Domino's Pizza Inc

Thank you for standing by and welcome to Domino's Pizza's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. 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, Greg Lemicek, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today for our second 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 10Q are 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 FCC. 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 team drove strong results in the second quarter. In the U.S., both our delivery and carryout businesses were positive, and we drove meaningful market share gains. In international, we continue to grow despite a challenging macro environment. It's clear that our Hungry for More strategic pillars are working together to deliver more sales, more stores, and more profits. I'd like to highlight some of the initiatives that helped us drive these results. The M in Hungry for More stands for Most Delicious Food. An important way to drive deliciousness is through new products. Late in the first quarter, we added one of the biggest new menu items in our history, Parmesan stuffed crust pizza. This launch has gone extremely well and has met the high expectations that we had for it on every level. It's delivering incremental new customers to Domino's and a high mix that has been in line with our projections. Most importantly, our teams are executing this more complex product very well. This is proof that the training investments we made ahead of this launch paid off. In fact, customer praise for this product has been significantly higher than any of our recent product launches. Customers love Parmesan stuffed crust. I want to thank our franchisees and our operations team for their continued efforts to achieve operational excellence around this highly complex product. This is a point of differentiation for our brand. The early read shows that the addition of stuffed crust should be a market share catalyst for us over time, as this was a big reason why Domino's customers would go elsewhere in the past. The next time we look for more pillar I'd like to highlight is renowned value, which has been a key strength for Domino's. We're driving renowned value through national promotions, Domino's rewards, and by growing on aggregator platform. Domino's Rewards was a tailwind to our accomplishment quarter, particularly in the carryout business. You'll recall that growing carryout users was one of the primary reasons we redesigned the loyalty program. Active users continue to grow, and I expect Domino's Rewards to be a multi-year sales driver. We have a strong slate of initiatives ready to go for the rest of the year, inclusive of our Best Deal Ever promotion, which is currently running through early August. We will continue to give customers what they want, which is more value, in an environment where they remain pressured. The other part of our renowned value barbell strategy is tapping into the aggregator marketplace for pizza delivery. We recently completed our national rollout with DoorDash, the largest aggregator in the US. This rollout went extremely well as we were able to apply learnings from our prior launch with Uber. We will now begin marketing on the platform with investments coming from both sides. The expectation is that our sales on DoorDash will build as awareness and marketing increases. We continue to expect this to be a meaningful driver to our US comp in the back half of the year. Everything we do at Domino's is enhanced by our best-in-class franchisees. You've often heard us talk about how our franchisees are the secret sauce to our success, and this continues to be the case. In the second quarter, we re-franchised 36 company-owned stores in Maryland, to a new franchisee that's not so new to Domino's. In fact, he's been a part of the Domino's system for more than two decades. We continuously assess opportunities to strengthen the brand's position for long-term success, whether that means expanding into new markets or transitioning existing ones to franchisees to grow their business. I believe we've never been in a stronger position to drive sustained growth in our US business. We have best-in-class franchisee economics in QSR Pizza, the largest advertising budget, the best supply chain, and a rewards program that has never been bigger. We're now fully rolled out on the two largest aggregators, and with the addition of Stuff Crust, have all the major crust types on our menu. We have never had this many tools at our disposal to capture market share. This will be how we drive best-in-class results and long-term value creation for our franchisees and shareholders well into the future. I'll now hand the call over to Sandeep.

Thank you, and good morning, everyone. Our second quarter financial results continued to be impacted by a challenging macro backdrop, but we delivered profit growth that was slightly ahead of our expectations, primarily due to the timing of investments. Income from operations increased 14.9% back to foreign currency. The increase was primarily due to higher U.S. franchise royalties and fees, gross margin dollar growth within supply chain, and lower G&A expenses. The low G&A was primarily a result of expenses related to our worldwide rally that took place in the second quarter of 2024. It also benefited from the re-franchising of 36 company-owned stores in our Maryland which resulted in a pre-tax refranchising gain of $3.9 million. Excluding this gain in a small amount of severance-related expenses in Q2 related to our previously announced organizational realignment, our income from operations would have increased 13.2%. Excluding the impact of foreign currency, global retail sales grew 5.6% in the second quarter, primarily due to positive U.S. and international comps and global net store growth. In Q2, retail sales grew by 5.1% of the U.S., primarily driven by same-store sales and net store growth. This growth was in line with our expectations and faced well ahead of the QSR pizza category, which was roughly flat through the first half of the year. Same-store sales accelerated to 3.4% for the quarter on the strength of our Parmesan stuffed crust pizza launch, which drove positive transaction count. Average ticket benefited from 1.4% of pricing and the addition of stuffed crust, which carries a higher price point. This was partially offset by a slight decline in our mix due to a higher carryout business that carries a lower ticket individually. Our carryout comps were up 5.8% and it was our highest quota of average carryout orders of all time. Delivery was positive 1.5% and we saw improvement in both our own channel and aggregated delivery business. Shifting to U.S. unit count, we added 30 net new stores, bringing our U.S. system store count to 7,061. International retail sales grew 6%, excluding the impact of foreign currency in the quarter. This was driven by net store growth of 148 and same-store sales that came in around our expectations at 2.4%. We have not seen any material impacts to date from global micro or geopolitical uncertainty. In the quarter, we saw strength in Asia that was due to continued strong comps in India and in our Americas region, which was driven by Canada and Mexico. Moving to capital allocation, we repurchased approximately 316,000 shares at an average price of $475 for a total of $150 million in the second quarter. As of the end of Q2, we had approximately $614 million remaining on our share repurchase authorization. Now turning to our outlook for 2025, we continue to believe that global retail sales growth should be generally in line with 2024. As part of that, we expect the following. First, we continue to expect our U.S. comp for the year to be 3%, and that it will be higher in the second half due to the timing of our initiatives. This assumes that the pressure macro environment we have seen through the first half of the year in QSR Pizza remains the same. Second, we continue to expect our international same-store sales growth to be 1 to 2 percent due to potential global macro and geopolitical uncertainty. We continue to expect 175-plus net stores in the U.S. and internationally net store growth to be in line with what we had in 2024. Lastly, at current exchange rates, we now expect foreign currency to be a headwind of approximately 1 percent on operating income growth, but this remains volatile. We continue to expect operating income growth of approximately 8 percent excluding the impact of foreign currency approximately $5 million in service expenses related to the organizational realignment we announced in Q1, and the $3.9 million in re-franchising gains. Thank you. We will now open the line for questions.

Certainly. And our first question for today comes from the line of David Palmer from Evercore ISI. Your question, please.

great thank you and great to see the acceleration in same store sales I wanted just to bring up sort of the pushback or the big discussion that we often hear on Domino's and maybe get your broad take on it and that is largely the view that you're entering you know perhaps this last year of a third party marketing lift and that the menu news has been fantastic here with stuffed crust and this is your perhaps your biggest best bet so people have this feeling that you know we're entering a really a golden year for dominoes and it's going to be tough for you to keep you know a three percent plus comp going longer term after this time period you see your pipeline you see initiatives and other types of skill advantages your driver economics that'll be reinforced by the things you're doing the wider net is being cast maybe some digital platforms that are being built but You know, what are the big reasons that you could say that you feel confident looking at what your plans are and the things that you see that can make people feel better today about sustaining 3% plus? And thank you again.

Good morning, David. You know, you talk about the last year, and your words, I'll use golden when I talk to my mom after the call, definitely. But, you know, to me what would be helpful is just to take a look at the last decade. You know, the last decade, essentially a SharePoint a year, every year for the last decade. You're right. What we didn't have at that point was aggregators. What we didn't have at that point was stuffed crust or even New York style pizza. What we did have were the strongest economics for our four walls, for franchisees, supply chain pricing that let them keep consumer prices low and value high. And a large ad budget. And the ad budget is important because if you're going to squeeze percent margins, you want to throw a lot of volume kind of through that. And so essentially, you know, the last decade, that's what we had going for us. And I just think we're adding to it. So we added, you know, last year Uber Eats, this year DoorDash, last year New York Style, this year Stuff Crust. We have a brand-new loyalty program a couple years in, and by the end of the year, we have a new e-commerce program. And none of these things are one-year events, just like the last 10 years were a series of events that build on each other. And I said this in my opening remarks. We've built this arsenal right now that I don't think we've ever been stronger. So, yeah, these things are new, but they're not going away, and they add to everything, all the pressure we can put on the competition and all the value we can give to customers.

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

Great. Thanks, guys. I wanted to ask a bit more on the U.S. sales outlook for the back half of the year specifically and that reiterated 3% comp guide. You guys both gave some good color on what's working and how you think about what continues to work. But anything more kind of on additional thoughts on the initiatives you've got, how they should hopefully help you to accelerate trends into the back half of the year? And then you touched on Stuffed and on DoorDash. Anything more there on what you're seeing and how that gives confidence to the back half, as well as all the other initiatives around loyalty and the promotions and other things? Thanks.

Yeah, maybe, Sandeep, I'll start on this one. You know, the initiatives that we can talk about for the second part of the year, one's already going on, which is Best Deal Ever. You know, we're really leaning into value at a time that consumers want that from restaurants. And obviously DoorDash. So we got to 100% of stores participating at the end of Q2, but we expect the majority of the volume push to kind of be in the second half of the year. I'll remind folks that DoorDash is about twice as big as Uber in pizza sales.

And I think I'll just add on to that, Dennis. You heard in the prepared remarks I talked about the carryout performance in the quarter at 5.8%. We're incredibly pleased with what's happening with Carriot. And I think it's really testament to the loyalty program that Russell talked about earlier with Domino's Rewards. We continue to acquire more customers into that loyalty program. And we are seeing the frequency build compounding over time with the Carriot business. So super excited because I think that's a lot of what we expect to come in the back half. I think both delivery and Carriot are expected to be positive for the year. And we're not going to tell you exactly how much because I think the initiatives that we have are going to be a surprise to the competition.

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

Thanks. Good morning. Yeah, I'd like to go back to kind of David Palmer's question. It is the question that we just consistently get and You know, the debate building is kind of what he alluded to, just that all the amazing things you're doing do create challenging laps in 26 and 27. And, you know, the work we've done specifically on DoorDash suggests that maybe this is a multi-year sales driver instead of, you know, perhaps creating tough comparisons. And I'd just like you to maybe enter the debate on DoorDash specifically. Sure. How do you think about DoorDash as the years go by as being a growth vehicle, and why will it be?

Yeah, let me maybe break that into two parts. When you talk about the challenging lapse, I think what you're talking about is kind of the amalgamation of some really good programs this year, and I talked about before some really strong programs for the last 10 years. What I think you know, is important to understand is we compete in a category that's grown one to 2%, essentially over the last, you know, as long as I've been working in pizza. So with that category growth and with us being, call it almost a quarter of pizza, there is a lot more for us to gain. And so I think about this, certainly what we need to lap and we're lapping, you know, we, I think a strong program we had last year, but the strength building on strength, building on strengths, actually makes it a lot more difficult for the competitors to compete over time. And, you know, especially when you look at, you know, store level economics, I think the longer both sides are trying to deliver this kind of value to customers, the harder it is to sustain. And so I think it's important to look at us, certainly, you know, certainly what we have to lap And we've got programs to do that. But we're competing in a category that I think we're a lot stronger than other folks with really not what I what I'd call a number one market share. Number one, usually in categories and restaurants are 40, 50 percent. And and so I think you guys just look at it holistically when when when you when you think about our future growth. As far as DoorDash, our plan both for Uber and DoorDash is we think we should have our fair share on these platforms. And so that means we've got a lot to go on DoorDash, and we've got more to go on Uber. Per my last point, we're going to continue to grow market share over the next few years. So that number is always going to increase. I don't think it's far-fetched to say that we should have the same or similar market share on aggregators as we do outside.

Yeah, and I'm going to add one thing to this, which I think is super critical. We just talked about in the prepared remarks that essentially the pizza QSR market is roughly flat, and we grew retail sales by 5.1%. in that quarter that just really puts an exclamation point on exactly what Russell is saying. And with all the tools at our disposal, starting with best-in-class economics for the franchisees, that ad budget is actually significantly higher than anybody else. The supply chain profits that we continue to generate and drive into the franchisee P&L is every reason to believe we'll continue to take share. And I think a lot of the same-store sales growth that you're going to be seeing is us taking share from the competition. as they keep actually losing market sales to us and closing stores, which you've actually seen over the last decade.

And, you know, just maybe finally, when we talked about, you know, in Hungry for More Most Delicious Food, we talked about doing two new product launches a year. I'm not saying we'll never do LTOs, but we don't really have a big history of doing LTOs. And the big reason is when we do the research, We launch products that we think are going to stick around for a while, that we think are going to grow for a while, that we think are going to help us take market share. And so when we look at New York Style and we look at Stuff Crust, these are not LTOs. And maybe that's something, you know, another thing to add to just the discussion around this. If these were LTOs, yeah, I'd be worried about maybe how do you lap them? Because, you know, whatever LTO this year, next year has to be bigger. And at some point, you get smaller ideas. But these things aren't going away.

and they're they're major uh they're major pieces of share within the marketplace that we can go after for a long time thank you and our next question comes from the line of danilo gargio from bernstein your question please thank you i'd like to send the same line of thinking on market share gains in international markets so maybe russell if you think about your top five markets Can you give us a little bit more color on the state of competition over there? And I remember maybe a year or so ago, you were talking about the adoption of the more strategy yet to be deployed by other master franchisees. So what is the progress on that standpoint?

Thank you. Thanks, Danilo. Yeah, I think the best one that I'll point to is India. I think you can clearly see their success when they report their numbers. And what's driving their success? It's really all the elements of Hungry for More. When you look back at their last results, what did they report on most delicious food? They had the volcano pizza, a couple of other new products. On operations excellence, you know, they're really pushing for 20-minute delivery times, and in many cases, you know, guaranteeing that to customers. So that's the O. Renowned Value, they took away their delivery fee because they realized they could drive more volume that way. And they are truly, you know, Jubilant, the best-in-class franchisees that we've got out there. So every single piece of Hungry for More, they are adopting. And, you know, when that becomes successful, that begets other folks continuing to drive Hungry for More.

Yeah, and I'll add, Danilo, India is a fantastic story. We've talked about the Canadian performance this year, which has been fabulous, and they've launched Tough Crush just like we did in the United States, and take up on that has been fantastic. And I think even Alsea has been doing well. Yeah, Mexico has great value. So I think across the board, we've seen a lot of adoption of the Hungry for More strategy, and I think with the progress of time, you'll see even more of it.

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

Hi, good morning. My question is on international unit development. And I know you guided this year net openings to be similar to last year. And that is reflecting a growth rate that's lower than your long-term target. So just wondering if you're starting to get line of sight beyond this year to getting towards that longer-term goal of 6% or higher? I know this year, you know, it's weighed down by some closures, but just wondering if we're starting to get to a point where those are behind you and you're going to have the growth that you expect longer-term, I think.

So, David, I think on international unit development, really speaking outside of DPE, we're really comfortable with where things are going and they're tracking to the plans that we had. Both in India and China, we're expecting to see significant growth. I think Jubilant talked about for their fiscal year, 250 stores in India. And I think China has talked about 300 stores for the current fiscal year. So that's a pretty material opening plan. And I think outside of those two markets in the next, excluding DPE markets internationally, things on balance are going to plan. So we feel pretty good with where things are at. And frankly speaking, with what visibility we have beyond 25 and 26, we feel pretty good about that too. I think specific to DPE, we actually knew about the store closures that were going to be happening in Japan this year, and they happened in Q1. And based on events that have happened in the last few weeks, I think their executive chairman has reiterated that the strategic plan that was outlined by the previous CEO is still very much on track, but they continue to do evaluations of where things are at and they may come back with more color as we go forward. But I think pending any further updates, the plans that we had at the last quarter when we actually talked to you haven't really changed either for 25 or in for 26, but we just need to continue to work with their teams to get more clarity on where DP is going. Probably a little bit less so on the closures, more so on the opening plan, because I think that was a part of the projection that we didn't have clear even the last time when we spoke, and there's more work to be done on that. And it really ties back to unit economics of the stores, because I think without unit economics being strong, and that also is driven by same-store sales consistently being positive, then that opening plan becomes something that's a risk for them.

And we're working with them to resolve that. Jonathan, are we ready to take our next question? Please just sit tight with us here for a second. It appears we have some challenges with our operator. So please stay tuned. Thank you.

And as a reminder, to ask a question, please press star 11. One moment for our questions. And our next question will come from Gregory Frankfurt from Guggenheim. Your line is now open. Hey, thanks for the question.

My follow-up question is the last one. Just on the international business, Sandeep, last quarter you expressed, I guess, some caution on the international consumer for the balance of the year. It sounds like that's not what played out this quarter. I guess I'm curious, as you look to the second half, do you still expect some caution there? And maybe what played out differently versus planned on the comps in the quarter? Thanks.

Yeah, so I think, Greg, if you go back to the prepared remarks, I talked about the fact that international seems to have sales at 2.4%. was in line with our expectations. So we did expect a sequential deceleration from the first quarter to the second quarter. So 3.7% was Q1, 2.4% was Q2. We still are talking about the potential for the macro and geopolitical overhang in the back half. Now, if we don't see that overhang materialize as we kind of go through the back half, then potentially there could be a bit of upside to this. But It's too early to tell, and frankly speaking, the sequential deceleration that we expected is exactly what we saw in the second quarter. So it really hasn't been a change in our expectations relative to where we were in April when we talked to you.

Thank you.

Our next question will come from Peter Saleh from BTIG. Your line is now open.

Great. Thanks for taking the question. Russell, I just wanted to ask, you know, you mentioned that as long as you've been in this industry, the category has been growing 1% to 2% per year. But the first half of the year so far has been flat with some pricing, which implies some negative traffic. So curious if you can comment on why you think the pizza category is, you know, struggling a little bit here at flat. And just if you can provide a little bit of context on income by cohort and That would be helpful. And any thoughts on, you know, do you anticipate the full year to be, you know, for the pizza category to still be in that 1% to 2% implying better back half? Or how do you think about that going forward? Thanks.

Yeah, yeah, sure. Obviously, you know, we're in this for the long haul, and 1% to 2% is what the category has done. There are headwinds within all of QSR. I think if you look at burger category growth, it's probably going to be pretty similar. And so for me, Peter – The important thing is to understand these things come in cycle and they will return to kind of traditional growth numbers would be my assumption. But I think the important thing is to see how we grow even during tough times. And when you think about where the category is and you think about what our results were for the quarter and all the upside with all the share that's left to take, If this is our performance during times where there are some category headwinds, then when the category has tailwinds, that's only going to help us. And I'd let you know that, you know, we kept our 3% same-store sales. That's our 3% plus for the U.S. It's this year. It's next year, despite, you know, what the category does. And I think maybe I'll add to that a little bit. I know this wasn't a direct question, but it is. maybe goes off some of the questions earlier. I think the important thing to understand right now is whether it's pizza or burgers or QSRs in general, there is pressure because consumers are looking for value. And what you're seeing is a restaurant industry where we're providing a lot of value. The big difference with Domino's is when we provide value, we're going on offense. We're doing it because we think we can grow. and i think other folks are doing it because they're on defense and a little bit treading water how much longer you know do we need to do value um we're prepared we're built to do this um so um you know right now there are headwinds but actually the headwinds i think are tailwinds for us it's kind of a long answer to a short question And then income by core was your other piece, and at least at Domino's, we've seen growth among all the cohorts, including the low-income cohort, in Q2.

Thank you. Our next question will come from Andrew Charles from TD Cowan. Your line is open.

Great, thank you. Russell, maybe just a follow-up or similar to the last question. Notwithstanding your long-term bullishness on the pizza category, I want to see if Domino's has an opportunity, in your view, to dive deeper into the faster-growing chicken category where you already play. But could we see Domino's play deeper in the chicken category, not just from menu innovation and marketing, perhaps from other product upgrades or new equipment like fryers, ultimately?

Yeah, Andrew, obviously we have a pretty diverse menu. We actually had a chicken window in Q1 with loaded chicken. We're always listening to what consumers want, and as we said, we're in the permanent product game, so we sell a lot of chicken today. If there are opportunities to make that significantly better, obviously we're always going to listen. You did bring up something, a good point that, you know, I'll just follow up on that, that, you know, the question of, hey, could there be another cooking platform in your future? And if there was, obviously, we, you know, we'd be we'd be talking about it. But this is more of a kind of what would what would you need to think? And you'd need to think that there's room in a store for another cooking platform. You brought up fryers, whatever it would be if we chose to go that way. What you would need is you'd need more room in the stores. And the fact is the reinvention of our circle of operations, no more box folding in the back, all that stuff. We got more room in the stores. You need a system like we have with Dom OS. to be able to say, hey, if there is a second cooking platform, how do you line that up with things coming out of the regular oven? So nothing to talk about right now, but what I'd say is we're prepared to do whatever consumers think that we should be doing, we should be offering them in the long term.

Thank you. Our next question will come from John Tower from Citi. Your line is open.

Great. Thanks for taking the question. Maybe I'm just going to ask, you know, Russell, earlier you hit on the idea of the e-commerce platform and how it's rolling out this year. And I'm just curious, in the stores where you've already rolled it out, can you talk about any sort of behavioral differences in the consumers who've moved over to it versus the legacy platform and what you've seen in terms of either consumer response or even at the store level, how operations have performed at those stores that have adopted it.

Thank you, John. Yeah, we finished building the platform last year. And so as we enter this year, what we're doing is simultaneously testing the old platform with the new platform. And then you look at things like conversion and sales and all that. And when the new site performs better than the old site, we increase and we have more customers going through that site. And what I can tell you, we've got more customers this month than we did the prior month than we did the prior month. So things continue to proceed the way we'd want it to. And these are improvements off what I think is still one of the best e-commerce platforms in the business.

And John, I'll just add that with us being 85% digital, I think it's very important for us to be very measured and cautious as we're rolling it out to just make sure that there's no disruption in the transition as we're rolling out on the e-commerce platform. Everything's on plan. Everything's on track. This was exactly what we wanted to do.

Thank you. Our next question will come from Chris O'Call from Stiefel Financial Group. Your line is open.

Yeah, thanks. Procurement productivity, I think you guys have cited as kind of the primary driver for the supply chain profit performance for the last several quarters. Can you just elaborate on the key factors that have kind of driven that productivity gain? And is there a point at which you begin lapping some of those improvements that might impact the year-over-year profit growth of that division that we should be thinking about over the remainder of the year?

Thanks, Chris. And look, I mean, I think as far as we're concerned, it's not just been this year, but I think the last two, three years we've been seeing procurement productivity. We have a fantastic procurement team led by our chief supply chain officer that's delivering all this value that's coming through. Obviously, a significant part of our cost structure is food, but there's much more beyond that as well. And I think that's what the gains have been. And we We did get the benefits of that in 23 and 24. And I think even this year with the agreements that we had lined up with suppliers, we knew that we're going to get a bit more this year as well. The great news about all of this is everything's in the base and we're building on the base. So just because we achieved this incremental productivity, it doesn't mean it goes backwards. But I think the pace at which we've been building it up, because we've had such good years of procurement productivity, I wouldn't say that this is the normal incremental assumption you should be making on procurement productivity. We'll be doing everything we can to drive more, but the magnitude probably will start tapering as we move forward.

Thank you. Our next question will come from John Ivanko from JP Morgan. Your line is open.

Hi, thank you. Obviously, the system was really built on you know, delivery drivers, managers that became franchisees, very entrepreneurial system. I think, correct me if I'm wrong, I think the average franchisee has 10 stores, you know, but typically smaller in nature. So I wanted to, you know, bring up, you know, the point of, you know, you re-franchising a company market, 36 stores, I think, to one franchisee. Is it kind of maybe a philosophical change of, bigger, more professional franchisees that have their own development teams, access to different levels of financing, what have you, do we have an opportunity to maybe consolidate some franchisees that have maybe been in the system 20, 30, 40 years, getting them in the bigger systems that can maybe either maintain or even accelerate you know, some of the U.S. growth over time? How are we feeling about the overall composition of the franchise system and how that might, you know, change or evolve in the next three to five years?

Thanks, John. Yeah, look, franchise system strength is measured by, I think, two things. One is the strength of the relationship, and I don't think it's ever been better between franchisee and franchisor, and then the unit economics. And to your question before, the average, you know, franchisee has nine stores, so you multiply that by the 162 EBITDA. That's a pretty nice cash flow for the average franchisee. We have larger franchisees and smaller franchisees. Interesting enough, the person we sold to in Maryland, Suha Unal, who's been with Domino's for two decades, he's worked for a franchisee. He's worked at corporate. He's worked at international. It's just a great Domino's story. He's become a new franchisee, so it's not someone who had the average of nine stores that moved up to that degree. It's someone who came in new. And each example is really kind of a snowflake So in this case, when you looked at where the stores were for each other, the best way to manage it was one franchisee, and Suha will do a great job there. But you're not seeing any big departure in strategy. And what I'd say is I like the way that our franchise system is really diverse, because it also means there's no particular concentration risk. let's say, you know, on one side or the other, it really lets us continue to do what's best for the overall brand. And I think if you have too many large franchisees, maybe that's a little bit more difficult.

Thank you. Our next question will come from Sarah Senatore from Bank of America. Your line is now open.

Thank you. Quick follow-up, and then I have to ask on margins, of course. On the follow-up, I don't know if you gave the mix of 3P, but I was wondering if you're continuing to see growth in Uber even as you've rolled out Dash. I think that was something that kind of the overlap might be a question that we've heard. And then the question I have is about the margin components. You continue to price below inflation, which certainly I think is helpful. To the extent that, you know, you have like a pricing strategy going forward, will that kind of always be the case that the goal is to price, I think, below food away from home inflation or below your own inflation? Just trying to think about, I understand, you know, profit dollars we've talked about is the primary focus as it should be, but, you know, thinking about the margin rate and how much faster you might have to grow revenues to maintain the returns, you know, given where the margin rates are, you know, for you and franchisees. Thanks.

Hi, Sarah. So I think I'll just take these two different questions to your point, right? So the first was 3P mix and comps. We're not going to be talking about mix specifically as we talked about on the Q4 call and even on the Q1 call. But we're really happy with where Uber is. Uber has continued to track to our expectations, thrilled a bit with where that's going, and really happy that we've rolled out Doordash. And I think by the end of the quarter, we actually did roll out Doordash. But DoDash had a very modest impact on the Q2 comp, but the real or material impact is expected to come in the back half now that we're fully rolled out on DoDash. So overall, really pleased about the delivery comp. It came from better performance, both in our own channel as well as in 3P, and pleased with where it's going as we move to the back half of the year. And then I'm going to switch to your question on margins, specifically on the pricing and pricing below inflation and rate versus dollars. Philosophically, I think we've been very consistent, definitely since the time I've been here and even prior, where in the end, we want to make sure that we drive profit dollars to the franchisees and actually make sure that they continue to see that health coming through. The key over here is, back to what Russell talked about on the first answer that he gave. We have best-in-class franchisee economics, so let's start there. Then you layer into that the fact that we have the biggest ad budget within Pizza QSR that gives us enormous marketing muscle to actually out-advertise the competition. We have the biggest supply chain with fantastic economics, which again with our profit sharing mechanism gets pushed into the franchisee P&L. And when you put all this together, As far as we're concerned, this is a long-term market share gain. Going back 10 years, our pizza national competitors have closed close to 2,000 stores. And we've opened close to as many. So as far as we're concerned, that is the model. That is the economic model. We focus on getting better, best-in-class economics to our franchisees. We use all the tools in our arsenal from our advertising budget and a supply chain perspective to enable them to out-compete the competition, because we have way more room in our P&L with the modest pricing that we're taking to deliver great value to our customers, which is what we've been consistently doing over the last decade, and we will be doing it for the foreseeable future. And if we do end up pricing below inflation, fantastic, because I don't know that they competition is able to do that with where their P&Ls are.

And, Sarah, maybe it's just helpful to think about what the principles we have are behind pricing, at least promotional pricing. In no particular order, to me, one of them is consistency. You know, consumers don't want whiplash. And, you know, if you look at our mix and match deal, we launched it at $599 in 2009, and we changed it to $699. That's pretty consistent. Two is the way we come up with pricing is through quantitative research that maximizes two things, franchisees top line and bottom line. It's really important to know that order count growth is much more correlated to profit growth than ticket growth. The third is we try to make sure that when we increase prices, they are at or below consumer income growth. If consumers aren't getting a raise, they don't want you to. They're pretty clear on that. And then I think the fourth for me is really what we changed in 2023, moving from value to renowned value. It's not just about the price. It's about value that drives talk value. And so if you want to know what we're going to do on price, if you think about those four principles, that will give you a pretty clear map.

Thank you. Our next question will come from Christine Cho from Goldman Sachs. Your line is now open.

Good morning, and thanks for taking my question. I was wondering if you can share kind of a rough sense of what percentage of the orders were tied to a deal or a promo and how that has trended over time, both for Domino's specifically and across kind of the broader pizza industry. And additionally, could you talk a little bit about your decision to bring back the best deal ever in July? Do you see this as more of kind of a customer acquisition vehicle similar to the BoostFink or does it really drive more order frequency? Thank you.

Yeah, Christine, you know, I think on deals, maybe without giving away too much, you know, our two major deals, our mix and match and our carryout deal, have been pretty consistent in their percent of mix over time. And then as far as best deal ever, you know, the reason we brought that back was a couple of things. You know, obviously consumers are looking for value right now. But, you know, this is where Hungry for More, you know, shows you that it's more than just value. The Edmund Hungry for More is about the most delicious food. And, you know, we certainly did that last quarter with Parmesan stuffed crust. Here we are with Best Deal Ever. Well, there are two things that make this the best deal ever. The price is fantastic. But this is delicious food. You can put up to seven toppings on these pizzas. And what we know is consumers love to put more toppings on their pizza. And they see this not only as a value, but as a way to drive deliciousness. And we're a brand that wants to do both.

So that was behind the decision to bring it back.

Thank you. Our next question will come from Laura Lauren Soberman from Deutsche Bank, your line is open.

Hi, thanks. Congrats on the quarter. I wanted to ask about stuffed crust. You talked about strong performance. Can you just give a bit more color on incrementality, what you're seeing in terms of traffic versus average ticket contribution? And when you launch a new product like this, do you tend to see mixed spike as you advertise and it settles over time? Or are you seeing more of a steady build as awareness grows Any color on how that mixes versus I think you've talked about 15% for peers. Thank you.

Yeah, Lauren, you know, we had high expectations for the launch, no doubt. Like you said, this is a big pizza type, you know, within the category. And I'm pleased to tell you that those high expectations were met. operationally, all the training we did, our franchisees did an amazing job. And the consumer input we've gotten is better than, I think, any product that I can remember since baby new and inspired. And so that's been really positive. Now, the other nice thing about Stuffed Crust is what you said, is it also drives tickets. So you're driving deliciousness, but when you add this to your mix and match, you've got to pay $4 more, and every penny is worth it, but $4 more for mix and match. So it's not only driving deliciousness, the value is really good, but it's also driving profit. You didn't directly ask this question, but I'll give you a little bit of insight as to how we thought about stuffed crust. We came out with a medium. And a lot of questions have come up, hey, why a medium and not a large? A couple of reasons. One is we wanted to have a different dough type than our hand-tossed, and so we decided to use our pan dough, and that comes in a medium. Now, we easily could have come out with a large, but we asked ourselves, is it really worth it? And when we looked at the data, and not to say the data won't change and we can change our mind, but a big reason we came out with the medium was because we knew that if the competition wanted to react to us coming up with stuffed crust, the majority of them have larges. And the ability to react with competitive pricing versus a medium when all you have is a large is really, really difficult. And I think this is also a way over time with great taste and relative value that we're going to continue to grow share.

And Lauren, I'm just going to add more of the financial dimension to everything that Russell was talking about because when you go back into the comp for the quarter, the 3.4% comp that we had, it was driven by incremental traffic, which I think we talked about in transaction counts. So it's definitely a traffic builder as we've driven trial with the new introduction to the menu. And we're now really confident that this is going to be a very evergreen part of our menu, which is why we're saying It's a long-term catalyst. It's not just for this launch and this year. We think we're taking a space in Pizza QSR from a menu perspective that others had occupied, and now we are there, and what we believe is the best product of this crust type in the marketplace. So when you look at this, it's not just Q2. It's about the rest of this year and next year. Stuff's crust is here to stay.

And maybe that's the way, just back to some of the first questions on kind of what are – What are the long-term drivers? I mean, if what we're looking at is to continue to drive that one, call it one share point a year that we've done over the last 10 years, that's macro within the category. But within the category, there are all these subcomponents. Stuffed crust is a subcomponent. And so we intend to drive significant share of stuffed crust. So we're brand new to that. And that's going to be driven over time. And so I think that's maybe the way to maybe put some more texture behind why we're so bullish about the long-term. It's not just... Macro, there's a lot of share to be gained. But within these categories that we're relatively new on, you know, aggregators, self-crust, New York style, they in and of themselves have lots of room for us to gain share.

Thank you. Our next question will come from Brian Harbor from Morgan Stanley. Your line is now open.

Yeah, thanks. Good morning, guys. Maybe just to come back to the store margin topic. In the near term, some of the pressure that you're still seeing on the corporate stores, are franchisees seeing something similar directionally? I know that's a small store base, but anything idiosyncratic that you would call out? And then food inflation has been a little bit higher in the first half. I mean, do you expect something similar in the second half or or some moderation from here?

So, Brian, good question on this one. I want to just start by saying the sample size on corporate shows is so small that it absolutely is not a read-through to franchisee profits and profit margins. And I think I've said this before, and I'll reiterate that again. We are in a very good place on a franchisee EBITDA perspective. Economics continue to be very good over there. and we're very pleased with where that's going. And as we said earlier, we expect to, earlier this year, we expect to grow franchisee EBITDA, and that's always what we strive for. And then I think coming back to corporate store margins, over here, there's a big insurance charge that we took in the quarter. You actually take out that insurance charge, it was relatively flat from a corporate store margins perspective. And so I think it's really... a one-quarter impact that you're seeing that it's a little bit outsized on that business. And look, even on food inflation, yes, there was pressure from food inflation, but we expected that. We said earlier this year that we expected to be heavier on food inflation in the first half and lighter in the second half. No change to the expectations for the year. We're expecting it to be up below single digits. So all this was what we expected. So just to reiterate, franchisee EBITDA in a good place, and we strive to continue to grow it.

Thank you. Our next question will come from Jeffrey Farmer from Gordon Haskett. Your line is open.

Yeah, good morning and thank you. Just a couple of big picture follow-ups. As you guys discussed on this call, U.S. pizza segments, definitely in the middle of an intensifying value push. Primary part of my question are, what would you guys consider to be the pros and cons of this value-focused backdrop for your Domino's brand?

Yeah, you know, it's – I guess I need to first say, obviously, that we all want the best for our customers. So we'd love the country and the world to be in a place where, you know, there aren't headwinds on consumers because we're a pizza company and we think everyone should be able to get the food they want. You know, with that said, and if you just look at yourself as a restaurant or if we look at ourselves as a QSR, and maybe widen the lens, not just pizza, but overall QSR. Jeff, we were really built for this. Value requires a few things. It requires strong economics that you can get through tougher times, a supply chain that has the volume and pricing that Sandeep talked about earlier. Folks keep asking about procurement efficiencies. God bless, you know, supply chain. And then a large ad budget that pushes volume through a time where, you know, margins may be tighter. And so the pros and cons, you know, to me of value, at least for Domino's, when consumers are looking for value, that's actually a big pro for us because I think we're set up. I don't think, I know we're set up better than anybody else to get through this. So when these are headwinds for other brands, they end up being tailwinds for Domino's.

which just means when things turn around, we'll be in a better place as well.

Thank you. Our next question will come from Jeff Bernstein from Barclays. Your line is now open.

Great. Thank you very much. Just looking at, Russell, in your prepared remarks or at least in the press release, you talked about both the aggregators being strong component of your growth, and then the rewards program. So I just wanted to touch quickly just on the aggregator side. I know you're not given the mix shift for DoorDash, similar to how you did for Uber through last year, but should we assume a similar sequential growth rate acceleration for Uber or for DoorDash, I should say? I know it's twice the size, but just thinking directionally whether we should assume something similar. And then on the rewards business, I don't know if there's any color you could provide. I know you say it's larger than ever. but whether there's any metrics you share in terms of the number of members or the frequency or spend, any color, without giving away too many secrets would be great.

Thank you. Jeff, I think you answered your question, but let me try, just because the question was so well put. Let me try to give you as many answers as I can before Sandeep kicks me under the table here. You know, what we do expect and we've been really clear on is that the second half of the year is going to be where you see more growth out of DoorDash. And we said over time, what we expect to get out of this $5 billion, you know, pizza category with aggregators, how that actually, you know, looks over the short term is something that even if I told you I had the answer to it, I probably wouldn't be 100% correct. And so what we'll do is, you know, we'll continue to report this delivery category growth that we're seeing. And over time, you know, we'll be able to potentially break that out a little bit further with some more insights. Uh, but you're right. Uber is, you know, twice as, uh, or half the size of, of DoorDash. So I think over time we'll see more out of that. And then with the rewards program, um, You know, what I like about it, and actually you made me think of this whole comparison to aggregators. If you think of aggregators tend to be a higher, you know, income customer. These are folks who, you know, we hope will eventually come to Domino's, but, you know, we're willing to meet them where they are. The economics are set up for them to stay aggregator customers should they need to. But there are customers out there who want value and want rewards. And, you know, the biggest change we did to the Domino's Rewards Program was was made it a better program for light users. You can do 20 or 40 point redemptions now versus 60 in the past and carry out users. So those tend, both of those customers tend to be a little bit lower income. So those two things are working really well together to drive renowned value. And I just, I throw out, it's a good point on the loyalty program is one would think if you're giving out, you know, points or redemption at 20 and 40 points, you know, maybe that hurts ticket. It's actually the opposite because essentially people are getting side items. And so the ticket on our 20 and 40 point item checks tends to be higher than when you're getting a free pizza.

Thank you. And we'll take our last question from Alex Legle from Jefferies. Your line is open.

Hey, thanks for putting me in. Follow-up on Chris's question earlier on the supply chain and, in a sense, for the opportunity to see these continued margin gains continue. It kind of seems like the 3Q is usually a bit lighter margin historically, and it was last year as well. So, trying to think how... what we should think about your ability to maintain this current margin level going forward, or is there a unique dynamic in the 3Q that we should think about?

So, Alex, thanks for the question. I think, look, on supply chain, we talked about at the beginning of the year, we expected to see margins improve slightly for the year, driven a lot by the procurement productivity. And so, I think as you look into the back half, no real change in those expectations. And And yes, there's some seasonality based on what cost structures look like in the summer months, for example, where utility costs end up going up a little bit. But overall, it's in the comparison. So I think year on year, I think the trends should be pretty much what we talked about for the full year. And so what we've seen in the first half should be pretty indicative of what we expect.

Thank you, Alex. That was our last question of the call today. Apologies for the minor technical glitch that we had this morning. I want to thank you all for joining, and we look forward to speaking with you all again soon. You may now disconnect. Thank you.

Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.