Q3 2023 Domino's Pizza Inc Earnings Call

October 12, 2023

Okay.

Thank you for standing by and welcome to Domino's third quarter 2023 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to reduce your host for today's program. Mr. Ryan <unk>, Vice President Finance Investor Relations. Please go ahead Sir.

Good morning, everyone. Thank you for joining us today for our conversation regarding the results for the third quarter of 2023.

Today's call will begin with our Chief Executive Officer, Russell Leaner, followed by our Chief Financial Officer, Danny Brad.

Russell and Sandeep will leave ample time for questions and discussion.

And this call is for our investor audience members of the media and others should be in a listen only mode.

The forward looking statements in this morning's earnings release.

Tom do you 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.

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.

We wanted to do our best this morning to accommodate as many of your questions as time permits.

We encourage you to ask only one one part question on this call.

Today's conference call is being webcast and is also being recorded for replay via our website I'd now like to turn the call over to our Chief Executive Officer Russell leaner.

Thanks, Ryan and good morning, everybody.

Remarks. This morning will focus on several new initiatives that are designed to create significant shareholder value in the months and years ahead.

We launched our new loyalty program Domino's rewards on September 12, and here are some of the mechanics that are really meaningful to our current and prospective customers.

First we lowered the spend threshold to earn points from $10 down to $5 and this change will make us even more competitive in the Carryout segment, where ticket tends to be lower.

Our second change was creating more attainable redemption opportunities for lower frequency customers. So in the past they needed to order six times they get a free pizza, our new program features redemptions at $20 $40 $60 tiers and offers items from eight different categories on our expansive menu.

Joining pizza at the $60 level or other big sandwiches, pastas and lot of kicks.

At 40 points, we feature our lines of bread twist and stuffed cheesy bread and are 20 points. We offer single serve beverages, parmesan bread bites and tipping cups.

More items to choose from with redemption options. After just two purchases.

While the program just launched we've seen meaningful redemptions at the 20% and 40 point levels. So customers are clearly engaging more with domino's rewards.

These strategic improvements will be a significant value driver for our brand and company.

We plan to grow active users and order frequency unlocking continued share growth in both the delivery and Carryout segment.

Our second value, creating initiatives is entering the aggregator marketplace for delivery orders our integration into the <unk> platform is proceeding as planned.

We will achieve our goal of Uber eats providing delivery orders to all our U S stores by the end of the year.

Unknown Executive: Thank you for sending by, and welcome to Domino's third quarter, 2023 earnings conference call At this time, all participants aren't listening only mode After the speaker's presentation, there will be a question and answer session Ask a question during the session You'll need to press star 1-1 on your telephone To remove yourself from the queue, simply press star 1-1 again As a reminder today's program is being recorded And now I'd like to introduce your host for today's program Mr. Ryan Goers, Vice President, Finance and Investor Relations, please go ahead Sarah Good morning everyone, thank you for joining us today for our conversation regarding the results for the third quarter of 2023 Today's call will begin with our Chief Executive Officer, Russell Weiner, followed by our Chief Financial Officer, Sandeep Reddy, Russell and Sandeep will leave ample time for questions and discussion As this call is for our investor audience, members of the media and others, should be in a listen-only mode The forward-looking statements in this morning's earnings release, A&10Q, also a five-door comment on the call today Both of those documents are available on our website Action will results or trends could differ materially from our forecast For more information, please refer to the risk factors discussed in our filings with the FEC In addition, please refer to the 8K earnings release to find disclosures and reconciliation of non-GAP financial measures that may be referenced on today's call We want to do our best this morning to accommodate as many of your questions as time permits As such, we encourage you to ask only one part question on this call Today's conference call is being webcast and is also being recorded for replay via our website I now like to turn the call over to our Chief Executive Officer, Russell Weiner Thanks, Ryan, and good morning, everybody My remarks this morning will focus on several new initiatives that are designed to create significant shareholder value in the months and years ahead We launched our new loyalty program, Domino's Rewards, on September 12th And here are some of the mechanics that are really meaningful to our current and prospective customers First, we lowered the spend threshold to earn points from $10 down to $5 And this change will make us even more competitive in the carryout segment where ticket tends to be lower Our second change was creating more attainable redemption opportunities for lower frequency customers So in the past, it needed to order six times to get a free pizza Our new program features redemption set 20, 40, and 60-point tiers And offers items from eight different categories on our expansive menu Joining pizza at the 60-point level are of the big sandwiches, pastas, and lot of cakes At 40 points, we feature our lines of bread twists and stuff cheesy bread And at 20 points, we offer single serve beverages, parmesan bread bites, and dipping cups Some more items to choose from with redemption options after just two purchases While the program just launched, we've seen meaningful redemptions at the 20 and 40-point levels So customers are clearly engaging more with them and Jonas Rewards. These strategic improvements will be a significant value driver for our brand and company. We plan to grow active users and order frequency, unlocking continued share growth, both at delivery and carry out segments.

We expect this initiative will drive incremental delivery volume from new customers increase our share of the pizza delivery market and create stronger economics for our company and franchisees. This will begin in a measurable way in the first quarter of 2024.

We want to exceed the expectations of the incremental customers will get through Domino's rewards and <unk>.

By the way to do that is through best in class delivery service.

And Thats why I am pleased to announce that we ended Q3 of 2023 back at our pre pandemic Q3 2019 delivery times.

This improvement was achieved through many of the best practices highlighted with franchisees during our summer of service program.

This focus is important for us to provide an excellent delivery experience for new customers flowing in from Domino's rewards and Uber eats channel. We want these experiences to lead to loyal lapsing customers, who will provide considerable lifetime value for our brand and our company.

Now I'll talk to a renewed commitment to the all important role innovation plays on the pizza category and our ability to continue to build our brand.

We launched pepperoni start cheesy bread on August 28.

<unk> cheesy bread launches indicative of two things that youre going to see from us going forward.

Bringing news to our existing non pizza platforms and leveraging Domino's rewards.

For the launch of Hepa, only step cheesy bread, we lowered the redemption points required from $40 to $20.

It's great to see our product and technology innovation work, so well together and this is an example of the kind of purposeful innovation I've talked about in the past.

Innovation that serves many functions in this case, we've got a new product. It makes an existing platform top of mind with customers all.

All the while encouraging customers to sign up for and continue to take advantage of our improved loyalty program. So more customers more orders and more market share all leading to more topline growth and greater profit.

Another example of purposeful innovation as the emergency Pizza promotion, we launched just a few days ago.

Customers, who order Domino's will have 30 days to claim a free pizza to use in any emergency they see fit.

Whether dinner was burned or maybe circumstances are making things a bit tougher to afford customers who place an order on our E. Commerce platform will automatically earn a domino's emergency pizza they'll.

They'll have 30 days to redeem their emergency pizza and of course must be members of Domino's rewards to do so.

Another innovation designed to drive more customers more orders and more profit.

We're also driving purposeful innovation behind technology to improve customer service and the team member experience.

October <unk>, we announced undertaking the challenge with the best in the business Microsoft.

Our two companies will collaborate on generative AI solutions that will create the next generation of pizza ordering and operations technology.

Together our teams are focused on two important goals.

First transforming customer experiences by enhancing the ordering process through personalization.

Simplification.

And then second streamlining operations and quality control with more predictive tools.

I couldnt be more excited to work with Microsoft on this critical endeavor.

Finally, I want to address one of the most important topic for all of US here at Domino's and Thats profit prop.

Russell Weiner: Our second value creating initiative is entering the aggregator marketplace for delivery orders. Our integration into the Uber Eats platform is proceeding as planned. We'll achieve our goal of Uber Eats providing delivery orders to all our US stores by the end of the year. We expect this initiative will drive incremental delivery volume from new customers, increase our share of the pizza delivery market, and create stronger economics for our company and franchisees. This will begin in a measurable way in the first quarter of 2024. We want to exceed the expectations of the incremental customers will get through Domino's Rewards and Uber Eats. Now, the way to do that is through best in class delivery service.

Profit for our stores and profit for our company.

Despite our predicted and previously discussed softness in our U S same store sales or operating income margin improved as did our estimated franchisee profitability for the year.

What that means is that the sales improvements we expect to realize in Q4 and even more significantly in 2024 will flow through a more efficient model for domino's and our investors.

I am confident about our future, including the more immediate future here at Domino's.

With that I'll turn things over to Sandeep.

Thank you Rocco and good morning to everyone on the call.

Before I go through our financial performance for the quarter I wanted to give an update on Russia.

Russell Weiner: And that's why I'm pleased to announce that we ended Q3 of 2023 back at our pre-pandemic Q3 2019 delivery times. This improvement was achieved through many of the best practices highlighted with franchisees during our summer of service program. This focus is important for us to provide an excellent delivery experience for new customers slowing in from Domino's Rewards and the Uber Eats channel. We want these experiences to lead to loyal lasting customers who will provide considerable lifetime value for our brand and our company.

Our master franchisee DP Eurasia.

The process to exit the market.

As detailed in our earnings release.

As a result, we closed the remaining 143 stores in the market during the third quarter.

For the purposes of global retail sales growth and our net store growth, we have removed the Russia business from both the current and prior year.

Moving on to updates on our actions to drive the long term profitability of Domino's and our franchisees.

First.

Russell Weiner: Now I'll talk to our renewed commitment to the all-important role innovation plays in the pizza category and our ability to continue to build our brand. We launched Pepperoni Stuff Cheesy Bread on August 28th. The Stuff Cheesy Bread launch is indicative of two things that you're going to see from us going forward. Bringing news to our existing non-pizza platforms and leveraging Domino's Rewards. For the launch of Pepperoni Stuff Cheesy Bread, we lowered the redemption points required from 40 to 20.

Pricing.

During the third quarter, the average price increase across our U S system was three 2%.

We now expect average realized pricing to moderate to slightly below 1% in the fourth quarter. When we map the carrier mix and match pricing change from October 2022.

And incorporate the impact of trends, we are seeing from our newly launched Domino's rewards loyalty program.

Second.

Russell Weiner: It's great to see our product and technology innovation work so well together and this is an example of the kind of purposeful innovation I've talked about in the past. Innovation that serves many functions. In this case, we've got a new product that makes an existing platform, top of mind with customers, all the while encouraging customers to sign up for and continue to take advantage of our improved loyalty program. So more customers, more orders and more market share, all leading to more top line growth and greater profits.

Cost efficiencies as we continue to drive margin recovery.

We drove an improvement in our operating income margin, which grew by 190 basis points versus Q3 2022.

We now expect operating income margins for the year to reach 2021 levels.

Third.

Positive retail sales growth, excluding foreign currency impact.

And international businesses drove operating income improvement.

Now for our financial results for the quarter.

Russell Weiner: Another example of purposeful innovation is the emergency pizza promotion we launched just a few days ago. Customers who ordered Domino's will have 30 days to claim the free pizza to use in any emergency they see fit. Whether dinner was burned or maybe circumstances are making things a bit tougher to afford, customers who place an order other e-commerce platform will automatically earn Domino's emergency pizza. They'll have 30 days to redeem their emergency pizza and of course must be members of Domino's Rewards to do so. Another innovation designed to drive more customers, more orders, and more profits.

Excluding the positive impact of foreign currency.

Global retail sales grew five 1% due to positive international sales comps and global net store growth.

U S retail sales increased <unk>, 9%.

The national retail sales, excluding the positive impact of foreign currency grew nine 4%.

During Q3 same store sales for the U S business decreased <unk>, 6%.

The decrease in U S same store sales was driven by order count declines.

Partially offset by a higher average ticket.

Putting the pricing actions I mentioned earlier.

Russell Weiner: We're also driving purposeful innovation behind technology to improve customer service as a team member. We're Experience. On October 3rd, we announce undertaking this challenge with the best in the business, Microsoft. Our two companies will collaborate on Gendron's AI solutions that will create the next generation of pizza ordering and operations technology. Together our teams are focused on two important goals. First, transforming customer experiences by enhancing the ordering process through personalization and simplification. And then second, streamlining operations and quality control with more predictive tools. I couldn't be more excited to work with Microsoft on this critical endeavor.

Our U S carrier business continued its positive momentum in Q3 with same store sales plus one 9%.

Rolling over a plus 19, 6% performance in 2022.

The delivery business continue to be challenged in Q3 in.

In line with our expectations stated on the last call with delivery same store sales minus two 3% rolling over a minus seven 5% in Q3 2022.

As mentioned on the last call, we expect delivery orders to have an improvement in trend in Q4, as our updated loyalty program and our emergency pizza promotion have now rolled out.

Russell Weiner: Finally, I want to address one of the most important topics for all of us here at Domino's and that's profit. Profit for our stores and profits for our company. Despite our predicted and previously discussed softness in our US same store sales, our operating income margin improved as did our estimated franchisee profitability for the year. With that means that the sales improvements we expect to realize in Q4 and even more significantly in 2024 will flow through a more efficient model for Domino's and our investors.

And that followed by a considerable improvement in 2024 as a result of transaction growth from our Uber eats partnership and the other initiatives previously shared with you.

Including consistent trends versus Q3 in our carrier business, we expect U S sales comps to be positive in the fourth quarter.

Shifting to unit count.

We added 27 net new stores in the U S with 28 store openings and one closure.

Bringing our U S system store count to 6000, and 762 stores at the end of the quarter.

Russell Weiner: I am confident about our future, including the more immediate future here at Domino's.

As we had previously indicated the U S for quarter net store growth rate stabilized during the quarter at one 8% consistent with the rate at the end of the second quarter.

Sandeep Reddy: With that, I'll turn things over to Sundeep. Thank you, Russell, and good morning to everyone on the call.

Sandeep Reddy: Before I go through our financial performance for the quarter, I wanted to give an update on Russia. Our master franchisee DP Eurasia announced their process to exit the market as detailed in our earnings release. As a result, we close the remaining 143 stores in the market during the third quarter. For the purposes of global retail sales growth and our net store growth, we have removed the Russia business from both the current and prior.

We remain confident the store growth rate will improve during the fourth quarter with further acceleration into 2024.

As of last week 72 stores are under construction in the U S. The majority of which are expected to open in Q4.

Dominoes unit economics remained strong with continued EBITDA growth for our U S franchisees.

We are on track to deliver estimated average franchisee store profitability of at least $155000 in 2023.

Sandeep Reddy: Moving on to updates on our actions to drive the long term profitability of Domino's and our franchisees. First, pricing. During the third quarter, the average price increase across our US system was 3.2%. We now expect average realized pricing to moderate the slightly below 1% in the fourth quarter when we left the carrier of mix and match pricing change from October, 2022, and incorporate the impact of trends we are seeing from our newly launched Domino's rewards loyalty program.

Up from the $150000, we indicated on the last call.

Same store sales, but our international business, excluding foreign currency impact increased three 3%.

Our international stroke on decreased by 35 net stores comprised of 190 store openings and 225 closures.

Closures were primarily driven by the previously mentioned exit of the Russia market and its remaining 143 stores along with store closures from Domino's Pizza enterprises as mentioned on our last call.

Sandeep Reddy: Second, cost efficiency as we continue to drive margin recovery. We drove an improvement in our operating income margin, which grew by 190 basis points versus Q3 2022. We now expect operating income margins for the year to reach 2021 levels. Third, positive retail sales growth, excluding foreign currency impact in our US and international businesses, drove operating income improvement.

Our current trailing four quarter net store growth rate in international was five 9%.

When combined with our U S store growth.

Our trailing four quarter global net store growth rate was four 5%.

We expect our global unit growth to track two or slightly below the low end of our 5% to 7% two to three of our outlook.

Sandeep Reddy: Now for our financial results for the quarter. Excluding the positive impact of foreign currency, global retail sales grew 5.1% due to positive international sales comps and global net store growth. US retail sales increased 0.9%. 3% International retail sales, excluding the positive impact of foreign currency, grew 9.4% During Q3, same-store sales for the US business decreased 0.6% The decrease in US same-store sales was driven by order count declines partially offset by a higher average ticket including the pricing actions I mentioned earlier Our US carry out business continued its positive momentum and Q3 with same-store sales plus 1.9% rolling over a plus 19.6% performance in 2022 The delivery business continued to be challenged in Q3 in line with our expectations stated on the last call with delivery same-store sales minus 2.3% rolling over a minus 7.5% in Q3 2022 As mentioned on the last call, we expect delivery orders to have an improvement in trend in Q4 as our updated loyalty program and our emergency pizza promotion have now ruled out and that followed by a considerable improvement in 2024 as a result of transaction growth from our Uber Eats partnership and the other initiatives previously shared with you Including consistent trends versus Q3 in our carry out business, we expect US sales comps to be positive in the fourth quarter Shifting to unit count, we added 27 net new stores in the US with 28 store openings and one closure bringing our US system store count to 6,762 stores at the end of the quarter As we had previously indicated the US 4 quarter net store growth rate stabilized during the quarter at 1.8% consistent with the rate at the end of the second quarter We remain confident the store growth rate will improve during the fourth quarter with further acceleration into 2024 As of last week 72 stores are under construction in the US the majority of which are expected to open in Q4 Domino's unit economics remain strong with continued EBITDA growth for our US franchisees We are on track to deliver estimated average franchisee store profitability of at least $155,000 in 2023 Up from the $150,000 we indicated on the last call Name store sales in our international business excluding foreign currency impact increased 3.3% Our international store count decreased by 35 net stores comprised of 190 store openings and 225 closures Closures were primarily driven by the previously mentioned exit of the Russia market and it's remaining 143 stores along with store closures from Domino's pizza enterprises as mentioned on our last call Our current trading 4 quarter net store growth rate in international was 5.9% When combined with our US store growth our trading 4 quarter global net store growth rate was 4.5% We expect our global unit growth to track two or slightly below the low end of our 5% to 7% two to three year outlook.

Despite strong gross openings, we will be pressured by elevated store closures this year.

We believe are mostly behind us.

Since these closures were underperforming stores and certain underperforming markets. We do not anticipate this will materially impact the financial benefit of our new international store openings.

Thank you we will now open the call to questions.

Certainly ladies and gentlemen, if you do have a question at this time as a reminder, please press star one on your telephone.

One moment for our first question.

And our first question comes from the line of Brian Bittner from Oppenheimer. Your question. Please.

Thanks, Good morning.

The Domino's system clearly has two new drivers in your relaunch of rewards and the upcoming Uber eats initiative and you seem very confident that this is going to drive incremental demand you even had the summer of service initiative earlier this year to get the system ready.

For higher order counts.

Just as it relates specifically to this rewards relaunch it happened a month ago. So we're a month in.

Can you just be really helpful to understand the early reads on this initiative I know you expect improved comp trends in the fourth quarter I think you said positive comps.

But any incremental color would be helpful on whether it's driving true increments how the.

And how its behaving relative to your prelaunch expectations for the relaunch.

Good morning, Brian its Russell Thanks for the question and we're really I would say.

Very excited about how this has come out of the gate.

We've done two things with the rewards program and both are working right purposefully. We took the dollar level down to entry level from $10 to $5 and that's really important, especially when you think about our carryout customer we are a national deal at 799. So prior to this change you couldnt get the national deal and loyalty points.

So this has been a really nice way to bring in lighter users and carryout customers. That's on the front end.

And then on the backend we talked about we have eight different ways eight different platforms now that you can use your.

It used to be that you had.

By six times in order to get.

A free Pizza now you can buy as little as two times to get free items and what that does is it really plays with frequency of lighter users. So youre right Thats, what we projected before I hand, it what I can tell you as we've moved in so far that's exactly what we've seen we've seen a lot of folks.

Doing that with Domino's rewards.

Thank you one moment for our next question.

And our next question comes from line of.

Peter <unk> from <unk> Your question. Please.

Great. Thanks, and thanks for all the color you guys provided.

So I wanted to ask about the Uber eats partnership, which you guys seem also very excited about.

That really kicks into gear next year, but I think you guys have had it in a few markets. So far now for either a couple of months or so.

Any thoughts or any detail you can provide on the early reads there or any how it's performing versus your expectations and if you've had to make any adjustments.

So far to the program going forward. Thanks.

Yes, Thanks, Peter obviously, it's something we're all really watching closely these pilot markets and I call. It pilot versus test market, because we're really not using any marketing either outside or inside the platform. At this point. This is really more to test out what I call kind of the handshake between two really large platforms Domino's, we already have.

Sandeep Reddy: Despite strong growth openings, we will be pressured by elevated store closures this year that we believe are mostly behind us. Since these closures were under performing stores and sudden under performing markets, we did not anticipate this will materially impact the financial benefit of our new international store openings.

Sandeep Reddy: Thank you.

The liver more pizza than anyone in the country and so as we.

Take on these incremental orders, we just need to make sure that technology works.

Unknown Executive: We will now open the call to questions. Certainly, ladies and gentlemen, if you do have a question at this time as a reminder, please press star 11 on your telephone. One moment for our first question.

What we're doing now and then certainly making sure the staffing is right and we're working with Uber and our franchisees to do that.

So we've been in Las Vegas, right now and what I can tell you is things are going as planned and we're now continuing that those pilots moving in over the next course of the next few weeks into Houston Miami.

Brian Bittner: And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please. Thanks, good morning. You know that the domino system clearly has two new drivers in your relaunch of rewards and the upcoming Uber Eats initiative. And you seem very confident that this is going to drive incremental demand. You even had the summer of service initiative earlier this year to get the system ready for higher order counts. And just as it relates specifically to this rewards relaunch, it happened a month ago.

Troy and Seattle, both corporate stores and franchise stores. So all is going as we expected and we're still on target for a <unk>.

National launch at the end of the year.

Thank you one moment for our next question.

And our next question comes from line of Sara Senatore from.

<unk> America your question please.

Great. Thank you very much.

Brian Bittner: So we're a month in and it just be really helpful to understand the early reads on this initiative. I know you expect improved concerns in the fourth quarter. I think you said positive prompts. But any incremental color would be helpful on whether it's driving true incrementality and how it's behaving relative to your pre-launch expectations for the relaunch. Morning, Brian. It's Ross. All thanks for the question.

Absolutely.

Another question.

Make sure I understood the gross openings in the U S are on track.

The global numbers.

More about international closures, but then the question I have.

About the loyalty you said that Youre seeing more engagement is when when would you expect to see the increased frequency.

If you have these sort of lower frequency customers Charlie company.

Russell Weiner: And we're really, I'd say I'm very excited about how this has come out of the gate. We've done two things with the rewards program and both are working, right? Perfectly, we took the dollar level down entry level from $10 to $5. That's really important, especially when you think about our carry out customer. You know, we have a national deal at $7.99. So prior to this change, you couldn't get the national deal and loyalty points.

A couple of times that you might take a while for you to know the impact of the change in the redemption tiers.

Russell Weiner: So this has been a really nice way to bring in lighter users and carry out customers. That's on the front end. And then on the back end, we talked about we have eight different ways, eight different platforms now that you can use your points. It used to be that you had to buy six times in order to get free pizza. Now you can buy as little as two times to get free items.

Anything you can tell us about frequency.

And you're right the.

A low frequency customer that you might be seeing that could give us some color on what.

What the impact on transaction might look like over time.

Sure I'll answer both your questions I think your first questions was about closures in the U S.

In the U S. We actually we closed one store this past quarter and I think sandeep talked about franchisee EBITDA and when you think about what drives store opens and remember he said that we've got visibility into over 70 builds right now.

Russell Weiner: And what that does is it really plays with frequency of lighter users. So you're right. That's what we projected beforehand at what I can tell you as we've moved in so far. That's exactly what we've seen. We've seen a lot of folks doing that with down those rewards. Thank you, one moment for our next question.

So you've got visibility into builds you've got franchisee EBITDA at $1 55. These stores when they opened stay open.

There is a lot of <unk>.

<unk> about building stores at Domino's Pizza.

We've been under 20 annual closures in the U S. Since 2000.

2017, so we have a strong U S pipeline and those stores stay open.

On the on the loyalty side.

What I can tell you honestly it is really early in but what we were looking for is lower level redemption levels.

Peter Saleh: And our next question comes from the line of people at Peter's L.A. From B.P.I.G. Your question, please. Great. Thanks. And thanks for all the color you guys provided. Russell, I wanted to ask about the Uber Eats partnership, which you guys seem also very excited about. That really kicks in the gear next year, but I think you guys have had it in a few markets so far now for either a couple of months or so.

<unk> customers and we're seeing that in spades. So we'll.

We'll have more information.

Longer term once we get through a couple of purchase cycles, but pretty much right away, we're seeing what we wanted to see there.

So I'll just add on our global net unit growth, but Australia, driven by the international closures that we talked about on the last call and now we are seeing it come through in the Q3 numbers as well and Thats the big driver of the adjustment of the expectations.

The 23 level.

Okay.

Thank you one moment for our next question.

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

Russell Weiner: Obviously it's something we're all really watching closely, these pilot markets, and I call it pilot versus test market because we're really not using any marketing either outside or inside the over platform at this point. This is really more to test out what I call kind of a handshake between two really large platforms. I mean, Domino's, we already deliver more pizzas than anyone in the country. And so as we take on these incremental orders, we just need to make sure that technology works.

Great. Thank you I wanted to ask another on the U S New open trajectory and.

Maybe a little more thoughts as it relates to U S franchisee demand to open those stores and the expected acceleration into 'twenty four I guess, how much of this is you have got some really compelling sales drivers. The topline is going to look better. The returns are going to look better how much of it maybe is the staffing is in a better place than it has been over the long.

Russell Weiner: That's what we're doing now. And then certainly making sure the staffing is right. And we're working with Uber and our franchise used to do that. So we've been in Las Vegas right now. And what I can tell you is things are going as planned. And we're now continuing that those pilots moving in over the next course of the next few weeks into Houston, Miami Detroit and Seattle, both corporate stores and franchise stores. So all is going as we expected. And we're still on target for a national launch at the end of the year.

Last 12 to 18 12 to 24 months, if you could just kind of unpack a little bit of the sort of demand shift from what we've seen maybe over the last 12 plus months to what you guys expect in 'twenty four and beyond in the us that'd be great. Thank you.

Yes, Dennis you've obviously done good research out of the business you had a lot of those there I think it's all of those things are coming back right. So the headwind on opens that we're there with permitting and all of that those have started to subside staffing is back where we needed to I wanted to reiterate how proud I am of our system. We are back at 2019 service levels, which.

Dennis Geiger: Thank you one moment for our next question. And our next question comes from the line of Therith and a tour from Bank of America. Your question, please. Great. Thank you very much. I just actually a clarification a question. I just wanted to make sure I understood that the growth opens in the US are on track. The global numbers on that are more about international closures. But then the question I had was about the loyalty.

It's a big deal and it talks about where we've gotten our staffing too.

Second is the second big chunk is over what folks are seeing on the returns of the businesses. They currently own and as EBITDA continues to go up.

If I'm, a franchisee I'd say Wow EBIT.

At $1 55, right now.

And thats on relatively flat sales in the U S and we know what's coming in the Q4, and we know what's coming with Uber in Q1, so today and certainly if there was a lot of interest to make sure that we service. This volume I think lastly, this carryout business that we're leaning into store growth is so important to the franchise franchisees realize that right.

Dennis Geiger: You said that you're seeing more engagement. And when would you expect to see the increased frequency? If you have these sort of lower frequency customers only coming a couple of times a year, might it take a while for you to know the impact of the change in the redemption tiers. Or is anything you can tell us about frequency of others average or, you know, or the low frequency customer that you might be seeing that could give us some color as to what the impact on transaction might look like over time.

When we when we opened a new store, even when the stores split so when we take an existing service area. We split it about 80% of those carrier customers are incremental and so when you look at the headwinds that have subsided.

And you look into the present and the future at the franchisees there are a lot of reasons to build a domino's store.

Dennis I'll, just add on something because I think in.

Russell Weiner: Sure, I'll answer both your questions. I think your first questions was about closures in the US. In the US, we actually we close one store this past quarter. And I think you know, Sunday talked about franchise the EBITDA. And when you think about what drives store opens. And remember, he said that we've got visibility into over 70 builds right now. So you've got visibility into builds. You've got franchise the EBITDA at 155. These stores when they open stay open. There's a lot of excitement about building stores at Domino's Pizza. We've been under 20 annual closures in the US since 2017.

Previous calls we've talked about the build cost right, where we expected to build costs have gone up about 20% versus 2019, frankly build costs are coming in.

The level for 2003 from what we've seen so far.

Look profit has actually gone up.

We updated last time to $115 155, so obviously the returns are going to be more and more compelling given that dynamic.

Frankly, with the Uber opportunity coming next year, we would expect to see even more growth.

In 2004 in terms of profitability of the stores.

So the appetite is very strong.

Thank you guys I appreciate it.

Thank you one moment for our next question.

Russell Weiner: So we have a strong US pipeline and those stores stay open on the on the loyalty side. What I can tell you obviously it is really early in, but what we were looking for is lower level redemption levels amongst customers and we're seeing that in space. So we'll have more information longer term when we get through a couple of purchase cycles, but pretty much right away, we're seeing what we wanted to see.

And our next question comes from the line of Suraj Gokhale from Jpmorgan. Your question. Please.

Hi, This is John <unk>, hopefully you can hear me.

My question is actually on the Microsoft announcement, and I do want to put this into context 20, plus years of in house point of sale development closed system. Obviously, there is significant benefits that came with this closed system, but also considerable costs. So I just did want you to frame it.

Russell Weiner: And Sara, I'll just add on on the global net unit growth, that's already driven by the international closures that we talked about in the last call and now we're seeing it come through in the Q3 numbers as well. And that's the big driver of the adjustment of the expectations on the 23 level. Thank you one moment for our next question.

It's a five year agreement.

We know that I read in the release just kind of how you see this this balance changing but from a benefit side.

The equation, what the franchisees are going to see what the customer will see what of course, you will get as a company, but also the cost side of the equation.

Dennis Geiger: And our next question comes from the line of Dennis Geiger from UBS. Your question please. Great, thank you.

<unk> is actually an opportunity to perhaps on a net basis slow some of the technology spend that Domino's has actually been famous for over the years. Thank you.

Russell Weiner: I wanted to ask another on the US new open trajectory and maybe a little more thoughts as it relates to US franchisee demand to open those stores and the expected acceleration into 24. I mean, guess how much of this is you've got some really compelling sales drivers. The top line's going to look better. The returns are going to look better. How much of it maybe is the staffing is in a better place than it has been over the last 12 to 18 12.

Hey, good morning, John .

That's a great point as you look back in the history of Domino's, We we certainly have built more things internally when it comes to competitive points of difference I think we've always said you can't outsource a competitive point of difference.

We do outsource things.

That are really.

Russell Weiner: So you can just kind of unpack a little bit of the sort of demand shift from what we've seen maybe over the last 12 plus months to what you guys expect in 24 and beyond in the US. That'd be great.

Out there in the field that really are in a competitive point of difference. So what have we done here in this case.

There's going to be a competitive point of difference with <unk>.

<unk> AI solutions, and we think we've got the resources and the pizza expertise internally.

Russell Weiner: Thank you. Yeah, Dennis, well, you've obviously done good research on the business. You had a lot of those there. I think it's all those things are coming back, right? So the headwind on opens that were there with permitting and all that those has started to subside staffing is back where we needed to want to to reiterate how proud I am of our system. We are back at 2019 service levels, which is it's a big deal.

What we've got with Microsoft is the best in the field externally and so you take those two things together.

It's not just cost. It's also impact this is a journey that if we could pick any one to do it with we would Pip Microsoft and so right now the focus is really on two areas with them first on transforming the consumer experience by enhancing the order process through things like personalization and simplification.

Russell Weiner: And it talks about where we've gotten, you know, our staffing to a second is the second big chunk. Is over what what folks are seeing on the returns of the businesses they currently own and as you that continue to go up. If if I'm a franchise, I say, wow, I'm even at one 55 right now. And that's on relatively flat sales in the US. And we know what's coming in the Q4.

And the second is streaming streamlining operations and quality control with some more predictive tools. So yes. This is kind of a hybrid here best in class best in class Pizza Best in class AI and our teams are very excited to work together.

Russell Weiner: We know it's coming with Uber and Q1. So today. And so there's a lot of interest to make sure that we serve us this volume. I think lastly, this carryout business that we're leaning into store growth is so important. The franchise franchisees realize that right now when we when we open a new store, even when the store is split. So when we take into this things service airing, we split it about 80% of those carryout customers are incremental. And so when you look at the headwinds that have subsided and you look into the present and the future of the franchisees, there are a lot of reasons to build the domino store.

Thank you one moment for our next question.

Yeah.

And our next question comes from the line of Andrew <unk> from BMO capital markets. Your question. Please.

Hey, good morning, Thanks for taking the questions.

Maybe just a broader question on the consumer and what Youre seeing there and how maybe behaviors may be evolving whether it's through delivery carryout domestic international I'm curious, what's your analytics to show you how things are changing.

Yes, our approach no matter, what the consumer environment has always been the same which is to provide the best relative value for our customers and that hasnt changed not only the U S but internationally.

Sandeep Reddy: And Dennis, I'll just add on something because I think we've on previous calls, we talked about the build costs, right? We expected that the bill costs have gone up about 20% versus 2019. Frankly, bill costs are coming in a very similar level for 23 from what we've seen so far. And look profit has actually gone up. We updated last time to 150. Now it's 155. So obviously returns are going to be more and more compelling, given that dynamic. And frankly, with the Uber opportunity coming next year, we expect to see even more growth in 24 in terms of profitability of the stores. So appetite is very strong.

Unknown Executive: Thank you guys. Appreciate it.

To point to a couple of best practices that have been exported around our boost weeks, we just had boost tweaks in Mexico and Canada with.

Television behind them, just like we do here in the states. So those are the best weeks that those those countries have had in and so I think just in general customers are looking for value now what we're trying to do here at Domino's is position the value.

More than just price and that to me is with the beauty of emergency Pizza and I want to talk about that.

John Ivankoe: Thank you one moment for our next question. And our next question comes from the line though, Sara Gokali from JP Morgan, your question please? Hi, this is John Ivankoe, hopefully you can hear me.

Little bit SMB.

Essentially what emergency pizza is.

Is old school buy one get one free.

As a former marketer right.

<unk>.

But because of the tension.

In the world right now around the economy and things like that people their antennas are up.

And so instead of calling it a buy one get one free our creative marketing Department decided or buy one get one later, which is essentially what this is Pete.

Russell Weiner: The question is actually on, you know, the Microsoft announcement, and you know, I do want to put this in the context of 20 plus years of in-house point of sale development, closed system, obviously there are significant benefits that came with this closed system but also considerable cost. So I just, you know, did want you to frame, and I think it's a five year agreement, you know, that I read in the release, you know, just kind of how you see this, you know, this balance changing, you know, both from a benefit side, you know, of the equation, what the franchise is, you're going to see what the customer will see, what of course you will get as a company, but also the cost side of the equation, you know, if this is actually an opportunity, perhaps, on a net basis, slow some of the technology spend that Domino's has actually been famous for over the years.

Pizza now you can get your emergency pizza whenever you want over the next 30 days, we call. The emergency pizza. The mechanics are still the same but the message is going to resonate because of the economic.

That youre talking about so best in class value is important, but making sure we breakthrough with not just a value message of strong brand message is critical and I think we're doing that.

Thank you one moment for our next question.

And our next question comes from the line of Chris <unk> from RBC capital markets. Your question. Please.

Hi, good morning, and thanks for the question. So just on the outlook updates can you expand maybe a bit more on what's driving the changes there for retail sales and it simply international performance to date or are you seeing anything in the current quarter, that's leading to the update and then net unit growth just to clarify.

Russell Weiner: Thank you. And morning, John, you know, that's a great point as you look back in the history of Domino's, we certainly have built more things internally. When it comes to competitive points different, I think we've always said, you know, you can't outsource a competitive point of difference. We do outsource things that are really, you know, out there in the field that really are on a competitive point of difference. What have we done here in this case?

Hi in the Russia exit not a factor in the updated unit growth outlook.

Alright, Thanks, Chris.

Russell Weiner: There's going to be a competitive point of difference with gender, VAI solutions. And we think we've got the resources and the pizza expertise internally. What we've got with Microsoft is the best in the field externally. And so you take those two things together, and it's not just cost, it's also impact. This is a journey that if we could pick anyone to do it with, we would pick Microsoft. And so right now the focus is really on two areas with them.

Ill just answer that question for you so on the <unk>.

Retail sales outlook I think we're taking into consideration the nine months.

Three quarters of the past plus the expectations that we have for the fourth quarter and Thats incorporated into what we're talking about.

As you noted.

Includes an expectation of positive comps in the United States.

I have an expectation of.

Strong growth in the international business as well.

Russell Weiner: First, on transforming the consumer experience by enhancing the order process through things like personalization and simplification. And the second is streaming, streamlining operations and quality control with some more predictive tools. So yeah, this is kind of a hybrid here, best in class, both best in class pizza, best in class AI. And our teams are very excited to work together.

So I think from a.

From a unit growth standpoint, what we have taken into consideration.

Unknown Executive: Thank you one moment for our next question.

Closures that have happened internationally.

Big driver of the modification that we've made over there.

But overall I think our U S business as long as Bill talked about earlier in terms of visibility and trajectory looks very solid and I think the entire change in unit growth on a global level is based on international business.

Closures there.

And let me just put some.

Maybe some perspective on those closures the ones that rush.

Andrew Strelzik: And our next question comes from the line of Andrew Strollsick from BMO Capital Markets. Your question, please. Good morning, thanks for taking the questions.

Russia, Obviously, we're talk to ahead of time, Domino's Pizza enterprises announced over the summer that they were going to have closures as part of <unk>.

Kind of a short term business adjustment.

Adjustment on their side and we saw those in Q2 and Q3.

Russell Weiner: Maybe just a broader question on the consumer and what you're seeing there and how, how maybe behaviors may be evolving, whether it's through delivery, carry out domestic international curious what your analytics is showing you and how things are changing. Thanks. Yeah, you know, our approach, no matter what the consumer environment has always been the same, which is to provide the best relative value for our customers. And that hasn't changed not only the US, but internationally, I'd like to point to a couple of best practices that have been exported around our boost weeks.

With Domino's Pizza Enterprises also did was they talked about that they were not going to change and they were still bullish around their long term outlook for <unk> 30, threes to let somebody 100 stores. So I see this as kind of both of these as onetime ish events you take those two blocks of closures out.

We closed less than 15 stores in international.

Quarter and from an opening perspective.

Still stayed right around the 1000 store openings for trailing 12 months, we opened up over 1021 over 1022, and so that's just a little bit more color around our international store openings.

Russell Weiner: We just had boost weeks in Mexico and Canada with television behind them just like we do here in the States. Those are the best weeks that those countries have had. And so I think just in general, customers are looking for value. Now what we're trying to do here at Domino's is position the value more than just price. And that to me is with the beauty of emergency pizza. And I want to talk about that a little bit.

Thank you one moment for our next question.

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

Russell Weiner: But essentially what emergency pizza is is old school by one, get one free as a former marketer, right? But because of the tension in the world right now around the economy and things like that, people, they're intended they're up. And so instead of calling it a buy one, get one free, our creative marketing department decided, or buy one, get one later, which is essentially what this is, you buy pizza now, you can get your emergency pizza whenever you want over the next 30 days.

Thanks, Good morning.

In the press release, you talked about the lift from third party and loyalty hitting in 2024 I'm Wonder.

This quarter, what sort of net same store sales impact do you expect from loyalty in <unk> the higher orders minus.

Perhaps higher redemptions and come to think of it I'm not really sure what sort of lift you're expecting from loyalty over time I think for some reason we were thinking something like a couple of percentage point boost from loyalty more of like a step change not something that ramps.

Russell Weiner: We call it emergency pizza. The mechanics are still the same, but the message is going to resonate because of the economic that you're talking about. So best in class value is important, but making sure we break through would not just a value message, a strong brand message is critical. And I think we're doing that.

Chris Carril: Thank you one moment for our next question.

And then of course, the magnitude and the ramp part I'm not really sure about either I'm, just wondering how youre thinking about magnitude and perhaps a ramp phase two loyalty.

Yes, Thanks, David I think both Sandeep and I will answer this one.

On loyalty.

Loyalty is one of a few things we got loyalty pepperoni step cheesy bread emergency pizza all things that we absolutely are.

Sandeep Reddy: And our next question comes from the line of Chris Carril from RBC Capital Markets, your question please. Hi, good morning, and thanks for the question. So just on the outlook updates, can you expand maybe a bit more on what's driving the changes there for retail sales? Is it simply international performance today, or are you seeing anything in the current quarter that's leading to the update? And then on net unit growth, just to clarify, is the Russia exit not a factor in the updated unit growth outlook? Thanks. Thanks Chris.

I think are going to we know are going to affect our Q4 numbers and we're seeing that out of the gate.

Third party piece will start in Q.

Q4 in December and that will be ramping up certainly.

Big time.

Next year from a loyalty perspective as soon as we get more information on how that is affecting the business. We will let you know, but I can tell you short term.

Folks are interacting with the loyalty program and our innovation at a higher level than I expected coming in.

Sandeep Reddy: I'll just answer that question for you. So on the retail sales outlook, I think we're taking into consideration the nine months that the three quarters of the past plus the expectations that we have for the fourth quarter, and that's incorporated what we're talking about. As you noted, it includes an expectation of positive comps in the United States and an expectation of strong growth in the international business as well. So I think from a unit growth standpoint, what we have taken into consideration is the closures that have happened internationally, that's the big driver of the modification that we made over there.

And Dave.

I want to just add something to that just so you can get a sense of cadence in terms of what's been happening with the comps and what my expectations are for Q4.

You'll note, we actually had a reduction in the impact of pricing from 2% roughly to a little bit under 1% and our expectations for Q4, and this was driven really by the increase redemptions that we're seeing from loyalty dominoes rewards, which was which is great because it actually is more.

Offset by incremental transactions.

That is implicit in our expectations off of the comps that we're talking about for the fourth quarter being positive, which if you think about it if you have a roughly 1% impact on pricing. This implies transactions are nearly flat or better.

Sandeep Reddy: But overall, I think our US business, as last we'll talk about earlier in terms of visibility and trajectory, looks very solid. And I think the entire change in unit growth on a global level is based on the international business and the closures there. And let me just put some maybe some perspective on those closures, you know, the ones that Russia obviously were talked to ahead of time. Domino's piece that enterprises announced over the summer that they were going to have closures as part of a kind of a short term business adjustment adjustment on their side, and we saw those in Q2 and Q3.

And the total business.

The good news about this is we expect this improvement in transactions to come both in delivery as well as carrier and remember that carrier, we're lapping the mix and match promo pricing.

Sandeep Reddy: What Domino's piece enterprise also did was they talked about that they were not going to change, and they were still bullish around their long term outlook for 233 still at 7100 stores. So I see this as kind of both of these as one-time-ish events. You take those two blocks of closures out. We closed less than 15 stores in international this quarter, and on from an opening perspective, still stayed right around the 1,000 store openings for trailer 12 months. We opened over 1,000 in 2021 over 1,022. And so that's just a little bit more color around our international store open. Thanks.

That was done on October two of those 22, so we lose a bit of pricing over there, but we still expect to have consistent trends in the fall.

Quarter on Carryout too so feeling really good about the balance of the impact of the loyalty program.

On Q4 added saw definitely an excellent rate of transactions.

Thank you.

Yeah.

Thank you one moment for our next question.

And our next question comes from the line of Brian Harper from <unk>.

Morgan Stanley Your question please.

Yeah. Thanks, good morning, guys.

You commented just on food basket, but is it fair to assume you have seen a couple quarters of that being lower.

And as we think about store margins.

In supply chain profits.

Probably continues into the fourth quarter at this point.

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

Yes, Brian .

Really good question on the food basket I think when we when we reported in July for the second quarter. There was so much volatility, particularly on cheese.

But volatility did continue but the trend line that we drew in the third quarter ended up still being favorable to us as you saw and what we reported for minus one seven in the basket.

David Palmer: Thanks, good morning. In the press release, you talked about the lift from third party and loyalty hitting in 2024. I'm wondering about this quarter, what sort of net, same-source sales impact you expect from loyalty in 4Q, you know, higher orders, minus perhaps higher redemptions and come to think of it, I'm not really sure what sort of lift you're expecting from loyalty over time. I think for some reason we were thinking something like a couple of percentage point boost from loyalty, more of a step change, not something that ramps. And of course, the magnitude and the ramp part, I'm not really sure about either, just wondering how you're thinking about magnitude and perhaps a ramp faced to loyalty. Thanks. Yeah, thanks, David.

Things are still a bit volatile, but I think overall trends seem to be pointing to favor ability and then you think about the franchisee store profitability going from $1 50 to 155, a big driver of that improvement with an improved basket both in Q3.

Perhaps a little bit of an expectation a little bit more tailwind as we go into the fourth quarter.

So that's that's how we see the food basket and franchisee profitability, but supply chain margins also.

Food baskets ends up being deflationary in the fourth quarter will benefit from a margin standpoint.

Thank you.

Thank you one moment for our next question.

Russell Weiner: I think both Sandip and I will answer this one. On loyalty, loyalty is one of a few things. We've got loyalty, pepperoni stuffed cheese, bread, emergency pizza. All things that we absolutely think are going to know are going to affect our Q4 numbers and we're seeing that out of the gate. The third party piece will start in Q4 in December and that will be ramping up certainly big time next year. From a loyalty perspective, as soon as we get more information on how that is affecting the business, we'll let you know, but I can tell you short-term, folks are interacting with the loyalty program and our innovation at a higher level than I expected coming in.

And our next question comes from the line of Andrew Charles from TD Cowen Your question. Please.

Great. Thank you Sandeep was hoping you could help just with the supply chain and how we should think about that going forward. The productivity benefits continued in <unk> as indicated 10-Q.

It's still around the neighborhood of 70 basis points and at least versus our model. It looks like labor cost in the supply chain business were a bit higher in <unk> than they were in <unk>.

You speak to that the durability of that as well.

Yes, Andrew I think.

When we look at supply chain Youre right. The biggest driver of the margin improvement at the procurement productivity. That's been there all year and we expect that to continue into the fourth quarter as well.

When we look at what happened in the.

Sandeep Reddy: And I want to just add something to that just so you can get a sense of cadence in terms of what's been happening with the comps and what our expectations are for Q4. If you know, we actually had a reduction in the impact of pricing from 2% roughly to a little bit under 1% in our expectations for Q4. This was driven really by the increased redemptions that we were seeing from loyalty, dominance rewards, which is great because it actually is more than offset by incremental transactions.

In the third quarter I, just talked to Brian about those.

We got the benefit of the food basket actually impacting margins slightly favorably.

<unk>.

Was a little bit of labor pressure, but I think a lot of that is more driven by the opening of the Indiana Center that we lap over in Q4.

So overall I think we're very happy with the trends that we're seeing and.

Supply chain margins. If you go back to the question the answer I gave to Dave on transactions guess, what it does it's going to drive more volume through our supply chain centers, and therefore drive more profit out of our supply chain centers.

Sandeep Reddy: And that is implicit in our expectations of the comps that we're talking about for the fourth quarter being positive, which if you think about it, if you have a roughly 1% impact on pricing, this implies transactions are nearly flat or better in the total business. And so the good news about this is we expect this improvement in transactions to come both in delivery as well as carry out. And remember that carry out, we're laughing at the mix and match from our pricing.

Very good thanks.

Thank you one moment for our next question.

And our next question comes from the line of Crystal Cole from Stifel. Your question. Please.

Thanks, Good morning, guys.

Russell I appreciate your comments earlier about the importance of Domino's offering the best value to consumers.

Sandeep Reddy: We've done an October 2022, so we lose a bit of pricing over there, but we still expect to have consistent trends in the fourth quarter on carry out, too. So feeling really good about the balance of the impact of the loyalty program on Q4 and it's definitely an excellent amount of transactions. Thank you.

Diamond is won't be offering international deals like mix and match on the Uber platform. So I'm trying to understand what proposition Domino's can offer an uber that will be as effective against the competition and I'm also curious if you think domino's can obtain a similar share of the three P pizza delivery.

Brian Harbour: Thank you one moment for our next question.

That it has off of the <unk> platform.

Andrew Charles: And our next question comes from the line of Brian Harbour from Morgan Stanley. Your question, please? Yeah, thanks. Good morning, guys. I don't think you commented just on food basket, but it's fair to assume, you know, you've seen a couple quarters of that being lower. And as we think about store margins and supply chain profits, you know, that that probably continues into the course quarter at this point.

Chris Great question.

Let me just take a step back and just make sure I talk about our strategy both on our assets and then on Hoover and I'll get to your question, but I want you to understand kind of the broader piece here.

Because at the end of the day, we want to drive incrementally and when you think about our assets if you're a customer and you want the best prices.

The best loyalty program.

Youre going to come to Domino's Dot com, there are going to be some customers and that's why we're going into this marketplace.

Sandeep Reddy: Yeah, a bright, really good question on the food basket. I think we, when we reported in July for the second quarter, there was so much volatility, particularly on jeans, that volatility did continue, but the trend line that we drew in the third quarter ended up still being favorable to us, as you saw, and what we reported for minus 1.7 on the basket. Things are still a bit volatile, but I think overall trends seem to be pointing to favorability.

That are either only uber customers or maybe have both.

And because of that what we want to make sure. We're doing is price it in such a way that if we don't have consumer <unk>, we at least.

Our positive on the on the margin side for our franchisees and so while we will have our entire menu on Uber will have a slight premium to our menu price.

Sandeep Reddy: And then you think about the franchisey store profitability going from 150 to 155, a big driver of that improvement, whether improved basket, both in Q3 and perhaps a little bit of an expectation, a little bit more tailwind as we go into the fourth quarter. So, so that's that's how we see the food basket and franchisey profitability, but supply chain margins also if food baskets ends up being be frustrated in the fourth quarter will benefit from a margin standpoint. Thank you.

That channel now menu prices at Domino's Pizza are still very competitive and so I think within that platform will be competitive.

Second thing that we do really well and you see this in our in our digital media.

Andrew Charles: One moment for our next question.

The marketplace is a digital platform for us and so we've got our national advertising fund budget.

And all the expertise we have from being on.

Facebook and all the other social media platforms, we're going to bring that into Uber and we're going to dry folks within that platform with our marketing money if youre in that platform brand driving the Domino's and we have a lot of expertise on how to do that and once you are there relative to other menu prices youre going to see.

Chris O'Cull: And our next question comes in line of Andrew Charles from TD County. Your question please. Great. Thank you. Some people's hoping you could help just with the supply chain and how we should think about that going forward, you know, the productivity benefits continued in 3Qs in the given 10Q with a store on the neighborhood 70 basis points. And at least versus our model looks like the labor cost in the supply chain business for bit higher in 3Q than they were in 2Q. Can you speak to that the durability of that as well?

The competition will be in a really good place I think will be a value player there and we will have high awareness once you're within that platform and so absolutely I think we can.

Get to our fair share on that platform as well as eventually the entire marketplace for Aggregators.

Thank you.

Thank you one moment for our next question.

Russell Weiner: Yeah, Andrew, I think when we look at supply chain, you're right, the biggest driver of the margin improvement is the procurement productivity that has been there all year and we expect that to continue under the fourth quarter as well. When we look at what happened in the third quarter, I just talked to Brian about this. We got the benefit of the food basket actually impacting margin slightly favorably. There was a little bit of labor pressure, but I think a lot of that is more driven by the opening of Indiana Center that we lap over in Q4.

And our next question comes from the line of Joshua Long from Stephens, Inc. Your question. Please.

Great. Thank you for taking my question, when we think about loyalty and the opportunity for Carryout to participate there a lot of the conversation has been focused on.

Third party marketplace and some of the initiatives that have been put in place to unlock delivery, but can we circle back to other carry out initiatives and how you think about building that you said that's been strategic.

Point of focus in prior calls and just so as we think about there.

Russell Weiner: So overall, I think we're very happy with the trends that we're seeing in supply chain margins. And if you go back to the question, the answer I gave today on transactions, guess what that does? It's going to drive more volume through our supply chain centers and therefore drive more profit out of our supply chain centers. Very good. Thank you. One moment for our next question.

Forward to 2024 and beyond can you talk a little bit more about how you're building the awareness and scaling up the carry outside of your business as well please.

Yes, no great carrier is one of my favorite topics. Most recently I'll just point to the two year 21, 5% comp in the Carryout business there isn't.

It's a really strong channel I remember last time, we talked about two really big incremental channels of growth for Domino's Pizza right. The first one is getting our fair share of that.

Chris O'Cull: And our next question comes from the line of Chris O'Cull from Steve Fuller. Your question, please. Thanks, good morning guys. Russell, I appreciate your comment earlier about the importance of Domino's offer and the best value to consumers. But Domino's won't be offering international deals like Mix and Match on the Uber platform. So I'm trying to understand what proposition Domino's can offer on Uber that will be as effective against the competition. And I'm also curious if you think Domino's can obtain a similar share of the 3PP to delivery market. That it has also the 3P platform.

Aggregator business, that's a $1 billion net.

Incrementally, but the second is our fair share of Carryout, what's our fair share of Carryout and by the way Carryout has been our most aggressive growth over the last decade ago from a share perspective.

It's one and three just like we do one to three delivery and that's like a $2 billion opportunity and so we're going to continue to lean in now the nice thing is what we're seeing is the stuff that we're doing really affects both parts of our business. The more we're learning, but I think we've talked about before that the customers are pretty separate customers, but at the end of the day, they're pizza.

Russell Weiner: Chris, great question. Let me take a step back and just make sure I talk about our strategy both on our assets and then on Uber and I'll get to your question. But I want you to understand kind of the broader piece here because at the end of the day, we want to drive incrementality. And when you think about our assets. If you're a customer and you want the best prices or you want the best loyalty program, you're going to come to Domino's.com.

Customers so things like.

Pepperoni stuffed cheesy bread.

Things like our emergency pizza.

We're going to work across both ends and actually we've seen really nice redemption, the emergency pizza from Carryout customers wishes.

It's been.

Uprising to me.

Youll also see us, though continue to lean in on both the marketing and the operations piece of it right. So the marketing you've seen carryout tips before I am sure that one is going to come back.

Russell Weiner: There are going to be some customers and that's why we're going into this marketplace that are either only Uber customers or maybe have both. And because of that, what we want to make sure we're doing is price it in such a way that if we don't have consumer incrementality, we at least are positive on the mortgage inside for our franchisees. And so while we'll have our entire menu on Uber, we'll have a slight premium to our menu price on that channel.

Phone ordering is really important believe it or not.

We have a large number of our customers coming in on online ordering but we still need to make sure that the phones are there so operationally.

We're answering those calls right now in about 3000 of our stores have.

Call centers as potential overflow.

So driving the top line driving the marketing driving the funnel there, but also having the operational support are both things that we need to do and we will be doing.

Russell Weiner: Now menu prices at Domino's piece are still very competitive. And so I think within that platform will be competitive. The second thing that we do really well and you see this in our digital media, the Uber marketplace is a digital platform for us. And so we've got our national advertising fund budget and all the expertise we have from being on Facebook and all the other social media platforms. We're going to bring that into Uber and we're going to drive folks within that platform with our marketing money.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Jim Sanderson from Northcoast Research. Your question. Please.

Jim Sanderson.

So it might be on mute.

It sounds like Jim is waiting for his emergency pizza. So we'll make sure we get that tool.

Russell Weiner: If you're in that platform, we're going to drive you to Domino's and we have a lot of expertise on how to do that. And once you're there relative to other menu prices that you're going to see from the competition, we'll be in a really good place. I think we'll be a value player there and we'll have high awareness once you're within that platform. And so absolutely, I think we can get to our fair share on that platform as well as eventually the entire marketplace for aggregators.

Yes.

Joshua Long: Thank you. Thank you one moment for our next question.

Alright, one moment, we will move on to our next question.

Our next question comes from the line of Daniel Guardiola from Bernstein. Your question. Please.

Thank you.

Can you share any feedback you upfront that these are getting regarding their access to credit.

We had rising interest rate they have seen in there and are there any incremental pressures outside of your control that might be slowing down to net unit growth expectations going forward.

Russell Weiner: And our next question comes in the line of Joshua Long from Steven Zink, your question please. Great, thank you for doing one question. When we think about loyalty and the opportunity for carry out to participate there, a lot of the conversation has been focused on third party marketplace and some of the initiatives that have been put in place to unlock delivery. But can we circle back to other carry out initiatives and how you think about building that piece.

So how are you contemplating incremental incentives for franchisees to navigate these hard times.

Yeah. Thanks for the question David I think that's a really good question and that's a very fair point, but I think where we are with the franchisees I'm going to start with the cash flows that the franchisees are generating because you think about where we were last year at 139000.

Russell Weiner: I know that's been a strategic, you know, point of focus in prior calls. And just so it's making it back there, think forward to 2024 and beyond. You talk a little bit more about how you're building the awareness and scaling up the carry outside of your business as well, please.

Unit to now 155000 and above it is basically.

Definitely a much significantly improved operating cash generation situation for the franchisees.

In that backdrop. It is very fair to talk about the credit situation in the marketplace.

Russell Weiner: Yeah, that great carrier is one of my favorite topics most recently. I'll just point to the two year, 21 and a half percent comp on the carrier business there. It's a really strong channel. I remember last time we talked about two really big incremental channels of growth through Domino's Pizza. The first was getting our fair share of the aggregator business. That's a billion dollars net of incrementality. But the second is our fair share of carryout.

Tighter and much more expensive.

Think franchisees are cognizant of that but I think as we talk to them when they have looked at the trajectory of the business when they look at the opportunity for growth in the business.

They definitely have very strong appetite for unit development is Russell talked about earlier and I talked about on the prepared remarks and from an incentive standpoint as a company.

Always actually worked with franchisees on incentive programs and we'll continue to do that.

Russell Weiner: What's our fair share of carryout? By the way, carryout has been our most aggressive growth over the last decade ago from a share perspective. It's one in three, just like we do one in three delivery. And that's like a two billion dollar opportunity. And so we're going to continue to lean in. Now, the nice thing is what we're seeing is the stuff that we're doing really affects both parts of our business, the more we're learning.

So I think as.

We look at the opportunity for growth.

Both our interest to look at it and Thats something that we will continue to do.

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

Thank you one moment for our next question.

Russell Weiner: But I think we've talked about before that the customers are pretty separate customers. But at the end of the day, they're pizza cups. So things like pepperoni stuffed cheese bread, things like our emergency pizza are going to work across both ends. And actually we've seen really nice redemption on emergency pizza from carryout customers, which has been surprising to me. You'll also see us though continue to lean in on both the marketing and the operations piece of right.

And our next question comes from the line of Greg Frankfurt from Guggenheim. Your question. Please.

Hey, thanks, Thanks for the question.

Sandeep last quarter, you talked about some of the supply chain efficiency you'd see in the first half of the year I am wondering if.

Yes, how that looked in the third quarter and going forward and then can you just remind us the process of raising some of these fixed spreads on the supply chain costs, you've had you've had mid to high teens inflation the last <unk>.

Russell Weiner: So the marketing you've seen carryout tips before I'm sure that one's going to come back. Fold ordering is really important, believe it or not. You know, we have a large number of our customers coming in online ordering. But we still need to make sure that the phones are there so operationally. And we're answering those calls right now and about 3,000 of our stores have call centers as potential overflow. And so driving the top line, driving the marketing, driving the funnel there, but also having the operational support are both things that we need to do. And we will be doing.

Two years on a cumulative basis obviously.

Obviously, there is a process through which you could raise those spreads on the franchisees. The dollar spreads over time and I'm curious how often do you look at that or how that process goes of raising those I'm just curious any thoughts would be helpful. Thanks.

Thanks, Greg very good question I think from a supply chain profit standpoint.

We've talked about all year, we've had a procurement productivity benefits right and that predominantly is food and when it actually ties back to your the last part of your question, which is how do we take a look at it.

Adjusting the margins.

If you are taking on won't be setting setting onto the franchisees and so I think a lot of this benefit is flowing through our P&L clearly when we talk about.

Danilo Gargiulo: Thank you. Thank you one moment for our next question. And our next question comes from the line of Jim Sanderson from North Coast Research. Your question please. Jim Sanderson, your phone might be on mute. Sounds like Jim is waiting for his emergency pizza. So we'll make sure we get that to him. All right. One moment will move on to our next question. Our next question comes from the line of Danielo Garjola from emergency in your question please.

The procurement productivity, we will continue to optimize around this but I think what has really been great as well with the adjustment of volume that that's actually happened in the last couple of years, leading up into this year.

The supply chain.

Flow through has become a much tighter as we've actually gotten.

Just to the lower level of volumes.

Thats about the change because I think we've reset capacity to be able to to be able to deal with volume growth expected to come.

Much much leaner operating model in a much more efficient operating model. So from a profitability standpoint, we continue to expect to see it.

Danilo Gargiulo: Thank you. Can you share any feedback you were front to these are giving regarding their access to credit. Of course, with rising interest rates they're seeing at their end. Are there any incremental pressures outside of your control that might be slowing down the nine unit growth expectations going forward? And if so, are you contemplating increment to incentive for franchisees to navigate these are times? Yeah. Thanks for the question, Danielo. And I think it's a really good question and it's a very fair point.

Movements are not.

Not massive improvements, but improvements big focus will be profit dollar growth from a supply chain standpoint with transaction growth that's coming in the fourth quarter.

Thank you one moment for our next question.

And our next question comes from the line of Steven <unk> from Cleveland Research. Your question. Please.

Yes. Thank you more of a near term question, but it does look like you ran a boost weak or at least a 50% off offers that first week of October and that looked like it was outside of our normal pre COVID-19 cadence you had for those types of promotions just curious on the strategy and timing of what looks to be an incremental boost week promotion and particularly doing that.

Danilo Gargiulo: But I think where we are with the franchisees, I'm going to start with the cash flows that the franchisees are generating. Because you think about where we were last year, 139,000 per unit to now 155,000 and above. It is basically a much significantly improved operating cash generation situation for the franchisees, and Charisies. In that backdrop, it is very fair to talk about the credit situation in the marketplace, which is definitely tighter and much more expensive.

The week ahead of the emergency keto deal and then how much does that play into either positive fourth quarter outlook.

Laid out earlier in the call. Thank you.

Yes, even if we don't.

Danilo Gargiulo: And so I think franchisees are cognizant of that, but I think as we talk to them, when they look at the trajectory of the business, when they look at the opportunity for growth in the business, they definitely have this very strong appetite for unit development, as Russell talked about earlier and I talked about on the prepared remarks. And from an incentive standpoint, as a company, we've always actually worked with franchisees on incentive programs, and we'll continue to do that.

We will not be doing another boost weak this quarter, our cadence is to do a quarterly obviously, we'd like to keep you guys on your toes. So that's why we've done so.

We've already made we do like to keep you on hotels.

We pick strategic time periods in which to do with it obviously, we talked about a stepped up fourth quarter and so getting this out early.

I think makes a lot of sense.

Just wanted to make sure that.

When we talk about promotional cadence that I.

Danilo Gargiulo: And so I think as we look at the opportunity for growth, it's in both our interest to look at it, and that's something that we will continue to do. I just say as an early indicator, if I look at what we've got on a pipeline this time, this year versus this time last year, it's much more aggressive.

That I touch on I know this wasn't a direct question, but I know a lot of you have these questions about our product innovation and I just want to make sure you understand that we're leaning into that again, if you look at our product innovation. This year. We've had two major launches. The last time, we had two major launches well its 2011.

Greg Frankfurt: Thank you, one moment for our next question.

And interestingly enough one of those two launches was step cheesy bread.

And so how fitting is that we've got pepperoni step cheesy bread now out in the <unk>.

Sandeep Reddy: And our next question comes from the line of Greg Frankfurt from Guggenheim, your question please. Hey, thanks, thanks for the question. Sandy, last quarter, you talked about some of the supply chain efficiencies you'd seen the first half of the year. I'm wondering if you know how that's looked in the third quarter and going forward. And then can you just remind us the process of raising some of these fixed spreads on the supply chain cause you've had, you've had mid to high-teens inflation the last couple of years on a cumulative basis.

Marketplace.

And were released and we're doing that purposely because we're seeing that change in the dynamic if we look back several years and you think about Domino's, we didn't do a lot of product innovation. We did a lot of technology innovation, we built delivery vehicles all of those kinds of things that we're going to continue to do that but we're realizing we need to do more of now is lean.

Sandeep Reddy: Obviously there's a process through which you could raise those spreads on the franchisees, the dollar spreads over time, and I'm curious how often you look at that or how that process goes of raising those. I'm just just curious any thoughts to be helpful. Thanks. Thanks, Greg. Really good question. I think for my supply chain profit standpoint, as we've talked about all year, we've had procurement productivity benefits. And that predominantly is food.

And to product innovation and and.

I'll use of cheesy bread is an example of how it's really really working well for us. So we've got platforms like I said, we launched a TV one in 2011, we launched sandwiches in 2008 with lots of partners in 2009, a lot of people don't know that we've got these platforms, even though they are pretty robust mix or a lot of people out there that don't know, we havent and so what do we do with step change regularly.

Launched a new SKU.

Believe it or not we are selling more pepperoni stuffed cheesy bread now than we are base regular step cheesy bread.

Sandeep Reddy: And when it actually ties back to you, the last part of your question, which is how do we take a look at adjusting the margins that we basically are taking on what we're selling onto the franchisees. And so I think a lot of this benefit is flowing through our PNL clearly when we talk about the procurement productivity. We'll continue to optimize around this. But I think what has really been great is with the adjustment of volume that actually happened in the last couple of years leading up into this year, the supply chain flow through has become much tighter as we've actually gotten adjusted to the lower level of volumes.

<unk> been doing promotions <unk> been doing innovation most of my professional career and I've never seen a line extension outperformed the base. So one when you do product innovation like this you get sales on the new product too as you bring awareness back to these great platforms that we have and then third.

What we're doing with the launch is we're leveraging our loyalty program and so normally step cheesy bread is a 40 point.

Redemption in this case for a limited time are doing 20 points and so you see about how we're working all of these things together is not not a one trick pony theyre kind of three levers going on at one time I just want to make sure folks on the call know, we're going to continue to lean into all types of innovation, including product.

Sandeep Reddy: All that's about a change, because I think we've reset capacity to be able to deal with volume growth that is expected to come, but with a much, much leaner operating model than a much more efficient operating model. So from a profitability standpoint, we continue to expect to see improvements, not massive improvements, but improvements. The big focus should be profit dollar growth on the supply chain standpoint with transaction growth that's coming in the fourth quarter of the year.

Thank you one moment for our next question.

Sandeep Reddy: Thank you one moment for our next question.

Our next question comes from the line of Nick <unk> from Wedbush. Your question. Please.

Alright, thank you.

Just a question on.

How youre thinking about company margins over the medium to longer term and obviously pre COVID-19 over 20% company margins.

Just given all the changes.

Going forward in terms of loyalty third party delivery.

Stephen Goechak: And our next question comes from the line of Stephen Goechak from Cleveland Research. Your question, please. Yeah, thank you. More of a near-term question, but it does look like you ran a boost week, or at least a 50% off offer, that first week of October. And that looked like it was outside the normal pre-COVID cadence you had for those types of promotions. Just curious on the strategy and timing of what looks to be an incremental boost week promotion. And particularly doing that, you know, the week ahead of the emergency pizza deal. And then how much does that play into the positive fourth quarter outlook that you laid out earlier on the call? Thank you.

Post two or three years of inflation.

Pricing seems like it's going to be pretty close to flat how should we think about company owned margins not only in Q4, but 2024 and beyond.

So Nick I think it's a really good question and if you look at the company margins in the third quarter.

We expanded approximately 50 basis points or think of gross margins.

And that was on the back of revenue of 270 basis points improvement in Q2, so weak.

We continue to look at margin expansion in the company store margins and I do acknowledge that it's definitely off peak levels.

Russell Weiner: Yeah, Stephen, we don't, we will not be doing another boost week this quarter. Our cadence is to do it quarterly. Obviously, we like to keep you guys on your toes, so that's why we don't answer. We, uh, we probably maybe we do like to keep you on your toes, but we, we pick strategic time periods and wish to do it. Obviously, we talk about a step up fourth quarter. And so getting this out early, I think makes a lot of sense.

But there are a number of initiatives that we have been taking as we've been going along.

Obviously from a pricing standpoint, we talked about being lead to take pricing a little bit, but I think all of that is actually caught up with us.

And I think the other thing we've actually been doing is looking at the cost structure within within the P&L and that is being optimized as well, but but overall the big driver of further improvement in terms of profitability is going to be transaction growth I talked about transaction growth.

Russell Weiner: I also want to make sure that when we talk about promotional cadence that I, that I touch on, I know this wasn't a direct question, but I know a lot of you have these questions about our product innovation. And I just want to make sure you understand that we're, we're leaning into that again. If you look at our product innovation this year, we've had two major launches. The last time we had two major launches was 2011.

Which is going to impact the fourth quarter, it's going to impact next year, even more and I think when you see that we're going to be able to leverage the fixed costs of the P&L will look better on the company store margins and will make the March towards where peak margins used to be overtime.

Yes, I think the way I look at it is we are going into 2024.

Russell Weiner: And interestingly enough, one of those two launches was step cheesy bread. And so how fitting is it that we've got pepperoni step cheesy bread now in the marketplace. And, and, and we're really, and we're doing that purposely because we're seeing that change in the dynamic. If we look back several years and you think about downloads, we didn't do a lot of product innovation. We did a lot of technology innovation. We built delivery vehicles, all of those kinds of things, and we're going to continue to do that.

With an improved operating model, both for <unk> and our franchisees as I said earlier.

We had talked about where we thought Q3 would land and it's kind of landed where we expected.

Think about that foundation now of this business in a quarter that was.

Essentially flat in the U S business.

Margins improved and the franchisees profit has improved and so you take that.

Russell Weiner: But we're realizing we need to do more of now is lean into product innovation. And, and I'll use step cheesy bread as an example of how it's really, really working well for us. So we've got platforms, like I said, we launched step cheesy bread in 2011. We've, we've launched sandwiches in 2008, we launched pauses in 2009. A lot of people don't know that we've got these platforms, even though they're pretty robust mix or a lot of people out there that don't know we haven't.

And you bring in the orders that we expect both in Q4, but especially in 2024.

Russell Weiner: And so what do we do with step cheesy bread? We launch a new SKU. Believe it or not, we are selling more pepperoni stuff cheesy breads now than we are base regular stuff cheesy breads. I have been doing promotion. I've been doing innovation most of my professional career and I've never seen a line extension outperform the base. So one, when you do product innovation like this, you get sales on the new product.

That just leverages really really nice and so the foundation of Domino's is ready to be leveraged.

Thank you.

Yes.

Thank you one moment for our next question.

And our next question comes from the line of David Tarantino from Baird. Your question. Please.

Hi, good morning.

Question on pricing and value and I guess.

One part of it is you know I was wondering how you and your franchisees are approaching pricing as you think about 2024 and then the second part of that question is with this emergency pizza promotion it does seem like.

Russell Weiner: Two, is you bring awareness back to these great platforms that we have. And then third, what we're doing with the launch is we're leveraging our loyalty program. And so normally step cheesy bread is a 40 point redemption. In this case, for a limited time, we're doing 20 points. And so you see about how we're working all of these things together. It's not a one trick pony. There are kind of three levers going on at one time.

Maybe you're leaning a bit more towards.

<unk> Orient into.

Promotions.

Outside of the rewards program. So I guess are you thinking about leaning in more frequently on value promotions like the one youre running or.

As you think about 2024.

Yes, I think.

Really when you think about 2020 for you to think about the actions we've taken over the last couple of years, which includes the pricing we took on our mix and match and while we're always going to look at pricing and if there are ways to optimize it I think it's reflective in the franchisee EBITDA that the pricing we took last year. It was the right thing to do.

Russell Weiner: I just want to make sure folks on the call know we're going to continue to lean into all types of innovation, including product.

Sandeep Reddy: Thank you one moment for our next question. Our next question comes to the line of mix of time from what bush your question, please. Thank you. Just a question on how you're thinking about company margins over the medium to longer term, obviously pre-COVID, over 20% company margins. Just given all of the changes, going forward in terms of loyalty, third party delivery, post two to three years of inflation, pricing now seems like it's going to be pretty close to flat.

And it's something that again thats reflected in their EBITDA is something that we continue.

Continue to do next year I'm, so excited about pricing.

Even through these tougher economic times again, we will look at things, if we need to change it but I feel pretty bullish that this level of pricing is actually going to just be more of a relative value for customers as we get into next year.

As far as the emergency pizza.

Sandeep Reddy: How should we think about company on market? It's not only in Q4, but 2024 and beyond. So Nick, I think it's a really good question. And if you look at company margins in the third quarter, we expanded about 350 basis points. I think it was margin. And I was on the back of adding a 270 basis points improvement in Q2. So we continue to look at margin expansion in the company store margins.

Look we always have.

As always advertising, we do and always has a promotional price or some kind of promotional effort I again, I'm really excited about the kind of feedback we are hearing both from you and from customers.

The takeaway is Wow. This is a lot of value and it is a lot of value, but no more value than we've traditionally done.

In prior promotion, what it means and kudos to our marketing Department is.

Sandeep Reddy: And I do a challenge that it's definitely on peak levels, but there are a number of initiatives that we have. We have been taking as we've been going along. Obviously from a pricing standpoint, we talked about being late to take pricing a little bit, but I think all of that is actually caught up with us. And I think the other thing we've actually been doing is looking at the cost structure within the P&L, and that is being optimized as well.

As these ideas are breaking through.

Thank you one moment for our next question.

And our next question comes from the line.

And this will be our final question for today comes from the line of Jeffrey Bernstein from Barclays. Your question. Please.

Great. Thank you very much.

Sandeep Reddy: But overall, the big driver of further improvement in terms of profitability is going to be transaction growth. I talked about transaction growth earlier, which is going to impact the fourth quarter. It's going to impact next year even more. And I think when you see that, we're going to be able to leverage the fixed costs in the P&L a lot better on the company store margins, and we'll make the march towards where peak margins used to be over time.

Russell just wondering if you could talk a little bit about the broader pizza segment.

It does seem like.

Over the past year, we were talking a lot about maybe.

Customer fatigue post COVID-19 and consumers keen to get out again I'm. Just wondering if you could talk about where you think we are in that spectrum, maybe the current category performance versus Domino's.

Sandeep Reddy: Yeah, I think the way I look at it is we are going into 2024 with an improve operating model, both for DPC and our franchisees. I said earlier, while we had talked about where we thought Q3 would land, and it's kind of landed, where we expected. Think about that foundation now of this business, in a quarter that was essentially flat in the US business, the margins improved, and the franchises you profit has improved.

And if you could just remind us looking back to past slowdowns the performance of delivery versus Carryout in prior downturns I think most investors are expecting maybe a consumer slowdown going into 'twenty. Four so I'm. Just wondering how you are two components of your business have historically performed and that type of environment. Thank you.

Yes, sure. Let me first talk about the Pizza segment and historically, it's been a one five point growth category I don't expect that to change significantly.

Sandeep Reddy: And so you take that, and you bring in the orders that we expect both in Q4, but especially in 2024, that just leverages really, really nice. And so the foundation of dominoes is ready to be leveraged.

What's been great about Domino's Pizza is when you look at that category, we have been able to buy far grow the biggest share amongst that and so I think the growth of the category is going to continue what's nice when you think about the pizza category is 40 plus percent of it.

David Tarantino: Thank you.

A little more on carryout than.

David Tarantino: Thank you, one moment for our next question. And our next question comes from the line of David Tarantino from Baird.

And then delivery is on regionals, and independents folks, who really don't have the scale in advertising or supply chain or or store growth or our advertising spending that.

David Tarantino: Your question, please. Hi, good morning. I had a question on pricing and value, and I guess, you know, one part of it is, you know, I was wondering how you and your franchisees are approaching pricing. As you think about 2024, and then the second part of the question is, you know, with this emergency pizza promotion, it does seem like maybe you're leaning a bit more towards value or into promotions, you know, even outside of the rewards program.

That we do and so if that <unk>.

<unk> kind of continues at where it is and there's no reason that we can't continue to lean in and gain share. It we've done it before.

David Tarantino: So I guess, you know, are you thinking about leaning in more frequently on value promotions like the one you're running or as you think about 2020? Yeah, I think, really, when you think about 2024, you should think about the actions we've taken over the last couple of years, which includes the pricing we took on our mix and match. And while we're always going to look at pricing, and if there are ways to optimize it, I think it's reflective in the franchise, the EBITDA, that the pricing we took last year was the right thing to do.

We'll do it again as.

As far as term downturn I mean, the last big downturn I remember coming out of was 2009.

When we launched our new and inspired Pizza and obviously you saw what came out of that.

Yeah.

Which is growth both in the Carryout and delivery standpoint, I think we're going to continue to see what we've been seeing and we've been talking about folks down switching into the pizza category down switching into value. This is going to happen I think a lot more in carryout than it is delivery because delivery will also have some help switching.

Alright delivery, there's delivery fees there is.

There are catch there are things that caused that channel to be a little bit more expensive. So I think we will see down switching at both probably a little more outswing to eating at home for delivery, but the beauty for US is while that's happening we're opening up to the Uber platform and that platform has customers that are.

David Tarantino: And it's something that, again, as reflected in their EBITDA, is something that we continue. Can continue to do next year. I'm so excited about pricing. Even through these tougher economic times, again, we'll look at things if we need to change it, but I feel pretty bullish that this level of pricing is actually going to just be more of a relative value for customers as we get into into next year. As far as emergency pizza, look, we always have, there's always advertising we do and always have a promotional price or some kind of promotional effort.

Our higher income customers in delivery and so if there is a slowdown in that we're now opening ourselves to a platform that really has a little bit more elasticity in that place. So.

No matter, what the economics look like next year I think both on the carrier and the delivery business, we're going to be a really good place.

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

David Tarantino: Again, I'm really excited about the kind of feedback we're hearing both from you and from customers because the takeaway is, wow, this is a lot of value. And it is a lot of value, but at no more value than we've traditionally done in prior promotion. What it means and kudos to our marketing department is these ideas are breaking through.

Well, we appreciate talking to everybody today, and we look forward to seeing you at our Investor day, either live or via video on December seven looking forward to it take care.

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

Okay.

Russell Weiner: Thank you, one moment for our next question. And our next question comes from the line. And this will be our final question for today. It comes from the line of Jeffrey Bernstein for Barclays. Your question, please. Great. Thank you very much. Russell, just wondering if you could talk a little bit about the broader pizza segment. It does seem like over the past year, we were talking a lot about maybe customer fatigue, post-COVID, and consumers keen to get out again.

[music].

Okay.

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Russell Weiner: I'm just wondering if you could talk about, we think we are in that spectrum, maybe the current category performance versus dominoes. And I think you could just remind us looking back to pass slowdowns. The performance of delivery versus carry out in prior downturns. I think most investors are expecting maybe a consumer slowdown going into 24. So I'm just wondering how your two components of your business have historically performed in that type of environment.

Russell Weiner: Thank you. Yeah, sure. Let me first talk about the pizza segment. And historically it's been a one and a half point growth category. I don't expect that to change significantly. What's been great about dominoes pizza is when you look at that category, we've been able to by far grow the biggest share amongst that. And so I think the growth of the category is going to continue. What's nice when you think about the pizza category is 40 plus percent of it.

Okay.

Russell Weiner: A little more in carry out than delivery is on regionals and independent folks who really don't have the scale in advertising or supply chain or or store growth or advertising spending that we do. And so if that pizza category goes kind of continues that where it is, then there's no reason that we can't continue to lean in and gain share. It's we've done it before and we'll do it again. As far as downturn in the last big downturn, I remember coming out of 2009, when we launched our new inspired pizza, and obviously you saw what came out of that, which is growth both in the Kerry Out and Delirious standpoint.

Russell Weiner: I think we're going to continue to see what we've been seeing, and we've been talking about folks down switching into the pizza category, down switching into value. This is going to happen, I think a lot more in Kerry Out than Delivery because Delivery will also have some health switching, right? Delivery, there's delivery fees, there are tips, there are things that it caused that channel to be a little bit more expensive. So I think we will see down switching at both, probably a little more out switching to eating at home for delivery, but the beauty for us is while that's happening, we're opening up to the Uber platform.

Russell Weiner: And that platform has customers that are higher income customers, in delivery. And so if there is a slowdown in that, we're now opening ourselves to a platform that really has a little bit more elasticity in that place. So no matter what the economics look like next year, I think both on the Kerry Out and the delivery business, we're going to be a really good place.

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Thank you for standing by and welcome to Domino's third quarter 2020.

<unk> earnings Conference call at this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I would like to reduce your host for today's program. Mr. Ryan <unk>, Vice President Finance Investor Relations. Please go ahead Sir.

Good morning, everyone. Thank you for joining us today for our conversation regarding the results for the third quarter of 2023.

Today's call will begin with our Chief Executive Officer, Russell Wiener followed by our Chief Financial Officer, Danny Brett.

Russell and Sandeep will leave ample time for questions and discussion.

And this call is for our investor audience members of the media and others should be in a listen only mode.

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 <unk>.

Actual results or trends could differ materially from our forecast for more information. Please refer to the risk factors discussed in our filings with the SEC.

In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call.

We want to do our best this morning to accommodate as many of your questions as time permits.

As such we encourage you to ask only one one part question on this call.

Today's conference call is being webcast and is also being recorded for replay via our website I'd now like to turn the call over to our Chief Executive Officer Russell Wiener.

Thanks, Ryan and good morning, everybody. My remarks. This morning will focus on several new initiatives that are designed to create significant shareholder value in the months and years ahead.

We launched our new loyalty program Domino's rewards on September 12, and here are some of the mechanics that are really meaningful to our current and prospective customers.

First we lowered the spend threshold to earn points from $10 down to $5 and this change will make us even more competitive in the Carryout segment, where ticket tends to be lower.

Joining pizza at the $60 level, our oven baked sandwiches pastas and lava cakes at.

At 40 points, we feature our lines of bread twist and stuffed cheesy bread and are 20 points. We offer single serve beverages, parmesan bread bites and tipping cups.

It's a more items to choose from with redemption options. After just two purchases.

While the program just launched we've seen meaningful redemptions at the $20 $40 levels. So customers are clearly engaging more with domino's rewards.

These strategic improvements will be a significant value driver for our brand and company.

Plan to grow active users and order frequency unlocking continued share growth in both the delivery and Carryout segment.

Our second value, creating initiatives is entering the aggregator marketplace for delivery orders our integration into the <unk> platform is proceeding as planned.

Achieve our goal of Uber eats providing delivery orders to all our U S stores by the end of the year we.

Unknown Executive: Thank you. This does conclude the question and answer session of today's program.

We want to exceed the expectations of the incremental customers will get through Domino's rewards and <unk>.

The way to do that is through best in class delivery service.

And Thats why I am pleased to announce that we ended Q3 of 2023 back at our pre pandemic Q3 2019 delivery times.

This improvement was achieved through many of the best practices highlighted with franchisees during our summer of service program.

His focus is important for us to provide an excellent delivery experience for new customers slowing in from Domino's rewards and Uber eats channel. We want these experiences to lead to loyal lasting customers, who will provide considerable lifetime value for our brand and our company.

Now I'll talk to our renewed commitment to the all important role innovation plays in the pizza category and our ability to continue to build our brand.

We launched pepperoni <unk> cheesy bread on August 28.

<unk> cheesy bread launches indicative of two things that youre going to see from us going forward, bringing.

Bringing news to our existing non pizza platforms and leveraging Domino's rewards.

For the launch of Pepperoni step cheesy bread, we lowered the redemption points require from 40% to 20.

It's great to see our product and technology innovation work, so well together and this is an example of the kind of purposeful innovation I've talked about in the past.

Innovation that serves many functions in this case, we've got a new product. It makes an existing platform top of mind with customers all.

Russell Weiner: I'd like to hand the program back to Russell for any further remarks. Well, we appreciate talking to everybody today and we look forward to seeing you at our investor day, either live or via video on December 7. Looking forward to it.

All the while encouraging customers to sign up for and continue to take advantage of our improved loyalty program. Some of our customers more orders and more market share all leading to more topline growth and greater profit.

Unknown Executive: Take care. Thank you, ladies and gentlemen, for your participation at today's conference.

Unknown Executive: This does conclude the program.

Unknown Executive: You may now disconnect.

Another example of purposeful innovation as the emergency Pizza promotion that we launched just a few days ago.

Unknown Executive: Good day. Thank you.

Customers, who ordered Domino's will have 30 days to claim a free pizza to use in any emergency they see fit.

Dinner was burned or maybe circumstances are making things a bit tougher to afford customers who place an order on our E. Commerce platform will automatically earn a domino's emergency pizza they'll.

Unknown Executive: Thank you for sending by and welcome to Domino's third quarter 2023 earnings conference call. At this time, all participants aren't listening only mode. After the speakers presentation, there will be a question and answer session to ask a question during this session, you'll need to press star 1-1 on your telephone to remove yourself from the queue to simply press star 1-1 again.

I will have 30 days to redeem their emergency pizza and of course must be members of Domino's rewards to do so.

Ryan Goers: As a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Mr. Ryan Goers, Vice President, Finance Invest Relations, please go ahead, Sarah. Good morning, everyone. Thank you for joining us today for our conversation regarding the results for the third quarter of 2023. Today's call will begin with our Chief Executive Officer, Russell Weiner, followed by our Chief Financial Officer, Sandy Brett. Russell and Sandy will leave ample time for questions and discussion.

Ryan Goers: As this call is for our investor audience, members of the media and others should be in a listen only mode. The forward-looking statements in this morning's earnings release and time queue also apply to our comments on the call today. Both of those documents are available on our website. Action will result or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our filings with the FEC.

Another innovation designed to drive more customers more orders and more profit.

We're also driving purposeful innovation behind technology to improve customer service and the team member experience on.

On October <unk>, we announced undertaking this challenge with the best in the business Microsoft.

Our two companies will collaborate on generative AI solutions that will create the next generation of pizza ordering and operations technology.

Together our teams are focused on two important goals.

First transforming customer experiences by enhancing the ordering process through personalization and simplification and then second streamlining operations and quality control with more predictive tools I can.

Ryan Goers: In addition, please refer to the 8K earnings release to find disclosures and reconciliation of non-gap financial measures that may be referenced on today's call. We want to do our best this morning to accommodate as many of your questions as time permits. As such, we encourage you to ask only one part question on this call. Today's conference call is being webcast and is also being recorded for replay via our website.

Russell Weiner: I now like to turn the call over to our Chief Executive Officer, Russell Weiner. Thanks Ryan and good morning everybody. My remarks this morning will focus on several new initiatives that are designed to create significant shareholder value in the months and years ahead. We launched our new loyalty program, Domino's Rewards on September 12th. And here are some of the mechanics that are really meaningful to our current and prospective customers. First, we lowered the spend threshold to earn points from $10 down to $5 and this change will make us even more competitive in a carryout segment where ticket tends to be lower.

Be more excited to work with Microsoft on this critical endeavor.

Finally, I wanted to address one of the most important topics for all of US here at Domino's and that's profit.

For our stores and profit for our company.

Despite our predicted and previously discussed softness in our U S same store sales or operating income margin improved as did our estimated franchisee profitability for the year.

With that means is that the sales improvements we expect to realize in Q4 and even more significantly in 2024 will flow through a more efficient model for domino's and our investors.

I am confident about our future, including the more immediate future here at Domino's.

With that I'll turn things over to Sandeep.

Thank you Russell and good morning to everyone on the call.

Before I go through our financial performance for the quarter I wanted to give an update on Russia.

Our master franchisee DP Eurasia announced their process to exit the market as detailed in our earnings release.

As a result, we closed the remaining 143 stores in the market during the third quarter.

For the purposes of global retail sales growth and our net store growth, we have removed the Russia business from both the current and prior year.

Moving on to updates on our actions to drive the long term profitability of Domino's and our franchisees.

First <unk>.

Yeah.

During the third quarter, the average price increase across our U S system was three 2%.

We now expect average realized pricing to moderate to slightly below 1% in the fourth quarter. When we lap the carrier mix and match pricing change from October 2022.

And incorporate the impact of trends, we are seeing from our newly launched dominoes rewards loyalty program.

Russell Weiner: Our second change was creating more attainable redemption opportunities for lower frequency customers. So in the past they needed to order six times to get a free pizza. Our new program features redemption set 20, 40 and 60 point tiers and offers items from eight different categories on our expansive menu. Joining pizza at the 60 point level are authentic sandwiches, pastas and mother cakes. At 40 points, we feature our lines of bread, twist and stuff cheesy bread.

Second.

Russell Weiner: And at 20 points, we offer single serve beverages, parmesan bread bites and dipping. Cups. Some more items to choose from with redemption options after just two purchases. While the program just launched, we've seen meaningful redemptions at the 20 and 40 point levels, so customers are clearly engaging more with Domino's rewards. These strategic improvements will be a significant value driver for our brand and company. We plan to grow active users and order frequency, unlocking continued share growth, both at delivery and carry out segments.

Cost efficiencies as we continue to drive margin recovery.

We drove an improvement in our operating income margin, which grew by 190 basis points versus Q3 2022.

Russell Weiner: We want to exceed the expectations that the incremental customers will get through Domino's rewards and Uber Eats. Now the way to do that is through best-in-class delivery service, and that's why I'm pleased to announce that we ended Q3 of 2023 back at our pre-pandemic Q3 2019 delivery times. This improvement was achieved through many of the best practices highlighted with franchisees during our summer of service program. This focus is important for us to provide an excellent delivery experience for new customers slowing in from Domino's rewards and the Uber Eats channel. We want these experiences to lead to loyal lasting customers who will provide considerable lifetime value for our brand and our company.

We now expect operating income margins for the year to reach 2021 levels.

Third.

Positive retail sales growth, excluding foreign currency impact in our U S and international businesses.

Russell Weiner: Now I'll talk to our renewed commitment to the all-important role innovation plays in the pizza category and our ability to continue to build our brand. We launched Pepparoni Stuff Cheesy Bread on August 28th. The Stuff Cheesy Bread launches indicative of two things that you're going to see from us going forward. Bringing news to our existing non-pizza platforms and leveraging Domino's rewards. For the launch of Pepparoni Stuff Cheesy Bread we lowered the redemption points required from 40 to 20.

<unk> operating income improvement.

Now for our financial results for the quarter.

Russell Weiner: It's great to see a product and technology innovation work so well together and this is an example of the kind of purposeful innovation I've talked about in the past. Innovation that serves many functions. In this case we've got a new product that makes an existing platform top of mind with customers all the while encouraging customers to sign up for and continue to take advantage of our improved loyalty program. So more customers more orders and more market share all leading to more top line growth and greater profits.

Excluding the positive impact of foreign currency.

Global retail sales grew five 1% due to positive international sales comps and global net store growth.

Russell Weiner: Another example of purposeful innovation is the emergency pizza promotion we launched just a few days ago. Customers who ordered Domino's will have 30 days to claim the free pizza to use in any emergency days e-fit. Whether dinner was burned or maybe circumstances are making things a bit tougher to afford. Customers who place in order order e-commerce platform will automatically earn Domino's emergency pizza. They'll have 30 days to redeem their emergency pizza and of course must be members of Domino's reward, to do so. Another innovation designed to drive more customers, more orders, and more profit. We're also driving purposeful innovation behind technology to improve customer service at a team member experience.

U S retail sales increased <unk>, 9%.

International retail sales, excluding the positive impact of foreign currency grew nine 4%.

During Q3 same store sales for the U S business decreased <unk>, 6%.

The decrease in U S same store sales was driven by order count declines.

Partially offset by a higher average ticket.

The pricing actions I mentioned earlier.

Our U S Carryout business.

Its positive momentum in Q3 with same store sales plus one 9%.

Russell Weiner: On October 3rd, we announced undertaking this challenge with the best in the business, Microsoft. Our two companies will collaborate on generous AI solutions that will create the next generation of pizza ordering and operations technology. Together, our teams are focused on two important goals. First, transforming customer experiences by enhancing the ordering process through personalization and simplification. And then second, streamlining operations and quality control with more predictive tools. I couldn't be more excited to work with Microsoft on this critical endeavor.

Rolling over of plus 19, 6% performance in 2022.

The delivery business continue to be challenged in Q3 in.

In line with our expectations stated on the last call with delivery same store sales minus two 3% rolling over a minus seven 5% in Q3 2022.

As mentioned on the last call, we expect delivery orders to have an improvement in trend in Q4, as our updated loyalty program and our emergency pizza promotion have now rolled out.

Russell Weiner: Finally, I want to address one of the most important topics for all of us here at Domino's, and that's profit. Profit for our stores and profits for our company. Despite our predicted and previously discussed softness in our US same store sales, our operating income margin improved as did our estimated franchisee profitability for the year. What that means is that the sales improvements we expect to realize in Q4 and even more significantly in 2024 will flow through a more efficient model for Domino's and our investors. I am confident about our future, including the more immediate future here at Domino's.

And that followed by a considerable improvement in 2024 as a result of transaction growth from our Uber eats partnership and the other initiatives previously shared with you.

Including consistent trends versus Q3, and our Carryout business, we expect U S sales comps to be positive in the fourth quarter.

Shifting to unit count we are.

Added 27, net new stores in the U S with 28 store openings and one closure.

Bringing our U S systems store count to 6762 stores at the end of the quarter.

As we had previously indicated the U S for quarter net store growth rate stabilized during the quarter at one 8% consistent with the rate at the end of the second quarter.

Russell Weiner: With that, I'll turn things over to Sunnee. Thank you, Russell, and good morning to everyone on the call. Before I go through our financial performance for the corner, I wanted to give an update on Russian. Our master franchisee DP Eurasia announced their process to exit the market as detailed in our earnings release. As a result, we close the remaining 143 stores in the market during the third quarter. For the purposes of global retail sales growth and our net store growth, we have removed the Russia business from both the current and prior.

We remain confident the store growth rate will improve during the fourth quarter with further acceleration into 2024.

And as of last week 72 stores are under construction in the U S. The majority of which are expected to open in Q4.

Domino's unit Economics remained strong with continued EBITDA growth for our U S franchisees.

We are on track to deliver estimated average franchisee store profitability of at least $155000 in 2023 up from the $150000. We indicated on the last call.

Russell Weiner: Moving on to updates on our actions to drive the long term profitability of Domino's and our franchisees. First, pricing. During the third quarter, the average price increase across our U.S, system was 3.2%. We now expect average realized pricing to moderate to slightly below 1% in the fourth quarter when we map the carrier of mix and match pricing change from October to 2022 and incorporate the impact of trends we are seeing from our newly launched Domino's rewards loyalty program.

Same store sales in our international business, excluding foreign currency impact increased three 3%.

Our international stroke on decreased by 35 net stores comprised of 190 store openings and 225 closures.

Closures were primarily driven by the previously mentioned exit of the Russian market and its remaining 143 stores along with store closures from Domino's Pizza enterprises as mentioned on our last call.

Russell Weiner: Second, cost efficiency as we continue to drive margin to covering. We drove an improvement in our operating income margin which grew by 190 basis points versus Q3 2022. We now expect operating income margins for the year to reach 2021 levels. Third, positive retail sales growth excluding foreign currency impact in our U.S, and international businesses drove operating income improvement. Now for our financial results, for the quarter. Excluding the positive impact of foreign currency, global retail sales grew 5.1% due to positive international sales comps and global net store growth.

Our current trailing four quarter net store growth rate in international was five 9%.

When combined with our U S store growth.

Our trailing four quarter global net store growth rate was four 5%.

We expect our global unit growth to track two or slightly below the low end of our 5% to 7% two to three of our outlook.

Despite strong gross openings, we will be pressured by elevated store closures this year.

We believe are mostly behind us.

Since these closures were underperforming stores and certain underperforming markets.

Do not anticipate this will materially impact the financial benefit of our new international store openings.

Russell Weiner: US retail sales increased to 0.9%, international retail sales excluding the positive impact of foreign currency grew 9.4%. During Q3, same-store sales for the US business decreased to 0.6%. The decrease in US same-store sales was driven by auto-count declines partially offset by a higher average ticket including the pricing actions I mentioned earlier. Our US carry-out business continued its positive momentum in Q3 with same-store sales plus 1.9% rolling over a plus 19.6% performance in 2022.

Thank you we will now open the call to questions.

Certainly ladies and gentlemen, if you do have a question at this time as a reminder, please press star one on your telephone.

One moment for our first question.

And our first question comes from the line of Brian Bittner from Oppenheimer. Your question. Please.

Thanks, Good morning.

The Domino's system, clearly has two new drivers and your relaunch of rewards and the upcoming Uber eats initiative and you seem very confident that this is going to drive incremental demand you even had the summer of service initiative earlier this year to get the system ready.

Russell Weiner: The delivery business continued to be challenged in Q3 in line with our expectation stated on the last call with delivery same-store sales minus 2.3% rolling over a minus 7.5% in Q3 2022. As mentioned on the last call, we expect delivery orders to have an improvement in trend in Q4 as our updated loyalty program and our emergency pizza promotion have now ruled out and that followed by a considerable improvement in 2024 as a result of transaction growth from our Uber Eats partnership and the other initiatives previously shared with you.

For higher order counts.

Just as it relates specifically to this rewards relaunch it happened a month ago. So we're a month in.

Can you just be really helpful to understand the early reads on this initiative I know you expect improved comp trends in the fourth quarter I think you said positive comps.

But any incremental color would be helpful on whether it's driving true increments how the.

And how its behaving relative to your prelaunch expectations for the relaunch.

Russell Weiner: Including consistent trends versus Q3 in our carry-out business, we expect US sales comps to be positive in the fourth quarter. Shifting to unit count, we added 27 net new stores in the US with 28 store openings and one closure, bringing our US system store count to 6,762 stores at the end of the quarter. As we had previously indicated, the US four quarter net store growth rate stabilized during the quarter at 1.8% consistent with the rate at the end of the second quarter.

Good morning, Brian its Ross all thanks for the question and we're really I would say.

Very excited about how this has come out of the gate.

We've done two things with the rewards program and both are working right purposely we took the dollar level down to entry level from $10 to $5 and that's really important, especially when you think about our carryout customer we are a national deal at 799. So prior to this change you couldnt get the national deal and loyalty points.

So this has been a really nice way to bring in lighter users and carryout customers. That's on the front end.

Russell Weiner: We remain confident the store growth rate will improve during the fourth quarter with further acceleration into 2024. As of last week, 72 stores are under construction in the US, the majority of which are expected to open in Q4. Domino's unit economics remains strong with continued EBITDA growth for our US franchisees. We are on track to deliver estimated average franchisee store profitability of at least $155,000 in 2023, up from the $150,000 we indicated on the last call.

And then on the backend we talked about we have eight different ways different platforms now that you can use your <unk>.

It used to be that you had to buy.

<unk> six times in order to get.

Free Pizza now you can buy as little as two times to get free items and what that does is it really plays with frequency of lighter users. So youre right Thats, what we projected before I hand, it what I can tell you as we've moved in so far that's exactly what we've seen we've seen a lot of folks.

Doing that with Domino's rewards.

Okay.

Thank you one moment for our next question.

And our next question comes from line of Peter.

Russell Weiner: Name store sales in our international business, excluding foreign currency impact, increased 3.3%. Our international store count decreased by 35 net stores comprised of 190 store openings and 225 closures. Closures were primarily driven by the previously mentioned exit of the Russia market and it's remaining 143 stores, along with store closures from Domino's pizza enterprises as mentioned on our last call. Our current trading four quarter net store growth trade in international was 5.9% When combined with our US store growth, our trading four quarter global net store growth rate was 4.5% We expect our global unit growth to track two or slightly below the low end of our 5% to 7% to the three-year outlook.

Peter <unk> from <unk> Your question. Please.

Great. Thanks, and thanks for all the color you guys provided.

Russell I wanted to ask about the Uber eats partnership, which you guys seem also very excited about.

And that really kicks into gear next year, but I think you guys have had it in a few markets. So far now for either a couple of months or so.

Any thoughts or any detail you can provide on the early reads there or any how it's performing versus your expectations and if you've had to make any adjustments.

So far to the program going forward. Thanks.

Yeah. Thanks, Peter obviously, it's something that we're all really watching closely these pilot markets and I call. It pilot versus test market, because we're really not using any marketing either outside or inside the Uber platform. At this point. This is really more to test out what I call kind of the handshake between two really large platforms dominos.

Russell Weiner: Despite strong growth openings, we will be pressured by elevated store closures this year that we believe are mostly behind us. Since these closures were under-performing stores and certain under-performing markets, we did not anticipate this will materially impact the financial benefit of our new international store openings.

We already deliver more pizza than anyone in the country and so as we.

Take on these incremental orders, we just need to make sure that technology works.

That's what we're doing now and then certainly making sure the staffing is right and we're working with Uber and our franchisees to do that.

Unknown Executive: Thank you, we will now open the call to questions. Certainly, ladies and gentlemen, if you do have a question at this time as a reminder, please press star 1-1 on your telephone. One moment for our first question.

Brian Bittner: And our first question comes from the line, Brian Bittner from Oppenheimer. Your question, please. Thanks, good morning. You know, the Domino system clearly has two new drivers in your relaunch of rewards and the upcoming Uber Eats initiative. And you seem very confident that this is going to drive incremental demand. You even had the summer of service initiative earlier this year to get the system ready for higher order counts. And just as it relates specifically to this rewards relaunch, it happened a month ago.

Detroit and Seattle, both corporate stores and franchise stores. So all is going as we expected and we're still on target for a.

National launch at the end of the year.

Thank you one moment for our next question.

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

Great. Thank you very much.

Actually.

The question just wanted to make sure I understood. The gross openings in the U S are on track.

Brian Bittner: So we're a month in. And it just be really helpful to understand the early reads on this initiative. I know you expect improved contracts in the fourth quarter. I think you said positive prompts, but any incremental color would be helpful on whether it's driving true incrementality and how it's behaving relative to your pre-launch expectations for the relaunch. Morning, Brian. It's Ross Hall. Thanks for the question. And we're really, I'd say I'm very excited about how this has come out of the gate.

The global numbers on moderate.

More about international closures, but then the <unk>.

Question I have.

About the loyalty you said that youre seeing more engagement the Gwen when would you expect to see the increased frequency.

If you have these sort of lower frequency customers generally come in.

A couple of times a year might it take a while for you to know the impact of the claims and the redemption tiers.

Is there anything you can tell us about frequency.

And you're.

Brian Bittner: We've done two things with the rewards program and both are working, right? Purposely, we took the dollar level down entry level from $10 to $5. That's really important especially when you think about our carry out customer. You know, we have a national deal at $7.99. So prior to this change, you couldn't get the national deal and loyalty points. So this has been a really nice way to bring in lighter users and carry out customers.

The low frequency customer that you might be seeing that could give us some color on what.

What the impact on transaction might look like over time.

Sure I'll answer both your questions I think your first questions was about closures in the U S.

Brian Bittner: That's on the front end. And then on the back end, we talked about we have eight different ways, eight different platforms now that you can use your points. It used to be that you had to buy six times in order to get free pizza. Now you can buy as little as two times to get free items. And what that does is it really plays with frequency of lighter users. So you're right.

So you've got visibility into builds you've got franchisee EBITDA at $1 55. These stores when they opened stay open.

There's a lot of <unk>.

Segment about building stores at Domino's Pizza.

We've been under 20 annual closures in the U S. Since 2000.

Brian Bittner: That's what we projected beforehand at what I can tell you as we've moved in so far. That's exactly what we've seen. We've seen a lot of folks doing that with Domino's rewards. Thank you one moment for our next question.

2017, so we have a strong U S pipeline and those stores. They open on the on the loyalty side.

What I can tell you obviously it is really early in but what we were looking for is lower level of redemption levels.

Peter Saleh: And our next question comes from the line of people at Peter's L.A. From BTIG. Your question, please. Great, thanks. And thanks for all the color you guys provided. Russell, I wanted to ask about the Uber Eats Partnership, which you guys seem also very excited about, that really kicks in the gear next year. But I think you guys have had it in a few markets so far now for either a couple of months or so.

<unk> customers and we're seeing that in spades.

We'll have more information.

Longer term once we get through a couple of purchase cycles, but pretty much right away, we're seeing what we wanted to see there.

So I'll just add on the global net unit growth, but Australia, driven by the international closures that we talked about on the last call and now we are seeing it come through in the Q3 numbers as well and Thats the big driver of the adjustment of the expectations on the 23 level.

Peter Saleh: Any thoughts or any detail you could provide on the early reads there or any how it's performing versus your expectations. And if you've had to make any adjustments so far to the program going forward, thanks. Yeah, thanks, Peter. Obviously it's something we're all really watching closely via pilot markets. And I call it pilot versus test market because we're really not using any marketing, either outside or inside the Uber platform at this point.

Okay.

Yeah.

Thank you one moment for our next question.

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

Great. Thank you I wanted to ask another on the U S New open trajectory and.

Maybe a little more thoughts as it relates to U S franchisee demand to open those stores and the expected acceleration in the 'twenty four I guess how much of this is you've got some really compelling sales drivers. The topline is going to look better. The returns are going to look better how much of it maybe is the staffing is in a better place than it has been over the long.

Peter Saleh: This is really more to test out what I call kind of a handshake between two really large platforms. I mean, Domino's we already deliver more pizzas than anyone in the country. And so as we take on these incremental orders, we just need to make sure that technology works. That's what we're doing now. And then certainly make sure the staffing is right and we're working with Uber and our franchise is to do that.

Peter Saleh: So we've been in Las Vegas right now. And what I can tell you is things are going as planned. And we're now continuing that those pilots moving in over the next course of the next few weeks into Houston Miami Detroit. And Seattle both corporate stores and franchise doors. So all is going as we expected and we're still on target for a national launch at the end of the year. Thank you one moment for our next question.

Yes, Dennis you've obviously done good research out of the business you had a lot of those there I think it's all of those things are coming back right. So the headwind on opens that we're there with permitting and all that those have started to subside staffing is back where we needed to I wanted to reiterate how proud I am of our system. We are back at 2019 service levels, which.

It's a big deal and it talks about where we've gotten our staffing too.

Dennis Geiger: And our next question comes from the line of there is an author from Bank of America. Your question, please. Thank you very much. I just actually a qualification question. I just wanted to make sure I understood that the growth opens in the US are on track. The global numbers on that are more about international closures. But then the question I had was about the loyalty. You said that you're seeing more engagement is when when would you expect to see the increased frequency.

Second is the second big chunk is over what folks are seeing on the returns of the businesses. They currently own and as EBITDA continues to go up.

If I'm a franchisee I'd say while EBIT.

At $1 55, right now.

And thats on relatively flat sales in the U S and we know what's coming in the Q4, and we know it's coming with Uber in Q1, so today and sort of if there was a lot of interest to make sure that we service. This volume I think lastly, this carryout business that we're leaning into store growth is so important in the franchise franchisees realize that right.

Dennis Geiger: If you have these sort of lower frequency customers only coming a couple of times a year might it take a while for you to know the impact of the change in the redemption tiers or or anything you can tell us about frequency of others average or, you know, or the low frequency customer that you might be seeing that could give us some color as to what the impact on transaction might look like over time. Sure, I'll answer both your questions.

When we when we opened a new store, even when the stores split so when we take an existing service area and we split it about 80% of those carrier customers are incremental and so when you look at the headwinds that have subsided.

And.

You look into the present and the future is our franchisees there are a lot of reasons to build a domino's store.

And Dennis I'll, just add on something because I think we've.

Dennis Geiger: I think your first questions was about closures in the US. In the US, we actually we close one store this past quarter. And I think you know, Sunday talked about franchise the EBITDA. And when you think about what drives store opens and remember he said that we've got visibility into over 70 builds right now. So you've got visibility into builds. You've got franchise the EBITDA at 155. These stores when they open stay open.

Previous calls we've talked about the build costs right, where we expected to build costs have gone up about 20% versus 2019, frankly build costs are coming in a similar level for 'twenty three from what we've seen so far.

Look profit has actually gone up we.

We updated last time to $115 155, So obviously returns are going to be more and more compelling given that dynamic.

Frankly, with the Uber opportunity coming next year, we'd expect to see even more growth.

In 2004 in terms of profitability of the stores.

Dennis Geiger: There's a lot of excitement about building stores at Domino's Pizza. We've been under 20 annual closures in the US since 2017. So we have a strong US pipeline and those stores stay open on the on the loyalty side. What I can tell you obviously it is really early in, but what we were looking for is lower level redemption levels amongst customers and we're seeing that in space. So we'll have more information longer term when we get through a couple of purchase cycles, but pretty much right away we're seeing what we wanted to see.

Sort of appetite is very strong.

Thank you guys I appreciate it.

Thank you one moment our next question.

And our next question comes from the line of Suraj Kalia from Jpmorgan. Your question. Please.

Hi, This is John Ivan co hopefully you can hear me.

The question is actually on the Microsoft announcement, then I do want to put this in the context of 20 plus years of in House point of sale development closed system. Obviously, there is significant benefits that came with this closed system, but also considerable costs. So I just did want you to frame it.

Dennis Geiger: And Sara, I'll just add on on the global net unit growth, that's already driven by the international closures that we talked about in the last call and now we're seeing it come through in the Q3 numbers as well. And that's the big driver of the adjustment and the expectations on the 23 level. Thank you one moment for our next question.

It's a five year agreement.

That I read in the release, just kind of how you see this back.

Balanced changing but from a benefit side.

While the equation, what the franchisees are going to see what the customer will see what of course, you will get as a company, but also the cost side of the equation. This is actually an opportunity to perhaps on a net basis slow some of the technology spend that Domino's has actually been famous for over the years. Thank you.

Dennis Geiger: Great. Thank you. I wanted to ask another on the US new open trajectory and maybe a little more thoughts as it relates to US franchisee demand to open those stores and the expected acceleration into 24. I mean, I guess how much of this is you've got some really compelling sales drivers. The top line's going to look better. The returns are going to look better. How much of it maybe is the staffing, you know, is in a better place and it has been over the last 12 to 18 12 to 24 months.

Hey, good morning, John .

That's a great point as you look back in the history of Domino's, We we certainly have built more things internally when it comes to competitive points difference I think we've always said you can outsource a competitive point of difference.

We do outsource things.

That are really.

Out there in the field that really are in a competitive quite a different style what have we done here in this case.

Dennis Geiger: If you could just kind of unpack a little bit of the sort of demand shift from what we've seen maybe over the last 12 plus months to what you guys expect in 24 and beyond in the US. That'd be great. Thank you. Yeah, Dennis, well, you've obviously done good research on the business. You had a lot of those there. I think it's all those things are coming back. Right. So the headwind on opens that were there with permitting and all that those has started to subside.

There's going to be a competitive point of difference with <unk>.

<unk> AI solutions, and we think we've got the resources and the pizza expertise internally.

What we've got with Microsoft is the best in the field externally and so you take those two things together.

It's not just cost. It's also impact this is a journey that if we could pick any one to do it with and we would pick Microsoft and so right now the focus is really on two areas with them first on transforming the consumer experience by enhancing the order process through things like personalization and simplification.

Dennis Geiger: Staffing is back where we needed to want to reiterate how proud I am of our system. We are back at 2019 service levels, which is it's a big deal. And it talks about where we've gotten, you know, our staffing to. The second is the second big chunk is over what what folks are seeing on the returns of the businesses they currently own and as you that continue to go up. If I'm a franchisee, I say, wow, I'm even at 155 right now.

The second is streaming streamlining operations and quality control with some more predictive tools. So yes. This is kind of a hybrid here best in class best in class Pizza Best in class AI and our teams are very excited to work together.

Dennis Geiger: And that's on relatively flat sales in the US. And we know what's coming in the Q4. We know it's coming with Uber and Q1. So today. And so if there's a lot of interest to make sure that we serve us this volume. I think lastly, this carryout business that we're leaning into. Stork road is so important to franchise franchisees realize that right now when we when we open a new store, even when the store is split.

Thank you one moment for our next question.

Yeah.

And our next question comes from the line of Andrew <unk> from BMO capital markets. Your question. Please.

Hey, good morning, Thanks for taking the questions.

Maybe just a broader question on the consumer and what Youre seeing there and how maybe behaviors, maybe evolving whether it's through delivery carryout domestic international I'm curious, what's your analytics to show you and how things are changing.

Dennis Geiger: So when we take into this thing service airing, we split it about 80% of those carryout customers are incremental. And so when you look at the headwinds that are subsided and you look into the present and the future of the franchisee, there are a lot of reasons to build the domino store. And Dennis, I'll just add on something because I think we've on previous calls, we talked about the build costs, right?

Yes, our approach no matter, what the consumer environment has always been the same which is to provide the best relative value for our customers and that hasnt changed not only in the U S but internationally.

Dennis Geiger: We expected that the build costs have gone up about 20% versus 2019. Frankly, build costs are coming in a very similar level for 23 from what we've seen so far. And look, profit has actually gone up. We updated last time to 150. Now it's 155. So obviously returns are going to be more and more compelling, given that the dynamic. And frankly, with the Uber opportunity coming next year, we expect to see even more growth in 24 in terms of profitability of the stores. So appetite is great. Thank you guys. Appreciate it.

To point to a couple of best practices that have been exported around our boost weeks, we just had boost tweaks in Mexico and Canada with.

Dennis Geiger: Thank you. One moment for our next question, and our next question comes from the line.

Television behind them, just like we do here in the states. Those are the best weeks that those those countries have had in and so I think just in general customers are looking for value now what we're trying to do here at Domino's is position the value.

More than just price and that to me is with the beauty of emergency Pizza and I want to talk about that.

Little bit SMS.

Essentially what emergency pizza is.

Is old school buy one get one free.

As a former marketer right.

<unk>.

But because of the attention.

John Ivankoe: Go from JP Morgan, your question please. Hi, this is John Ivankoe, hopefully you can hear me. The question is actually on the Microsoft announcement, and I do want to put this in the context of 20 plus years of in-house point of sale development, a closed system, obviously there are significant benefits that came with this closed system, but also considerable costs. So I just did want you to frame it. I think it's a five-year agreement that I read in the release, just kind of how you see this balance changing, both from a benefit side of the equation, what the franchise is, you're going to see what the customer will see, what of course you will get as a company, but also the cost side of the equation, if this is actually an opportunity perhaps, on a net basis, slow some of the technology spend that Domino's has actually been famous for over the years.

In the world right now around the economy and things like that people their antennas are up.

And so instead of calling it a buy one get one free our creative marketing Department decided or buy one get one later, which is essentially what this is if high pizza now you can get your emergency pizza whenever you want over the next 30 days, we call. The emergency pizza. The mechanics are still the same but the message is going to resonate because of it.

The economic.

That you are talking about so best in class value is important, but making sure we breakthrough with not just a value message of strong brand message is critical and I think we're doing that.

Thank you one moment for our next question.

And our next question comes from the line of Chris <unk> from RBC capital markets. Your question. Please.

John Ivankoe: Thank you. Good morning, John. That's a great point as you look back in the history of Domino's. We certainly have built more things internally when it comes to competitive points of difference. I think we've always said you can outsource a competitive point of difference. We do outsource things that are really out there in the field that really are in a competitive point of difference. What have we done here in this case?

Hi, good morning, and thanks for the question. So just on the outlook updates can you expand maybe a bit more on what's driving the changes there for retail sales is it simply international performance to date or are you seeing anything in the current quarter, that's leading to the update.

And then on net unit growth just to clarify in the Russia exit not a factor in the updated unit growth outlook. Thanks.

Alright, Thanks, Chris.

John Ivankoe: There's going to be a competitive point of difference with gender-vi solutions, and we think we've got the resources and the pizza expertise internally. What we've got with Microsoft is the best in the field externally, and so you take those two things together and it's not just cost, it's also impact. This is a journey that if we could pick anyone to do it with, we would pick Microsoft. Right now, the focus is really on two areas with them.

Ill just answer that question for you. So on the retail sales outlook I think we're taking into consideration the nine months of the.

Three quarters of the past plus the expectations that we have for the fourth quarter and Thats incorporated in what we are talking about.

As you noted.

Includes an expectation of positive comps in the United States.

I have an expectation of.

Strong growth in the international business as well.

So I think from a.

From a unit growth standpoint, what we have taken into consideration.

John Ivankoe: First, on transforming the consumer experience by enhancing the order process through things like personalization and simplification. The second is streamlining operations and quality control with some more predictive tools. So, yeah, this is kind of a hybrid here. Best in class, both best in class, pizza, best in class, AI, and our teams are very excited to work together.

The closures that have happened internationally, that's the big driver of the modification that we've made over there.

But overall I think our U S business is Russell talked about earlier in terms of visibility and trajectory looks very solid and I think the entire change in unit growth on a global level. There is based on the international business and the closures there.

And let me just put some.

Russell Weiner: Thank you one moment for our next question. And our next question comes from the line of Andrew Strollsick from BMO Capital Markets. Your question, please. Yeah, good morning. Thanks for taking the questions. Maybe just a broader question on the consumer and what you're seeing there and how maybe behaviors may be evolving, whether it's through delivery, carryout, domestic, international, curious what your analytics are showing you and how things are changing. Yeah, you know, our approach no matter what the consumer environment has always been the same, which is to provide the best relative value for our customers, and that has been changed not only to the US, but internationally.

Maybe some perspective on those closures the ones that rush.

Russia, Obviously, we're talk to ahead of time, Domino's Pizza enterprises announced over the summer that they were going to have closures as part of <unk>.

Kind of a short term business adjustment.

Adjustment on their side and we saw those in Q2 and Q3.

With Domino's Pizza Enterprises also did was they talked about that they were not going to change and they were still bullish around their long term outlook for 'twenty 30, threes still at 7100 stores. So I see this as kind of both of these as onetime ish events you take those two blocks of closures out.

Russell Weiner: I'd like to point to a couple of best practices that have been exported around our boost weeks. We just had boost weeks in Mexico and Canada with television behind them just like we do here in the States. Those are the best weeks that those countries have had. And so I think just in general, customers are looking for value. Now, what we're trying to do here at Domino's is position the value more than just price.

We closed 15 stores in international this.

Quarter and from an opening perspective.

Still stayed right around the 1000 store openings for trailing 12 months, we opened up over a 1021 over 1022 and so that's just a little bit more color around our international store openings.

Yes.

Thank you one moment for our next question.

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

Russell Weiner: And that, to me, is with the beauty of emergency pizza. And I want to talk about that a little bit. But essentially what emergency pizza is is old school by one get one free as a former marketer, right? But because of the tension in the world right now around the economy and things like that, people, they're in ten of their up. And so instead of calling it a buy one, get one free, our creative marketing department decided, or buy one, get one later, which is essentially what this is.

Thanks, Good morning.

In the press release, you talked about the lift from third party and loyalty hitting in 2024 I'm Wonder.

This quarter, what sort of net same store sales impact do you expect from loyalty in <unk> the higher orders minus.

Russell Weiner: You buy pizza now, you can get your emergency pizza whenever you want over the next 30 days. We call it emergency pizza. The mechanics are still the same. But the message is going to resonate because of the economic that you're talking about. So best in class value is important, but making sure we break through would not just a value message, a strong brand message is critical. And I think we're doing that. Thank you. One moment for our next question.

And of course, the magnitude and the ramp part I'm not really sure about either I'm, just wondering how youre thinking about magnitude and perhaps a ramp phase two loyalty.

Yes, Thanks, David I think both Sandeep and I will both will answer this one.

On loyalty.

Loyalty is one of a few things we got loyalty pepperoni step cheesy bread emergency pizza, all things that we absolutely.

Andrew Strelzik: And our next question comes from the line of Chris Carrell from RBC Capitol markets, your question please. Good morning and thanks for the question. So just on the outlook updates. Can you expand maybe a bit more on what's driving the changes there for retail sales? It's simply international performance today or are you seeing anything in the current quarter that's leading to the update. And then on net unit growth, just to clarify, is the Russia exit not a factor in the updated unit growth outlook?

I think are going to we know are going to affect our Q4 numbers and we're seeing that out of the gate.

Third party piece will start in Q.

Q4 in December and that will be ramping up certainly.

Big time.

Next year from a loyalty perspective as soon as we get more information on how that is affecting the business. We will let you know, but I can tell you short term.

Folks are interacting with the loyalty program and our innovation at a higher level than I expected coming in.

Andrew Strelzik: Thanks. Thanks Chris. I'll just answer that question for you. So on the retail sales outlook, I think we're taking into consideration the nine months that the three quarters of the past plus the expectations that we have for the fourth quarter and that's incorporated what we're talking about. As you noted, it includes an expectation of positive comps in the United States and an expectation of strong growth in the international business as well.

And Dave I wanted to just add something to that just so you can get a sense of cadence in terms of what's been happening with the comps and what my expectations are for Q4.

If you'll note.

We actually had a reduction in the impact of pricing from 2% roughly to a little bit under 1% and our expectations for Q4, and this was driven really by the increased redemptions that we're seeing from loyalty Domino's rewards.

Andrew Strelzik: So I think from a unit growth standpoint, what we have taken into consideration is the closures that have happened internationally. That's the big driver of the modification that we made over there. But overall, I think our US business, as last we'll talk about earlier in terms of visibility and trajectory looks very solid. And I think the entire change in unit growth on a global level is based on international business and their closures.

Which is great because it actually is more than offset by incremental transactions.

The total business and so this the good news about this is we expect this improvement in transactions to come both in delivery as well as Carryout and remember that carrier, we're lapping the mix and match promo pricing.

Andrew Strelzik: And let me just put some maybe some perspective on those closures. You know, the ones that Russia obviously were talked to ahead of time. Domino's piece of enterprises announced over the summer that they were going to have closures as part of a kind of a short-term business adjustment adjustment on their side. And we saw those in Q2 and Q3. What Domino's piece enterprise also did was they talked about that they were not going to change and they were still bullish around their long-term outlook for 23 still at 7100 stores.

It was done in October 2022, so we lose a bit of pricing over there, but we still expect to have consistent trends in the fourth quarter on carryout too. So feeling really good about the balance of the impact of the loyalty program.

On Q4 added saw definitely an accelerated off transactions.

Thank you.

Andrew Strelzik: So I see this as kind of both of these as one-time-ish events. You take those two blocks of closures out. We closed less than 15 stores in international this quarter. And on from an opening perspective, still stayed right around the 1,000 store openings for trailer 12 months. We opened over 1,000 in 2021 over 1,022. And so that's just a little bit more color around our international store opening. Thanks.

Thank you one moment for our next question.

And our next question comes from the line of Brian Harper from Morgan Stanley . Your question. Please.

Okay.

Thanks, Good morning, guys.

So I think you commented just on food basket, but is it fair to assume you have seen it.

April quarters of that being lower than.

And as we think about store margins.

In supply chain profits.

Probably continues into the fourth quarter at this point.

Sandeep Reddy: Thank you one moment for our next question. And our next question comes from the line of David Palmer from Evercore, ISI. Your question please. Thanks, good morning. In the press release, you talked about the lift from their party and loyalty, hitting in 2024. I'm wondering about this quarter. What sort of net chainsaw sales impact do you expect from loyalty in 4Q, you know, higher orders, minus perhaps higher redemptions, and come to think of it, I'm not really sure what sort of lift you're expecting from loyalty over time.

Yes, Brian .

Really good question on the food basket I think when we when we reported in July for the second quarter. There was so much volatility, particularly on cheese.

But volatility did continue but the trend line that we drew in the third quarter ended up still being favorable to us as you saw and what we reported for minus one seven in the basket.

Things are still a bit volatile, but I think overall trends seem to be pointing to favor ability and then you think about the franchisee store profitability going from 150 to 155, a big driver of that improvement with an improved basket both in Q3.

Perhaps a little bit of an expectation a little bit more tailwind as we go into the fourth quarter.

Sandeep Reddy: I think for some reason we were thinking something like a couple press percentage point boost from loyalty and more of a step change, not something that ramps. And of course the magnitude and the ramp part, I'm not really sure about that. I'm not either just wondering how you're thinking about magnitude and perhaps a ramp faced loyalty. Thanks. Yeah, thanks David. I think both Sunday and I will answer this one. On loyalty, loyalty is one of a few things we've got loyalty, pepperoni stuff, cheesy bread, emergency pizza.

So that's that's how we see the food basket and franchisee profitability, but supply chain margins also.

Food baskets ends up being deflationary in the fourth quarter will benefit from a margin standpoint.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Andrew Charles from TD Cowen Your question. Please.

Great. Thank you Sandeep was hoping you could help just with the supply chain and how we should think about that going forward. The productivity benefits continued in <unk> as indicated 10-Q, where.

Sandeep Reddy: All things that we absolutely think are going to know are going to affect our Q4 numbers and we're seeing that out of the gate. The third party piece will start in Q4 in December and that will be ramping up certainly big time next year. From a loyalty perspective, as soon as we get more information on how that is affecting the business, we'll let you know, but I can tell you short term, folks are interacting with the loyalty program and our innovation at a higher level than I expected coming in.

They're still around the neighborhood of 70 basis points and at least versus our model looks like labor cost in the supply chain business were a bit higher in <unk> excuse me were in <unk>.

You speak to that the durability of that as well.

Yes, Andrew I think.

When we look at supply chain Youre right. The biggest driver of the margin improvement is the procurement productivity. That's been there all year and we expect that to continue into the fourth quarter as well.

When we look at what happened in the.

Sandeep Reddy: And I want to just add something to that just so you can get a sense of cadence in terms of what's been happening with the comps and what our expectations are for Q4. If you know, we actually had a reduction in the impact of pricing from 2% roughly to a little bit under 1% in our expectations for Q4. And this was driven really by the increased redemptions that we were seeing from loyalty.

In the third quarter I, just talked to Brian about this.

We got the benefit of the food cost could actually impacting margins slightly favorably.

<unk>.

Was a little bit of labor pressure, but I think a lot of that is more driven by the opening of Indiana Center that we lap over in Q4.

So overall I think we're very happy with the trends that we're seeing and.

Sandeep Reddy: Domino's rewards, which is great because it actually is more than offset by incremental transactions and that is implicit in our expectations of the comps that we're talking about for the Q4 being positive, which if you think about it, if you have a roughly 1% impact on pricing, this implies transactions are nearly flat or better in the total business. And so the good news about this is we expect this improvement in transactions to come both in delivery as well as carry out.

Supply chain margins. If you go back to the question the answer I gave to Dave on transactions guess, what that does is going to drive more volume through our supply chain centers, and therefore drive more profit out of our supply chain centers.

Very good thanks.

Thank you one moment for our next question.

And our next question comes from the line of Chris will call from Stifel. Your question. Please.

Thanks, Good morning, guys.

Sandeep Reddy: And remember that carry out we're laughing at the mix and match from our pricing. We're done in October 2022. So we lose a bit of pricing over there, but we still expect to have consistent trends in the fourth quarter on carry out 2. So feeling really good about the balance of the impact of the loyalty program on Q4 and it's definitely an excellent way to have transactions. Thank you. Thank you one moment for our next question.

Russell I appreciate your comments earlier about the importance of Domino's offering the best value to consumers.

<unk> won't be offering international deals like mix and match on the Uber platform. So I'm trying to understand what proposition Domino's can offer an uber that will be as effective against the competition and I'm also curious if you think domino's can obtain a similar share of the three P pizza delivery market.

That it has off of the <unk> platform.

Brian Harbour: And our next question comes from the line of Brian Harbour from Morgan Stanley. Your question, please? Yeah, thanks. Good morning, guys. I don't think you commented just on food basket, but it's fair to assume, you know, you've seen a couple quarters of that being lower. And as we think about store margins and supply chain profits, you know, that that probably continues into the fourth quarter at this point. Yeah, a bright, really good question on the food basket.

Chris Great question.

Brian Harbour: I think we, when we reported in July, for the second quarter, there was so much volatility, particularly on cheese. That volatility did continue, but the trend line that we drew in the third quarter ended up still being favorable to us, as you saw, and what we reported for minus 1.7 on the basket. Things are still a bit volatile, but I think overall trends seem to be pointing to favorability. And then you think about the franchisey store profitability going from 150 to 155, a big driver of that improvement, whether improved basket, both in Q3 and perhaps a little bit of an expectation, a little bit more tailwind as we go into the fourth quarter. So that's how we see the food basket and franchisey profitability, but supply chain margins also, if food basket ends up being deflationary in the fourth quarter, will benefit from a margin standpoint. Thank you.

Because at the end of the day, we want to drive incrementally and when you think about our assets if you're a customer and you want the best prices.

Or you want the best loyalty program.

Youre going to come to Domino's Dot com, there are going to be some customers and thats why were going into this marketplace.

That are either only uber customers or maybe both.

And because of that what we want to make sure. We're doing is price it in such a way that if we don't have consumer <unk>, we at least.

Our positive on the on the.

The margin side for our franchisees and so while we will have our entire menu on Uber will have a slight premium to our menu price.

That channel now menu prices at Domino's Pizza are still very competitive and so I think within that platform will be competitive and the second thing that we do really well and you see this in our in our digital media.

The Uber marketplace is a digital platform for us and so we've got our national advertising fund budget.

And all the expertise we have from being on.

Andrew Charles: Thank you, one moment for our next question. And our next question comes in line of Andrew Charles from TD County. Your question, please. Great. Thank you. Some people, something you could help just with the supply chain and how we should think about that going forward. The productivity benefits continued in 3Qs in the given 10Q with a still around the neighborhood 70 basis points. And at least versus our model looks at the labor cost in the supply chain.

The competition will be in a really good place I think will be a value player there and we will have high awareness once you're within that platform and so absolutely I think we can.

Get to our fair share on that platform as well as eventually the entire marketplace for Aggregators.

Andrew Charles: This is a bit higher than 3Qs they were in 2Q. Can you speak to that, the durability of that as well? Yeah, Andrew, I think when we look at supply chain, you're right, the biggest driver of the margin improvement is the procurement productivity that has been there all year. And we expect that to continue under the fourth quarter as well. When we look at what happened in the third quarter, I just talked to Brian about this.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Joshua Long from Stephens, Inc. Your question. Please.

Great. Thank you for taking my question, when we think about loyalty and the opportunity for Carryout to participate there.

The conversation has been focused on.

Andrew Charles: We got the benefit of the food basket actually impacting margins slightly favorably. There was a little bit of labor pressure, but I think a lot of that is more driven by the opening of Indiana Center that we lap over in Q4. So overall, I think we're very happy with the trends that we're seeing in supply chain margins. And if you go back to the question, the answer I gave today on transactions, guess what that does? It's going to drive more volume through our supply chain centers and therefore drive more profit out of our supply chain centers. Very good, thanks.

Third party marketplace and some of the initiatives that have been put in place to unlock delivery, but could we circle back to other carry out initiatives and how you think about building that you said that's been <unk>.

Strategic.

Point of focus in prior calls just so we can get back there or.

Looking forward to 2024 and beyond can you talk a little bit more about how you're building the awareness and.

Scaling up to carry outside of your business as well please.

Yes, no great carrier is one of my favorite topics. Most recently I'll just point to the two year 21, 5% comp.

On the Carryout business there is.

Chris O'Cull: Thank you one moment for our next question. And our next question comes from the line of Chris O'Cull from Steve Fuller. Your question please. Thanks, good morning, guys. Russell, I appreciate your comments earlier about the importance of Domino's offer and the best value to consumers. But Domino's won't be offering international deals like Mix and Match on the Uber platform. So I'm trying to understand what proposition Domino's can offer on Uber that will be as effective against the competition.

Really strong channel I remember last time, we talked about two really big incremental channels of growth for Domino's Pizza.

First one is getting our fair share of.

Aggregator business, that's a $1 billion net.

It's one and three just like we do one to three delivery and that's like a $2 billion opportunity and so we're going to continue to lean in now the nice thing is what we're seeing is that stuff that we're doing really affects both parts of our business. The more we're learning, but I think we've talked about before that the customers are pretty separate customers, but at the end of the day there.

Chris O'Cull: And I'm also curious if you think Domino's can obtain a similar share of the 3PP to delivery market. That it has also the 3P platform. Chris, great question. Let me take a step back and just make sure I talk about our strategy both on our assets and then on Uber and I'll get to your question, but I want you to understand kind of the broader piece here. Because at the end of the day, we want to drive incrementality and when you think about our assets, if you're a customer and you want the best prices or you want the best loyalty program, you're going to come to Domino's.com.

Our customers so things like <unk>.

Pepperoni step cheesy bread.

Things like our emergency pizza.

We are going to work.

Ross both ends and actually we've seen really nice redemption, the emergency pizza from Carryout customer switches.

It's been.

Surprising to me.

Youll also see us, though continue to lean in on both the marketing and the operations piece of it right. So the marketing you've seen carryout tips before I am sure that one is going to come back.

Chris O'Cull: There are going to be some customers and that's why we're going into this marketplace that are either only Uber customers or maybe have both. And because of that, what we want to make sure we're doing is price it in such a way that if we don't have consumer incrementality, we at least are positive on the mortgage inside for our franchisees. And so while we'll have our entire menu on Uber, we'll have a slight premium to our menu price on that channel.

Phone ordering is really important believe it or not.

We have a large number of our customers coming in on online ordering but we still need to make sure that the phones are there so operationally and we're answering those calls right now in about 3000 of our stores have call centers as potential overflow and so driving the top line driving the marketing.

Driving the funnel there, but also having the operational support.

Chris O'Cull: Now, menu prices at Domino's speeds are still very competitive and so I think within that platform will be competitive. The second thing that we do really well and you see this in our digital media, the Uber marketplace is a digital platform for us. And so we've got our national advertising fund budget and all the expertise we have from being on Facebook and all the other social media platforms. We're going to bring that into Uber and we're going to drive folks within that platform with our marketing money.

Are both things that.

We need to do and we will be doing.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Jim Sanderson from Northcoast Research. Your question. Please.

Jim Sanderson.

So it might be on mute.

It sounds like Jim is waiting for is emergency pizza.

Chris O'Cull: If you're in that platform, we're going to drive you to Domino's and we have a lot of expertise on how to do that. And once you're there relative to other menu prices that you're going to see from the competition, we'll be in a really good place. I think we'll be a value player there and we'll have higher awareness once you're within that platform. And so, absolutely, I think we can get to our fair share on that platform as well as eventually the entire marketplace for aggregators.

We will make sure we get that tool.

[laughter].

Yes.

Joshua Long: Thank you. Thank you one moment for our next question.

Alright, one moment, we will move on to our next question.

Yeah.

Our next question comes from the line of Daniela <unk> from Bernstein. Your question. Please.

Thank you.

Can you share any feedback you upfront that these are giving regarding their access to credit.

We had rising interest rate they have seen in there and are there any incremental pressures outside of your control that might be slowing down to net unit growth expectations going forward.

Joshua Long: And our next question comes in the line of Joshua Long from Stephen think, your question please. Great. Thank you for doing one question. When we think about loyalty and the opportunity for carry out to participate there, a lot of the conversation has been focused on third party marketplace and some of the initiatives that have been put in place to unlock delivery, but can we circle back to other carry out initiatives and how you think about building that piece.

How are you contemplating incremental incentive footprints at east will navigate these are times.

Thanks for the question David I think that's a really good question and that's a very fair point.

Where we are with the franchisees I'm going to start with the cash flows that the franchisees are generating because you think about where we were last year at 139000 per unit to now 155000 and above it is basically.

Joshua Long: I know that's been a strategic, you know, point of focus in prior calls. And just so as we think about their think forward to 2024 and beyond, you talk a little bit more about how you're building the awareness and scaling up the carry outside of your business as well, please. Yeah, that great carrier is one of my favorite topics most recently. I'll just point to the two-year, 21 and a half percent comp in the carrier business there.

Secondly, a much being significantly improved operating cash generation situation for the franchisees.

In that backdrop. It is very fair to talk about the credit situation in the marketplace, which is definitely tighter and much more expensive.

So I think franchisees are cognizant of that but I think as we talk to them when they look at the trajectory of the business when they look at the opportunity for growth in the business.

Joshua Long: It's a really strong channel. Remember the last time we talked about two really big incremental channels of growth for Domino's pizza, right? The first was getting our fair share of the aggregator business. That's a billion dollars net of incrementality. But the second is, our fair share of carryout, with our fair share of carryout. By the way, carryouts have been our most aggressive growth over the last decade ago from a share perspective.

Definitely have very strong appetite for unit development is Russell talked about earlier and I talked about on the prepared remarks.

And from an incentive standpoint, as a company we've always actually worked with franchisees on incentive programs and we'll continue to do that.

I think.

As we look at the opportunity for growth.

Both our interest to look at it and Thats something that we will continue to do.

Joshua Long: It's one in three, just like we do one in three delivery. And that's like a two billion dollar opportunity. And so we're going to continue to lean in. Now, the nice thing is what we're seeing is the stuff that we're doing really affects both parts of our business, the more we're learning. But I think we've talked about before that the customers are pretty separate customers. But at the end of the day, there are pizza cars.

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

Thank you one moment for our next question.

Joshua Long: So things like pepperoni stuffed cheese bread, things like our emergency pizza are going to work across both ends. And actually, we've seen really nice redemption on emergency pizza from carryout customers, which has been surprising to me. You'll also see us, though, continue to lean in on both the marketing and the operations piece of it. Right? So the marketing you've seen carryout tips before I'm sure that one's going to come back. Fold ordering is really important, believe it or not.

And our next question comes from the line of Greg Frankfurt from Guggenheim. Your question. Please.

Hey, thanks, Thanks for the question.

Sandeep last quarter, you talked about some of the supply chain efficiency you'd seen in the first half of the year I am wondering if.

How that looked in the third quarter and going forward and then can you just remind us the process of raising some of these.

Spreads on the supply chain costs, you've had you've had mid to high teens inflation. The last couple of years on a cumulative basis.

Obviously, there is a process through which you could raise those spreads on the franchisees the dollar spreads over time and I'm curious.

Joshua Long: You know, we have a large number of our customers coming in online ordering. But we still need to make sure that the phones are there so operationally. And we're answering those calls right now and about three thousand of our stores have call centers as potential overflow. And so driving the top line, driving the marketing, driving the funnel there, but also having the operational support are both things that we need to do and we will be doing. Thank you.

When you look at that or how that process goes of raising those I'm just curious any thoughts would be helpful. Thanks.

Thanks, Greg very good question I think from a supply chain profit standpoint as.

As we've talked about all year, we've had procurement productivity benefits right and that predominantly is food and when it actually ties back to your the last part of your question, which is how do we take a look at.

Adjusting the margins basically are taking on what be setting setting onto the franchisees.

Jim Sanderson: Thank you one moment for our next question. And our next question comes from the line of Jim Sanderson from North Coast Research. Your question, please. Jim Sanderson, your phone might be on mute. Sounds like Jim is waiting for his emergency pizza. So we'll make sure we get that to him. All right.

I think a lot of this benefit is flowing through our P&L clearly when we talk about the procurement productivity will continue to optimize around this but I think what has really been great as with.

With the adjustment of volume, but that's actually happened in the last couple of years, leading up into this year.

The supply chain.

Flow through has become a much tighter as we've actually gotten.

Adjusted to the lower level of volumes.

That's about a change because I think we've reset capacity to be able to to be able to deal with volume growth expected to come with a much much leaner operating model than a much more efficient operating model. So from a profitability standpoint, we continue to expect to see improvements are not massive.

Danilo Gargiulo: One moment will move on to our next question. Our next question comes from the line of Daniela Garjola from emergency in your question, please. Thank you. Can you share any feedback your franchisees are giving regarding their access to credit because we're writing interest rate. Are there any incremental pressures outside of your control that might be slowing down the net unit growth expectations going forward? And it's so are you contemplating increment to incentive for franchisees to navigate these are times?

Movements, but the improvements the big focus will be profit dollar growth.

The supply chain standpoint, with transaction growth, that's coming in the fourth quarter.

Thank you one moment for our next question.

And our next question comes from the line of Stephen go check from Cleveland Research. Your question. Please.

Danilo Gargiulo: Yeah, thanks for the question, Daniela, and I think that's it's a really good question and it's a very fair point. But I think where we are with the franchisees, I'm going to start with the cash flows that the franchisees are generating because you think about where we were last year, 139,000 per unit to now 155,000 and above. It is basically a much significantly improved operating cash generation situation for the franchise, and Charisies.

Yes. Thank you.

Near term question, but it does look like you ran a boost weak or at least a 50% off offer that first week of October and that looked like it was outside of our normal pre COVID-19 cadence you had for those types of promotions just curious on the strategy and timing of let's be an incremental boost week promotion and particularly doing that the week ahead of the emergency keto deal.

And then how much does that play into either positive fourth quarter outlook that you laid out earlier in the call. Thank you.

Danilo Gargiulo: In that backdrop, it is very fair to talk about the credit situation in the marketplace, which is definitely tighter and much more expensive. And so I think franchisees are cognizant of that, but I think as we talk to them, when they look at the trajectory of the business, when they look at the opportunity for growth in the business, they definitely have a very strong appetite for unit development as Russell talked about earlier and I talked about on the prepared remarks.

Yes, even if we don't.

We will not be doing another boost weak this quarter that our cadence is to do a quarterly obviously, we'd like to keep you guys on your toes. So thats why we don't answer.

We've already made we do like to keep your eye on hotels, but we pick strategic time periods in which to do it. It obviously, we talked about a stepped up fourth quarter and so getting this out early.

Danilo Gargiulo: And from an incentive standpoint, as a company, we've always actually worked with franchisees on incentive programs and will continue to do that. And so I think as we look at the opportunity for growth, it's in both our interest to look at it. And that's something that we will continue to do. Yeah, I just say as an early indicator, if I look at what we've got on a pipeline this time, this year versus this time last year, it's much more aggressive.

I think makes a lot of sense.

I also want to make sure that when.

When we talk about promotional cadence that I that I touch on I know this wasn't a direct question, but I know a lot of you have these questions about our product innovation and I just want to make sure you understand that.

We're leaning into that again, if you look at our product innovation. This year. We've had two major launches. The last time, we had two major launches well its 2011.

Sandeep Reddy: Thank you, one moment for our next question. And our next question comes from a line of Greg Frankfurt from Guggenheim. Your question, please. Hey, thanks, thanks for the question. And people at last quarter, you talked about some of the supply chain efficiencies you'd seen the first half of the year. I'm wondering if you know how that's looked in the third quarter and going forward. And then can you just remind us the process of raising some of these fixed spreads on the supply chain cause you've had made the high teams inflation the last couple of years on a cumulative basis.

And interestingly enough one of those two launches was step cheesy bread.

And so how fitting is that we've got pepperoni step cheesy bread now out in the marketplace.

Sandeep Reddy: Obviously, there's a process through which you could raise those spreads on the franchisees, the dollar spreads over time. And I'm curious, how often do you look at that or how that process goes of raising those? I'm just just curious, any thoughts will be helpful. Thanks. Thanks, Greg. Really good question. I think that for much supply chain profit standpoint, as we've talked about all year, we've had procurement productivity benefits. And that predominantly is food.

And were released and we're doing that purposely because we're seeing that change in the dynamic if we look back several years and you think about downloads. We didn't do a lot of product innovation. We did a lot of technology innovation, we built delivery vehicles all of those kinds of things that we're going to continue to do that but we're realizing we need to do more of now is lean.

Into product innovation, and and all used up cheesy bread is an example of how it's really really working well for us. So we've got platforms like I said, we launched <unk> in 2011, we launched sandwiches in 2008 with launch partners in 2009, a lot of people don't know that we've got these platforms, even though they are pretty robust mix. There are a lot of people.

[noise] out there that don't know, we havent and so what do we do with step sheet right, we launched a new SKU.

Sandeep Reddy: And when it actually ties back to you, the last part of your question, which is how do we take a look at adjusting the margins that we basically are taking on what we're selling selling onto the franchisees. And so I think a lot of this benefit is flowing through our PNL clearly when we talk about the procurement productivity will continue to optimize around this. But I think what has really been great is with the adjustment of volume that actually happened in the last couple of years leading up into this year, the supply chain flow through has become much tighter.

Believe it or not we are selling more pepperoni stuffed cheesy bread now than we are base regular step cheesy bread I have been doing promotions have been doing innovation. Most of my professional career and I've never seen a line extension outperformed the base. So one when you do product innovation like this you get sale.

<unk> on the new product too as you bring awareness back to these great platforms that we have and then third what we're doing with the launch it's we're leveraging our loyalty program and so normally step cheesy bread is a 40 point.

Sandeep Reddy: As we mentioned, we've gotten adjusted to the lower level of volumes. All that's about a change because I think we've reset capacity to be able to deal with volume growth that is expected to come, but with a much, much leaner operating model and a much more efficient operating model. So from a profitability standpoint, we continue to expect to see improvements, not massive improvements, but improvements. The big focus should be profit dollar growth on our supply chain standpoint with transaction growth that's coming in the fourth quarter of the year.

Thank you one moment for our next question.

Our next question comes from the line of Nick <unk> from Wedbush. Your question. Please.

Alright, thank you.

Just a question on how Youre thinking about company margins over the medium to longer term and obviously pre COVID-19 over 20% company margins just given all the changes going.

Stephen Goechak: Thank you one moment for our next question. And our next question comes from the line of Stephen Goechak from Cleveland Research, your question please. Yeah, thank you. More of a near-term question, but it does look like you ran a boost week, or at least 50% off offer, that first week of October. And it looked like it was outside the normal pre-COVID cadence you had for those types of promotions. Just curious on the strategy and timing of what looks to be an incremental boost week promotion.

Going forward in terms of loyalty third party delivery.

Post two three years of inflation.

Pricing seems like it's going to be pretty close to flat.

Stephen Goechak: And particularly doing that the week ahead of the emergency key to deal. And then how much does that play into the positive fourth quarter outlook that you weighed out earlier on the call. Thank you. Yeah, Stephen, we don't, we will not be doing another boost week this quarter. Our cadence is to do it quarterly. Obviously, we like to keep you guys on your toes, so that's why we don't. So, we, uh, we, well, maybe we do like to keep you on your toes, but we, we, we pick strategic time periods and wish to do it.

How should we think about company owned margins not only in Q4, but 2024 and beyond.

So Nick I think it's a really good question and if you look at the company margins in the third quarter.

We expanded approximately 50 basis points I think of gross margins.

And that was on the back of wrapping a 270 basis points improvement in Q2 so.

We continue to look at margin expansion in the company store margins and I do acknowledge that it's definitely off peak levels.

But there are a number of initiatives that we have been taking as we've been going along.

Obviously.

From a pricing standpoint, we've talked about being lead to take pricing a little bit, but I think all of that is actually caught up with us.

And I think the other thing we've actually been doing is looking at the cost structure within within the P&L and that is being optimized as well, but overall the big driver of further improvement in terms of profitability is going to be transaction growth I talked about transaction growth area, which is going to impact the fourth quarter, it's going to impact next year, even more and I think when.

Stephen Goechak: Obviously, we talk about a step up fourth quarter. And so getting this out early, I, I think makes a lot of sense. I also want to make sure that, um, when we talk about promotion, uh, emotional cadence that I, I, that I touch on. I know this wasn't a direct question, but I know a lot of you have these questions about our product innovation. And I just want to make sure you understand that we're, we're leaning into that again.

Stephen Goechak: If you look at our product innovation this year, we've had two major launches. The last time we had two major launches was 2011. Um, and interestingly enough, one of us two launches was step cheesy bread. And so how fitting is it that we've got pepperoni step cheesy bread? And now, uh, on the marketplace. Um, and, and we're really, and we're doing that purposely because we're seeing that change in the dynamic. If we look back several years and you think about downloads, we didn't do a lot of product innovation.

You see that we're going to be able to leverage the fixed cost of the P&L will look better on the company store margins and will make the March towards where peak margins used to be overtime.

Yes, I think.

The way I look at it is we are going into 2024.

With an improved operating model both for <unk> and our franchisees as I said earlier, what we had talked about where we thought Q3 with land and it's kind of landed where we expected to think about that foundation now of this business in a quarter that was essentially flat in the U S business.

Stephen Goechak: We did a lot of technology innovation. We built delivery vehicles, all of those kinds of things that we're going to continue to do that. But we're realizing, uh, we need to do more of now is lean into product innovation. And, and I'll use some cheesy bread as an example of how it's really, really good. It's really working well for us. So we've got platforms, like I said, we launched step cheesy bread in 2011.

Margins improved and the franchisee profit has improved and so you take that.

And you bring in the orders that we expect both in Q4, but especially in 2024.

That's just leverages really really nice and so the foundation of Domino's is ready to be leveraged.

Stephen Goechak: We've, we've launched families in 2008, we launched pauses in, in, in 2009. A lot of people don't know that we've got these platforms, even though they're pretty robust mix or a lot of people out there, they don't know we haven't. And so what do we do with step cheesy bread? We launch a new SKU. Um, believe it or not, we are selling more pepperoni step cheesy bread now. Then we are base regular step cheesy bread.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of David Tarantino from Baird. Your question. Please.

Hi, good morning.

Question on pricing and value and I guess.

Stephen Goechak: I have been doing promotion, I've been doing innovation most of my professional career and I've never seen a line extension outperform the base. So one, when you do product innovation like this, you get sales on the new product. Two is you bring awareness back to these great platforms that we have. And then third, what we're doing with the launch is we're leveraging our loyalty program. And so normally step cheesy bread is a 40 point redemption.

One part of it is.

I was wondering how you and your franchisees are approaching pricing as you think about 2024 and then the second part of the question is with this emergency pizza promotion. It does seem like maybe you're leaning a bit more towards value oriented.

Promotions.

Outside of the rewards program. So I guess are you thinking about leaning in more frequently on value promotions like the one youre running or.

Stephen Goechak: In this case, for a limited time, we're doing 20 points. And so you see about how we're working all of these things together. It's not, not a one trick pony. There are kind of three levers going on at one time. I just want to make sure folks on the call know we're going to continue to lean into all types of innovation, including product.

As you think about 2024.

Yes, I think.

Really when you think about 2024, you should think about the actions we've taken over the last couple of years, which includes the pricing we took on our mix and match and while we're always going to look at pricing and if there are ways to optimize it I think it's reflective in the franchisee EBITDA at the pricing we took last year. It was the right thing to do.

Russell Weiner: Thank you one moment for our next question. Our next question comes from the line of mix of time from what bush you're question, please. Thank you. Just a question on how you're thinking about company margins over the medium to longer term, and obviously pre-COVID, over 20% company margins. Just given all of the changes, going forward in terms of loyalty, third party delivery, post two to three years of inflation, pricing that seems like it's going to be pretty close to flat.

And it's something that again thats reflected in their EBITDA is something that we continue can continue to do next year I'm. So excited about pricing.

As far as the emergency pizza.

Russell Weiner: How should we think about company on market? It's not only in Q4, but, you know, 2024 and beyond. So Nick, I think it's a really good question, and if you look at company margins in the third quarter, we expanded about 350 basis points, I think it was margin. And I was on the back of, I think, a 270 basis points improvement in Q2. So we continue to look at margin expansion in company store margins, and I do acknowledge that it's definitely off peak levels.

Look we always have.

The takeaway is Wow. This is a lot of value and it is a lot of value, but at no more value than we've traditionally done.

In prior promotion, what it means and kudos to our marketing Department is is these ideas are breaking through.

Russell Weiner: But there are a number of initiatives that we have been taking as we've been going along. Obviously, from a pricing standpoint, we talked about being late to take pricing a little bit, but I think all of that is actually caught up with us. And I think the other thing we've actually been doing is looking at the cost structure within the P&L, and that is being optimized as well. But overall, the big driver of further improvement in terms of profitability is going to be transaction growth.

Thank you one moment for our next question.

And our next question comes from the line.

Okay.

This will be our final question for today comes from the line of Jeffrey Bernstein from Barclays. Your question. Please.

Great. Thank you very much.

Russell just wondering if you could talk a little bit about the broader pizza segment.

Russell Weiner: I talked about transaction growth earlier, which is going to impact the fourth quarter. It's going to impact next year even more. And I think when you see that, we're going to be able to leverage the fixed cost in the P&L a lot better on the company store margins, and we'll make the march towards where peak margins used to be over time. Yeah, I think the way I look at it is we are going into 2024 with an improved operating model, both for DPZ and our franchisees.

Does it seem like.

Over the past year, we were talking a lot about maybe.

And if you can just remind us looking back to past slowdowns the performance of delivery versus Carryout in prior downturns I.

I think most investors are expecting maybe a consumer slowdown going into 'twenty four so I'm. Just wondering how you are two components of your business have historically performed and that type of environment. Thank you.

Russell Weiner: I said earlier, while we had talked about where we thought Q3 would land, and it's kind of landed, where we expected. Think about that foundation now of this business, in a quarter that was essentially flat in the US business. The margins improved, and the franchisees profit has improved. And so you take that, and you bring in the orders that we expect both in Q4, but especially in 2024, that just leverages really, really nice. And so the foundation of Dominoes is ready to be leveraged.

Yeah sure. Let me first talk about the Pizza segment and historically, it's been a one five point growth category I don't expect that to change significantly.

A little more on Carryout.

Sandeep Reddy: Thank you. Thank you one moment for our next question. And our next question comes from the line of David Tarantino from Baird. Your question, please. Hi, good morning. I had a question on pricing and value, and I guess one part of it is, I was wondering how you and your franchisees are approaching pricing as you think about 2024. And then the second part of the question is, you know, with this emergency pizza promotion, it does seem like maybe you're leaning a bit more towards value or into promotions, you know, even outside of the rewards program.

Then delivery is on regionals, and independents folks, who really don't have the scale in advertising or supply chain or or store growth or our advertising spending that.

That we do and so if that <unk>.

Pizza category kind of continues at where it is and there's no reason that we can't continue to lean in and gained share. It's we've done it before and we'll do it again as.

As far as term downturn I mean, the last big downturn I remember coming out of was 2009.

When we launched our new inspired Pizza, obviously, you saw it came out of that.

Yeah.

Which is growth both in the Carryout and delivery standpoint, I think we're going to continue to see what we've been seeing and we've been talking about folks down switching into the pizza category down switching into value. This is going to happen I think a lot more in carryout and delivery because delivery will also have some help switching.

Sandeep Reddy: So I guess, you know, are you thinking about leaning in more frequently on value promotions like the one you're running, or as you think about 2020? Yeah, I think, really, when you think about 2024, you should think about the actions we've taken over the last couple of years, which includes the pricing we took on our mix and match. And while we're always going to look at pricing, and if there are ways to optimize it, I think it's reflective in the franchise, the EBITDA, that the pricing we took last year was the right thing to do.

Alright delivery, there's delivery fees there is.

There are <unk> there are things that caused that channel to be a little bit more expensive. So I think we will see down switching at both probably a little more outswing to eating at home for delivery, but the beauty for US is while that's happening we're opening up to the Uber platform and that platform has customers that are.

Sandeep Reddy: And it's something that, again, as reflected in their EBITDA, is something that we continue. Can continue to do next year. I'm so excited about pricing. Even through these tougher economic times, again, we'll look at things if we need to change it, but I feel pretty bullish that this level of pricing is actually going to just be more of a relative value for customers as we get into into into next year. As far as emergency pizza, look, we always have, there's always advertising we do and always has a promotional price or some kind of promotional effort.

Our higher income customers and delivery and so if there is a slowdown in that we're now opening ourselves to a platform that really has a little bit more elasticity in that place. So.

No matter, what the economics look like next year I think both on the carrier and the delivery business, we're going to be a really good place.

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

Sandeep Reddy: Again, I'm really excited about the kind of feedback we're hearing both from you and from customers, because the takeaway is, wow, this is a lot of value. And it is a lot of value, but at no more value than we've traditionally done in prior promotion. What it means, and kudos to our marketing department, is these ideas are breaking through. Thank you, one moment for our next question.

Well, we appreciate talking to everybody today, and we look forward to seeing you at our Investor day, either live or via video on December 7th looking forward to it take care.

Thank you, ladies and gentlemen for your participation to Debase Conference. This does conclude the program you may now disconnect good day.

Jeffrey Bernstein: And our next question comes from the line. And this will be our final question for today. It comes from the line of Jeffrey Bernstein for Barclays. Your question, please. Great. Thank you very much. Russell, just wondering if you could talk a little bit about the broader pizza segment. It does seem like over the past year, we were talking a lot about maybe customer fatigue, post-COVID, and consumers keen to get out again.

Jeffrey Bernstein: I'm just wondering if you could talk about, we think we are in that spectrum, maybe the current category performance versus dominoes. And I think you could just remind us looking back to pass slowdowns. The performance of delivery versus carry out in prior downturns, I think most investors are expecting maybe a consumer slowdown going into 24, so I'm just wondering how your two components of your business have historically performed in that type of environment.

Jeffrey Bernstein: Thank you. Yeah, sure, let me first talk about the pizza segment. And historically it's been a one and a half point growth category. I don't expect that to change significantly. What's been great about dominoes pizza is when you look at that category, we've been able to by far grow the biggest share amongst that. And so I think the growth of the category is going to continue. What's nice when you think about the pizza category is 40 plus percent of it, a little more in carry out than delivery, is on regional and independent folks who really don't have the scale in advertising or supply chain or store growth or advertising spending that we do.

Jeffrey Bernstein: And so if that pizza category kind of continues that where it is, then there's no reason that we can't continue to lean in and gain share it. We've done it before and we'll do it again. And as far as downturn, the last big downturn I remember coming out of was 2009 when we launched our new inspired pizza and obviously you saw what came out of that which is growth both in the carry out and delivery standpoint.

Jeffrey Bernstein: I think we're going to continue to see what we've been seeing and we've been talking about folks down switching into the pizza category, down switching into value. This is going to happen. I think a lot more in carry out than this delivery because delivery will also have some house switching right delivery. There's delivery fees. There's there are kits. There are things that it caused that channel to be a little bit more expensive.

Jeffrey Bernstein: So I think we will see down switching at both probably a little more out switching to eating at home for delivery but the beauty for us is while that happening. We're opening up to the Uber platform and that platform has customers that are higher income customers. And so if there is a slow down in that, we're now opening ourselves to a platform that really has a little bit more elasticity in that place. So no matter what the economics look like next year, I think both on the carry out and delivery business. We're going to do a really good place.

Russell Weiner: Thank you.

Russell Weiner: This does conclude the question and answer session of today's program. I'd like to hand the program back to Russell for any further remarks. Well, we appreciate talking to everybody today and we look forward to seeing you at our investor day either live or via video on December 7th. Looking forward to it. Take care.

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

Q3 2023 Domino's Pizza Inc Earnings Call

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