Domino's Pizza Inc

Thank you for standing by and welcome to Domino's Pizza's first quarter 2024 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 the session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like 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. Greg Lemicek, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today for our first quarter conference call. Today's call will begin with our Chief Executive Officer, Russell Wiener, followed by our Chief Financial Officer, Sandeep Reddy. The call will conclude with a Q&A session. The forward-looking statements in this morning's earnings release and 10-Q, 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 filings with the SEC. In addition, please refer to the 8K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also being recorded for replay via our website. 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 one question only. With that, I'd like to turn the call over to Russell.

Thanks, Greg, and good morning, everybody. Our Q1 results demonstrated that our Hungry for More strategy is delivering on its promise, driving more sales, more stores, and more profits. We drove strong comp performance in the U.S. that flowed through to the bottom line with double-digit profit growth. And our growth in the U.S. came through positive order counts across all income cohorts in both our carryout and delivery segments. We saw the largest growth in our lower income cohorts that are undoubtedly benefiting from the renowned value that we're offering. I'd like to highlight our first quarter results through the lens of our M-O-R-E, hungry for more pillars. As you know, M stands for most delicious food. We know we have the most delicious food in the industry and are focused on showcasing that with more mouthwatering food photography in all of our marketing and sales channels. We also ran a campaign that highlighted our pan pizza, a premium product that brought news to this crust type for the first time since 2014. And I'm excited to announce that our first product innovation of the year, New York Style Pizza, launches on air today. The idea for New York style came from customers who prefer a thinner, more foldable crust than our traditional hand tossed. And we believe that this new crust style will drive incremental occasions. It will also drive deliciousness as the foldable crust lets us focus more on our incredible toppings, including a really unique blend of provolone cheese that comes on every New York style pizza. Additionally, this crust option will be available as part of our mix and match offer. And Domino's Rewards members can redeem 60 points for a free medium two-topping New York-style pizza as well. This is another example of how innovation is designed to drive value and more customers into our loyalty platform. The O in Hungry for More stands for operational excellence. This is how we'll deliver on our promise to have the most delicious food, by consistently driving a great experience with our product. As I shared on our last earnings call, in 2024, we're rolling out a new service program we're calling More Delicious Operations, a series of three product training sprints that focused on our dough, how we build and make our products, and how we cook them. In Q1, we embarked on our first sprint, which focused on our dough, and rolled this out across all 6,800-plus stores in the U.S. We continue to see benefits from our service initiatives and In Q1, we actually delivered more pizzas than we did in Q1 of last year at improved delivery times. I am just so proud of our operators. Our third hungry for war pillar is R for renowned value. I want to expand on what renowned value means to us at Domino's. It's not about just having the lowest price in the market. It's about providing value that's innovative and that's memorable. Renowned value breaks through the sea of seamless discounts that you see in the marketplace. Value is a buy one, get one free. Renowned value reinvents this mechanic and creates emergency pizza. Emergency pizza performed better than any buy one, get one free I've done in my career. It was a meaningful driver to our comps in both Q4 of 23 and in Q1. And it not only drove increased orders, but also the acquisitions of members into our loyalty program. Domino's Rewards continues to perform extremely well and was the key driver of our strong U.S. comp performance. The program is delivering on our objectives. Active member growth rates are up significantly since the launch of our new program. From a percentage standpoint, our biggest increases are coming from new, lapsed, and late customers. So we're bringing these new customers into the fold. I'm particularly pleased with the increase in carryout customers made possible in part by our reduced $5 minimum spend for earning points. Once customers become members, they're redeeming more than ever before, and increases are being seen across all of our channels, delivery and carryout. Our new 20- and 40-point redemption tiers are doing exactly what we hoped. They're engaging more customers. These two tiers now combine for the majority of the redemptions in Domino's rewards. And the program has driven incremental profit dollars for franchisees. So customers are getting more and our franchisees have earned more profits. Truly a win-win. We believe Domino's rewards will continue to be a meaningful sales driver for us in 2024 and beyond. National promotions are another way we're driving renowned value. In Q1, we brought back our carryout special boost week for the first time since January 2020, and its performance exceeded our expectations. Clearly, customers want value, and we are driving it profitably for our franchisees. Now, as it relates to our promotional cadence in 2024, you can expect it to be consistent with what we did in 2019. As part of that, you can expect around six boost weeks. As a reminder, these boost weeks are a proven customer acquisition tool that drives both short and long-term benefits for our brand. And we're seeing the same commitment to providing renowned value internationally. Some of our best-performing markets are getting this right. As an example, our master franchisee in Mexico has run very successful boost week campaigns that have driven outstanding order and sales growth. While providing renowned value through our own channels is one part of our barbell strategy, tapping into the aggregator marketplace as the other. Our launch into the aggregator space remains on track to exit the year at 3% or more of sales coming through Uber Eats. Now that we're a quarter into our full launch, I want to share a few insights on what we're seeing. Incrementality has been in line with our expectations. In addition, we're seeing a higher percentage of single user transactions on Uber than we've seen on our own channels. Further, this channel is becoming more promotional. Customer responses to deals are stronger than to everyday low prices. As a result, we are continuing to work to fine-tune our marketing spend and our offers to ensure that we are effectively driving this channel. We remain focused on driving profitable transactions through Uber Eats while ensuring that the best values for our customers remain on our own channels. Everything we do at Domino's is enhanced by our best-in-class franchisees, the E in our Hungry for More strategy. We'll be hosting thousands of franchisees for our worldwide rally in May, where we plan to bring our Hungry for More strategy to life across our global system. I can't wait for that gathering as our franchisees are what makes Domino's so special. They were the inspiration behind Hungry for More. So to close, I couldn't be more excited about 2024 and beyond for Domino's Pizza. Our first quarter results clearly show that our strategy is resonating with customers. This gives me great confidence that we can deliver against our short and long-term hungry for more goals and drive significant value creation for our shareholders. With that, I'll turn things over to Sandeep.

Thank you, Russell, and good morning, everyone. Our first quarter financial results demonstrate how powerful our model can be when we drive profitable transaction growth. The smart pricing we took in 2022 and 2023 has kept us at a great value to our customers in 2024 while being profitable for our franchisees. This has resulted in profit dollar growth versus 2023 for our U.S. franchisees so far this year. We remain on track to achieve our target of $170,000 average U.S. franchise store profit for 2024. Excluding the impact of foreign currency, global retail sales grew 7.3% due to positive U.S. and international comps and global net store growth. U.S. retail sales increased 7.8% and international retail sales, excluding the impact of foreign currency, grew 6.8%. During Q1, same-store sales for the U.S. saw a meaningful increase of 5.6%. Our strong comps in the quarter for carryout of 9.5% and delivery of 2.9% were driven primarily by transaction growth. As Russell mentioned in his remarks, the increase in U.S. same-store sales was driven by transaction growth from our new loyalty program. This was inclusive of a continued benefit from emergency pizza and results that exceeded our expectations from the carryout special boost week that we ran. We also benefited from 0.9% of pricing and a 1.4% sales mix from Uber. These tailwinds were partially offset by a higher carryout mix, which carries a lower ticket than delivery. We are still evaluating how much of the 1.4% sales mix coming from Uber is incremental, but everything we have seen so far would indicate that it's in line with our approximately two-thirds estimate. Shifting to unit count, we added 20 net new stores in the U.S. in line with our expectations, bringing our U.S. system store count to 6874. Shifting to international, where results were generally in line with our expectations, Same-store sales, excluding foreign currency impact, increased 0.9% in the first quarter. Store counts increased by 144 net stores, which is an increase over the 106 we opened in Q1 of 2023. Income from operations increased 19.4% in Q1, excluding the negative impact of foreign currency of $1.4 million. This increase was primarily due to higher global franchise royalty revenues resulting from global retail sales growth of 7.3%, as well as higher supply chain gross margins due to procurement productivity, a decrease in the cost of our food basket, and slightly lower delivery cost. I also wanted to call out that our margin rate benefited by about 0.3% in Q1, from the tech fee being at 39.5 cents and the lower ad fund contribution rate of 5.75%. Now, turning to our outlook, which remains in line with what we previously shared. Seven percent or more global retail sales growth, excluding the impact of foreign currency, and we continue to expect the following. 2024 US comp to be about the 3% plus long-term guide as a result of our expected catalyst in Uber and loyalty for the full year, and we expect comps to be 3% or more in each quarter for the remainder of the year. Specific to Q2, we expect them to be slightly below Q1 on a one-year basis as the emergency pizza promotion rolls off, partially offset by a ramp in Uber. You can expect a similar national promotions cadence to what we ran in Q1 in terms of our activity, inclusive of the April Carryout Special Boost Week that is now behind us. Second, sales through Uber to increase throughout the year as marketing and awareness increases, and we are expecting to exit the year with an overall sales mix of 3% or more. International comps to remain soft in the first half of the year due to a continuation of the trends we saw at the end of last year, but expect them to accelerate to about 3% or more long-term guidance in the back half of the year. Now shifting to net stores, where we continue to expect 1,100 or more, which will be driven by 175 in the US and 925 in international. We continue to expect an 8% or more year-over-year increase in operating income, excluding the impact of foreign currency. To highlight some of the components which remain unchanged, expect operating income margins to be relatively flat compared to 2023. As a reminder, we are not expecting to see cost leverage in 2024 due to investments we are making in consumer technology, store technology, and supply chain capacity to support future sales growth in the U.S. We are expecting our GNA as a percentage of retail sales to be approximately 2.4 percent. This is inclusive of approximately $9 million in timing of GNA spend in Q2, driven by our worldwide rally, which takes place every two years. We are expecting supply chain margins to be roughly flat compared to the prior year. incorporating an inflationary food basket for the rest of the year with a full year range of 1% to 3%. Should our food basket pricing for the year move to the lower end of our expectations, we may see modest leverage in operating and supply chain margins. Thank you. We will now open the line for questions.

Certainly. One moment for our first question. Our first question comes from the line of Andrew Charles from TD Cowen. Your question, please.

Great. Thank you.

Question first on same-store sales. Just, you know, 1Q is 5.6%, obviously a very impressive number. Should we think of it as the high watermark for 2024 U.S. same-store sales? You talked about how 2Q will sequentially moderate partially, given the benefit of emergency pizza rolls off while Uber eats, you know, picks up. But You know, just curious, do you think this performance, though, is broadly sustaining as we think about the remainder of 2024?

Morning, Andrew. Thanks for the call. You know, part of the reasoning for putting out 3% or more as part of our hungry for more algorithm is that, you know, 3% for us is the floor, but we're going to do everything we can, you know, to beat that and deliver more every single quarter. And so I'm not going to get into forward-looking on the quarters, but what I will say that I really liked about this quarter is, you know, there are two things I look at. I look at results and I look at repeatability. And the results, like you said, were strong. What I then look at is say, okay, were the components that drove those results, are those repeatable? And when you think about our Hungry for More platform, we had – Product news in first quarter, we've got actually our first new product of the year in second quarter. We talk about operational excellence. We delivered more pizza in Q1 than we did Q1 of last year at a better delivery time. Our renowned value, you know, we went the second half of emergency pizza in Q1. We had a carryout boost week, and you probably read we just put out a new renowned value promotion called UTEP-WETEP. And so, as Sandeep said earlier about the smart pricing we took, that's part of what's driving the consistent order count increase across every segment and consumer of our business. And so, while I can't get into the specifics, what I can tell you is the repeatability of the MORRE formula is what we're going to be leaning into.

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

Great. Thanks, guys, and congrats on the quarter. Sandeep, wondering if you could talk a little bit more about supply chain margin and sort of the overall operating margin strength that you saw in the quarter, and perhaps anything more on the latest thoughts on full year. You gave color on the quarter. You just talked about reiterating your thoughts for the full year. Anything more if you could kind of break down that procurement benefit, perhaps, you know, exactly maybe what you saw deflation in the quarter itself for the supply chain and and anything on that go-forward procurement, et cetera, as we think about the full year. Thank you.

Thanks, Dennis. And I think that's a great question because if you really go back to our fourth quarter call, Dennis, we talked about our expectations for the first quarter to be really margin improvement and margin expansion, which we did see. And directionally, it was slightly more, and I'll get to that in a second. But I think overall, when we look at the full year, our expectations really haven't changed. We were expecting to see procurement productivity benefits for the whole year, and we were expecting to make investments that offset the procurement productivity. What we did see specifically in Q1 is that while we got the procurement productivity, some of the investments we were planning to make in supply chain capacity really pushed out into later in the year. So Q2 to Q4 gets a little bit more pressured as a result of it, but the overall year really doesn't change. And so directionally, I think that's the way to think about supply chain margins and where we expect to take that. Now, when I talk about the full year expectations, included in that was a timing factor on G&A specific to Q2 because we have our worldwide rally. We'd already messaged on the last call that we would expect to see some compression. but we've quantified it a little bit for you to help you with your modeling. And other than that, the back half really remains relatively similar to what we said in the fourth quarter call. So broadly, not a very different picture on the P&L than what we saw back in February.

Thank you. And our next question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Thanks. Good morning. Your same-store sales in the U.S. accelerated in the first quarter about 300 basis points from 4Q. Can you just talk about how much of that acceleration was traffic? Was all the acceleration traffic? And it sounds like one of the biggest drivers of the strong comps are the rewards program. That's what you seem to be citing the most. And I realize 2Q may be a little lower than 1Q, but in general, can you just unpack... why you believe the rewards program and all the improvements that you've made there can be an ongoing driver for sales trends, not just even in 2024, but how it can build on itself in 2025. Thanks.

Sure. Morning, Brian. The Q1 results, I think you nailed it. What makes me so proud of the team is that they were order count driven. They were all account-driven overall. They were all account-driven on our delivery business, on our carryout business, across the different segments we've got. And I think that's something special in general, let alone given the current environment for QSR. Rewards certainly was a big part of it and will be a tailwind for us as we continue this year and for the next few years. I mean, we saw this the first time we launched a loyalty program. It was time to reinvent it, and we did. The nice thing about the reinvented program is it's driving activity with folks that maybe we didn't engage as much in the old program. And so the carryout customer engagement is much higher than it was before. Light users are much higher than they were before. And so that gives you a little bit of a sense of where that growth is coming from, and I don't expect the tailwind from loyalty to go away anytime soon.

Thank you. And our next question comes from the line of Sarah Senator from Bank of America. Your question, please.

Oh, thank you. I wanted to ask about the promotional environment. I guess a couple of things. One is, you know, you mentioned that 3P is more promotional. So I think the appeal for pizza had been that it was more margin neutral or maybe even accretive. because of maybe the absence of deals. So I'm just curious if that's still going to be the case. And then as you think about the promotional cadence consistent with 2019, I think the implication was that promotional intensity is not particularly high relative to history, but 2019 was a bit of a slower comp year for Domino's. And so I just wanted to kind of understand how you're thinking about the implications on teamster sales from 2019. promotional intensity and the potential for, you know, competitors to match. Thank you.

Thanks, Sarah. I'll try to get to each piece of that, unpack it a little bit. I think, you know, what we talked about that we're seeing on 3P is definitely a high, low value driven business. And what we're doing is we're kind of adjusting accordingly. The important thing to remember is the best prices for consumers and our loyalty program are always going to be on our own channels. But it's interesting, though, when you look at what's going on in 3P, I think that really exacerbates the difference between what we're doing on our own channels. So there it's price. It's, you know, it's this percent off, you're giving this away free, up and down. What we're doing out there, which is why I think, you know, it feels like, and you said this, you know, it feels like there are more promotions out there, is the difference between value and renowned value. I talk to the team a lot. When we think about what renowned value means, it means bringing the talk to value. So it's talk value versus value. And so the promotions may feel that we're doing out there, may be feeling like the activity has increased. I think what has increased is just the power of them. And like I said, a BOGO versus an emergency pizza or a $3 bounce back for purchase in a week versus you tip, we tip. They just feel more powerful because the talk value is there, and I think that's a great juxtaposition, understanding how we're going to break out from both 3P and the rest of QSR with the promotions that we do.

And I'm just going to add something, Sarah, because I think sometimes when we talk about promotion, the subject is what's happening to profitability. What is great for us is our profit dollar growth continues to grow as we expected it to. We're on track to the $170,000 or more for the year. And we're doing exactly what we hoped for. And I think on the last call, you asked about profit dollar growth versus margin expansion. Even on the corporate stores, we saw very healthy profit dollar growth. And we did see a bit of margin expansion, but we're not solving for margin expansion. for-profit dollar growth. And I think what we're seeing is very healthy the way all this explains with the P&Os.

Thank you. And our next question comes from the line of David Palmer from Evercore ISI.

Thanks. Good morning. I was hoping maybe we could drill down into just the labor situation for Domino's as you see it. across not just your company stores and supply chain, but also the franchisees. Any metrics you can share that could speak to how labor availability is impacting the business, both sales and margins? Thanks.

Maybe I'll talk big picture, and Sandeep, you can talk on the margin level. David, the biggest indicator to me about both labor availability and, frankly, the improvements that we're driving operationally is the fact that we delivered more orders in Q1 than we did last year at better delivery times. And so if labor was an issue, you know, we wouldn't be able to do that. And obviously the flow through to profitability, Sandeep spoke about that a little bit. And so that to me should be a takeaway that is working right now.

Yeah, no, I think, and Russell's exactly right. I think accessing labor has been not a problem at all as we've moved through the year. What I do think is reality, and we talked about this on the last call as well, is there is some wage pressure in the year with some minimum wage increases, statutory increases, that will impact the franchisee P&L and even our corporate store P&Ls. But I think specifically California is a good example, right, where we had the AB 1228 wage increases. So we essentially would have had to increase our prices in California to address the wage increases that we saw over there. Our price increase is probably in the high single digits, but we will modify it if we need to to actually adjust to what the competitors are doing. But overall, we're solving for profit dollar growth. That's what we are always solving for. And we are looking to protect that franchisee profitability in California and throughout the system. And so margin percentages are good to look at and maintain good flow through, but we're solving for dollar growth.

The ex-marketer in me needs to follow up with that. There are two profitabilities that we care about at Domino's Pizza because we know if we balance those, our profit follows. And certainly the franchisee profitability is one of them. But the other is the profitability for every American out there, every pizza-buying citizen kind of all over the world. And that is where I think our record of smart pricing, which has been, call it 15 years of doing so, has proved out. I mean, we had the 599 mix and match offer for 12 years. Profits went up, order count went up. We took smart pricing, and smart pricing is based on lots of analytics around what the competition's doing, what's going on with in consumers wallets. And we took pricing and that's pretty much the majority of at least promotional pricing we've taken already. And you're seeing how that's translated into order count growth. And the way I think about it is every year, should the analytics say we can stay with 699 as an example, we get more and more in value. And so when you balance consumer profitability and franchisee profitability, you get Q1.

Thank you. And our next question comes from the line of Laura Silberman from Deutsche Bank. Your question, please.

Thanks so much. Congrats on the quarter. You talked about the strong performance across income cohorts. Can you expand on what you're seeing with the consumer and whether there are any observable differences in how consumers across cohorts are using the brand, and then any changes in consumer behavior signs of tree down within each channel. Thank you.

Sure. You know, we talked, I think, Laura, in Q4, even maybe in Q3, a little bit about what we thought was coming in 2024, and that is coming to fruition. You know, traffic is hard to come by. Orders are hard to come by in QSR. I think you're going to see that continue throughout the year. I don't think that's going to be the case you know, at Domino's because of what we talked about before. And the traffic doesn't just come. It becomes, like I said before, results are important if they're repeatable, and they're repeatable if there's a formula. And essentially, you know, our pricing is stable and right. Our promotional contacts or promotions have come back. Carryout Special, we brought that back. New products. I think the key thing, though, when you're talking about why is every income cohort engaging in Domino's with positive order count is a big piece of that is the new loyalty program. I mean, we specifically designed it to tap into consumers that we hadn't done before. So reducing the purchase from $10 to $5, well, all of a sudden, this is a much more compelling program for carryout customers and just customers in general who, you know, don't want to spend a lot of money at five bucks, they get points. And the other thing is the, uh, 20 and 40 point levels, adding those, those redemption levels to our loyalty program has been key in driving frequency among, uh, kind of lower income and lower frequency customers. The amazing thing to me, if you think about the old program, which was only 60 points for a medium two topping pizza, our new program, the 20-point and the 40-point level actually combined are higher than the 60-point level. And so that gives you a sense of why we're breaking through in every cohort across delivery and carryout.

Thank you. And our next question comes from the line of Danilo Gargiulo from Bernstein. Your question, please.

Thank you.

Congress again in the quarter. I was wondering if you can elaborate on what is causing international markets to have a little bit more compressed growth this quarter, which was in line with your previous expectations. And particularly, if you can elaborate, if you have been able to estimate how the pressure from the tension in the Middle East are impacting you specifically. And more broadly, if you can take any lessons from the domestic markets that are growing so fast and you can transfer them over to the international markets. Thank you.

Thanks. Well, you both asked and answered the question, so great job. Yeah, look, Q1 comps were in line with our expectations. We continue to see pressure in Europe and the Middle East. Sandeep had talked about this last time. The Middle East represents a relatively small percentage, less than 3% of our operating income. But what makes us continue to expect comps to return to our 3% algorithm in the back half is exactly what you were saying. We see key markets starting to bring to life the Hungry for More strategy. So if you look at Australia, for example, they launched a campaign that literally is called More in Q4 that really is romances products and they've had delicious new products that have launched as part of that. Their business has responded accordingly. You know, we looked at Mexico, I talked about them a little bit. They just reported, you know, Q1 of 12.2%. They launched Domino's Mania, which is a boost week. And so what we're starting to see is as folks follow this playbook, it's starting to work internationally. And our job, and that's part of why we have this rally coming up, is to continue to share these best practices and And that's why, you know, at the back half of the year, we think we'll return to the three-plus algorithm.

Thank you. And our next question comes from the line of Gregory Frankfurt from Guggenheim. Your question, please.

Hey, thanks for the question. Russell, you made a comment about just the third-party channel having more single-item orders. And I think the reason for why you expected sales to build as you move through the year was because you were still figuring out how to promote on the platform. I'm curious, what do you think has been working and what do you think still needs to be tweaked to kind of get you to where you want to be as you exit the year from a mixed perspective in terms of pricing and promotional structure?

Yeah, Greg, like I said, things are a little bit different on the platform than they were last year. The competition, the promotional competition is just up, but We're still sticking to our strategy there of best pricing online at Domino's. It's just more about how we manage it. So, for example, your base price could be higher if you want to discount a little bit more. I mean, all of that stuff is available to us. And so we feel good about kind of the way our team is handling that. We're promoting on the Uber channel. Uber is promoting us on the Uber channel. Sandeep talked about we're at 1.4% of sales, which is up from 0.4% in Q4. And all of that makes me really confident that we're going to get to that 3% exit rate for the year.

Thank you. And our next question comes from the line of John Ivan Cope from JP Morgan. Your question, please.

Hi, thank you. In the context of third-party delivery maybe being a little bit more promotional, I was hoping if you could put that in the context of of your own delivery fee. We've actually seen some stores where it can be as high as $7.99. I think that's a New York example, but it's still an example. How are you feeling about the current structure of the relatively fixed delivery fee, no matter how much a customer orders, if there's any opportunity to kind of look at that over time? And when I think consumers increasingly look at the total landed cost of that delivery, you know, if you feel the overall algorithm is still in the right place. And obviously, I understand orders being up year over year might just simply answer that question, but just wanted to get your thought on just delivery fee overall in terms of consumers' value perception. Thank you.

Yeah, thanks, John. You know, we do price scraping on a, I think, either weekly or biweekly basis on delivery fee. And so what's important to understand is the recommendations to our franchisees are based on the competitors that are out there. Kind of the ones that have stores that are more direct competitors, whose pricing is probably a little bit lower than when people buy things on the aggregators. You're right, though, on aggregators so that people may sign up for programs where delivery may be reduced cost or free. But at the end of the day, particularly our customers, looking at exactly what you said, They probably don't call it total landed cost. They just call it, is it a bargain? Is it a value? And as long as we're doing that, we're aligning competitively with the local competition through our pricing there, and we've got best pricing on dominoes.com. That's the balance that we're looking for.

Thank you. And our next question comes from the line of Chris O'Connell. from Steve Foyer. Question, please.

Yeah, thanks. Good morning. Russell, you mentioned the company seeing more individual orders on Uber Eats channel, and I was just wondering, does this create an opportunity to be more aggressive in promoting non-pizza items on the channel and maybe even attempt to drive sales during the lunch day part? And also, does the company share a voice on the platform right now among the pizza competitors? Is that similar to what we might see outside of the channel?

You know, Chris, on that second one on share a voice inside versus outside the channel, I'll have to get back to you on that one. That's not something that I know off the top of my head. As far as what it is that we sell on Domino's, we have been here a long time, and I've seen us promote just pizza on media, and I've seen us promote just our individual items like sandwiches or pasta online. And really the magic for us, the big sales becomes when, I've used this before, this idea of pizza plus, when you offer both. And that's really what mix and match is all about. And so, you know, what we don't want to do is we don't want to slow down momentum in what's really working through experiments in other area. We have looked at lunch before. We got a nice lunch business, but that business is not individual users. And so I think what this allows us to do is tap into individual users who, frankly, are willing to spend a lot more money on a per-person basis than they would through us. And then once they're part of Domino's, obviously they've got the ability to then go back and buy those items and get loyalty points for it and all that. So that's probably the better way to think about it is we're at our best when we promote our entire menu.

Thank you. And our next question comes from the line of Andrew Stelzik from BMO Capital Markets. Your question, please. Hey, good morning. Thanks for taking the question.

I wanted to ask about the U.S. store growth pipeline. The first half of the year, I know, is supposed to be roughly flat year over year, and it seems like it's tracking there. But how are you seeing that pipeline build with the comp strength and margins obviously moving in the right direction? And just wanted to get a sense from you on when you expect and your confidence that you'll see that inflection higher in the back part of the year and even as we move into 2025 and beyond. Thanks.

Yeah, thanks. We've got visibility of the pipeline through the remainder of this year through next year, and I feel really good about hitting the 175-plus number. Stores tend to be a lagging indicator of performance and demand. As you can expect, with profits going up, with order counts going up, we're becoming a more and more attractive proposition every day to our franchisees. But regardless of Q1, you should know before these results, the pipeline was clear on the 175 plus.

Thank you. And our next question comes from the line of David Tarantino from Baird. Your question, please.

Hi, good morning. Russell, I had a question related to one of the comp drivers that maybe gets underplayed. And that's the advertising approach. It seems like you made quite a big evolution in the advertising versus what you've done in the past in the first quarter and maybe before the first quarter with a lot more focus on the food and the value as opposed to some other topics. So I was just wondering if you could Give us a sense of how much of a cop driver you think that was, if it's even easy to separate that out from the others. Thanks.

Yeah, David, I'm really glad you noticed. The team, I think, has done a fantastic job. We brought a brand-new food photographer, food filmmaker, and the deliciousness on a Domino's ad. I mean, it's a different ad than it used to be. the talk value, the renowned value I talked about earlier. And that stuff breaks through. I have a lot of people I know saying, wow, it feels like Domino's is advertising a lot more this year than it ever did before. And the answer is not really. It's what's happening is what we're doing is breaking through more. And that's where you want to be. And I think when we talked about hunger for more, the The M and the R, the most delicious food and the renowned value, were going to be the two things we're going to lean into. So I appreciate you noticing that.

Thank you. And our next question comes from the line of Brian Harper from Morgan Stanley. Your question, please.

Yeah, thanks. Good morning. Maybe just on the the operational focus on dough. What was the nature of that and what's still planned for this year? Are those things that sort of have a cost benefit in your view or is it more just about kind of product consistency and service time?

Yeah, thanks. It really is about consistency and consistency begets repeat purchase. And so, you know, the way I think of it is We in the U.S., we sell about 1.5 million pizzas every day. We don't want to look at it that way. We want to look at we sell one pizza 1.5 million times. Every pizza that we make is a chance to delight a customer or disappoint a customer. And so the training we had last year was a little bit more focused on circle of operations technology, and you're seeing the results now in delivery times. The stuff we're doing this year, as you said, the first sprint was on the dough. Then we've got ingredients and baking. That's all about the consistency, and consistency really drives repeat purchase. So you get that right, plus you have the loyalty program on top of that. Then you have two things driving repeat purchase, and that's where we want to be. We think this can be offensive for us, an offensive move on consistency. Okay.

Thank you. Our next question comes from the line of Peter Saleh from BTIG. Your question, please.

Great. Thanks. I just wanted to ask about the U.S. pizza category in general. Russell, do you think it's taking share at this point in time? I think coming out of COVID, out of really 21, there was some pizza fatigue going on. That seems to have subsided. Just curious if you think the category in and of itself has grown faster than it had been in the past couple of years, or are you guys just taking a share with some of the self-help initiatives that you have in place? Thanks.

Yeah, I think we've returned to where we were, what our calling card was over time, which is that this is a category that is tremendous, and it's growing kind of in line with population. had always done is we've been what I call an equal opportunity share stealer. And frankly, we lost that last year, two years, and we're back. And so we're seeing those same dynamics, and these self-help initiatives are helping drive share in delivery and carry out. I mean, the carry out numbers are just tremendous. one of the things we always talk about is the incrementality of carryout. And so when we split a store, 80% of the carryout volume is incremental. And so if carryout is growing, growing big time, that is yet another reason, in addition to store profitability, why franchisees are going to want to open up stores. And so I think all this stuff is a cycle that's positive for us.

Thank you. And our next question comes from the line of John Tower from Citi. Your question, please. Great.

Thanks for taking the question. I'm curious. I wanted to come back to your comments earlier, Russell, regarding the loyalty program. I think you had mentioned in the U.S. that you were seeing some pretty good uptick from new lapsed users, light users. But I'm curious to hear about how existing loyalty members have responded to the program so far and all the changes that have taken place. And then separately, In terms of the consumer demand, obviously you've had a lot of heavy promotional windows during the fourth quarter and into the first quarter here. How has the consumer responded to the brand outside of those windows?

Got it. Well, first, on the loyalty program, I think it's safe to say that not only new customers but existing customers are really engaging in the program. If you're an existing customer and you had 50 points in your loyalty bank, Um, you woke up when we launched this new program and you were able to get two free items instead of zero. And so there are a lot of happy customers who are existing customers there. Um, when, when you talk about consumer demand, I mean, I, I, I love, I get this question a lot of, Hey guys, it seems like you're increasing your promotional cadence. We're really not there. They're just more impactful. Um, and I think that's why folks are talking about them more. Uh, but we've had a 52 week count promotional calendar. you know, for years and years and years. And the big difference now is just they're working better. They're working better because rather than just focus on price points, we're focused on things that, you know, break cultural tensions. I mean, you know, the carryout tips, everywhere you go, I'm sorry, you tip, we tip, everywhere you go today, you know, whether they're giving you extra service or not, folks are asking for tips. You get that screen up there. In fact, I think maybe after this call, you know, I'm expecting, John, you to ask me to tip you. And what we're doing, though, is we're using that talk value to get people to talk more about downloads because we're breaking that tension, and that's why it feels like we're doing more. But 52 weeks of promotions is what we've done for a long time.

And I'm going to add something to that, John, because I think when you look at the promotional windows and you talked about what's the cadence outside the promotional windows, it's very good. But why is it very good? It's because of the loyalty program. The activity that's actually generated through the loyalty program is really dispersing transactions and redemptions right through the quarter. And I think that just speaks to the strength of what we're doing with Renown Value and the loyalty program specific.

Yeah, that's a great point, Sandeep, which I don't like to admit when Sandeep makes great points, but this was a good one. You know, the other pieces in the renowned value that are different than what we did before is to get this value, you have to sign up for the loyalty program, right? You can get mix and match. You don't have to be a loyalty member. But to get the carryout tips, to get emergency pizza, to get tip for your delivery, you have to be part of the loyalty program. And so what these things are doing is they're working together versus working separately. And I think you just see the compounding effects of that.

Thank you. And our next question comes from the line of Jeffrey Bernstein from Barclays. Your question, please.

Great. Thank you very much. Just a question on the near-term comps for dominoes and the industry, I guess. On Domino's, I know you mentioned the second quarter comp below the 5-6 in the first quarter. I'm wondering whether that surprises you relative to plans at the start of the year. I would think that the ramp in Uber and loyalty and easier compares would more than offset the fate of emergency pizza. So just wondering whether that similarly surprises you. And, Russell, on the industry, you mentioned a slowing QSR category in terms of seemingly the macro. Just wondering would you have any decade plus of experience there. Does that surprise you? I would think QSR would be viewed as more defensive into a slowing macro, and yet perhaps we're seeing something otherwise. So question on dominoes and the broader macro. Thank you.

I'll ask Sandeep to talk about the near-term comps, and then I'll answer your question on transactions.

Yeah. So I think on the near-term comps in Q2 that we talked about on the call, really it's not surprising at all. I mean, this is pretty much in line with our plans. We knew that we'd had great success with the emergency pizza, and we were glad we did that because it actually acquired customers into the loyalty program. But we did see some lift, which I think will kind of normalize as we go into Q2. But to the point we've been making since the beginning of the year, we're expecting ramping and Uber to happen over the course of the year. So we expect to be slightly below our Q1 performance, which was very, very good. And we still think Q2 is going to be very, very good, but in line with what we expected.

Yeah, and I think on the QSR space, Jeff, what I was talking about was really more order count. I think there's just been pricing that's been taken in the category, and consumers are responding now. You're seeing it in the results. And what I'm excited about for us is the pricing we've taken is really in the rearview mirror. And so we can focus on driving value, profitable value, to both our customers and our franchisees. And, look, I'm sure there will be others in the industry who are also doing the same, but I think we'll be a little bit of an outlier there.

Yeah, and I just want to add one thing on this because I talked about it in the prepared remarks, and Russell referred it on smart pricing. The interesting thing about smart pricing is we took a lot of smart pricing in 22 when the market was highly inflationary. The smart pricing in 23 was almost taking no pricing. And that's really what actually drove that value differential that is now really showing up. The number of questions we got right through 23 on do you have pricing power, why are you not taking pricing, because everybody else is taking pricing, but we were really focused on two things. One is making sure customer value was maintained. Two, making sure that the flow through from a franchisee perspective had been restored, and that happened after the 22 pricing that we took. And so we just kept on the straight and narrow and we were really teeing up for what ended up happening in Q4 and Q1.

Yeah, I think one of the things we talked about before was consistency of product. If there are two things that we've got this tremendous e-commerce business, so we know we can tell on conversion when we do things right and we do things wrong. Product consistency is really important. The other thing is pricing consistency. People don't want whiplash. They want to get what they expect and And we took that in 2022, and now they're getting what they expect, and it's profitable for our franchisees, and we're seeing that in the numbers.

Thank you. And our next question comes from the line of Meredith Jensen from HSBC. Your question, please.

Yes, hi. On prior calls, I'd heard you all speak about the experience Domino's has had internationally with third-party delivery. And now that it's been rolled out here, I was just kind of wondering if you might speak a little bit about sort of maybe the consumer behavior differences that you're seeing or some other things that have come up even anecdotally about the differences there. Thanks.

Yeah, sure. I mean, really what we've seen so far is some of it's very in line with what we saw going in, which was these customers, as we said earlier, would be more single users. They'd be younger. They, especially on Uber, would be incremental to us. And Sandeep has talked about a few months into this, it looks like they're about 75% incremental. Two-thirds incremental. Oh, sorry, about two-thirds incremental. Yeah, sorry, about two-thirds incremental. And so the thing on the other side is just more the promotional nature of it. And the pricing and profit ends up being kind of what we thought, but how we're getting to it is just in a little bit of a different way. Anything to add?

No, that's great.

Thank you. And our next question. comes from the line of Alex Legle from Jefferies. Your question, please.

Okay, thanks.

Great to see everything coming together here. I had a question on the operations and the acceleration and delivery volumes seemingly just starting, and so far you're able to drive the speed improvements, but as the volumes ramp further, I guess it's more of these individual orders on 3P and perhaps more surges of demand at certain times. I mean, how much of your ability to keep up with the volumes and improve speed will require a step up in hiring drivers versus productivity and technology-driven improvements or other opportunities that you see out there?

Yeah, well, the nice thing about our business is it scales really, really well. And so, you know, I know you know this, but it's not like we have to add a driver every time we, you know, we add an order. And so what we're trying to do and what we have done with a lot of these back-of-house improvements is we've made these orders just more scalable, more leverageable. And so that's part of the process. But secondarily, as we talked about, driving for Domino's Pizza now is an attractive job. We're about to see a whole bunch of franchisees and, more importantly, future franchisees at our rally in order to – become a Domino's franchisee, you need to start as a driver or a pizza maker. And so with the success of the brand, what we're seeing is, you know, people attracted to both the driver job and the opportunity at Domino's.

Thank you. And our final question for today comes from the line of Jim Salera from Stevens. Your question, please.

Hi, guys. Thanks for squeezing us in.

Wanted to ask on the New York style pizza innovation, just as, you know, how that triangulates with some of the other promotions you guys have going on and just any color you might have on driving either new use or new consumption from people that are discovering Domino's on the third party apps or potentially, you know, newcomers to the loyalty program and how you can tie innovation into those new newer users.

Yeah, Jim, that's a great question. You know, New York is our first new product launch of the year. And one of the things that, you know, testing shows for us is this is a different customer. This is a customer who prefers a thinner, foldable pizza to the customer who really, you know, ingredient quality is important to them. And so we think bringing this into our portfolio is actually going to be attractive to folks who may be our pizza lovers, but our traditional hand toss may be a little bit too thick for them in crust type. And so it's not, this is, and I should have said this in the remarks, this is not an LTO for us. And so it's important to know when we launch products, most of the time, it's because we think they are permanent fixtures to our menu. The other nice thing about New York style, which I like, and of course we're promoting it through loyalty with points, like you said, is Our New York style is available in all three sizes, in medium, large, and a lot of cases extra large. But being part of a medium means that could be part of our 699 mix and match, and that was super important.

Thank you, Jim. 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, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. you Thank you. Thank you. Thank you. music music for standing by and welcome to Domino's Pizza's first quarter 2024 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 the session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like 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. Greg Lemicek, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today for our first quarter conference call. Today's call will begin with our Chief Executive Officer, Russell Wiener, followed by our Chief Financial Officer, Sandeep Reddy. The call will conclude with a Q&A session. The forward-looking statements in this morning's earnings release and 10-Q, 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 filings with the SEC. In addition, please refer to the 8K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also being recorded for replay via our website. 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 one question only. With that, I'd like to turn the call over to Russell.

Thanks, Greg, and good morning, everybody. Our Q1 results demonstrated that our Hungry for More strategy is delivering on its promise, driving more sales, more stores, and more profits. We drove strong comp performance in the U.S. that flowed through to the bottom line with double-digit profit growth. And our growth in the U.S. came through positive order counts across all income cohorts in both our carryout and delivery segments. We saw the largest growth in our lower income cohorts that are undoubtedly benefiting from the renowned value that we're offering. I'd like to highlight our first quarter results through the lens of our M-O-R-E, hungry for more pillars. As you know, M stands for most delicious food. We know we have the most delicious food in the industry and are focused on showcasing that with more mouthwatering food photography and all of our marketing and sales channels. We also ran a campaign that highlighted our pan pizza, a premium product that brought news to this crust type for the first time since 2014. And I'm excited to announce that our first product innovation of the year, New York style pizza launches on air today. The idea for New York style came from customers who prefer a thinner, more foldable crust than our traditional hand tossed. And we believe that this new crust style will drive incremental occasions. It will also drive deliciousness as the foldable crust lets us focus more on our incredible toppings, including a really unique blend of provolone cheese that comes on every New York style pizza. Additionally, this crust option will be available as part of our mix and match offer. And Domino's Rewards members can redeem 60 points for a free medium two-topping New York-style pizza as well. This is another example of how innovation is designed to drive value and more customers into our loyalty platform. The O in Hungry for More stands for operational excellence. This is how we'll deliver on our promise to have the most delicious food, by consistently driving a great experience with our product. As I shared on our last earnings call, in 2024, we're rolling out a new service program we're calling More Delicious Operations, a series of three product training sprints that focused on our dough, how we build and make our products, and how we cook them. In Q1, we embarked on our first sprint, which focused on our dough, and rolled this out across all 6,800-plus stores in the U.S. We continue to see benefits from our service initiatives and In Q1, we actually delivered more pizzas than we did in Q1 of last year at improved delivery times. I am just so proud of our operators. Our third hungry for war pillar is R for renowned value. I want to expand on what renowned value means to us at Domino's. It's not about just having the lowest price in the market. It's about providing value that's innovative and that's memorable. Renowned value breaks through the sea of stainless discounts that you see in the marketplace. Value is a buy one, get one free. Renowned value reinvents this mechanic and creates emergency pizza. Emergency pizza performed better than any buy one, get one free I've done in my career. It was a meaningful driver to our comps in both Q4 of 23 and in Q1. And it not only drove increased orders, but also the acquisition of members into our loyalty program. Domino's Rewards continues to perform extremely well and was the key driver of our strong U.S. comp performance. The program is delivering on our objectives. Active member growth rates are up significantly since the launch of our new program. From a percentage standpoint, our biggest increases are coming from new labs and light customers. So we're bringing these new customers into the fold. I'm particularly pleased with the increase in carryout customers made possible in part by our reduced $5 minimum spend for earning points. Once customers become members, they're redeeming more than ever before, and increases are being seen across all of our channels, delivery and carryout. Our new 20- and 40-point redemption tiers are doing exactly what we hoped. They're engaging more customers. These two tiers now combine for the majority of the redemptions in Domino's rewards. And the program has driven incremental profit dollars for franchisees. So customers are getting more and our franchisees have earned more profits. Truly a win-win. We believe Domino's rewards will continue to be a meaningful sales driver for us in 2024 and beyond. National promotions are another way we're driving renowned value. In Q1, we brought back our carryout special boost week for the first time since January 2020, and its performance exceeded our expectations. Clearly, customers want value, and we are driving it profitably for our franchisees. Now, as it relates to our promotional cadence in 2024, you can expect it to be consistent with what we did in 2019. As part of that, you can expect around six boost weeks. As a reminder, these Boost Weeks are a proven customer acquisition tool that drives both short and long-term benefits for our brand. And we're seeing the same commitment to providing renowned value internationally. Some of our best-performing markets are getting this right. As an example, our master franchisee in Mexico has run very successful Boost Week campaigns that have driven outstanding order and sales growth. While providing renowned value through our own channels is one part of our barbell strategy, tapping into the aggregator marketplace as the other. Our launch into the aggregator space remains on track to exit the year at 3% or more of sales coming through Uber Eats. Now that we're a quarter into our full launch, I want to share a few insights on what we're seeing. Incrementality has been in line with our expectations. In addition, we're seeing a higher percentage of single user transactions on Uber than we've seen on our own channels. Further, this channel is becoming more promotional. Customer responses to deals are stronger than to everyday low prices. As a result, we are continuing to work to fine-tune our marketing spend and our offers to ensure that we are effectively driving this channel. We remain focused on driving profitable transactions through Uber Eats while ensuring that the best values for our customers remain on our own channels. Everything we do at Domino's is enhanced by our best-in-class franchisees, the E in our Hungry for More strategy. We'll be hosting thousands of franchisees for our worldwide rally in May, where we plan to bring our Hungry for More strategy to life across our global system. I can't wait for that gathering as our franchisees are what makes Domino's so special. They were the inspiration behind Hungry for More. So to close, I couldn't be more excited about 2024 and beyond for Domino's Pizza. Our first quarter results clearly show that our strategy is resonating with customers. This gives me great confidence that we can deliver against our short and long-term hungry for more goals and drive significant value creation for our shareholders. With that, I'll turn things over to Sandeep.

Thank you, Russell, and good morning, everyone. Our first quarter financial results demonstrate how powerful our model can be when we drive profitable transaction growth. The smart pricing we took in 2022 and 2023 has kept us at a great value to our customers in 2024 while being profitable for our franchisees. This has resulted in profit dollar growth versus 2023 for our U.S. franchisees so far this year. We remain on track to achieve our target of $170,000 average U.S. franchise store profit for 2024. Excluding the impact of foreign currency, global retail sales grew 7.3% due to positive U.S. and international comps and global net store growth. U.S. retail sales increased 7.8% and international retail sales, excluding the impact of foreign currency, grew 6.8%. During Q1, same-store sales for the U.S. saw a meaningful increase of 5.6%. Our strong comps in the quarter for carryout of 9.5% and delivery of 2.9% were driven primarily by transaction growth. As Russell mentioned in his remarks, the increase in U.S. same-store sales was driven by transaction growth from our new loyalty program. This was inclusive of a continued benefit from emergency pizza and results that exceeded our expectations from the carryout special boost week that we ran. We also benefited from 0.9% of pricing and a 1.4% sales mix from Uber. These tailwinds were partially offset by a higher carryout mix, which carries a lower ticket than delivery. We are still evaluating how much of the 1.4% sales mix coming from Uber is incremental, but everything we have seen so far would indicate that it's in line with our approximately two-thirds estimate. Shifting to unit count, we added 20 net new stores in the U.S. in line with our expectations, bringing our U.S. system store count to 6874. Shifting to international, where results were generally in line with our expectations, Same-store sales, excluding foreign currency impact, increased 0.9% in the first quarter. Store counts increased by 144 net stores, which is an increase over the 106 we opened in Q1 of 2023. Income from operations increased 19.4% in Q1, excluding the negative impact of foreign currency of $1.4 million. This increase was primarily due to higher global franchise royalty revenues resulting from global retail sales growth of 7.3%, as well as higher supply chain gross margins due to procurement productivity, a decrease in the cost of our food basket, and slightly lower delivery cost. I also wanted to call out that our margin rate benefited by about 0.3% in Q1, from the tech fee being at 39.5 cents and the lower ad fund contribution rate of 5.75%. Now turning to our outlook, which remains in line with what we previously shared. Seven percent or more global retail sales growth, excluding the impact of foreign currency, and we continue to expect the following. 2024 US comp to be about the 3% plus long term guide as a result of our expected catalyst in Uber and loyalty for the full year and we expect comps to be 3% or more in each quarter for the remainder of the year. Specific to Q2, we expect them to be slightly below Q1 on a one year basis as the emergency pizza promotion rolls off, partially offset by a ramp in Uber. You can expect a similar national promotions cadence to what we ran in Q1 in terms of our activity, inclusive of the April carryout special boost week that is now behind us. Second, sales for Uber to increase throughout the year as marketing and awareness increases, and we are expecting to exit the year with an overall sales mix of 3% or more. International comps to remain soft in the first half of the year due to a continuation of the trends we saw at the end of last year, but expect them to accelerate to a 3% or more long-term guidance in the back half of the year. Now shifting to net stores where we continue to expect 1,100 or more, which will be driven by 175 in the U.S. and 925 in international. We continue to expect an 8% or more year over year increase in operating income, excluding the impact of foreign currency. To highlight some of the components which remain unchanged, expect operating income margins to be relatively flat compared to 2023. As a reminder, we are not expecting to see cost leverage in 2024 due to investments we are making in consumer technology, store technology, and supply chain capacity to support future sales growth in the U.S. We are expecting our G&A as a percentage of retail sales to be approximately 2.4%. This is inclusive of approximately $9 million in timing of G&A spend in Q2, driven by our worldwide rally, which takes place every two years. We are expecting supply chain margins to be roughly flat compared to the prior year. incorporating an inflationary food basket for the rest of the year with a full year range of 1% to 3%. Should our food basket pricing for the year move to the lower end of our expectations, we may see modest leverage in operating and supply chain margins. Thank you. We will now open the line for questions.

Certainly. One moment for our first question. Our first question comes from the line of Andrew Charles from TD Cowen. Your question, please.

Great. Thank you.

Question first on same-store sales. Just, you know, 1Q is 5.6%, obviously a very impressive number. Should we think of it as the high watermark for 2024 U.S. same-store sales? You talked about how 2Q will sequentially moderate partially, given the benefit of emergency pizza rolls off while Uber eats, you know, picks up. But Just curious, do you think this performance, though, is broadly sustaining as we think about the remainder of 2024?

Morning, Andrew. Thanks for the call. Part of the reasoning for putting out 3% or more as far as we're hungry for more algorithm is that 3% for us is the floor, but we're going to do everything we can to beat that and deliver more every single quarter. And so I'm not going to get into forward-looking on the quarters, but what I will say that I really liked about this quarter is, you know, there are two things I look at. I look at results and I look at repeatability. And the results, like you said, were strong. What I then look at is say, okay, were the components that drove those results, are those repeatable? And when you think about our Hungry for More platform, we had – Product news in first quarter. We've got actually our first new product of the year in second quarter. We talk about operational excellence. We delivered more pizza in Q1 than we did Q1 of last year at a better delivery time. Our renowned value, you know, we went the second half of emergency pizza in Q1. We had a carryout boost week, and you probably read we just put out a new renowned value promotion called UTEP-WETEP. And so, as Sandeep said earlier about the smart pricing we took, that's part of what's driving the consistent order count increase across every segment and consumer of our business. And so, while I can't get into the specifics, what I can tell you is the repeatability of the MORRE formula is what we're going to be leaning into.

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

Great. Thanks, guys, and congrats on the quarter. Sandeep, wondering if you could talk a little bit more about supply chain margin and sort of the overall operating margin strength that you saw in the quarter, and perhaps anything more on the latest thoughts on full year. You gave color on the quarter. You just talked about reiterating your thoughts for the full year. Anything more if you could kind of break down that procurement benefit, perhaps, you know, exactly maybe what you saw deflation in the quarter itself for the supply chain and you know, and anything on that go forward procurement, et cetera, as we think about the full year. Thank you.

Thanks, Dennis. And I think that's a great question because if you really go back to our fourth quarter call, Dennis, we talked about our expectations for the first quarter to be really margin improvement and margin expansion, which we did see. And directionally, it was slightly more, and I'll get to that in a second. But I think overall, when we look at the full year, our expectations really haven't changed. We were expecting to see procurement productivity benefits for the whole year, and we were expecting to make investments that offset the procurement productivity. What we did see specifically in Q1 is that while we got the procurement productivity, some of the investments we applied to make in supply chain capacity really pushed out into later in the year. So Q2 to Q4 gets a little bit more pressured as a result of it, but the overall year really doesn't change. And so directionally, I think that's the way to think about supply chain margins and where we expect to take that. Now, when I talk about the full year expectations, included in that was a timing factor on G&A specific to Q2 because we have our worldwide rally. We'd already messaged on the last call that we would expect to see some compression. but we've quantified it a little bit for you to help you with your modeling. And other than that, the back half really remains relatively similar to what we said in the fourth quarter call. So broadly, not a very different picture on the P&L than what we saw back in February.

Thank you. And our next question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Thanks. Good morning. Your same store sales in the U.S. accelerated in the first quarter about 300 basis points from 4Q. Can you just talk about how much of that acceleration was traffic? Was all the acceleration traffic? And it sounds like one of the biggest drivers of the strong comps are the rewards program. That's what you seem to be citing the most. And I realize 2Q may be a little lower than 1Q, but in general, can you just unpack what why you believe the rewards program and all the improvements that you've made there can be an ongoing driver for sales trends, not just even in 2024, but how it can build on itself in 2025. Thanks.

Sure. Morning, Brian. The Q1 results, I think you nailed it. What makes me so proud of the team is that they were order count driven. They were all account driven overall. They were all account driven on our delivery business, on our carryout business, across the different segments we've got. And I think that's something special in general, let alone, you know, given the current environment, you know, for QSR. Rewards certainly was a big part of it and will be a tailwind for us as we continue this year and for the next few years. I mean, we saw this the first time we launched a loyalty program. It was time to reinvent it, and we did. The nice thing about the reinvented program is it's driving activity with folks that maybe we didn't engage as much in the old program. And so the carryout customer engagement is much higher than it was before. Light users are much higher than they were before. And so that gives you a little bit of a sense of where that growth is coming from, and I don't expect the tailwind from loyalty to go away anytime soon.

Thank you. And our next question comes from the line of Sarah Senator from Bank of America. Your question, please.

Oh, thank you. I wanted to ask about the promotional environment. I guess a couple of things. One is, you know, you mentioned that 3P is more promotional. So I think the appeal for pizza had been that it was more margin neutral or maybe even accretive. because of maybe the absence of deals. So I'm just curious if that's still going to be the case. And then as you think about the promotional cadence consistent with 2019, I think the implication was that promotional intensity is not particularly high relative to history, but 2019 was a bit of a slower comp year for Domino's. And so I just wanted to kind of understand how you're thinking about the implications on teamster sales from 2019. promotional intensity and the potential for competitors to match. Thank you.

Thanks, Sarah. I'll try to get to each piece of that, unpack it a little bit. I think what we talked about that we're seeing on 3P is definitely a high-low value-driven business, and what we're doing is we're kind of adjusting accordingly. The important thing to remember is the best prices for consumers, and our loyalty program are always going to be on our own channels. But it's interesting, though, when you look at what's going on in 3P, I think that really exacerbates the difference between what we're doing on our own channels. So there it's price. It's, you know, it's this percent off. We're giving this away free, up and down. What we're doing out there, which is why I think, you know, it feels like, and you said this, you know, it feels like there are more promotions out there. It's the difference between value and renowned value. I talk to the team a lot. When we think about what renowned value means, it means bringing the talk to value. So it's talk value versus value. And so the promotions may feel that we're doing out there may be feeling like the activity has increased. I think what has increased is just the power of them. And like I said, a BOGO versus an emergency pizza or a $3 bounce back for purchase in a week versus you tip, we tip. They just feel more powerful because the talk value is there. And I think that's a great juxtaposition, understanding how we're going to break out from both 3P and the rest of QSR with the promotions that we do.

And I'm just going to add something, Sarah, because I think sometimes when we talk about promotion, the subject is what's happening to profitability. What is great for us is our profit dollar growth continues to grow as we expected it to. We're on track to the $170,000 or more for the year. And we're doing exactly what we hoped for. And I think on the last call, you asked about profit dollar growth versus margin expansion. Even on the corporate stores, we saw very healthy profit dollar growth. And we did see a bit of margin expansion, but we're not solving for margin expansion. for-profit dollar growth. And I think what we're seeing is very healthy the way all this explains with the P&Os.

Thank you. And our next question comes from the line of David Palmer from Evercore ISI.

Thanks. Good morning. I was hoping maybe we could drill down into just the labor situation for Domino's as you see it. across not just your company stores and supply chain, but also the franchisees. Any metrics you can share that could speak to how labor availability is impacting the business, both sales and margins? Thanks.

Maybe I'll talk big picture, and Sandeep, you can talk on the margin level. I mean, David, the biggest indicator to me about both labor availability and, frankly, the improvements that we're driving operationally is the fact that we delivered more orders in Q1 than we did last year at better delivery times. And so if labor was an issue, you know, we wouldn't be able to do that. And obviously the flow through to profitability, Sandeep spoke about that a little bit. And so that to me should be a takeaway that is working right now.

Yeah, no, I think, and Russell's exactly right. I think accessing labor has been not a problem at all as we've moved through the year. What I do think is reality, and we talked about this on the last call as well, is there is some wage pressure in the year with some minimum wage increases, statutory increases that will impact the franchisee P&L and even our corporate store P&Ls. But I think specifically California is a good example, right, where we had the AB 1228 wage increases. So we essentially would have had to – we had to increase our prices in California to to address the wage increases that we saw over there. Our price increase is probably in the high single digits, but we will modify it if we need to to actually adjust to what the competitors are doing. But overall, we're solving for profit dollar growth. That's what we are always solving for. And we are looking to protect that franchisee profitability in California and throughout the system. And so margin percentages are good to look at and maintain good flow through, but we're solving for dollar growth.

The ex-marketer in me needs to follow up with that. There are two profitabilities that we care about at Domino's Pizza because we know if we balance those, our profit follows. And certainly the franchisee profitability is one of them. But the other is the profitability for every American out there, every pizza-buying citizen kind of all over the world. And that is where I think our record of smart pricing, which has been, call it 15 years of doing so, has proved out. I mean, we had the 599 mix and match offer for 12 years. Profits went up, order count went up. We took smart pricing, and smart pricing is based on lots of analytics around what the competition's doing, what's going on in consumers' wallets. And we took pricing, and that's pretty much the majority, at least promotional pricing, we've taken already. And you're seeing how that's translated into order count growth. And the way I think about it is every year, should the analytics say we can stay with 699, as an example, we get more and more in value. And so when you balance consumer profitability and franchisee profitability, you get Q1.

Thank you. And our next question comes from the line of Laura Silberman from Deutsche Bank. Your question, please.

Thanks so much. Congrats on the quarter. You talked about the strong performance across income cohorts. Can you expand on what you're seeing with the consumer and whether there are any observable differences in how consumers across cohorts are using the brand, and then any changes in consumer behavior signs of tree down within each channel. Thank you.

Sure. You know, we talked, I think, Laura, in Q4, even maybe in Q3 a little bit about what we thought was coming in 2024, and that is coming to fruition. You know, traffic is hard to come by. Orders are hard to come by in QSR. I think you're going to see that continue throughout the year. I don't think that's going to be the case you know, at Domino's because of what we talked about before. And the traffic doesn't just come. It becomes, like I said before, results are important if they're repeatable, and they're repeatable if there's a formula. And essentially, you know, our pricing is stable and right. Our promotional contacts or promotions have come back. Carryout Special, we brought that back. New products. I think the key thing, though, when you're talking about why is every income cohort engaging in Domino's with positive order count is a big piece of that is the new loyalty program. I mean, we specifically designed it to tap into consumers that we hadn't done before. So reducing the purchase from $10 to $5, well, all of a sudden, this is a much more compelling program for carryout customers and just customers in general who, you know, don't want to spend a lot of money at five bucks, they get points. And the other thing is the, uh, 20 and 40 point levels, adding those, those redemption levels to our loyalty program has been key in driving frequency among, uh, kind of lower income and lower frequency customers. The amazing thing to me, if you think about the old program, which was only 60 points for a medium two topping pizza, our new program, the 20-point and the 40-point level actually combined are higher than the 60-point level. And so that gives you a sense of why we're breaking through in every cohort across delivery and carryout.

Thank you. And our next question comes from the line of Danilo Gargiulo from Bernstein. Your question, please.

Thank you.

I'm going to sit in the quarter. I was wondering if you can elaborate on what is causing international markets to have a little bit more compressed growth this quarter, which was in line with your previous expectations. And particularly, if you can elaborate, if you have been able to estimate how the pressure from the tension in the Middle East are impacting you specifically. And more broadly, if you can take any lessons from the domestic markets that are growing so fast and you can transfer them over to the international market. Thank you.

Thanks. Well, you both asked and answered the question, so great job. Yeah, look, Q1 comps were in line with our expectations. We continue to see pressure in Europe and the Middle East. Sandeep had talked about this last time. The Middle East represents a relatively small percentage, less than 3% of our operating income. But what makes us continue to expect comps to return to our 3% algorithm in the back half is exactly what you were saying. We, we, we see key markets starting to, um, bring to life the hungry for more strategy. So if you look at, uh, Australia, for example, they launched a campaign that literally is called more in, uh, in Q4 that really is romances products and they've had, uh, delicious new products that have launched as, as part of that, their business has responded, uh, accordingly. You know, we looked at Mexico, I talked about them a little bit. They just reported, you know, Q1 of 12.2%. They launched Domino's Mania, which is a boost week. And so what we're starting to see is as folks follow this playbook, it's starting to work internationally. And our job, and that's part of why we have this rally coming up, is to continue to share these best practices and And that's why, you know, at the back half of the year, we think we'll return to the three plus algorithm.

Thank you. And our next question comes from the line of Gregory Frankfurt from Guggenheim. Your question, please.

Hey, thanks for the question. Russell, you made a comment about just the third party channel having more single item orders. And I think the reason for why you expected sales to build as you move through the year, was because you were still figuring out how to promote on the platform. I'm curious, what do you think's been working and what do you think still needs to be tweaked to kind of get you to where you want to be as you exit the year from a mixed perspective in terms of pricing and promotional structure?

Yeah, Greg, like I said, things are a little bit different on the platform than they were last year. The competition, the promotional competition is just up, but We're still sticking to our strategy there of best pricing online at Domino's. It's just more about how we manage it. So for example, your base price could be higher if you want to discount a little bit more. I mean, all of that stuff is available to us. And so we feel good about kind of the way our team is handling that. We're promoting on the Uber channel. Uber is promoting us on the Uber channel. Sandeep talked about we're at 1.4% of sales, which is up from 0.4% in Q4. And all of that makes me really confident that we're going to get to that 3% exit rate for the year.

Thank you. And our next question comes from the line of John Ivanco from JPMorgan. Your question, please.

Hi, thank you. In the context of third-party delivery maybe being a little bit more promotional, I was hoping if you could put that in the context of of your own delivery fee. We've actually seen some stores where it can be as high as $7.99. I think that's a New York example, but it's still an example. How are you feeling about the current structure of the relatively fixed delivery fee, no matter how much a customer orders, if there's any opportunity to kind of look at that over time? And when I think consumers increasingly look at the total landed cost of that delivery, you know, if you feel the overall algorithm is still in the right place. And obviously, I understand orders being up year over year might just simply answer that question, but just wanted to get your thought on just delivery fee overall in terms of consumers' value perception. Thank you.

Yeah, thanks, John. You know, we do price scraping on a, I think, either weekly or biweekly basis on delivery fee. And so what's important to understand is the recommendations to our franchisees are based on the competitors that are out there. Kind of the ones that have stores that are more direct competitors, whose pricing is probably a little bit lower than when people buy things on the aggregators. You're right, though, on aggregators so that people may sign up for programs where delivery may be reduced cost or free. But at the end of the day, particularly our customers, looking at exactly what you said, They probably don't call it total landed cost. They just call it, is it a bargain? Is it a value? And as long as we're doing that, we're aligning competitively with the local competition through our pricing there, and we've got best pricing on dominoes.com. That's the balance that we're looking for.

Thank you. And our next question comes from the line of Chris O'Connell. from Stiefel. Your question, please.

Yeah, thanks. Good morning. Russell, you mentioned the company seeing more individual orders on Uber Eats channel, and I was just wondering, does this create an opportunity to be more aggressive in promoting non-pizza items on the channel and maybe even attempt to drive sales during the lunch day part? And also, does the company share a voice on the platform right now among the pizza competitors? Is that similar to what we might see outside of the channel?

Chris, on that second one on share a voice inside versus outside the channel, I'll have to get back to you on that one. That's not something that I know off the top of my head. As far as what it is that we sell on Domino's, we have been here a long time, and I've seen us promote just pizza on media, and I've seen us promote just our individual items like sandwiches or pasta. And really the magic for us, the big sales becomes when – I've used this before, this idea of pizza plus, when you offer both. And that's really what mix and match is all about. And so what we don't want to do is we don't want to slow down momentum in what's really working through experiments in other areas. We have looked at lunch before. We've got a nice lunch business, but that business is not individual users. And so I think what this allows us to do – is tap into individual users who, frankly, are willing to spend a lot more money on a per-person basis than they would through us. And then once they're part of Domino's, obviously, they've got the ability to then go back and buy those items and get loyalty points for it and all that. So that's probably the better way to think about it is we're at our best when we promote our entire menu.

Thank you. And our next question. comes from the line of Andrew Stilzik from BMO Capital Markets. Your question, please. Hey, good morning. Thanks for taking the question.

I wanted to ask about the U.S. store growth pipeline. The first half of the year, I know, is supposed to be roughly flat year over year, and it seems like it's tracking there. But how are you seeing that pipeline build with the comp strength and margins obviously moving in the right direction? And just wanted to get a sense from you on that. when you expect and your confidence that you'll see that inflection higher in the back part of the year and even as we move into 2025 and beyond. Thanks.

Yeah, thanks. We've got visibility of the pipeline through the remainder of this year through next year, and I feel really good about hitting the 175-plus number. Stores tend to be a lagging indicator of performance, and as you can expect with profits going up, with order counts going up, we're becoming a more and more attractive proposition every day to our franchisees. But regardless of Q1, you should know before these results, the pipeline was clear on the 175 plus.

Thank you. And our next question comes from the line of David Tarantino from Baird. Your question, please. Hi.

Good morning. Russell, I had a question related to to one of the comp drivers that maybe gets underplayed, and that's the advertising approach. It seems like you made quite a big evolution in the advertising versus what you've done in the past in the first quarter, and maybe before the first quarter, with a lot more focus on the food and the value as opposed to some other topics. So I was just wondering if you could Give us a sense of how much of a cop driver you think that was, if it's even easy to separate that out from the others. Thanks.

Yeah, David, I'm really glad you noticed. The team, I think, has done a fantastic job. We brought a brand-new food photographer, food filmmaker, and the deliciousness on a Domino's ad. I mean, it's a different ad than it used to be. And you take that and you combine that with, the talk value, the renowned value I talked about earlier. And that stuff breaks through. I have a lot of people I know saying, wow, it feels like Domino's is advertising a lot more this year than it ever did before. And the answer is not really. What's happening is what we're doing is breaking through more. And that's where you want to be. And I think when we talked about hunger for more, The M and the R, the most delicious food and the renowned value, were going to be the two things we're going to lean into. So I appreciate you noticing that.

Thank you. And our next question comes from the line of Brian Harper from Morgan Stanley. Your question, please.

Yeah, thanks. Good morning. Maybe just on the – the operational focus on dough. What was the nature of that and what's still planned for this year? Are those things that sort of have a cost benefit in your view or is it more just about kind of product consistency and service time?

Yeah, thanks. It really is about consistency and consistency begets repeat purchase. And so, you know, the way I think of it is We in the U.S., we sell about 1.5 million pizzas every day. We don't want to look at it that way. We want to look at we sell one pizza 1.5 million times. Every pizza that we make is a chance to delight a customer or disappoint a customer. And so the training we had last year was a little bit more focused on circle of operations technology, and you're seeing the results now in delivery times. The stuff we're doing this year, as you said, the first sprint was on the dough, then we've got ingredients and baking. That's all about the consistency, and consistency really drives repeat purchase. So you get that right, plus you have the loyalty program on top of that, then you have two things driving repeat purchase, and that's where we want to be. We think this can be offensive for us, an offensive move on consistency. Okay.

Thank you. Our next question comes from the line of Peter Saleh from BTIG. Your question, please.

Great. Thanks. I just wanted to ask about the U.S. pizza category in general. Russell, do you think it's taking share at this point in time? I think coming out of COVID, out of really 21, there was some pizza fatigue going on. That seems to have subsided. Just curious if you think the category in and of itself has grown faster than it had been in the past couple of years, or are you guys just taking a share with some of the self-help initiatives that you have in place? Thanks.

Yeah, I think we've returned to where we were, what our calling card was over time, which is that this is a category that is tremendous, and it's growing kind of in line with population. had always done is we've been what I call an equal opportunity share stealer. And, you know, frankly, we lost that, you know, last year, two years, and we're back. And so we're seeing those same dynamics and these self-help initiatives are helping drive share in delivery and carry out. I mean, the carry out numbers are just tremendous and, you know, one of the things we always talk about is the incrementality of carryout. And so when we split a store, 80% of the carryout volume is incremental. And so if carryout is growing, growing big time, that is yet another reason, in addition to store profitability, why franchisees are going to want to open up stores. And so I think all this stuff is a cycle that's positive for us.

Thank you. And our next question comes from the line of John Tower from Citi. Your question, please. Great.

Thanks for taking the question. I'm curious. I wanted to come back to your comments earlier, Russell, regarding the loyalty program. I think you had mentioned in the U.S. that you're seeing some pretty good uptick from new lapsed users, light users, but I'm curious to hear about how existing loyalty members have responded to the program so far and all the changes that have taken place. And then separately, In terms of the consumer demand, obviously you've had a lot of heavy promotional windows during the fourth quarter and into the first quarter here. How has the consumer responded to the brand outside of those windows?

Got it. Well, first, on the loyalty program, I think it's safe to say that not only new customers but existing customers are really engaging in the program. If you're an existing customer and you had 50 points in your loyalty bank, Um, you woke up when we launched this new program and you were able to get two free items instead of zero. And so there are a lot of happy customers who are existing customers there. Um, when, when you talk about consumer demand, I mean, I, I, I love, I get this question a lot of, Hey guys, it seems like you're increasing your promotional cadence. We're really not there. They're just more impactful. Um, and I think that's why folks are talking about them more. Uh, but we've had a 52 week count promotional calendar. you know, for years and years and years. And the big difference now is just they're working better. They're working better because rather than just focus on price points, we're focused on things that, you know, break cultural tensions. I mean, you know, the carryout tips everywhere you go. I'm sorry, you tip, we tip everywhere you go today, you know, whether they're giving you extra service or not. Folks are asking for tips, so you get that screen up there. In fact, I think maybe after this call, you know, I'm expecting, John, you to ask me to tip you. And what we're doing, though, is we're using that talk value to get people to talk more about Domino's because we're breaking that tension, and that's why it feels like we're doing more. But 52 weeks of promotions is what we've done for a long time.

I'm going to add something to that, John, because I think when you look at the promotional windows and you talked about what's the cadence outside the promotional windows, it's very good. But why is it very good? It's because of the loyalty program. The activity that's actually generated through the loyalty program is really dispersing transactions and redemptions right through the quarter. And I think that just speaks to the strength of what we're doing with Renown Value and the loyalty programs this year.

Yeah, that's a great point, Sandeep, which I don't like to admit when Sandeep makes great points, but this was a good one. You know, the other pieces in the renowned value that are different than what we did before is to get this value, you have to sign up for the loyalty program, right? You can get mix and match. You don't have to be a loyalty member. But to get the carryout tips, to get emergency pizza, to get tip for your delivery, you have to be part of the loyalty program. And so what these things are doing is they're working together versus working separately. And I think you just see the compounding effects of that.

Thank you. And our next question comes from the line of Jeffrey Bernstein from Barclays. Your question, please.

Great. Thank you very much. Just a question on the near-term comps, the dominoes, and the industry, I guess. On Domino's, I know you mentioned the second quarter comp below the 5-6 in the first quarter. I'm wondering whether that surprises you relative to plans at the start of the year. I would think that the ramp in Uber and loyalty and easier compares would more than offset the fate of emergency pizza. So just wondering whether that similarly surprises you. And, Russell, on the industry, you mentioned a slowing QSR category in terms of seemingly the macro. Just wondering would you have any decade plus of experience there. Does that surprise you? I would think QSR would be viewed as more defensive into a slowing macro, and yet perhaps we're seeing something otherwise. So just a question on dominoes and the broader macro. Thank you.

I'll ask Sandeep to talk about the near-term comps, and then I'll answer your question on transactions.

Yeah. So I think on the near-term comps in Q2 that we talked about on the call, really it's not as surprising as at all. I mean, this is pretty much in line with our plans. We knew that we'd had great success with the emergency pizza, and we were glad we did that because it actually acquired customers into the loyalty program. But we did see some lift, which I think will kind of normalize as we go into Q2. But to the point we've been making since the beginning of the year, we're expecting ramping and Uber to happen over the course of the year. So we expect to be slightly below our Q1 performance, which was very, very good. And we still think Q2 is going to be very, very good, but in line with what we expected.

Yeah, and I think on the QSR space, Jeff, what I was talking about was really more order count. I think there's just been pricing that's been taken in the category, and consumers are responding now. You're seeing it in the results. And what I'm excited about for us is the pricing we've taken is really in the rearview mirror. And so we can focus on driving value, profitable value, to both our customers and our franchisees. And, look, I'm sure there will be others in the industry who are also doing the same, but I think we'll be a little bit of an outlier there.

Yeah, and I just want to add one thing on this because I talked about it in the prepared remarks and Russell referred it on smart pricing. The interesting thing about smart pricing is we took a lot of smart pricing in 22 when the market was highly inflationary. The smart pricing in 23 was almost taking no pricing. And that's really what actually drove that value differential that is now really showing up. The number of questions we got right through 23 on do you have pricing power, why are you not taking pricing, because everybody else is taking pricing, but we were really focused on two things. One is making sure customer value was maintained. Two, making sure that the flow through from a franchisee perspective had been restored, and that happened after the 22 pricing that we took. And so we just kept on the straight and narrow and we were really teeing up for what ended up happening in Q4 and Q1.

Yeah, I think one of the things we talked about before was consistency of product. If there are two things that we've got this tremendous e-commerce business, so we know we can tell on conversion when we do things right and we do things wrong. Product consistency is really important. The other thing is pricing consistency. People don't want whiplash. They want to get what they expect and And we took that in 2022, and now they're getting what they expect, and it's profitable for our franchisees, and we're seeing that in the numbers.

Thank you. And our next question comes from the line of Meredith Jensen from HSBC. Your question, please.

Yes, hi. On prior calls, I'd heard you all speak about the experience Domino's has had internationally with third-party delivery. And now that it's been rolled out here, I was just kind of wondering if you might speak a little bit about sort of maybe the consumer behavior differences that you're seeing or some other things that have come up even anecdotally about the differences there. Thanks.

Yeah, sure. I mean, really what we've seen so far is some of it's very in line with what we saw going in, which was these customers, as we said earlier, would be more single users. They'd be younger. They, especially on Uber, would be incremental to us. And Sandeep has talked about a few months into this, it looks like they're about 75% incremental. Two-thirds incremental. Oh, sorry, about two-thirds incremental. Yeah, sorry. About two-thirds incremental. And so the thing on the other side is just more the promotional nature of it. And the pricing and profit ends up being kind of what we thought, but how we're getting to it is just in a little bit of a different way. Anything to add?

No, that's great.

Thank you. And our next question. comes from the line of Alex Legle from Jefferies. Your question, please.

Okay, thanks.

Great to see everything coming together here. I had a question on the operations and the acceleration and delivery volumes seemingly just starting, and so far you're able to drive the speed improvements, but as the volumes ramp further, I guess it's more of these individual orders on 3P and perhaps more surges of demand at certain times. I mean, how much of your ability to keep up with the volumes and improve speed will require a step up in hiring drivers versus productivity and technology-driven improvements or other opportunities that you see out there.

Yeah, well, the nice thing about our business is it scales really, really well. And so, you know, I know you know this, but it's not like we have to add a driver every time we add an order. And so what we're trying to do and what we have done with a lot of these back-of-house improvements is we've made these orders just more scalable, more leverageable. And so that's part of the process. But secondarily, as we talked about, driving for Domino's Pizza now is an attractive job. We're about to see a whole bunch of franchisees and, more importantly, future franchisees at our rally in order to – become a Domino's franchisee, you need to start as a driver or a pizza maker. And so with the success of the brand, what we're seeing is, you know, people attracted to both the driver job and the opportunity at Domino's.

Thank you. And our final question for today comes from the line of Jim Salera from Stevens. Your question, please.

Hi, guys. Thanks for squeezing us in.

Wanted to ask on the New York style pizza innovation, just as, you know, how that triangulates with some of the other promotions you guys have going on and just any color you might have on driving either new use or new consumption from people that are discovering dominoes on the third party apps or potentially, you know, newcomers to the loyalty program and how you can tie innovation into those new newer users.

Yeah, Jim, that's a great question. You know, New York is our first new product launch of the year. And one of the things that, you know, testing shows for us is this is a different customer. This is a customer who prefers a thinner, foldable pizza. This is a customer who really, you know, ingredient quality is important to them. And so we think bringing this into our portfolio is actually going to be attractive to folks who may be our pizza lovers, but our traditional hand toss may be a little bit too thick for them in crust type. And so it's not, this is, and I should have said this in the remarks, this is not an LTO for us. And so it's important to know when we launch products, most of the time, it's because we think they are permanent fixtures to our menu. The other nice thing about New York style, which I like, and of course we're promoting it through loyalty with points, like you said, is Our New York style is available in all three sizes, in medium, large, and a lot of cases extra large. But being part of a medium means that could be part of our 699 mix and match, and that was super important.

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