Sandeep Reddy
Chief Financial Officer at Domino's Pizza
Thank you, Russell, and good morning to everyone on the call. I'll begin my remarks with updates on the actions I've previously outlined to improve our long-term profitability. First, on pricing architecture. During the first quarter, the average year-over-year price increase that was realized across our U.S. system was 6.2%. This included the year-over-year benefit of national pricing changes made in 2022.
As a reminder, delivery mix and match were updated to $6.99 in March of last year, with carryout mix and match updated in October. As we have lapped the delivery mix and match national pricing update in March, we expect our second quarter realized year-over-year pricing impact to moderate. Second, efficiencies in our cost structure as we continue to drive recovery in margin. We saw year-over-year improvement in our operating income margin, which grew by 100 basis points versus Q1 2022. This was despite foreign exchange rates having a negative year-over-year impact on operating income margin of approximately 40 basis points during the quarter.
Third, we had positive same-store sales growth, excluding foreign currency impact in both our U.S. and international businesses for the second consecutive quarter, which also contributed to improving our operating income leverage. Now for our financial results for the quarter in more detail. When excluding the negative impact of foreign currency, global retail sales grew 5.9% due to positive sales comps and global net store growth over the trailing four quarters, lapping 3.6% global retail sales growth, excluding FX for Q1 2022.
Breaking down global retail sales growth, U.S. retail sales increased 5.1%, rolling over a prior decrease of 1.4%. International retail sales, excluding the negative impact of foreign currency, grew 6.5%, rolling over the prior year increase of 8.4%. Turning to comps. During Q1, same-store sales for the U.S. business increased 3.6%, rolling over a prior decrease of 3.6%. The increase in U.S. same-store sales in Q1 was driven by an increase in ticket, which included the 6.2% in pricing actions I mentioned earlier, partially offset by a decline in order counts.
The Q1 comps were aided by the Omicron overlap from 2022 as well as the benefit from a boost week in 2023 that we did not run in Q1 last year. Neither of these tailwinds will aid us for the balance of the year as Omicron were seeded as a headwind, and we ran boost weeks in every quarter last year, starting in Q2.
Now, I'll share a few thoughts specifically about the U.S. carryout and delivery businesses. The carryout business was strong in Q1 with U.S. carryout same-store sales 13.4% positive compared to Q1 2022, rolling over a prior year increase of 11.3%. We are very pleased at the strength of our carryout business. But we do expect a moderation in growth rates for the balance of the year as we lap accelerating growth in 2022. The delivery business remains more pressured. Q1 delivery same-store sales declined by 2.1% relative to Q1 2022, rolling over a prior decline of 10.7%. The delivery business is still challenged by two factors that we discussed in our last call.
First, a migration of demand from the delivery channel to the sit-down channel as the reversion to pre-pandemic consumer behavior continues. Second, constrained budgets for households with relatively lower disposable income, particularly when factoring fees and tips prompting them to shift their delivery occasion to cooking at home. We are closely monitoring the evolution of growth in real personal consumption expenditures as a consistent inflection in that trend could result in relief on the second headwind to our delivery business.
Shifting to unit count. We and our franchisees added 22 net new stores to the U.S. during Q1. Consisting of 25 store openings and three closures, bringing our U.S. system store count to 6,708 stores at the end of the quarter, which brought our four-quarter net store growth rate in the U.S. to 1.7%. As mentioned on our last call, we expected the U.S. store development pipeline will continue to be pressured by permitting and store construction and supply chain challenges before seeing a gradual recovery starting in the second half of the year, marked by stabilization first before an inflection in trend. Domino's unit economics remain strong relative to the many pressures faced throughout the year, including staffing challenges and a high inflationary environment for food and labor.
We have completed our analysis of estimated average U.S. franchisee store profitability with the final amount coming in at $139,000 for 2022, up from the $137,000 estimate provided on our last call. As previously mentioned, estimated average store profitability was higher in Q4 2022 than Q4 2019, as franchisees are seeing the flow-through benefits of the mix and match national pricing increases for both delivery and carryout.
We expect this improvement in profitability to continue in 2023 and with the margin flow-through from Loaded Tots being an additional tailwind during the first quarter. We will need further time to evaluate if Loaded Tots will provide an incremental margin dollar lift over the course of the year. Also, as we have completed our analysis on 2022 build costs for stores, relative to our average build cost in 2019, we saw an approximate build cost increase of 20% in 2022. Even with these increased build costs, franchisees are looking at roughly three-year paybacks on new store openings for 2023 and beyond.
Before we transition to discussing our international business, I would like to briefly touch on our technology costs. To fund additional investments in technology innovation, including a redesign of our e-commerce platform, the technology transaction fee charged to U.S. franchisees will be increased to $39.5 from $31.5 effective the beginning of the second quarter. The technology transaction fee increases cover investments split roughly evenly between G&A and capital expenditures. These investments are included in the annual guidance measures of $425 million to $435 million in G&A spend and $90 million to $100 million capital expenditures for fiscal year 2023.
At the same time, a 25-basis point temporary reduction on contributions to the national advertising fund will go into effect. The net impact of these two changes on the increase in technology fee and the 25-basis point reduction of franchisee advertising contributions should be relatively neutral to the estimated average U.S. franchisee store profitability in 2023.
Turning to our international business. Same-store sales, excluding foreign currency impact for our international business increased 1.2%, rolling over the prior increase of 1.2%. We continue to face the headwind of the negative year-over-year impact of the expiration of the 2021 VAT relief in the U.K., our largest international market by retail sales. This was the last full quarter of the negative year-over-year impact with the U.K. VAT relief program being in place through March 31, 2022. Our international business added 106 net new stores in Q1, comprised of 143 store openings and 37 closures. Our closures were driven by another round of closures in Brazil as our master franchisee there continues its work to optimize the store base in that market as well as some closures in Russia.
International store openings in the first quarter were also impacted by the timing of fiscal periods of some of our master franchisees that caused a significant number of openings to shift into the first week of our second quarter. These additional 106 net stores brought our current trailing four quarter net store growth rate in international to 6.7%. When combined with our U.S. store growth, our trailing four quarter global net store growth rate was 5%.
Turning to EPS. Our diluted EPS in Q1 was $2.93 versus $2.50 in Q1 2022. Breaking down that $0.43 increase in our diluted EPS, our operating results benefited us by $0.36. Changes in foreign currency exchange rates negatively impacted us by $0.09. A lower effective tax rate positively impacted us by $0.04. Lower net interest expense benefited us by $0.06 and a lower diluted share count driven by share repurchases over the trailing 12 months benefited us by $0.06. We continue to generate sizable free cash flow.
During the first quarter, we generated net cash provided by operating activities of approximately $115 million. After deducting for capital expenditures of approximately $19 million, which consisted of investments in our technology initiatives and supply chain centers, we generated free cash flow of approximately $96 million. Free cash flow increased $29 million from the first quarter of 2022, primarily due to the positive impact of changes in working capital and higher net income.
During the quarter, we returned over $30 million to shareholders through share repurchases. As of the end of the quarter, we had approximately $380 million remaining under our Board authorization for share repurchases. In the first quarter, the allocation methodology for certain costs, which support internally developed software was updated on a prospective basis. The change in allocation methodology resulted in an estimated increase in U.S. store segment income of $10 million and an estimated increase in international franchise segment income of $2 million, fully offset by a decrease of other segment income of $12 million.
Finally, I would like to provide an update on a few of our annual guidance measures that we previously communicated. We expect a year-over-year market basket increase of 3% to 5% in 2023. Changes in foreign currency rates could have a $2 million to $6 million negative impact on international royalty revenues in 2023. And our tax rate, excluding the impact of equity-based compensation, is expected to range from 22% to 24% in 2023. Based on current trends, we expect each of these measures will come in towards the low end of their respective ranges.
Additionally, we continue to expect our global retail sales growth and global unit growth in 2023 to trend to the low end of our unchanged two-year to three-year outlook.
Thank you all for joining the call today. And now I'll turn the call back to Russell.
