, Thank you.
Speaker 8: Thank you.
Speaker 2: Last question will come from the line of Mr John Tower from city. Please proceed with your question.
Yes, so Jonathan what I'll go through the clarification question and then Russell.
Let me answer the question on the Stranger things.
Speaker 5: mrto, your line is open. I orry you cut out from Min there. Yeah, I appreciate you icking the question. First a clarification and then the question. I'm curious if you could clarify, ber least explain perhaps, the check differences in the carryout business versus the delivery business and what that might mean for your same store sales just in a normalized environment. And then I guess the question is: you know you did the stranger things promotion this quarter, and I believe it's the first time.
Things.
Question that you have.
So I think we will check different standpoint, we are always have been between the delivery fee.
And other components of the cost to serve the delivery ticket tends to be higher than the carryout ticket.
There's a few other dynamics in terms of some of the national opportunity the remainder as well that go into it but.
But that is pretty much what we would say it is a higher ticket and carryout.
But I think it also is pretty obvious when you look at the relative trends of delivery versus carrier carrier had a 14, 6% same store sales increase in the quarter delivery was down 11, 7% and comps were down minus two 9%.
You can actually make the conclusion from that too.
Yes.
Sure Andrew.
We have an amazing memory.
My first day I remember looking at that that Batman box.
Speaker 16: Some of the stranger, strangeer things.
Wow, that's pretty amazing.
Speaker 4: Question that it had. So I thinkpeople in check from standpoint always a between the delivery fee and other components of the const to serve the delivery ticket tach to be higher than the carryer ticket.
You are right, though interestingly enough, we have not done a tie in in.
In a big way since then and Thats because I believe we believe that.
We really don't have any interest in getting lost in the laundry list that brand time.
Speaker 4: There's a few other dynamics in terms of some of the nationalural opportunities that we made as well that go into it. But but then is pretty much what we would say. It is a higher ticket than carry out and but I think you did also as pretty helppe. When you look at the relative trends of delivery versus carry out, carrier had a 15%. Since sto sales increase in the quarter, delivery will N 12% and comps were down minus 3%.
Most of the time, nowadays, whether it's with sports or with.
Movies or what have you that's what it is at the end of the day I'm not sure if anyone knows what brand is associated with what I think it does get lost there and I think that was one of the reasons why this promotional was so strong because we don't do it a lot and Netflix and particularly the strength.
<unk> property, they don't do that a lot and so when two brands that are are really strong brand in and of itself without being borrowed equity has come together and do something that is so powerful.
Speaker 16: So you can actually make the conclusion from that too.
Speaker 7: Yeah stranger things. I, I to you have an amazing memory: my my first day. I remember locate that B, that batbman box, that stuff, while I was pretty raing. You know you're right, though interestingly not. We have not done a TI in a big way since then and that's because you know, I believe, we believe.
And so we have an opportunity like this comes around again, you can see it through this but our logo will not be paid.
The bottom left a dozen others in the partnership.
Thank you.
This concludes our Q&A session at this time I would like to turn the call back to Russell winner CEO for closing remarks.
Speaker 7: That we really don't have any interest in getting locked in a laundry listft of brren heen.
Hey, Thanks, so much everybody for joining the call. This morning on leaf and I look forward to speaking with you in October to.
Speaker 7: andmost of the time nowadays, whether it's with sports or with you know movies, or we have you. That's what it is at the end of the day. I'm not sure if anyone knows what brand is associated with what. I think it just get lost there.
To discuss our third quarter 2022 results for the quarter of 2022 results are a great. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker 7: And I think that was one of the reasons why this promotion was so strong, because we don't do it a lot. And netflix- and particularly the strings thing, is property- they don't do that a lot, and so when two brands that are really strong- brands in and of itself, without being barrow equities, come together and do something that this is so powerful- And so we have an opportunity like this- comes around again, you can see us do this, but our logo will not be paid at the bottom a dozen others in a partnership.
Speaker 8: Thank you.
Speaker 2: This concludes our QA session. At this time I'd like to turn the call back to Russell winner CEO for closing remarks.
Speaker 7: He Thanks so much to everybody for joining the call this morning leve, and I look forward to speaking with you in October to discuss our third quarter 2000 and twenty-tworesuts, the ter 2000 and twenty-two results at A. this concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker 1: The conference will begin shortly. To raise your hand during QA, you can dial Star an.
Speaker 6: I have.
Speaker 6: The.
Speaker 6: I.