Q3 2024 Domino's Pizza Inc Earnings Call
Speaker Change: Thank you for standing by and welcome to Domino's Pizza's third quarter 2024 earnings conference call. At this time, all participants are not listening only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered, and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program. Greg Lemenchick, Vice President Investrelations, please go ahead, sir. Thank you very much.
Speaker Change: Good morning everyone. Thank you for joining us today for our third quarter conference call. Today's call will begin with our chief executive officer, Russell Weiner, followed by our chief financial officer, Sandeep Reddy. The call will conclude with a Q&A session.
Speaker Change: The forward-looking statements in the sporting earnings release in 10Q, both of which are available on our IR website, also apply to our comments on the call today. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our FI links with the FCC.
Speaker Change: In addition, please refer to the 8K earnings release to find the schoolers and reconciliation of non-gap financial measures that may be referenced on today's call.
Speaker Change: This morning conference calls being webcast and it's also being recorded for replays at our website.
Speaker Change: We want to do our best this morning to accommodate as many of your questions as time permits.
Speaker Change: As such, we encourage you to ask one question only, would that, I'd like to turn the call over to Russell.
Russell Weiner: Thanks, Greg, and good morning, everybody. What I'd like to do is begin today's call by giving an overview on the restaurant spaces I see across the globe. When we introduced our hungry for more strategy back in December, we knew consumer spending would be pressured in 2024 and that the QSRs that offered the strongest value would win.
Russell Weiner: That proves to be right, and a domino of leaning into our strategic pillar of renowned value has been key to our success in 2024, especially in the U.S.
Russell Weiner: As the year has progressed, competitors have followed our lead.
Russell Weiner: and we've seen increased intensity around value within QSRP.
Russell Weiner: I believe value will continue to be in demand from customers around the world and know that you're hearing the same thing from my peers as macroeconomic and geopolitical issues continue to rest for the industry.
Russell Weiner: In these times, I believe the best measure of a company's current and future success are the share gains that it achieves.
Russell Weiner: And I'll most you as business, we are doing just that, gaining share.
Russell Weiner: Our team and franchise these are delivering incredible results despite a more challenging environment.
Russell Weiner: Through the first three quarters of the year, our retail sales are up 6.6% and a QSR piece of category that's growing at less than 2%.
Russell Weiner: Hungry for more is driving the critical metric to long-term success in this business or market share. This was our fourth consecutive quarter of same-store sales growth since launching hungry for more. Proof that our strategy is working.
Russell Weiner: Importantly, and something I think continues to be unique in the industry right now. It was also our fourth straight quarter of positive order count growth.
Russell Weiner: Profitable order count growth is the key to improving what are already best in class economics for our US franchisees.
Russell Weiner: These economics have been a proven driver of store growth as well, which of course is another way we drive market share.
Russell Weiner: For example, from 2015 to 23, Domos opened approximately 1,750.
Russell Weiner: Thorst.
Russell Weiner: If you look at our top QSRP to competitors in aggregate, they closed almost as many stores as we open during that same time period.
Russell Weiner: Today's order count growth drives tomorrow's order count growth as well, because the strength of down those rewards brings members back for repeat purchases in the future.
Russell Weiner: Downloads rewards continues to perform well with a key driver of our U.S. Comperformance in Q3.
Russell Weiner: We've officially passed the one year anniversary of the program, had the anniversary study and I expected to continue to play a critical role driving the business for the next several years.
Russell Weiner: That's because download rewards is achieving our goals of driving more light users and carry out customers.
Russell Weiner: In addition, we have grown our overall active members significantly in 2024, allowing us to engage more customers and drive frequency with targeted marketing efforts.
Russell Weiner: Looking to Q4, Domos will give customers what they are demanding from their QSR brands.
Russell Weiner: For Work.
Russell Weiner: We open the quarter with our more flashing deal At a time where consumers are feeling that they're getting less and paying more, more flashing, show them that Domino's was in their corner, giving them more for less.
Russell Weiner: We follow this up with a 50% off boost week and next week one of our biggest renowned value promotions ever will go back on air, emergency pizza.
Russell Weiner: While providing value through our own channels is one part of our renowned value barbell strategy, tapping into the aggregator marketplace is the other. In Q3 we saw a nice acceleration as we grew our percentage of U.S. sales coming through Uber to 2.7%.
Russell Weiner: Importantly, incrementally in this channel has continued its expected.
Russell Weiner: Since these customers have been less sensitive to the economic pressures that I discussed earlier.
Russell Weiner: As you know, how we from more drives more though than just to run out of value.
Russell Weiner: New products are an important way that we can bring to life the most delicious food pillar of our strategy.
Russell Weiner: We launched our new mac and cheese in late September.
Russell Weiner: This offering in our pasta lineup is available in five cheese and spicy buffalo and for those who care I have a little bacon to mine.
Russell Weiner: We recently launched our Pasta platform in 2009 and this is the first time we brought product news to the line since then.
Russell Weiner: I'm excited at what this can mean for mac and cheese and frankly the entire pasta portfolio.
Russell Weiner: A year into how we ferro our innovation with intention approach to new products is becoming clear to all of you.
Russell Weiner: With Mac and Cheese, some last year's pepperoni stuff, cheesy red. We're bringing news to re-ignite our existing non-peats-a-plastforms.
Russell Weiner: And with New York Style Pizza, we brought in customers who preferred a pizza offering, we didn't have an portfolio.
Russell Weiner: In summary, we're delivering against our Hollywood former goals, rules, sales and stores in the US. With the slate of initiatives we got out in front of us, I continue to believe that we will deliver the US same store sales growth of 3% or more annually. And it's why I expect Domino to continue to drive additional markets here again.
Russell Weiner: Now we'd like to talk about our international business.
Russell Weiner: Retail sales were up to 6.5% to the first three quarters of this year.
Russell Weiner: While that growth is in line with the global pizza category is not in line with our expectations, nor our historical performance.
Russell Weiner: Recall Domino's International has averaged more than 10% global retail sales growth with a past decade through 2023.
Russell Weiner: And while we remain on track for a remarkable 31st-rate year of international seems to ourselves growth, the combined impact of macroeconomic pressures, geopolitical issues, and the other performance we are experiencing is creating a drag on our international sales.
Russell Weiner: Given this performance, we believe planning for approximately one to two percent same store sales growth for 2024 and 25 is a more realistic expectation. Before we return the business to a more normalized level in 2022.
Russell Weiner: As you know, our international business, which is approximately half our global retail sales, represents less than a third of our profits due to our asset-like master franchising model. As a result of this dynamic shift in international sales, half-less impact on company profits.
Russell Weiner: Fear for I don't expect the softness in our international business to significantly impact our operating project goals and some people go more into this during his remarks.
Russell Weiner: You should know our team is hard at work with our international master franchisees to create momentum in their markets even in the face of headlands.
Russell Weiner: We know what works in today's challenging environment, it's evident in the results that we're achieving in the U.S. So we're engaging with our master franchisees to implement the strategies and tactics we know we'll drive incremental sales and profits.
Russell Weiner: In some cases, they've simply been a little bit too slow to react to shifting consumer behaviors.
Russell Weiner: So we're focusing on three key areas, all of them are centered around renowned value.
Russell Weiner: First, more aggressive promotional pricing that drives a consistent value message to customers.
Russell Weiner: Second, maximizing orders from aggregators, where many of our markets have opportunities for mainly to gain their fair share on these platforms.
Russell Weiner: These orders continue to be incremental due to the hiring income customer that uses them.
Russell Weiner: and finally taking a page out of the US playbook to first of fine beyond delivery to drive another growth lever in carryout or in some places, guidance.
Russell Weiner: Our international business has so much potential, and by implementing the plans and strategies I've outlined, we expect to continue to create sales momentum that will produce the same kind of market share gains and that's store growth we've achieved in the past.
Russell Weiner: In closing, what I want to do is reinforce with you the same message that I repeatedly share with our team.
Russell Weiner: In the 16 years I've been at Domino's Pizza, we have always been in the business of creating our own tailwind and driving shared growth.
Russell Weiner: That has been, and through our hungry for more strategy, we'll continue to be.
Russell Weiner: How we drive best-in-class results, have long-term value creation for our shareholders.
Speaker Change: With that, I'd like to hand it over to Sandeep.
Sandeep Reddy: Thank you and good morning everyone!
Sandeep Reddy: As Russell noted, one of the third quarter financial results were impacted by a more challenging backdrop.
Sandeep Reddy: We still deliver profitable growth.
Sandeep Reddy: Income from operations increased 5.7% in Q3, excluding the impact of foreign currency of $1.4 million.
Sandeep Reddy: This increase was primarily due to higher franchise royalty revenues.
Sandeep Reddy: Resulting from Global Retail Sales Grout and Supply Chain Profit Dollar Grout, either as a result of increased auto volumes and procurement productivity.
Sandeep Reddy: This was partially offset by higher G&A, which was primarily driven by higher labor expenses.
Sandeep Reddy: You today are operating profit growth, excluding FX, is up a strong 8.6%.
Sandeep Reddy: which is in line with our expectations.
Sandeep Reddy: According to the impact of foreign currency, global retail sales grew 5.1% in the third quarter from positive US and international coms and global net store growth.
Sandeep Reddy: Let's take a look at the details.
Sandeep Reddy: During Q3, total retail sales grew 5.1% of the U.S. driven by same store sales that came in a 3% with positive order counts for the fourth consecutive quarter.
Sandeep Reddy: These comms were driven by another strong quarter for carrier, a 5.4%.
Sandeep Reddy: and Delivery of 1.3% fueling continued market trade gains.
Sandeep Reddy: We did begin to see macro and competitive pressures in fact our results in August and particularly the low-income customer.
Sandeep Reddy: Our U.S. same store sales continue to be field by transaction growth from Domino's rewards and our marketing programming.
Sandeep Reddy: We also benefited from 1.6% of pricing, which was inclusive of high-singled digits in California.
Sandeep Reddy: has sales mix from Uber go to 2.7% for the quarter.
Sandeep Reddy: Our Comptial Wends were partially offset by a higher carryout mix, which carries a lower ticket in delivery.
Sandeep Reddy: Shifting to US Unicount, we added 24 net news stores, running our US System Store Count to 6930.
Sandeep Reddy: Moving to the National, where total retail sales grew 5.1%, excluding the impact of foreign currency.
Sandeep Reddy: This was driven by Net Storeground, which was in line with the updated 2024 guidance that we provided on our last call.
Sandeep Reddy: Same store sales will up 0.8% in the corner with a slowdown beginning in August.
Sandeep Reddy: In the quarter, we saw pressure in our Asia, Europe and Middle East markets.
Sandeep Reddy: In Europe and Asia, we continue to see macro impacts, in addition to combat bikes in Japan, as DP continues to work through the plan that is discussed in their August trading update.
Sandeep Reddy: Softness in the Middle East was driven by an increased impact from geopolitical tensions.
Sandeep Reddy: Now turning to our outlook, let me start off by saying that the long-term algorithm of what we believe the domino's business can and should achieve has not changed.
Sandeep Reddy: We continue to expect that our algorithm of 7% are more annual global retail sales growth and operating profit growth of 8% are more, is the right one. As we look out, 2,026-2,028.
Sandeep Reddy: In evaluating our business and light of increased micro and competitive pressures over the last quarter, we now believe that our global retail sales growth will be approximately 6% in 2024.
Sandeep Reddy: I'm very proud of all the team has come together to manage our P&L.
Sandeep Reddy: Which is allowing us to maintain a very strong operating profit growth outlook of approximately 8% excluding FX.
Sandeep Reddy: As we look at it, it's a 2025.
Sandeep Reddy: We expect to be slightly below our long term guidance algorithm.
Sandeep Reddy: Driven Primarily by International Business.
Sandeep Reddy: Our expectations for global retail sales group are generally in line with our updated expectations for 2024.
Sandeep Reddy: As we noted in our disclosures this morning, we repurchased approximately $443,000 and an average price of $429 for a total of $199 million in the bill quarter.
Sandeep Reddy: As we continue to plan for our death maturity in October 2025.
Sandeep Reddy: The lower interest rate environment was the drive of the increase in share reproduces in Q3. As we now have more certainty on where we believe the interest rate range will be.
Sandeep Reddy: In closing, our resilient asset-like model has delivered out-sized retail sales and extremely profitable growth over time.
Sandeep Reddy: I'm confident that this model can continue to drive out size returns for investors.
Sandeep Reddy: Thank you, we will not open the line for questions.
Speaker Change: Certainly, and as a reminder, ladies and gentlemen, please limit yourselves to one question each. Our first question comes from the line of David Terentino from Bear. Your question, please.
David Terentino: Hi, good morning. My question first is on the unit growth update. You gave it, it came down for the second straight quarter and I assume most of that's related to international but could you just maybe explain the moving parts related to the change versus what you shared last quarter and then I guess more importantly, how are you feeling about the ability to kind of ramp back towards your targets in 2025 and beyond? Thank you very much.
Speaker Change: Good morning, David. So, yeah, I think from a guidance perspective, we've updated to 800 to 850 in terms of global net store growth relative to what we had last time of 825 and 925. I think the biggest driver, honestly, of this was working more closely with DP and getting much better visibility that enabled us to do two things. One is type in the range. And the other is, as we actually get better understandings of what the expectations are in the fourth quarter. I think it made sense to actually update it to a little bit lower than what we had previously, but our visibility continues to get better as we move forward. And this is the kind of effort we'll continue to make as we move into 25 and continue to update on what our expectations are in.
Speaker Change: 25 as well, has become into next year.
Speaker Change: And maybe just please to follow up the 2025 retail sales being a little below your outlook, longer term. Is that related to the carryover impact of the unit growth from this year? I guess this work fall from unit growth, or you know, expecting something lower on the cops and unit growth for next year. I guess I just wanted to clarify that.
Speaker Change: So David, really good question. I think a couple of things going on there. I think Russell talked about in the prepared remarks as well. Seems so sealed expectations.
Speaker Change: For 24 and 25, we're in a national we think is...
Speaker Change: Somewhere in the 1% of 2% range, which is...
Speaker Change: Willow, what we initially talked about back in December, on at the university. And that's really given the micro pressure that we're dealing with and that we're seeing right now. And that's I think a big driver of that lower retail sales expectation.
Speaker Change: The other driver, of course, is definitely the Unicroad that we actually are seeing in 24 that world all over Australia in the 25. And I think as we continue to work through where Unicroad is expected to go in 25, that will have a partial impact in 25 as well. So all this is in the consideration set, but really 25 is really driven by the international business primarily. And that's what we talked about in the project about.
Speaker Change: And David, I think I'll maybe just add a little context on how I think about international and to me that business.
Speaker Change: is judged when you look at three things when you look at the past, the present and the future. So in the past we've got a business that has averaged more than 10% retail sales growth over the last decade.
Speaker Change: We're about to hit our 31st straight, you know, year or positive seams to our sales. You know, when you think about the present, you know, not a year to date that Domino's normally has, but actually in line with the category. We...
Speaker Change: Normally, we do better than a category. We expect to do better than a category, but when there are headwinds, including ones that are subcreated. And that's a low point for us, you know, it's said a lot about who we are. And the great news is we're focused on turning things around. We know what we need to do with our master franchisees, really three things.
Speaker Change: It's all about renowned value getting that right. We need to make sure that our promotional prices are consistent and they don't go above the CPI in a market. We need to make sure we're getting our fair share of aggregator delivery business.
Speaker Change: And then reminding everyone, we're more than just a piece of delivery company and they're carrying out opportunities, they're a sit-down opportunities and so those are all part of the renowned value strategy.
Speaker Change: in Discussing.
Speaker Change: But then, is why I'm so bullish about the future, a future where we've got 10,000 stores to build and our top 15 international markets alone. And we've got these great franchise parties who have a really tremendous history together. So, I just wanted to give that aspect that opinion of our international business to start off.
Speaker Change: Thank you, and our next question comes from the line of David Palmer from Evercore ISI, your question please.
David Palmer: Thanks guys. I want to ask about the fourth quarter and really I'm asking about the fourth quarter but I really have my eye on
David Palmer: The general question of your confidence in the ability to drive same source sales, excluding
David Palmer: The third-party marketing. It looks like your guidance implies 3% U.S. seamstor sales growth in the fourth quarter. Maybe you can confirm it that's roughly true. And I know people are going to be curious about your confidence in driving the same sort of seamstor sales growth. And just a level set, you know, people see the three points tougher comparison on a one-year basis. Thank you very much.
Speaker Change: Obviously loyalty launch last year, emergency pizza, and I think people are also looking at data whatever third party data that they see out there that speaks to a slower start to the quarter, so you clearly feel like you have some growth drivers ahead, so wanted to get your feeling about that. Thank you.
Speaker Change: Take David, I am so excited about what we are doing for Q4. All you can do is control what you can control and when I think about our lineup for Q4, it's one of the strongest quarters of marketing since I've been here. You talked about emergency pizza, we got emergency pizza 2.0 coming back. We've got the pasta launch.
Speaker Change: Loyalty is just getting started into its second year. We got so many things going on here. That's all you can do is you can lean in with all your marketing programs and with your franchisees. And like I said, I cannot imagine having a better quarter. Better lineup than we have right now.
Speaker Change: And I think they want me to add on to that because I think you asked a question on the folio guide for St. St. St.
Speaker Change: As Russell talked about the prepaid remarks, yes, it's we expect to do on a full year basis 3% or more and that's specifically what we're talking about and we aren't talking specifically to Q4 All the initiatives that Russell just mentioned are definitely going to be drivers and we're really confident in this not just for this year but across the next five years with the five year plan That's why we're reiterating that we expect it to be 3% or more over 100 for more [inaudible]
Speaker Change: Thank you, and our next question comes from a lie in a Brian Pitton from Oppenheimer, your question please.
Speaker Change: Thanks, good morning. Your Uber sales mix grew to 2.7% this quarter, which is very encouraging and seems like you're on track with your original projections. And I know you have not made a firm decision on DoorDash yet, or at least publicly made a decision, but it does appear to matter if not when. That's what you guys have said. And the question is, do you believe DoorDash has the characteristics? Yes, I do.
Speaker Change: and the ability to be a stronger mix than Uber. And number two is the launch of DoorDas content-played at all in your 2025 outlook.
Speaker Change: Yeah, I think, Ryan, you know, as we've said on prior calls, the billion dollars that we think it out there for us, contemplate us being on all aggregators and so that's absolutely on our future. The UverExplosivity at our decision in the NQ1, what we'd like to do there.
Speaker Change: You're right, though, on DoorDash, the DoorDash is bigger than Uber, so that would certainly be in incremental and most likely more significant impact on our business than that.
Speaker Change: Then Uber, but we'll take one step at a time. I'm just excited that we've essentially achieved our goal of the 3% that's our fair share and our goal remains to exit the year at 3%.
Speaker Change: Thank you, and our next question comes from the line of Dennis Gang from UBS, your question, please.
Dennis Gang: Great, thanks guys. I want to ask a little bit more on the 25 guides specific to the U.S. where it sounds like not a whole lot has changed and it's really more that international.
Dennis Gang: Business that is tweaked the 25 guide.
Dennis Gang: Ruffley, you just mentioned a bunch of the initiatives that you have for 4Q. Can you touch on those some for 25? You know, I guess you just touched on on third party. But I guess thinking about some of those other drivers, loyalty, which I think you have that is a multi-year driver, as well as just high level thinking about marketing and new products. Next year, any color you can give there specific to the U.S. Thank you.
Speaker Change: Yeah, thanks. Obviously, I can't go for competitive reasons. I'm not going to go into the specifics, but I guess what I would do is I'd point you to our army for more strategy, which is really the kind of road map. And so we're going to be leaning into renowned value with...
Speaker Change: Programs, we certainly have in our pocket, like, you know, emergency pizza, more inflation, all those kinds of things can come back carry out tips if we wanted to. But we also have a really creative team that's inspired by how we've for more, and I'm sure they've got a bunch of other things in there in their pocket.
Speaker Change: On products we talked about having two new products every year so you should expect that.
Speaker Change: I understand why the desire to talk about specific programs for next year, but I guess what I would just do is just think about the track record of this team, especially since how we've been working out and the roadmap is going to be pretty similar as for our GM, the O and the R to look toward what it was this year.
Speaker Change: Thank you, and...
Speaker Change: Our next question comes from JPMorgan, your question please. Hi, the question is on the U.S. unit development and I do want to ask this context.
Speaker Change: In terms of a slower overall delivery business, the majority of...
Speaker Change: New US stores would open in existing delivery trade areas. So is there any kind of rethinking or maybe repositioning from previous US unit development expectations, especially in...
Speaker Change: 25, I think the average number was something like 170 or so per year, correct me, you know, on that it's not the 3 number, but around 170 units per so is that the number that we should still be, you know, kind of thinking about on the year to year to year basis going forward.
Speaker Change: Yeah, John, I think we talked about 175 to be precise on the U.S. unit development end.
Speaker Change: And I think we committed to that plan, and we continue to go for the 175 and I think your right about the delivery was to carry out business and kind of like how they've informed the location decisions, but I think Russell is going to add a bit more on that.
Russell Weiner: Yeah John, I am...
Speaker Change: Store Rose is a critical part to us gaining share, you know what I talked about the first three months of this, I have to have started first three quarters of this year.
Speaker Change: Essentially, that's being up three times the category in the U.S.
Russell Weiner: You know what our seems to our sales are? That means for us to be growing that high. We're getting significant, sorry it's early, contributions from new stores and that's a key part of our strategy. When we open up a new store, a significant part of that volume is incremental on the carry-out side, when we split a store. [inaudible]
Russell Weiner: and then that new store helps us get more efficient on the delivery business. So new stores are absolutely positively part of our overall share growth plan and I love the progress we're making.
Speaker Change: Thank you, and our next question comes from the line of Peter Saleh from BTIG, your question please. Great, thanks. I was hoping you could elaborate a little bit on the weakness you saw by income cohorts, maybe more specifically on the lower income guest. And then just, when you think about emergency pizza last year, can you just talk about how that resonated with different income cohorts just so we have an idea how we try and go on to fork you? Thank you.
Speaker Change: Peter, you know we had another great quarter of not only seems for sales groups, but order count growth.
Speaker Change: where we saw maybe a little softness was with lower income customers on the delivery side, so just to help give some color there. You know, on emergency pizza, you're right, emergency pizza 2.0 has some big shoes to fill, but what I'd say is I'd seen the program and if we have big shoes to fill, the program has big feet, maybe with a little bit nail polish on it as well. And so you're going to be more exposed to that, but we're excited about how we're going to lap one of the better programs in our history.
Speaker Change: Thank you and our next question comes from a line of Sarah Sanittor from Bank of America. Your question, please.
Sarah Sanittor: Great, thank you, I just want clarification on the question, that the clarification is just on the lower and confirmed steamer.
Sarah Sanittor: I'm trying to understand if things got worse from an aggregate spending perspective or if it's just there's more competition and maybe some other categories pursuing that consumer. And then the real question is, is this if I look at the US and like your retail sales growth over the last college decades?
Sarah Sanittor: It's been sort of like $600 million a year in growth and trying to understand how to think about that in the context of market share and a slower growing category, you know, kind of 2%, as you said, or less than 2%, you're growing 6%. Should I be thinking about this as kind of dollar increases every year, or is there a reason that you can accelerate those dollar share gains, so that you maintain kind of market share gain growth that you've seen over time. I know there's a lot in there, but as your store base gets bigger, it's harder to sort of grow at that same pace.
Sarah Sanittor: Given that they're so in the tree. Thank you.
Speaker Change: I'll think the first question and maybe have Sandeep Weiner on the second one. I think on the lower income customer, we're going to have to continue to watch, but I guess it's a little bit about both of what you talked about. It's going to be softness on spending. We see what's happening with credit card debt and payments are taking a little bit longer to go through. But we also saw more competitive activity, particularly in August . So, I think it was both external and internal. So, in August , we saw...
Speaker Change: and really through two of our major competitors, one of them had free delivery. The other one did their version of our emergency pizza, obviously qualitatively my preferences for ours, but those were two really good value promotions. Now, at the same time, and I know this wasn't part of your question, but I think it's important to explain to everyone on the call. In August , we did what we intended to do, which was actually we went with a quality message. You remember the Simon Cowell spot that we put on there.
Speaker Change: and we learned that quality methods for a couple of reasons. One, with how we for more in order to deliver on our promise on the end, which is that we're going to have the most delicious food.
Speaker Change: We have to continue to beat the best, which is us in operation. And so you'll remember that here we had some of our service this year. We've got three products, friends.
Speaker Change: And so the intent of that ad in August was not only to tell consumers, you know what, we've changed our stores, we've got these quality campuses here and out to make sure the product is great before it goes in the oven. But it was also the bar was raised for our franchisees. We let them know last year, hey, when we're all done with this trading, we're going to go on, we're going to make a promise to customers, and I think that was a little bit added motivation. So in August , what you saw as a step of competitive activity, we went a little bit more towards product quality, but then we very quickly after about three, four weeks went into more flation back to value.
Speaker Change: Yeah, and so I think Sarah, I'm going to add on the other, of course, second question that you had on the assumptions and hungry for more, so let's go back to what Russell talked about in the very moment.
Speaker Change: We are on track for Hungry Football. Everything we talked about in December for the US business is very much on track. And what is that? We talked about 3% seamstor sales annually, which we have again reiterated on this call. We talked about 175 stores annually, which we're again saying is there. You take the math of that that's roughly mid-singled at its growth annually. That's embedded in that. [inaudible]
Speaker Change: and we talked about our category that's going to be 2% that implies significant market share annually. If you run the map based on these assumptions versus a flat share 2% or less category growth, you will see that the rate at which we are going to be increasing market share can liberates very much to what we achieved for 2015 to 2020.
Speaker Change: 3, and as you look forward to 100 won.
Speaker Change: Goer, that is our plan, that's what we're going to be doing.
Speaker Change: Yeah, I agree. Maybe it's a little bit more context on the category. I think this is achievable not only because of our track record and the programs we have and the franchise use we have.
Speaker Change: But it's also part and parcel to how the category is made up.
Speaker Change: So, you know, when you think about all this year we've been gaining, we're still slightly south of one and four pizzas delivered in the U.S.
Speaker Change: When you think of other categories, the dominant number one player is potentially twice that size and I think we have every right to be there.
Speaker Change: And then you think, well, about half of the competition in pizza are the independence and some of the regional brands that don't have the marketing budgets. We have, they don't have to supply chain efficient.
Speaker Change: And so I think the past but also the composition of the present gives us a really nice sense of what the future can look like for a market share perspective.
Speaker Change: Thank you, and our next question comes from a line of Gregory Frankford from Googanheim, your question, please.
Gregory Frankford: Hey, thanks for the question. Just a blue from 7% retail sales growth leap, there's an operating profit growth that's six and eight. Maybe he's also aware you're finding cost efficiencies. I mean, you expect more out of the supply chain. You seek more out of GNA and maybe what are you looking at for GNA controls? Thanks, appreciate it.
Speaker Change: Thanks, Greg, for the question. Look, and I think when we look at the business and everything we talked about in the Rumaq earlier.
Speaker Change: The US business is very much on track and I think if we look into what actually happened from a performance perspective that's actually a significant part of our profit that Russell talked about earlier.
Speaker Change: And so where we have seen softness and relative terms is more the international business which obviously is going to have a profit impact but we've done a lot already during the course of the year to find procurement productivity and supply chain which we talked about through the first three quarters and I think as we move into the fourth quarter we still very focus on making those critical investments. [inaudible]
Speaker Change: So we talked about consumer spending, store technology, sorry, consumer technology, store technology, and capacity investments. All those three buckets are going to be priorities for us, but within that, some may be more urgent from a timing perspective, some may be less urgent. So we're just adjusting our phasing a little bit and we have levels to pull that we actually have not only pulled in 24, but also expect to continue pulling in 25. And that's why we feel very confident that we get to the 8% with the expectation that we have on retail sales in 25 as well.
Speaker Change: Thank you, and our next question, come to the line of John Tower from City, your question, please.
John Tower: Thanks for taking the question. I was just curious, you know, it looks as if at the current moment consumers are really pivoting aggressively to deal activity within the category and broadly across limited service and I'm just curious, you know, you mentioned earlier in the US that the category is growing at about 2% or so and you're growing to retail sales north of six and I was wondering if you could comment on the category and specifically dominoes pricing power over the long term and how you're thinking about that, you know, trickling into that 3% annual comp number that you outlined.
Speaker Change: Yeah John, that's a great question. I think really speaks to our ability to continue to do what we're doing.
Speaker Change: If you think about having to lean into value, what do you want to make sure you've got a system with?
Speaker Change: Capacity and Advertising to get the word out there, right, because if there's a little bit of a squeeze and in store margin, well the way to make that up is through volume, the way to drive volume is through great advertising.
Speaker Change: You're going to want to have a great supply chain and make sure that when everyone else is trying to deal the same way and I'll be, I'll be frank with you if you look at the competitors.
Speaker Change: Marketing, it's very similar to our marketing, which I guess it's the serious form of flairies what they say. But I know our budgets bigger than them from a marketing perspective, I know our supply chain, it's got fantastic efficiencies on food costs. And most importantly, our franchisees are a really good place from a profit perspective. We ended last year at 162, we're continuing to drive that. And so if you're going to have to lean into value.
Speaker Change: You want to have the biggest voice, you want to have the best food basket, and you want to have economics that's sustainable through these times, and I think we've got that. And Jon, I'm just going to add something which I think we talked about on previous calls, but I think the question had come up on pricing and what have been doing about pricing. I think what's been incredible about the journey from 23 to 24 has been exceptionally smart pricing. [inaudible]
Speaker Change: 23 was all about getting the flow through back after 22 was a very tough year, but 24 the best pricing we did was almost no pricing, which is inclusive of California, we have 1.6% of the quarter. This is why we're winning on value, and this is why we'll continue to win on value because not just is it what we've done, this is our intention to be highly disciplined on pricing. [inaudible]
Speaker Change: As we go forward into the rest of Humbley 4D.
Speaker Change: Thank you, and our next question comes from the line of Daniel Luke, our duo from Burnstein, your question, please.
Speaker Change: Good morning. I have a question on a peculiarization. So, and spending on on the on a previous question, bearing any brain-specific neighbors that you are deploying to gain market share, why do you think that in a decision-making market environment that fits the category wouldn't be as resilient despite the fact that it's considered the cheapest product for the category. So, in other words, why is the category not growing relevant to the low-income consumers because of and not as vital the macro challenges?
Speaker Change: Yeah, so I think the need of what we've seen is the low-income customer definitely has been impacted by.
Speaker Change: The accumulation of all the pricing that's been taken across.
Speaker Change: Multiple years, as we've come out the last couple years at least.
Speaker Change: What we are seeing is...
Speaker Change: We continue to win but I think we definitely are winning clearly in the carryout business where our value is very, very compelling.
Speaker Change: We're definitely winning in 3p because we're nearly under the over there and as Russell said, it's a different consumer, a different company called potentially where we see good incrementality.
Speaker Change: What happens with the 1p customaries?
Speaker Change: You will see some impact when this general pricing levels can high to compress one P in general and I think that's one thing we saw in early 2023.
Speaker Change: We are seeing some of it right now as well, and we acknowledge it, but I think over time, as long as we stay to our principles of...
Speaker Change: Continuing to price very well for our YouTube customers, they will come back and we need to keep focusing on that. Yeah, I'll just add to that. I think our category does respond to value. I just talked about how in August there was a lot of value and we saw consumers lead into it. I think what we're able to do that other folks can't do in the category is sustain that value. Our ability to sustain that value is why we're significantly growing the category.
Speaker Change: Thank you. And our next question comes from a line of Christine Cho from Goldman Sachs. Your question, please. Yes, thank you so much. So I wanted to double click on the international market. So I think he mentioned Asia, Europe and Middle East is pressure points, but we're just wondering if you were able to provide a little bit more color on the things that go as slow down. So any particular markets that have drives on overall close and how do you expect the trajectory to evolve in the next few quarters? And just on unicorns outside of what is happening at BPE, is it fair to say that you're seeing mostly in line trends for secure expectations earlier? Thank you so much.
Speaker Change: Thanks for the question, Chris Dean, so look, I think we've seen some sales in third quarter as we said earlier under the comments.
Speaker Change: It was really a slow down that happened starting in August and I think we saw just macro pressures.
Speaker Change: in Europe and Asia in particular that we actually called out. We're not going to get into specific market by market trends, because so many of our markets are.
Speaker Change: Public Masters where they're going to have their own disclosures later, but overall, across these regions, that's what we saw.
Speaker Change: and what I will see is from an expectation standpoint.
Speaker Change: Russell talked about it in the prepared remarks. We're just resetting our expectations for the next 15 months essentially to say 1% or 2% same-store sales growth because we don't see this macro-environment necessarily merely reading in a very rapid pace. And so that's kind of what's built into our expectations when we talk about lower retail sales growth as well. So coming to your second question on Unicron, look, I think we talked on the last call of the adjustment and next talk on the actual guidance being primarily BPE, essentially the story hasn't changed. So I think XBP, the story's not that materially different. And I think really when you think about our overall guidance, D.P. is the primary travel.
Speaker Change: Thank you, and our next question comes from a line of Chris O'Call from Steve Foll, your question please. Yeah, thanks. Good morning guys. I had a follow up on the 2025 outlook. The full year comp guide for this year seems to imply flatish comps in the fourth quarter, but I believe you mentioned targeting 3% comps for next year. So I'm just curious, what gives you confidence that comps could accelerate in 2025 from the current trend or what you're currently targeting? Thank you very much.
Speaker Change: Yeah, now so just a clarification before I get into 25 Chris, we are saying 3% of war on a fully up basis for 2025, 2024. And so we are being specific on what that means for Q4. Russell gave you the freedom initiative that we got lined up, the DEXA stack, I mean I've got we got every week
Speaker Change: Spoken for and I think there's a ton of initiatives that we've got going on and I think to Russell's point on the fourth quarter, our marketing team is already working on 2025. We can't get into this very much of the specific 20-activity model those things are, but we will have an amazing creative initiative in 2020.
Speaker Change: 225 and all that's embedded into expectations of same stores hills that we have for next year.
Speaker Change: Thank you and our next question comes from the line of Jim Celera from Steven's. Your question, please.
Speaker Change: Thanks for taking our question. I wanted to drill down maybe a little bit on, you know, we talked a lot about the low-end time consumer in some of the competitive.
Jim Celera: QSR values it a bit in the channel. But I think you can talk about from grocery. We've seen some increase in promo from Cal Lake Frozen Pizza and grocery pizza. Just any comments on how that might pull people with the lower income and anything you can think about to kind of retain those consumers.
Speaker Change: Yeah, Jim, I can tell you, even when we were seeing some of the macro headwinds back kind of post-COVID against that segment, there really wasn't a lot of interaction with frozen pizza, I think what happens is that at least on the delivery side, a customer will just opt to eat at home, but it has nothing to do with frozen pizza promotion, it may be cheaper for them to make the meal at home.
Speaker Change: Thank you, and our next question comes from line of Logan Wright from RBC Capital Markets, your question, please.
Logan Wright: Hey, good morning. Thanks for taking the question. Just had a quick follow up on the 2025 outlook.
Logan Wright: In sort of a assumption on the consumer either improving or maybe just stabilizing into 25 or...
Logan Wright: Or is there sort of expectation that the scientists could continue to get worse? I just sort of wanted to get your sense on expectations on the consumer and underlying operating environment in the US for the 25th.
Speaker Change: Yeah, you know, I'll tell you, we, we, um...
Speaker Change: Really, always are leaning in to all the pillars of the hungry for more strategy, no matter what the consumer environment is, because sometimes it's predictable, sometimes it's not predictable, and so yeah, that's what you should expect for us, you know, the rest of this year and through next year.
Speaker Change: Thank you, our next question comes from the line of Alexander Slegal from Jeffery's, your question, please.
Alexander Slegal: Hey, thanks. It's one delivery, just with the transactions, seemingly turning negative and all the headwins you're facing there in the first party channel. I'm just a falter, you're a view on where you really want to put your focus, where you're getting the biggest return and share gain.
Alexander Slegal: Just to make more sense to really expand the carry out share gains and growth that you're seeing there, even if first part of delivery does continue to get weak and weaker.
Speaker Change: Well, you know, part of our homey for more strategy was to compete in the full delivery segment, right? We don't do that, or we didn't do that a couple years ago and so now that we're competing in that area. I really kind of look more globally at how are we doing in delivery.
Speaker Change: For a channel and Uber and about to be others kind of moving forward.
Speaker Change: But you're right too, and no matter how delivery is doing, we're going to be leaning into carryout, carryout bigger than delivery for pizza in states. And so it would make no sense, especially when every other concept seems to be coming towards delivery.
Speaker Change: Us really leaning into carryout is, you know, there's not a lot of people doing the opposite.
Speaker Change: So we're really bullish, we've seen the results in the U.S., and as I said earlier, now we're taking those results and we're working with our international master franchisees because there's a lot of non-delivery volume out there whether it's carryout or in places like China and India sit down, we're a pizza company and so we're going to compete in every occasion. [inaudible]
Speaker Change: Thank you, our next question comes from a line of Brian Mowen from Piper Sandeer, your question, please.
Brian Mowen: Hey, thank you. Just a question on the menu, innovation pipeline. Just want to ask about the potential for a stuffed crust pizza product in the domestic business. You know, if that were a product that Domino's wanted to launch one day, you know, what are some of the operational factors. Consider at the store level that you'd want to see before you would be ready to launch a product like that. Definitely, do you think a product like that would be well received from a Domino's consumer? Any thoughts would be great.
Speaker Change: I think it's interesting, Brian , you know, we're the never one pizza company in the world, and we don't have one of the most important, or sorry, one of a larger crust types, and so I understand the reason for the question, and just in case you didn't know, we've got stuff crust in Domino's markets all around the world, so it's not that we're adverse to doing it. It's just, you know, U.S. got really significant volumes going through the store, and operational excellence and quality is a big pillar for us, and so we've chosen so far not to do stuff crust, but that doesn't mean it's off the table, we just, you know, need to make sure that the circumstances would be right in the store.
Speaker Change: Thank you, and our next question comes from a line of Jeffrey Brandstein from Barclays, your question, please.
Jeffrey Brandstein: Great. Thank you very much. I just wanted to follow up on a couple of comments you made about the international system. You know, and I know Russell, you mentioned that you've got kind of three big initiatives that you're working with those franchisees on. Just wondering how you find you're able to influence their behavior. I mean, obviously you're in, you know, 100 international markets, 6 publicly traded franchisees. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Jeffrey Brandstein: Just their acceptance or willingness to work with you to kind of, presumably, re-accelerate that
Speaker Change: And then just to clarify, did you say anything about the 2025 unit outlook? I think you had pulled kind of the long-term component of Unicroath and you had said, you know, wouldn't necessarily apply yet in 25. I'm just wondering whether you've said directly, whether you think 2025 should seem more openings than the 800 to 850 that you've now reduced to in 24. Thank you.
Speaker Change: Thanks Jeff, and you know you're right, obviously the US, we directly run these.
Speaker Change: These international markets, we work with those markets to influence them and I think.
Speaker Change: When you look at our U.S. results on their hunger for more.
Speaker Change: Essentially, that's started here in...
Speaker Change: and Q4.
Speaker Change: We started rolling out, come before it, our rally, which I think is...
Speaker Change: Pretty much five months ago. And so folks are already in line with their plans for the year. And one of the things they're also going to be looking at is, is this successful and the beauty, it is successful in the US. And that's why you're seeing markets, for example, India just talked about on their last call about how they've leaned into value specifically around their delivery fee and how that's really turned the business. I point out to Mexico who's doing a really, really good job leaning into renowned values. So, you know, it's going to happen over time and it's going to happen because we're proving it works.
Speaker Change: And this is the second add-on that you had Jeff. We didn't specify it 2025 store outlook and putting it, but we'll get through to you for a comeback in February and then we'll continue to have incremental visibility at that point.
Speaker Change: Thank you, and our next question comes from a line of Brian Harper from Morgan Stanley, your question please.
Brian Harper: Yeah, thanks, Morgan guys. Could you just comment on, you know, his franchise story EBITDA for this year is still kind of on track with your expectations.
Brian Harper: You know, if I look at kind of corporate owned store margins, you're kind of back to nice year of your growth there, is that directly consistent with what your France has these things still.
Speaker Change: Yeah, so Brian, thanks for the question. I think when we talk about corporate store margins and corporate store, we're onto the living room.
Speaker Change: and Dressers a couple of times before as well.
Speaker Change: The sample type is so small on corporate stores, it's really not necessarily an analog to what's going on in the franchise.
Speaker Change: and the French IZPNL but we have you with how much progress we made in the corporate stores and we expect to continue to make progress at the rest of the year on the corporate stores.
Speaker Change: But in terms of the franchisees, look, coming into this year, we had Western Plasber store profitability and Western cross returns for franchisee stores and as we've gone through this year, we've actually continued to do it very really well and franchisee profitability is expected to continue to grow. But I think as far as we concerned, we're committed to continuing to drill a to drive profit growth just in 24 but beyond.
Speaker Change: Yeah, I'd also point to we never stop thinking about franchisee crop stability and we work with them together to do that. So actually next week.
Speaker Change: You should know we have something we call an economic summit, where we bring our franchisees that are part of all of our communities, our marketing, our technology, is supply chain operation. And we talk about their business and how to drive the top line and the bottom line. And I think that's really important.
Speaker Change: To be working together, so they understand and we can share all the data that over time has proven to be true on how together we can drive their profitability. I think it's important I know I hear from French as these.
Speaker Change: that it's important that they see us acting in partnership with them. And next week's economic summit is going to just do that to just that. I'd like to, if you don't mind, since you talked about franchisees just for a moment given all that's going on with Hurricane Milton and we've got franchisees and stores and team members in some of these affected areas that we are thinking about them. And Domino's is there for our customers. And we are there for each other.
Speaker Change: We come together in times like this, you know, we've got this saying at Domino's for decades that this line is, we are the last to close and we're the first to open. And sometimes when we reopen in times like this, it's not just the heroics of an individual franchisees, it's about the entire domino system coming together. So in North Carolina, we have stores that had no electricity and we have franchisees all over the country sending people, sending generators, sending mobile phones, trucks, and so we are there thinking about our team members, our customers, and I'm just so proud of how our team comes together during times like this.
Speaker Change: Thank you and our next question comes in the line of Andrew Strowley, from BMO Capital Marker. It's your question, please.
Andrew Strowley: Hey, and good morning. Thanks for taking the question. I had something on the same lines as the prior question and it's on labor specifically. You know, it's a percent of sales labor was favorable year over your for the first time in a while. So I'm curious what drove that shift, if you're expecting that to continue, if you'll continue to see leverage there. And if you think your franchisees are also seeing that benefit, I know you say it's hard and small sample. To draw those lines between your profitability and the franchisees, but labor may be a little bit more on your control. So I'm curious what's going on there. Thanks.
Speaker Change: Thanks, Andrew. I think you answered the question yourself, which is I think it's so difficult because there's so many legislative rules in different DMAs and states. [inaudible]
Speaker Change: There I don't think there's...
Speaker Change: A one-size-fits-all in terms of what's going on now I'll talk about company stores specifically
Speaker Change: And if you have been looking at our courtlies which I'm sure you have.
Speaker Change: You've been seeing that we've been dealing with labor pressure for quite a few quarters.
Speaker Change: But I think now we started laughing, some of those increases that we had to take on labor and that's why you're going to so it's stabilizing
Speaker Change: So there's nothing more to read into that designs. We've kind of laughed some of the big increase.
Speaker Change: We took, but overall we committed to continuing to drive a profit dollar growth on a company's toes and I think including any one time things like insurance, etc. We expect to actually continue to drive margin over time as well.
Speaker Change: Thank you, and our final question for today comes from the line of Jeffrey Farmer from Gordon Hassik. Your question, please. Thank you. You did touch on the competitive environment in the US with a couple of questions, but...
Jeffrey Farmer: Do you expect to see that the peer promotional and value efforts further intensifies? We get to the balance of 24 moving into 2025, meaning are we sort of in the middle of this surge of promotional activity for the peer group or do you think it's going to further intensify?
Speaker Change: Thanks Jeff, and you know, I'll tie it first as funny to see your name pop up there only because we have a franchisee named Jeff Farmer, whose brother Pat was actually in the Moreflation ad, so I have no idea if you're at any related but it's always nice to see the name Jeff Farmer, you know, up on the screen.
Speaker Change: competitive activities for us of the year. I mean, you know, it's funny, you see a lot of talking about kind of the burger wars, you know, I think we're in pizza wars right now, and clearly we are winning that. And what the competition is going to have to do to keep up with us is to continue to lean into value, so I'm not sure what they're doing. Obviously we don't have their plans, but I know what we're doing and if they want to match us, they're going to have to continue to do that. [inaudible]
Speaker Change: Thanks Jeff, that was our last question of the call. I want to thank you all for joining our call today and we look forward to speaking to you all again soon. You may now disconnect. Thank you.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Speaker Change: Thank you for watching!
Speaker Change: Thanks for watching!