NASDAQ:DPZ Domino's Pizza Q4 2022 Earnings Report $487.58 -0.39 (-0.08%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$489.10 +1.52 (+0.31%) As of 04/25/2025 07:58 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Domino's Pizza EPS ResultsActual EPS$4.43Consensus EPS $3.92Beat/MissBeat by +$0.51One Year Ago EPS$4.25Domino's Pizza Revenue ResultsActual Revenue$1.39 billionExpected Revenue$1.44 billionBeat/MissMissed by -$44.12 millionYoY Revenue Growth+3.60%Domino's Pizza Announcement DetailsQuarterQ4 2022Date2/23/2023TimeBefore Market OpensConference Call DateThursday, February 23, 2023Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfilePowered by Domino's Pizza Q4 2022 Earnings Call TranscriptProvided by QuartrFebruary 23, 2023 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00You for standing by, and welcome to Domino's Pizza's 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Operator00:00:28Ryan Goers, Vice President, Finance and Investor Relations. Please go ahead, sir. Speaker 100:00:34Thank you, and good morning, everyone. Thank you for joining us today for our conversation regarding the results of the Q4 and full year 2022. Today's call will feature commentary from Chief Executive Officer, Russell Weiner and Chief Financial Officer, Sandeep Reddy. As this call is primarily for our investor audience, I ask all members of the media and others to be in a listen only mode. I want to remind everyone that the forward looking statements in this morning's earnings release and 10 ks also apply to our comments on the call today. Speaker 100:01:05Both of those documents are available on our website. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors In addition, please refer to the 8 ks earnings release to find disclosures and reconciliations of non GAAP financial measures that may be referenced on today's call. Our request to our coverage analysts, we want to do our best this morning to accommodate as many of your questions as time permits. As such, we encourage you to ask only one one part question on this call. Speaker 100:01:38Today's conference call is being webcast and is also being recorded For replay via our website. With that, I'd like to turn the call over to our Chief Executive Officer, Russell Weiner. Speaker 200:01:50Thank you, Ryan, and thanks to all of you for joining us this morning. As we end 2022 and look back to the beginning of the pandemic, I'm encouraged by the incredible work done by Domino's team members and franchisees. Since the beginning of 2020, we and our franchisees have grown by 2,860 new stores around the world, when many restaurant brands closed stores or struggled to grow through an extremely Domino's is in over 90 markets and should hit 20,000 stores as a system in 2023. In the U. S, the QSR pizza category grew over the last 3 years with sales up almost 10% versus pre pandemic levels. Speaker 200:02:33Domino's serviced that growth resulting in a gain of approximately 3 share points in the QSR pizza category since 2019 according to NPD. We continue to grow our carryout business. Carryout now comprises approximately half of the orders and about 40% of sales in the U. S. Carryout remains highly incremental to delivery for us. Speaker 200:02:57And in cases where it's not incremental, customers are moving to a service method with significantly lower costs for our system. Our delivery business experienced both headwinds and tailwinds over the past 3 years. Our team focused efforts on finding solutions at every turn. Now to the 4th quarter. In the Q4, our results were mixed, particularly with the challenges in the U. Speaker 200:03:23S. Delivery business that we previewed during our Q3 call. During that call, I pointed to a couple of dynamics we were watching in the broader restaurant category that have since played out. First, as consumers return to many of their pre COVID eating habits, some of the sit down business that was a source of volume for restaurant delivery orders Return to that channel. 2nd, inflation impacted delivery due to the added expenses of fees and tips in that channel. Speaker 200:03:53Our research shows that a relatively higher delivery cost during inflationary times leads some customers to prepare meals at home instead of getting them delivered. We believe this dynamic will continue to pressure the delivery category in the short term as long as consumers' Disposable income remains pressured by macroeconomic factors. Despite these pressures, U. S. Delivery sales for Domino's in 2022 for more than $500,000,000 higher than the pre COVID baseline in 2019. Speaker 200:04:25Domino's delivery business was not alone in facing these challenges. According to NPD data, the entire QSR delivery category was down high single digits for fiscal year 2022. Not surprisingly according to NPD, pizza delivery was down as well. Given these industry wide headwinds, we're encouraged that while our delivery business was challenged in 2022, Domino's saw a moderate increase On the topic of delivery, while there's more work to do on staffing that part of the business, We feel like answers to this challenge exists within the Domino's system. Staffing has improved at all positions in our corporate restaurants, including drivers. Speaker 200:05:12Continuing to leverage internal best practices around delivery service, as well as innovations in this area like We and our franchisees have done to address labor constraints in the delivery business and know we have more to do. A consistent positive throughout 2022 has been the continued evolution of the Domino's business. This helped offset some of the macro challenges on the delivery side. In the U. S, we are a more complete restaurant company than ever, Running 2 businesses out of our stores. Speaker 200:05:50We are number 1 in the U. S. In both the delivery and carryout pizza segments of QSR. The carryout business continues to be a strength with tremendous momentum. In fact, U. Speaker 200:06:04S. Carryout retail sales for full year 2022 were more than $1,000,000,000 higher than pre COVID levels. More importantly, we still have a long runway for growth in this important segment of the business. Speaker 300:06:19To give Speaker 200:06:20you a sense of the current scale of our U. S. Carryout business, if it were a company of its own, Domino's carryout Would be counted amongst the top 20 QSR brands in America based on consumer spending obtained by NPD for the year ending December 2022. To support the growth of the business, we opened a new supply chain center in Merrillville, Indiana in September. As you know, we have invested significantly in our supply chain, opening 4 new centers since 2018. Speaker 200:06:51During the Q4, I visited our new center in Indiana. It has the latest in technology, automation and new operational procedures. Merrillville represents an incredible testing ground for the future of Domino's supply chain, and we look forward to bringing the best parts Of what we learned in Indiana to other centers around the country over time. 2022 was a strong year for global store growth. We and our franchisees had nearly 1300 gross openings around the world in 2022. Speaker 200:07:23For context, That's about 3.5 new store openings per day on average, while operating in a difficult environment for development. This is a testament to the strength of the Domino's brand around the world. Our team members and franchisees have continued to show the agility and perseverance required to operate and grow Domino's footprint in a volatile macroeconomic environment. Looking specifically at our international business, The 11.35 gross openings outside of the U. S. Speaker 200:07:55Were the highest organic openings in our history, meaning they were achieved without any of our master franchisees conducting a large scale conversion of another pizza chain. One of my personal highlights during the quarter was the opportunity to be in market with 1 of our largest master franchisees Jubilant FoodWorks. In December, I met with their team in New Delhi, where they reiterated their goal to grow to over 3,000 stores in India over the next 5 years, which would further cement Domino's position as the leading QSR brand in this critical global market. Additionally, Jubilant is inspiring our global system to raise the bar on service with their new 20 minute delivery zones. I was able to see these in action when I was touring stores. Speaker 200:08:44Service has always been a key differentiator for the Domino's brand and Jubilant is extending its delivery service advantage in India. How are they able to do this? With incredible operations enhanced by a global fortressing strategy. When we and our franchisees build more stores, we can get closer to customers and improve delivery and carryout service. Now for more detail on our Q4 results, I'd like to turn it over to our CFO, Sandeep Reddy. Speaker 200:09:12Sandeep? Speaker 400:09:13Thank 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, we are continuing to examine and evolve our pricing architecture. During the Q4, the average year over year price increase that was realized across our U. S. Speaker 400:09:37System was 6.3%. The realized pricing for full year 2022 was 5.4%. 2nd, efficiencies in our cost structure as we seek to ensure that revenues consistently grow faster than expenses. We saw another sequential improvement in year over year operating income margin as a percentage of revenues As margins expanded 130 basis points in Q4 versus the 160 basis points contraction in Q3. Even if you exclude the 150 basis points benefit to operating income margin from the $21,200,000 refranchising gain Recognized in the quarter, the contraction in year over year operating income margin as a percentage of revenues in the quarter Sequentially improved by 140 basis points versus Q3. Speaker 400:10:343rd, we had positive same store sales growth excluding foreign currency impact in both our U. S. And international businesses. For the first time since Q4 2021, contributing to improving our operating income leverage. Now our financial results for the quarter in more detail. Speaker 400:10:57When excluding the negative impact of foreign currency, Global retail sales grew 5.2% due to positive sales comps and global store growth over the trailing 4 quarters, lapping 9% global retail sales growth excluding FX and the 53rd week impact in 2020 In Q4, 2021, as we have discussed in the past, we believe it has been instructive to look at the cumulative stack of sales Across the business anchored back to 2019 as a pre COVID baseline. With the evolving macroeconomic conditions, We do not currently believe it will be relevant to anchor back to 2019 going forward and anticipate returning to evaluating the business On a 1 year comp basis in 2023. Looking at the 3 year stack, Our Q4 2022 global retail sales excluding foreign currency impact grew over 26% Versus Q4, twenty nineteen. Breaking down total global retail sales growth, U. S. Speaker 400:12:08Retail sales increased 2.7% rolling over a prior increase of 4.6% excluding the impact of the 53rd week in 2020 and are up more than 21% on a 3 year stack basis relative to Q4, twenty nineteen. International retail sales excluding the negative impact of foreign currency grew 7.5%, Rolling over a prior year increase of 13.2%, excluding the impact of the 53rd week in 2020 and are up more than 30% on a 3 year stack basis relative to Q4, 2019. Turning to comps. During Q4, same store sales for the U. S. Speaker 400:12:56Business increased 0.9%, Rolling over a prior year increase of 1% and were up 13.1% on a 3 year stack basis Relative to Q4 twenty nineteen. This represented a sequential deceleration of 4.5% From Q3 on a 3 year stack basis, as we saw clear evidence of softening demand from delivery customers in particular, given the challenging macroeconomic environment during the holidays. The estimated impact of fortressing was 0.5 percentage points During the quarter across the U. S. System. Speaker 400:13:37Going forward, we will only update the impact of fortressing if the change in impact is material. The increase in U. S. Same store sales in Q4 Was driven by an increase in ticket, which included the 6.3% in pricing actions I mentioned earlier, partially offset by a decline in order counts. As we have previously shared, We believe it is instructive to break U. Speaker 400:14:07S. Stores into quintiles based on staffing levels relative to a fully staffed store To give a sense for the magnitude of the impact of staffing. Looking at Q4 same store sales, Stores in the top 20%, those that are essentially close to fully staffed, on average outperformed stores in the bottom 20%, Those that are facing the most significant labor shortages by less than 2 percentage points. This is down sequentially from the approximate 6 Now I'll share a few thoughts specifically about the U. S. Speaker 400:14:47Carryout and delivery businesses. The carryout business was strong in Q4 with U. S. Carryout same store sales 14.3% positive compared to Q4, 2021. On a 3 year basis, carryout same store sales were up 31% versus Q4, 2019. Speaker 400:15:11The gap for carryout between the top and bottom quintiles based on staffing levels remained small during the quarter. The delivery business continued to be more pressured. Q4 delivery same store sales declined by 6.6% relative to Q4 2021. Looking at the business on a 3 year stack, Q4 delivery same store sales were 3.3% above Q4 twenty nineteen levels. When we look at the same quintiles relative to the delivery business, The gap between the top and bottom quintile stores closed considerably. Speaker 400:15:56We saw only a 2 percentage point gap In delivery same store sales between stores in the top 20% and those in the bottom 20%. This represents a sequential improvement From the 8 percentage point gap in the 3rd quarter. The 2 percentage point gap is in line with the expected gap in performance in a normal operating environment and we believe is no longer a significant driver of sales performance. We do not intend to continue disclosing the performance by staffing Quintiles in the future. Our U. Speaker 400:16:32S. Carryout business is going from strength to strength and our Pizza QSR carryout market share Is up close to 200 basis points in 2022 and up close to 500 basis points since 2019. Our market share in total pizza QSR, which includes delivery, carryout and sit down, Continued to hold steady over the past year and is still up close to 300 basis points versus 3 years ago. Before I conclude my comments on market share, I would like to touch on channel dynamics For Pizza QSR versus non Pizza QSR based on data we received from NPD. As Russell mentioned earlier, delivery in 2022 was down in both Pizza QSR And non pizza QSR, while sit down was up significantly in both. Speaker 400:17:33In the case of pizza QSR, This was driven more by a shift from delivery to sit down and cooking at home. In the case of non pizza QSR, Growth in sit down was potentially driven by a shift from delivery, but also from carryout. Domino's business model in the U. S. Has historically been focused mostly on the delivery and carryout channels. Speaker 400:18:00So the shift to sit down hurts us relative to others in the non pizza QSR who historically have had business models That included sit down and carryout, but have now added delivery to their distribution channels. We expect this dynamic to continue to play out in 2023 as sit down despite recent growth It's still below 2019 levels. Shifting to unit count. We and our franchises added 43 net new Stores in the U. S. Speaker 400:18:35During Q4 consisting of 50 store openings and 7 closures bringing our U. S. System store count The 6,686 stores at the end of the quarter, which brought our 4 quarter net store growth rate in the U. S. To 1.9%. Speaker 400:18:54This deceleration in growth was expected in light of the permitting and store construction supply chain challenges we have faced all year. While we expect the first half of the year for U. S. Store openings to continue to be challenging due to a continuation of these same factors, Based on our current pipeline, we expect a gradual recovery starting towards the second half of twenty twenty three. 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. Speaker 400:19:34The average Domino's store in the U. S. Generated more than $1,300,000 in sales During 2022, we currently estimate that our 2022 average U. S. Franchisee store EBITDA Was close to $137,000 not much below the 2019 estimated EBITDA of $143,000 In fact, estimated average store profitability was higher in Q4 2022 than Q4 2019. Speaker 400:20:10We will update the final number on our Q1 call. With our continued strong four wall economics, We remain bullish on the long term unit growth potential in the U. S. And we maintain our conviction that the U. S. Speaker 400:20:24Can be an 8,000 plus store market for Domino's. New store openings paybacks remained strong with stores opened in 2019, averaging around 3 year paybacks similar to the 2018 vintage. Same store sales excluding foreign currency impact For our international business increased 2.6% rolling over a prior year increase of 1.8% and were up nearly 12% on a 3 year stack basis relative to Q4, twenty nineteen. We continue to face the headwind of the negative year over year impact of the expiration of the 2021 VAT relief in the UK, Our largest international market by retail sales. The 4th quarter impact was around half the magnitude of the second and third quarter As the UK VAT relief was reduced from 15% to 7.5% in 2021 on October 1. Speaker 400:21:29The year over year impacts of exploration of the UK VAT relief will continue while we lap the reduced rates that were in place through March 31, 2022. Our international business added 318 net new stores in Q4 comprised of 406 store openings and 88 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 the market As well as some closures in Russia, where our master franchisee, as previously announced by them, continues to explore opportunities to exit the business in that market. This brought our current 4 quarter net store growth rate in international to 7.4%. When combined with our U. Speaker 400:22:25S. Store growth, Our trailing 4 quarter global net store growth rate was 5.5%. The 5.5% is impacted by a significant increase in international closures this year as compared to our historical run rate, including in Brazil, Italy and Russia. Turning to EPS. Our diluted EPS in Q4 was $4.43 versus $4.25 in Q4 2021. Speaker 400:22:58Breaking down that $0.18 increase in our diluted EPS, our operating results benefited us by $0.27 Changes in foreign currency exchange rates negatively impacted us by 0 point 22 dollars Our lower effective tax rate positively impacted us by $0.20 driven by the discrete impact from the reversal of our tax reserve based on a recent tax law change related to one of our foreign subsidiaries during 2022. Lower net interest expense benefited us by $0.04 The refranchising gain recognized from our 4th quarter store transaction benefited us by $0.46 The unrealized gain recognized on our remeasurement related to our investment in DASH in 20 21 negatively impacted us by $0.68 and a lower diluted share count Driven by share repurchases over the trading 12 months benefited us by $0.11 Transitioning to the full year, I would like to hit on a few financial highlights for 2022. Global retail sales grew 3.9% for the year, excluding the impact of foreign currency. Same store sales in the U. S. Speaker 400:24:24Declined 0.8% and international excluding FX grew 0.1%. We and our franchisees opened 10 32 net new stores during the year despite significantly higher closures this year In our international markets as previously discussed. Our food basket for the year was up 13.2% reflecting the strong impact of inflation. Our G and A for the year was $417,000,000 Down 2.8% versus $428,000,000 in 2021. Operating income was down $12,000,000 versus 2021, including the $21,000,000 impact of the refranchising gain. Speaker 400:25:13Operating income margin was positively impacted by 50 basis points due to the refranchising gain, but this was fully offset by the negative impact from foreign currency. If foreign currency remains at current levels Our increases is a headwind going forward. We expect that this will be a barrier to recovering to our pre pandemic operating income margins. Although we face operating headwinds in 2022, we continue to generate sizable free cash flow. During 2022, we generated net cash provided by operating activities of approximately $475,000,000 After deducting for capital expenditures of approximately $87,000,000 which consisted of investments in our technology initiatives And supply chain centers, we generated free cash flow of approximately $388,000,000 Free cash flow decreased $172,000,000 from 2021 due primarily to changes in working capital, including accrued liabilities and income taxes, as well as higher advertising fund spend and lower net income. Speaker 400:26:29During the year, we returned over $450,000,000 to shareholders through share repurchases of $294,000,000 And dividends of $158,000,000 As of the end of the year, we had approximately $410,000,000 remaining under our current Board authorization for share repurchases. Our Board has also approved a 10% increase from our prior quarterly dividend to $1.21 that is payable on March 30th this year. Looking forward to 2023, we would like to provide our annual guidance measures for the year. We currently project that the store food basket within our U. S. Speaker 400:27:15System will be up 3% to 5% as compared to 2020 We expect the Q1 food basket increase to be higher than the rest of the year. We estimate that changes in foreign currency exchange rates could have a $2,000,000 to $6,000,000 negative impact International royalty revenues in 2023 as compared to 2022 if foreign exchange rates remain at current levels. The negative impact of currency is expected to be higher in the first half of the year based on current rates. We anticipate our CapEx investments will be between $90,000,000 $100,000,000 as we continue to strategically invest in our business and prioritize our spend. We expect our G and A expense to be in the range of $425,000,000 to $435,000,000 Our tax rate excluding the impact of equity based compensation is expected to range from 22% to 24%. Speaker 400:28:21Finally, given the current macroeconomic headwinds that are impacting our U. S. Delivery business in particular, We are updating our 2 to 3 year outlook from 6% to 10% global retail sales growth to 4% to 8% global retail sales growth And unit growth from 6% to 8% global net unit growth to 5% to 7% global net unit growth. We expect 2023 to come in towards the low end of the ranges for both metrics. We look forward to providing more details at an Investor Day we will hold before the end of calendar 2023. Speaker 400:29:01Thank you all for joining the call today. And now I will turn it back to Russell. Speaker 200:29:06Thank you, Sandeep. The Domino's system has a lot to be proud of, And we also have opportunities to address. We pride ourselves on being a work in progress brand and there is no better way to describe this period in our history. As we saw in the last recession, delivery moves with the economy, especially for customers with lower disposable income, who represent a significant portion of our business. As it was in Q4 of 2022, we expect the economy to be a headwind for our delivery business in 2023. Speaker 200:29:39While we expect to continue to grow QSR Pizza delivery share, we also expect the delivery sales will be challenged. Every day delivery customers will be deciding where to spend their hard earned dollars. So we need to maintain value and continue to improve our service. On the subject of value, moving the $5.99 mix and match offer we launched in December of 2009 to $6.99 in 2022 Was the right decision for our brand. That said, we and our franchisees must be vigilant When I look back at my 14 years at Domino's, we were at our best when we brought big ideas to market. Speaker 200:30:31These ideas helped us tell great brand stories. Coming out of COVID, we became more transactional with our customers than I would have liked. This was understandable as our team needed to pivot and react to some of the labor constraints we discussed earlier in the year. I'm encouraged at the way we ended 2022 and have begun 2023. We and our franchisees reinforced our position as the delivery leader By introducing a fleet of 800 electric delivery vehicles, Domino's now has the biggest electric fleet of pizza delivery vehicles in the country. Speaker 200:31:08In carryout, we brought back our innovative carryout tips promotion, which continues to drive value and news in that segment. We launched Loaded Toss in early 2023. Adding a potato side to our menu has been a goal for many years, But it was difficult to find a product that delivered well and didn't end up in customers' homes cold and soggy. Loaded Tops delivers literally and figuratively and continues our innovation strategy of adding platforms that are incremental to our menu. In 2023, we will also refresh and improve our Piece of the Pie loyalty program. Speaker 200:31:49We finished last year with approximately 30,000,000 active members in the program and over 77,000,000 total members in our loyalty database. We launched Piece of the Pie in the fall of 2015. There is an opportunity to innovate and grow this program further By unlocking value to an even wider base of customers, Domino's has been called many things over the years, A pizza company, a delivery company, a marketing company, a technology company, all of those are true. But when we are at our best, we're also an innovation company. Product, service and technology innovation with a very specific purpose, to give our customers and store team members the best possible pizza experience, to tell one of a kind brand stories and to over deliver on expectations. Speaker 200:32:39This is what you have come to expect and should continue to expect from Domino's Pizza. With that, we'll open the call to questions. Operator00:33:00And our first question comes from the line of Brian Bittner from Oppenheimer. Your question please. Speaker 200:33:07Thank you. Good morning. My question is on unit growth. Just first on the 2 to 3 year algorithm change moving to 5 to 7 from 6 to 8. Can you just help us understand the drivers that forced this change? Speaker 200:33:22Is it primarily because of the decelerating U. S. Outlook? Or is there other factors that maybe you'd like to take this moment to unpack for us? And second to that, Sandeep, you said in 2023, Unit growth should be at the low end of this new range, kind of near the 5% area. Speaker 200:33:41Can you just paint a scenario for us where you accelerate From the bottom of this range, is there a catalyst that you see emerging following 2023 that we should be thinking about that makes the midpoint of this range More of a base case for unit growth moving forward. Thanks. Speaker 400:34:01Good morning, Brian. Thank you for the question. And so So let me start first with the rationale for the unit growth update from 6% to 8% to 5% to 7%. As we said In the prepared remarks as well, I think the U. S. Speaker 400:34:16Delivery business and the constraints that we see in front of us on the U. S. Delivery business Are a big driver of the decision to actually slow down the expectations from a unit growth standpoint. And as you also noted from my prepared remarks, the headwinds that we saw throughout 2022 are expected to continue into the first half Of 2023 and that is going to put pressure on the unit growth that we expect to see as we go forward In 2023. And I think in terms of what the catalyst would be, the answer is a little bit in terms of what I talked about On the U. Speaker 400:34:56S. Growth itself and the cadence. So the first half of the year is going to continue to be pressured for the same reasons that it was pressured in 2022. But as we move into the second half of the year, the pipeline that we have for 2023 looks really encouraging. And I think this is on the back of Economics have continued to be very compelling. Speaker 400:35:15We're delivering $137,000 in EBITDA with all the pressures that we face from an inflationary standpoint On food costs, labor and just general costs in the P and L and that's literally within $6,000 of 20.19 levels. And most encouragingly, the exit rate from Q4 had the EBITDA levels that we're estimating above 2019 levels. This is really a manifestation of the price increases that we took on the national offer of a mix and match in the Q4 in particular For carryout, beginning to flow through, the flow through benefits for the franchisee P and L are very compelling And we feel that if this continues, this cadence as we move forward in 2023 notwithstanding the 3% to 5% food basket increase that they're looking at, Franchisees are in a very good place to continue improving their profitability and that's why we feel so confident with the pipeline that we're seeing in 2023. Economics back it up. Paybacks continue to be very strong at roughly 3 years. Speaker 200:36:21Thank you. Thank you. Operator00:36:24Thank you. One moment for our next question. And our next question comes from the line of Peter Saleh from BTIG, your question please. Speaker 500:36:34Great. Thanks. Russell, you alluded to some changes to the rewards Program in 2023, I was hoping you could add a little bit more color to that. That feels like it could be Meaningful driver as it's been a driver for you guys for several years in the past. So just any update on that would be beneficial. Speaker 500:36:56Thanks. Speaker 200:36:57Sir, good morning and thanks, Peter. As I said during my remarks, we've been pleased with this program. We launched it in 2017. We've got Over 30,000,000 active members, 77,000,000 total members and really at this point as we think about The evolution of the rewards program, it is about taking the best and keeping the best of what we have and then continuing to dial up on where the opportunities are. And so, and we're not going to talk to the specifics of it now, but I think when you see us launch it later on this year, You'll see those who are joining the program, continue to are going to continue to enjoy the positives of it. Speaker 200:37:40And probably some of our less frequent customers are going to be incented to do more. And I should tell you, I'm sorry, I misspoke, The launch of the loyalty program was 2015, not 2017. Speaker 500:37:53Thanks. And then just one follow-up for Sandeep. Is it possible to get restaurant level margins for the franchisees back to 2020, 2021 levels With this mix of carryout delivery or do you really need delivery to research here to get back to those types of margins? Thanks. Speaker 400:38:18Thanks, Peter, for that question. Look, in terms of where we were in terms of restaurant level margins on the franchisee side, What you did see from a cadence standpoint was the profitability, it really went up Pretty significantly between 2019 2021 from 143 to 174, I believe in 2021. But I think the cost increases that have actually come through have been really significant. And I think until that kind of beds in and the price increases that we've taken We start normalizing. It's going to take some time. Speaker 400:38:54Over time, of course, I think we get back to those levels of profitability in Absolute dollars, but I think in the short term, we're looking at small steps and I talked about Q4 specifically because we are now inflecting. We're now inflecting the trend and I think with the adjustments that we've made on the pricing architecture, we're in a good place with the franchisees And we hope that as we move into 2023, this continues to accelerate and helps them actually see even better profitability in 2023. Operator00:39:25Thank you. One moment for our next question. And our next question comes from the line One moment. From Sara Senatore from Bank of America, your question please. Speaker 300:39:39Yes. Can you Can you hear me? Thank you. I wanted to ask about sort of comments on the comp and the macro environment. We're really not Seeing very much softness or evidence of price sensitivity across the rest of the industry. Speaker 300:39:55And I understand delivery might be different, but I guess The question is twofold. One is, is there any reason to think that maybe your pricing could be higher? You seem to be lagging the industry by 2 to 4 points and that's roughly where your comp gap is, I would say. So as you think about pricing, is there room to maybe take more on the menu and perhaps Less on delivery fees. And then separately, does this increase the likelihood or the Attractiveness of partnering with aggregators, not delivery as a service, but as a marketing platform, virtually everybody who has Done that has suggested that the income cohort is higher on aggregator platforms and that it's incremental To the to whomever may be ordering through the proprietary ordering. Speaker 300:40:45So I'm just trying to piece together everything that's happening in the context of pizza being A very good value in Absolute, but the lag versus the overall industry and maybe some drivers. Thanks. Speaker 200:40:58Yes. Thanks, Sarah. It's a great question. I think what I'll do is take a little step back and just give perspective on our business. As you said, it's a unique one. Speaker 200:41:0960% of our sales are delivery. When we talked in our comments about the QSR delivery category, Down the pizza delivery category was down. Domino's actually gained share. So it's not the prettiest way to gain share, But in a macroeconomic time where the entire delivery QSR category is pressured, We grew share in the pizza category. That's 60% of our business. Speaker 200:41:37And when that's 60% of your business, you're going to see the numbers fall out the way they did. Now, What I like to think about when I talk about the present and future of Domino's is how much more diverse we are than we were years ago. So think about our carryout business that's not encumbered by any of those headwinds. It was up 14% to 15% in Q4, over 30% over the last We have 3 years, dollars 1,000,000,000 over the last 3 years. That's really a business that's on fire. Speaker 200:42:07And then internationally, we Open more organic stores than we ever have in our history. And so I think you just need to have that perspective of looking at our entire business, How we're performing in delivery, how that performance is actually making us better. So when we come out of this, we're going to be a better delivery company, but how the more complete Domino's is in a better place as we head through these tougher times. So if I were to take that as a backdrop as to your second question on aggregated for delivery, again, like I said, we're continuing to grow Share of delivery pizza here. We do work with aggregators globally. Speaker 200:42:50We've got $1,000,000,000 in sales outside of the U. S. Where we're learning every day. And while we do that, we're doing things like continuing to improve our ordering experience and improving the loyalty program as I spoke about to make sure our delivery ordering experience is better than everybody else's. Operator00:43:12Thank you. One moment for our next question. And our next question Comes from the line of Jeffrey Farmer from Gordon Haskett. Your question please. Speaker 600:43:22Good morning. You guys stated that you're proud of the work that you've done with franchisees To address labor constraints in delivery business, can you just elaborate on what you've done there To sort of shore up some of the driver need, and do you believe that staffing shortfalls are no longer having A material impact on your relative same store sales performance? Speaker 200:43:48Yes. Thanks for the question. Look, we're satisfied with the We're never going to be satisfied until every delivery is there as expeditiously as we can get it. So we're satisfied, but what I'd say is we have more work to do. So our service times are better. Speaker 200:44:06They're not better Than they were in 2019 and that's a place we need to go. When you look at our corporate stores, trying to think about that as A proxy for what's going on in the rest of the business, corporate stores are hires are at pre pandemic levels now, turnover is down, Job applications are up and we're getting people through the system faster on applications. We talked about call centers. We didn't really mention it on this call, but about half our stores are on call centers right now. Not every single call goes through the call centers, but they're there to help, and that makes the job easier for our team members. Speaker 200:44:48We have a lot of operation simplification processes that we've put into place that we're really excited sharing with you guys when you And then something that I'd point to that we just launched was this EV fleet. So we have an EV fleet of 800 Vehicles, but that actually is part of a larger kind of strategic Shift you're starting to see with our franchisees and corporate stores and purchasing vehicles. And what that enables us to do is attract folks who've got Drivers' licenses, but maybe don't have access to vehicles. So when you put all that stuff together, you're seeing a more efficient inflow of people, More efficient operations, new pools of driver, that's why you're seeing the sequential improvement in the first and 5th quintile. And that's why we got another Boost Week coming up back to the regular cadence as we said we would do in Q3. Operator00:45:51Thank you. One moment for our next question. And our next Question comes from the line of Brian Mullen from Deutsche Bank. Your question please. Speaker 100:46:01Hey, thank you. Just a question on Speaker 600:46:03the carryout business in the U. Speaker 700:46:04S. In the quarter, same store sales were up 31% versus 2019, very, very strong on an absolute basis. It sounds like that trend 1st 19 did decelerate a little bit, a few 100 basis points versus the 35% you saw in the 3rd quarter. Just wondering if you could speak to the dynamics you think were at play in the quarter in carryout and what might have been behind that deceleration, if anything worth noting? Speaker 400:46:30Brian, good morning. I think, look, on our carrier business, when we look at it, when we look at 3 year stacks Of 31% on a business that has actually grown over $1,000,000,000 over the last 3 years, you get to a point where The sequential change is sometimes going to be off a little bit, but I don't think it really reflects on the underlying business. The underlying business is extremely strong. We are really pleased about what we're seeing in the Carrier business, both as we look back on 2022 and as we look forward into 2023. So, super happy with what we've seen. Operator00:47:10Thank you. One moment for our next question. And our next question comes from the line of Dennis Geiger from UBS. Your question please. Speaker 600:47:20Great. Thank you. I wanted to ask another one on the U. S. Delivery challenges and how you address those biggest issues there. Speaker 600:47:27Russell, you just mentioned a focus on making the order experience better than everyone else's. And I think at the end of your prepared remarks, you gave a bunch of points of focus for sales going forward. But can you talk just a bit more about The biggest opportunities to address the delivery pressures right now, just how difficult it is to overcome This kind of macro pressure and but again, ultimately, how you can do that within your brand? Thank you. Speaker 200:47:54Yes, sure. Look, I mean, I think part of the answer to your question within your question. The delivery pressures are a macroeconomic thing. And so, Like I said, while it's not a pretty way to grow share, when you're growing share in a category that has got headwinds, that means you're kind of outperforming the rest of the category. Now that's not what we like to see in our overall numbers, but you're really talking about macro pressures. Speaker 200:48:20And so what I look at is all the things that we're doing now to get better in delivery with hiring folks, with Having a tighter circle of operations with innovating, with technology, all of these things, so that what is now a share increase in a category that's got headwinds, When those headwinds will subside and look, I joined during the time during the last recession, we boomed out of that recession, Because I think as we said last time, we knew this, delivery because of delivery fee and because of tips, They're going to have extra headwinds during these economic times. So I like to look at how are we performing during these times? Are we getting better during these times? So when that pressure is gone, you should see us accelerate. Operator00:49:09Thank you. One moment for our next question. And our next question comes from the line of Andrew Strelzik from BMO. Your question please. Speaker 800:49:19Hey, good morning. Thanks for taking the question. Mine is actually a follow-up to your prior answer. And I guess, my question is about Balancing kind of maybe being more aggressive and kind of creating a bridge through the macro challenges instead of maybe what sounds like a more Incremental approach is kind of how I'm understanding what you're talking about, kind of incremental steps and then a real acceleration as the macro improves. So how do you think about potential Speaker 200:49:53Yes, Andrew, great question. And that's kind of what I was Talking to really at the end, look, during COVID, we were clear during the pandemic that we had capacity issues. And so the type of delivery innovation there you are seeing more on things like car side delivery or Contactless delivery and so I'm not going to talk to innovations moving forward, but that's an important piece for us. If we want to break out of the category, then we need to break out of the category from an innovation standpoint and that's we'll talk product later. I could talk Tots all day, but there are innovations that are going to help us in addition to EV fleet on the technology side That should help us break away from the crowd. Operator00:50:47Thank you. One moment for our next question. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question please. Speaker 100:50:57Hey, thanks for the question. Russell, you talked a little bit about broadening value from the national coupon offers to maybe the rest of the menu. Can you expand on what that looks like and Maybe what customer feedback you're getting that's driving you to or franchisees to reassess that? Thanks. Speaker 200:51:14Yes, sure. Thanks. Well, I just want to reiterate our positive look to the change we made in our mix and match moving to 699, both Delivery and carryout, it was absolutely the right thing. As you know, our franchisees and local stores control their own menu pricing And all the models in the world, all the experience in the world with the headwinds and changes in Food cost and labor and things like that folks pretty quick. And I think if we were to look at some of our stores, Things that are not on promotions, so menus and maybe some case delivery fee, price may have got a little bit of ahead. Speaker 200:51:58We need to be of value, not just in our national offer. Sometimes people want medium 2 top pizzas. A lot of times they want medium 2 top pizzas, but sometimes they want other things too. And it's just making sure that we have the right value across the other pieces of our menu. We'll be working with our franchisees on that. Operator00:52:20Thank you. One moment for our next question. And our next question comes from the line of Lauren Silverman from Credit Suisse, your question please. Speaker 900:52:30Thank you for the question. I appreciate all the commentary on franchise EBITDA and payback. Can you just level set where development costs are running today? I think they were around $350,000 or so in 2019, Trying to figure out where that stands now. And then Sandeep, I think you might have said franchise V EBITDA could actually grow in 2023 versus 2022. Speaker 900:52:51Did I understand that correctly? Speaker 400:52:54Yes. Thanks, Lauren for the question. And I'll start with the last part, then we'll go back to the first part. So I think in terms of franchise EBITDA, we expect 'twenty three to be improved versus 'twenty two for sure, Given the pricing changes that we made towards the back half of the year and the lowering pressure from food basket and costs That we anticipate in 2023. But I think in terms of the development costs, the answer is it kind of varies. Speaker 400:53:22It depends on where exactly where We're building stores and there's a big range in terms of development costs around the country. And so as we're coming out of this constrained environment where we had Permitting and store construction issues. We are basically seeing that there is some cost pressure for sure, But I think getting into specifics on what that number is, is probably not right until we see this play out over the course of 2023. And I think at the right time, we'll be in a position to give you a better update in terms of where things are at. But essentially from a payback standpoint, The 3 year range of payback is still very much what franchisees are looking at and that's why they're making the investments they're making. Operator00:54:07Thank you. One moment for our next question. And our next question It comes from the line of John Ivankoe from JPMorgan. Your question please. Speaker 1000:54:17Hi, thank you. A 2 parter, if I may. First, U. S. Unit Development 1.9 percent, you've talked about splits of around 50 basis points. Speaker 1000:54:27So that would Suggest something like 25% on average of a split store comes from existing stores. And I wonder as you kind of think about The footprint going forward to 8,000 stores, if there'd be a way to reduce the sales impact from those splits, because obviously to the most nearby It would be much greater than 25%. So that's the first part of the question. And secondly, I think it's been some time since we talked about The test or some initiatives that you were specifically doing in the Houston market, if I remember correctly, is there anything To share that you're seeing there that I guess in theory we could see publicly if we went and found that selection of stores That maybe has some application to the Domino's system from efficiency or effectiveness in store delivery, whatever, We can maybe get a little preview of some of those initiatives on this call. Thank you so much. Speaker 400:55:25So I'll start off On the impact on unit growth and a split impact of what you're saying basically that you're referring to, John. As you we started really updating again during the course of 2022. And if you saw, we went from, I think, 0.7% fortressing impact And the Q2 2.5 percent now. So the impact on from fortressing is becoming less and less in terms of What effect it's got on the same store sales? We don't see it being a very, very significant impact As we move forward, but as we said, again, we're going to update if it really deviates from that. Speaker 400:56:09There's plenty of growth still that we actually see in our runway. We have the opportunity mapped out by our internal teams And we know that we can definitely go after that in the pipeline that we have from franchisees is on the back of Knowing what that opportunity looks like, the economics that they see coming out of it. And so I think we feel pretty good that we're the right balance on that. Speaker 200:56:33Yes. I would just add, John, we're transforming this company right now. Obviously, the delivery business is a hot topic today, but Carryout QSR is significantly bigger than delivery QSR. And so what we see is every time we open up a new store, not only do our Delivery times get tighter and hot pizza is actually hot food in general, by the way, which is why we're launching our tots because people want hot potatoes, pun intended. The delivery times get tighter, but also the carryout volume is very incremental. Speaker 200:57:09Consumers don't want to Customers don't want to walk that far, drive that far to get their pizza. So part of the transformation of this brand Into a more complete company is absolutely continuing to drive this store growth. As far as some things that we were doing at Houston, I think rather than me trying to describe things Overall call, I would really invite you to come to our meeting later this year, We're going to show that stuff live. It's just super hard to describe. But I would say at the end of the day, these are processes that enable us to get a hot Pizza to customers, obviously in a safe but faster way, but also improve the experience in the store for our team members and the resulting quality of that product. Speaker 200:58:02So hopefully that's enough to wet your whistle to come to Ann Arbor. Operator00:58:08Thank you. One moment for our final question. And our final question for today comes from the line of David Tarantino From Robert W. Baird, your question please. Speaker 200:58:20Hi, good morning. My question is on The margin outlook and Sandeep, I was wondering if you could help to frame up how you think the EBIT margin will progress If you hit the low end of your targeted range in 2023. Speaker 400:58:41Yes. So that's a great question, David. So look, I mean, as far as we're concerned, the guiding principles that we've actually outlined is Revenue should be growing faster than expenses. So when you look at our guidance range on global retail sales and you look at our guidance range on G and A, you can see that Essentially, even at the low end, our G and A is basically below that in terms of growth at the midpoint. And so I think straightaway that gets you into a place You can be margin accretive. Speaker 400:59:11So that's point number 1. Point number 2 is, we actually experienced a lot of headwinds this past year from foreign And I think that actually had a 50 basis point negative impact on our operating margin in 2022. Unfortunately, Given where we are, we still see a little bit more headwind, but not in the same magnitude given where current rates are. And so that would be an offset to some of that operating improvement. But from a mix standpoint with the corporate store sales that have actually happened, We'll now get 3 more full quarters from that. Speaker 400:59:45That helps our margins. So I think overall when we look at the margins, My expectation for margins is that margins will improve. But I think when we talked about pre pandemic margins of 2019 margins, With the currency headwinds that we experienced in 2022, that's probably further away than 2023, but it's not something that we're saying is unattainable. It's more a question of time and some of the other factors that hit the P and L. Operator01:00:14Thank you. This does conclude the question and answer session At the end of today's program, I'd like to hand the program back to Russell Weiner for any further remarks. Speaker 201:00:23Well, thank you, and thank you everybody for joining the call this morning. Sandeep and I look forward to speaking with you in April to discuss our Q1 results. Until then, we'll talk soon. Operator01:00:34Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallDomino's Pizza Q4 202200:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Annual report(10-K) Domino's Pizza Earnings HeadlinesDomino's Pizza (DPZ) Announces Key Amendments Following 2025 Annual Shareholders MeetingApril 25 at 10:34 PM | gurufocus.comUnpacking Q4 Earnings: Domino's (NASDAQ:DPZ) In The Context Of Other Traditional Fast Food StocksApril 25 at 2:12 PM | finance.yahoo.comTrump’s Secret Social Security Plan?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. 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The company operates through three segments: U.S. Stores, International Franchise, and Supply Chain. It offers pizzas under the Domino's brand name through company-owned and franchised stores. It also provides oven-baked sandwiches, pastas, boneless chicken and chicken wings, breads and dips, desserts, and soft drink products, as well as loaded tots and pepperoni stuffed cheesy breads. 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There are 11 speakers on the call. Operator00:00:00You for standing by, and welcome to Domino's Pizza's 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Operator00:00:28Ryan Goers, Vice President, Finance and Investor Relations. Please go ahead, sir. Speaker 100:00:34Thank you, and good morning, everyone. Thank you for joining us today for our conversation regarding the results of the Q4 and full year 2022. Today's call will feature commentary from Chief Executive Officer, Russell Weiner and Chief Financial Officer, Sandeep Reddy. As this call is primarily for our investor audience, I ask all members of the media and others to be in a listen only mode. I want to remind everyone that the forward looking statements in this morning's earnings release and 10 ks also apply to our comments on the call today. Speaker 100:01:05Both of those documents are available on our website. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors In addition, please refer to the 8 ks earnings release to find disclosures and reconciliations of non GAAP financial measures that may be referenced on today's call. Our request to our coverage analysts, we want to do our best this morning to accommodate as many of your questions as time permits. As such, we encourage you to ask only one one part question on this call. Speaker 100:01:38Today's conference call is being webcast and is also being recorded For replay via our website. With that, I'd like to turn the call over to our Chief Executive Officer, Russell Weiner. Speaker 200:01:50Thank you, Ryan, and thanks to all of you for joining us this morning. As we end 2022 and look back to the beginning of the pandemic, I'm encouraged by the incredible work done by Domino's team members and franchisees. Since the beginning of 2020, we and our franchisees have grown by 2,860 new stores around the world, when many restaurant brands closed stores or struggled to grow through an extremely Domino's is in over 90 markets and should hit 20,000 stores as a system in 2023. In the U. S, the QSR pizza category grew over the last 3 years with sales up almost 10% versus pre pandemic levels. Speaker 200:02:33Domino's serviced that growth resulting in a gain of approximately 3 share points in the QSR pizza category since 2019 according to NPD. We continue to grow our carryout business. Carryout now comprises approximately half of the orders and about 40% of sales in the U. S. Carryout remains highly incremental to delivery for us. Speaker 200:02:57And in cases where it's not incremental, customers are moving to a service method with significantly lower costs for our system. Our delivery business experienced both headwinds and tailwinds over the past 3 years. Our team focused efforts on finding solutions at every turn. Now to the 4th quarter. In the Q4, our results were mixed, particularly with the challenges in the U. Speaker 200:03:23S. Delivery business that we previewed during our Q3 call. During that call, I pointed to a couple of dynamics we were watching in the broader restaurant category that have since played out. First, as consumers return to many of their pre COVID eating habits, some of the sit down business that was a source of volume for restaurant delivery orders Return to that channel. 2nd, inflation impacted delivery due to the added expenses of fees and tips in that channel. Speaker 200:03:53Our research shows that a relatively higher delivery cost during inflationary times leads some customers to prepare meals at home instead of getting them delivered. We believe this dynamic will continue to pressure the delivery category in the short term as long as consumers' Disposable income remains pressured by macroeconomic factors. Despite these pressures, U. S. Delivery sales for Domino's in 2022 for more than $500,000,000 higher than the pre COVID baseline in 2019. Speaker 200:04:25Domino's delivery business was not alone in facing these challenges. According to NPD data, the entire QSR delivery category was down high single digits for fiscal year 2022. Not surprisingly according to NPD, pizza delivery was down as well. Given these industry wide headwinds, we're encouraged that while our delivery business was challenged in 2022, Domino's saw a moderate increase On the topic of delivery, while there's more work to do on staffing that part of the business, We feel like answers to this challenge exists within the Domino's system. Staffing has improved at all positions in our corporate restaurants, including drivers. Speaker 200:05:12Continuing to leverage internal best practices around delivery service, as well as innovations in this area like We and our franchisees have done to address labor constraints in the delivery business and know we have more to do. A consistent positive throughout 2022 has been the continued evolution of the Domino's business. This helped offset some of the macro challenges on the delivery side. In the U. S, we are a more complete restaurant company than ever, Running 2 businesses out of our stores. Speaker 200:05:50We are number 1 in the U. S. In both the delivery and carryout pizza segments of QSR. The carryout business continues to be a strength with tremendous momentum. In fact, U. Speaker 200:06:04S. Carryout retail sales for full year 2022 were more than $1,000,000,000 higher than pre COVID levels. More importantly, we still have a long runway for growth in this important segment of the business. Speaker 300:06:19To give Speaker 200:06:20you a sense of the current scale of our U. S. Carryout business, if it were a company of its own, Domino's carryout Would be counted amongst the top 20 QSR brands in America based on consumer spending obtained by NPD for the year ending December 2022. To support the growth of the business, we opened a new supply chain center in Merrillville, Indiana in September. As you know, we have invested significantly in our supply chain, opening 4 new centers since 2018. Speaker 200:06:51During the Q4, I visited our new center in Indiana. It has the latest in technology, automation and new operational procedures. Merrillville represents an incredible testing ground for the future of Domino's supply chain, and we look forward to bringing the best parts Of what we learned in Indiana to other centers around the country over time. 2022 was a strong year for global store growth. We and our franchisees had nearly 1300 gross openings around the world in 2022. Speaker 200:07:23For context, That's about 3.5 new store openings per day on average, while operating in a difficult environment for development. This is a testament to the strength of the Domino's brand around the world. Our team members and franchisees have continued to show the agility and perseverance required to operate and grow Domino's footprint in a volatile macroeconomic environment. Looking specifically at our international business, The 11.35 gross openings outside of the U. S. Speaker 200:07:55Were the highest organic openings in our history, meaning they were achieved without any of our master franchisees conducting a large scale conversion of another pizza chain. One of my personal highlights during the quarter was the opportunity to be in market with 1 of our largest master franchisees Jubilant FoodWorks. In December, I met with their team in New Delhi, where they reiterated their goal to grow to over 3,000 stores in India over the next 5 years, which would further cement Domino's position as the leading QSR brand in this critical global market. Additionally, Jubilant is inspiring our global system to raise the bar on service with their new 20 minute delivery zones. I was able to see these in action when I was touring stores. Speaker 200:08:44Service has always been a key differentiator for the Domino's brand and Jubilant is extending its delivery service advantage in India. How are they able to do this? With incredible operations enhanced by a global fortressing strategy. When we and our franchisees build more stores, we can get closer to customers and improve delivery and carryout service. Now for more detail on our Q4 results, I'd like to turn it over to our CFO, Sandeep Reddy. Speaker 200:09:12Sandeep? Speaker 400:09:13Thank 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, we are continuing to examine and evolve our pricing architecture. During the Q4, the average year over year price increase that was realized across our U. S. Speaker 400:09:37System was 6.3%. The realized pricing for full year 2022 was 5.4%. 2nd, efficiencies in our cost structure as we seek to ensure that revenues consistently grow faster than expenses. We saw another sequential improvement in year over year operating income margin as a percentage of revenues As margins expanded 130 basis points in Q4 versus the 160 basis points contraction in Q3. Even if you exclude the 150 basis points benefit to operating income margin from the $21,200,000 refranchising gain Recognized in the quarter, the contraction in year over year operating income margin as a percentage of revenues in the quarter Sequentially improved by 140 basis points versus Q3. Speaker 400:10:343rd, we had positive same store sales growth excluding foreign currency impact in both our U. S. And international businesses. For the first time since Q4 2021, contributing to improving our operating income leverage. Now our financial results for the quarter in more detail. Speaker 400:10:57When excluding the negative impact of foreign currency, Global retail sales grew 5.2% due to positive sales comps and global store growth over the trailing 4 quarters, lapping 9% global retail sales growth excluding FX and the 53rd week impact in 2020 In Q4, 2021, as we have discussed in the past, we believe it has been instructive to look at the cumulative stack of sales Across the business anchored back to 2019 as a pre COVID baseline. With the evolving macroeconomic conditions, We do not currently believe it will be relevant to anchor back to 2019 going forward and anticipate returning to evaluating the business On a 1 year comp basis in 2023. Looking at the 3 year stack, Our Q4 2022 global retail sales excluding foreign currency impact grew over 26% Versus Q4, twenty nineteen. Breaking down total global retail sales growth, U. S. Speaker 400:12:08Retail sales increased 2.7% rolling over a prior increase of 4.6% excluding the impact of the 53rd week in 2020 and are up more than 21% on a 3 year stack basis relative to Q4, twenty nineteen. International retail sales excluding the negative impact of foreign currency grew 7.5%, Rolling over a prior year increase of 13.2%, excluding the impact of the 53rd week in 2020 and are up more than 30% on a 3 year stack basis relative to Q4, 2019. Turning to comps. During Q4, same store sales for the U. S. Speaker 400:12:56Business increased 0.9%, Rolling over a prior year increase of 1% and were up 13.1% on a 3 year stack basis Relative to Q4 twenty nineteen. This represented a sequential deceleration of 4.5% From Q3 on a 3 year stack basis, as we saw clear evidence of softening demand from delivery customers in particular, given the challenging macroeconomic environment during the holidays. The estimated impact of fortressing was 0.5 percentage points During the quarter across the U. S. System. Speaker 400:13:37Going forward, we will only update the impact of fortressing if the change in impact is material. The increase in U. S. Same store sales in Q4 Was driven by an increase in ticket, which included the 6.3% in pricing actions I mentioned earlier, partially offset by a decline in order counts. As we have previously shared, We believe it is instructive to break U. Speaker 400:14:07S. Stores into quintiles based on staffing levels relative to a fully staffed store To give a sense for the magnitude of the impact of staffing. Looking at Q4 same store sales, Stores in the top 20%, those that are essentially close to fully staffed, on average outperformed stores in the bottom 20%, Those that are facing the most significant labor shortages by less than 2 percentage points. This is down sequentially from the approximate 6 Now I'll share a few thoughts specifically about the U. S. Speaker 400:14:47Carryout and delivery businesses. The carryout business was strong in Q4 with U. S. Carryout same store sales 14.3% positive compared to Q4, 2021. On a 3 year basis, carryout same store sales were up 31% versus Q4, 2019. Speaker 400:15:11The gap for carryout between the top and bottom quintiles based on staffing levels remained small during the quarter. The delivery business continued to be more pressured. Q4 delivery same store sales declined by 6.6% relative to Q4 2021. Looking at the business on a 3 year stack, Q4 delivery same store sales were 3.3% above Q4 twenty nineteen levels. When we look at the same quintiles relative to the delivery business, The gap between the top and bottom quintile stores closed considerably. Speaker 400:15:56We saw only a 2 percentage point gap In delivery same store sales between stores in the top 20% and those in the bottom 20%. This represents a sequential improvement From the 8 percentage point gap in the 3rd quarter. The 2 percentage point gap is in line with the expected gap in performance in a normal operating environment and we believe is no longer a significant driver of sales performance. We do not intend to continue disclosing the performance by staffing Quintiles in the future. Our U. Speaker 400:16:32S. Carryout business is going from strength to strength and our Pizza QSR carryout market share Is up close to 200 basis points in 2022 and up close to 500 basis points since 2019. Our market share in total pizza QSR, which includes delivery, carryout and sit down, Continued to hold steady over the past year and is still up close to 300 basis points versus 3 years ago. Before I conclude my comments on market share, I would like to touch on channel dynamics For Pizza QSR versus non Pizza QSR based on data we received from NPD. As Russell mentioned earlier, delivery in 2022 was down in both Pizza QSR And non pizza QSR, while sit down was up significantly in both. Speaker 400:17:33In the case of pizza QSR, This was driven more by a shift from delivery to sit down and cooking at home. In the case of non pizza QSR, Growth in sit down was potentially driven by a shift from delivery, but also from carryout. Domino's business model in the U. S. Has historically been focused mostly on the delivery and carryout channels. Speaker 400:18:00So the shift to sit down hurts us relative to others in the non pizza QSR who historically have had business models That included sit down and carryout, but have now added delivery to their distribution channels. We expect this dynamic to continue to play out in 2023 as sit down despite recent growth It's still below 2019 levels. Shifting to unit count. We and our franchises added 43 net new Stores in the U. S. Speaker 400:18:35During Q4 consisting of 50 store openings and 7 closures bringing our U. S. System store count The 6,686 stores at the end of the quarter, which brought our 4 quarter net store growth rate in the U. S. To 1.9%. Speaker 400:18:54This deceleration in growth was expected in light of the permitting and store construction supply chain challenges we have faced all year. While we expect the first half of the year for U. S. Store openings to continue to be challenging due to a continuation of these same factors, Based on our current pipeline, we expect a gradual recovery starting towards the second half of twenty twenty three. 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. Speaker 400:19:34The average Domino's store in the U. S. Generated more than $1,300,000 in sales During 2022, we currently estimate that our 2022 average U. S. Franchisee store EBITDA Was close to $137,000 not much below the 2019 estimated EBITDA of $143,000 In fact, estimated average store profitability was higher in Q4 2022 than Q4 2019. Speaker 400:20:10We will update the final number on our Q1 call. With our continued strong four wall economics, We remain bullish on the long term unit growth potential in the U. S. And we maintain our conviction that the U. S. Speaker 400:20:24Can be an 8,000 plus store market for Domino's. New store openings paybacks remained strong with stores opened in 2019, averaging around 3 year paybacks similar to the 2018 vintage. Same store sales excluding foreign currency impact For our international business increased 2.6% rolling over a prior year increase of 1.8% and were up nearly 12% on a 3 year stack basis relative to Q4, twenty nineteen. We continue to face the headwind of the negative year over year impact of the expiration of the 2021 VAT relief in the UK, Our largest international market by retail sales. The 4th quarter impact was around half the magnitude of the second and third quarter As the UK VAT relief was reduced from 15% to 7.5% in 2021 on October 1. Speaker 400:21:29The year over year impacts of exploration of the UK VAT relief will continue while we lap the reduced rates that were in place through March 31, 2022. Our international business added 318 net new stores in Q4 comprised of 406 store openings and 88 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 the market As well as some closures in Russia, where our master franchisee, as previously announced by them, continues to explore opportunities to exit the business in that market. This brought our current 4 quarter net store growth rate in international to 7.4%. When combined with our U. Speaker 400:22:25S. Store growth, Our trailing 4 quarter global net store growth rate was 5.5%. The 5.5% is impacted by a significant increase in international closures this year as compared to our historical run rate, including in Brazil, Italy and Russia. Turning to EPS. Our diluted EPS in Q4 was $4.43 versus $4.25 in Q4 2021. Speaker 400:22:58Breaking down that $0.18 increase in our diluted EPS, our operating results benefited us by $0.27 Changes in foreign currency exchange rates negatively impacted us by 0 point 22 dollars Our lower effective tax rate positively impacted us by $0.20 driven by the discrete impact from the reversal of our tax reserve based on a recent tax law change related to one of our foreign subsidiaries during 2022. Lower net interest expense benefited us by $0.04 The refranchising gain recognized from our 4th quarter store transaction benefited us by $0.46 The unrealized gain recognized on our remeasurement related to our investment in DASH in 20 21 negatively impacted us by $0.68 and a lower diluted share count Driven by share repurchases over the trading 12 months benefited us by $0.11 Transitioning to the full year, I would like to hit on a few financial highlights for 2022. Global retail sales grew 3.9% for the year, excluding the impact of foreign currency. Same store sales in the U. S. Speaker 400:24:24Declined 0.8% and international excluding FX grew 0.1%. We and our franchisees opened 10 32 net new stores during the year despite significantly higher closures this year In our international markets as previously discussed. Our food basket for the year was up 13.2% reflecting the strong impact of inflation. Our G and A for the year was $417,000,000 Down 2.8% versus $428,000,000 in 2021. Operating income was down $12,000,000 versus 2021, including the $21,000,000 impact of the refranchising gain. Speaker 400:25:13Operating income margin was positively impacted by 50 basis points due to the refranchising gain, but this was fully offset by the negative impact from foreign currency. If foreign currency remains at current levels Our increases is a headwind going forward. We expect that this will be a barrier to recovering to our pre pandemic operating income margins. Although we face operating headwinds in 2022, we continue to generate sizable free cash flow. During 2022, we generated net cash provided by operating activities of approximately $475,000,000 After deducting for capital expenditures of approximately $87,000,000 which consisted of investments in our technology initiatives And supply chain centers, we generated free cash flow of approximately $388,000,000 Free cash flow decreased $172,000,000 from 2021 due primarily to changes in working capital, including accrued liabilities and income taxes, as well as higher advertising fund spend and lower net income. Speaker 400:26:29During the year, we returned over $450,000,000 to shareholders through share repurchases of $294,000,000 And dividends of $158,000,000 As of the end of the year, we had approximately $410,000,000 remaining under our current Board authorization for share repurchases. Our Board has also approved a 10% increase from our prior quarterly dividend to $1.21 that is payable on March 30th this year. Looking forward to 2023, we would like to provide our annual guidance measures for the year. We currently project that the store food basket within our U. S. Speaker 400:27:15System will be up 3% to 5% as compared to 2020 We expect the Q1 food basket increase to be higher than the rest of the year. We estimate that changes in foreign currency exchange rates could have a $2,000,000 to $6,000,000 negative impact International royalty revenues in 2023 as compared to 2022 if foreign exchange rates remain at current levels. The negative impact of currency is expected to be higher in the first half of the year based on current rates. We anticipate our CapEx investments will be between $90,000,000 $100,000,000 as we continue to strategically invest in our business and prioritize our spend. We expect our G and A expense to be in the range of $425,000,000 to $435,000,000 Our tax rate excluding the impact of equity based compensation is expected to range from 22% to 24%. Speaker 400:28:21Finally, given the current macroeconomic headwinds that are impacting our U. S. Delivery business in particular, We are updating our 2 to 3 year outlook from 6% to 10% global retail sales growth to 4% to 8% global retail sales growth And unit growth from 6% to 8% global net unit growth to 5% to 7% global net unit growth. We expect 2023 to come in towards the low end of the ranges for both metrics. We look forward to providing more details at an Investor Day we will hold before the end of calendar 2023. Speaker 400:29:01Thank you all for joining the call today. And now I will turn it back to Russell. Speaker 200:29:06Thank you, Sandeep. The Domino's system has a lot to be proud of, And we also have opportunities to address. We pride ourselves on being a work in progress brand and there is no better way to describe this period in our history. As we saw in the last recession, delivery moves with the economy, especially for customers with lower disposable income, who represent a significant portion of our business. As it was in Q4 of 2022, we expect the economy to be a headwind for our delivery business in 2023. Speaker 200:29:39While we expect to continue to grow QSR Pizza delivery share, we also expect the delivery sales will be challenged. Every day delivery customers will be deciding where to spend their hard earned dollars. So we need to maintain value and continue to improve our service. On the subject of value, moving the $5.99 mix and match offer we launched in December of 2009 to $6.99 in 2022 Was the right decision for our brand. That said, we and our franchisees must be vigilant When I look back at my 14 years at Domino's, we were at our best when we brought big ideas to market. Speaker 200:30:31These ideas helped us tell great brand stories. Coming out of COVID, we became more transactional with our customers than I would have liked. This was understandable as our team needed to pivot and react to some of the labor constraints we discussed earlier in the year. I'm encouraged at the way we ended 2022 and have begun 2023. We and our franchisees reinforced our position as the delivery leader By introducing a fleet of 800 electric delivery vehicles, Domino's now has the biggest electric fleet of pizza delivery vehicles in the country. Speaker 200:31:08In carryout, we brought back our innovative carryout tips promotion, which continues to drive value and news in that segment. We launched Loaded Toss in early 2023. Adding a potato side to our menu has been a goal for many years, But it was difficult to find a product that delivered well and didn't end up in customers' homes cold and soggy. Loaded Tops delivers literally and figuratively and continues our innovation strategy of adding platforms that are incremental to our menu. In 2023, we will also refresh and improve our Piece of the Pie loyalty program. Speaker 200:31:49We finished last year with approximately 30,000,000 active members in the program and over 77,000,000 total members in our loyalty database. We launched Piece of the Pie in the fall of 2015. There is an opportunity to innovate and grow this program further By unlocking value to an even wider base of customers, Domino's has been called many things over the years, A pizza company, a delivery company, a marketing company, a technology company, all of those are true. But when we are at our best, we're also an innovation company. Product, service and technology innovation with a very specific purpose, to give our customers and store team members the best possible pizza experience, to tell one of a kind brand stories and to over deliver on expectations. Speaker 200:32:39This is what you have come to expect and should continue to expect from Domino's Pizza. With that, we'll open the call to questions. Operator00:33:00And our first question comes from the line of Brian Bittner from Oppenheimer. Your question please. Speaker 200:33:07Thank you. Good morning. My question is on unit growth. Just first on the 2 to 3 year algorithm change moving to 5 to 7 from 6 to 8. Can you just help us understand the drivers that forced this change? Speaker 200:33:22Is it primarily because of the decelerating U. S. Outlook? Or is there other factors that maybe you'd like to take this moment to unpack for us? And second to that, Sandeep, you said in 2023, Unit growth should be at the low end of this new range, kind of near the 5% area. Speaker 200:33:41Can you just paint a scenario for us where you accelerate From the bottom of this range, is there a catalyst that you see emerging following 2023 that we should be thinking about that makes the midpoint of this range More of a base case for unit growth moving forward. Thanks. Speaker 400:34:01Good morning, Brian. Thank you for the question. And so So let me start first with the rationale for the unit growth update from 6% to 8% to 5% to 7%. As we said In the prepared remarks as well, I think the U. S. Speaker 400:34:16Delivery business and the constraints that we see in front of us on the U. S. Delivery business Are a big driver of the decision to actually slow down the expectations from a unit growth standpoint. And as you also noted from my prepared remarks, the headwinds that we saw throughout 2022 are expected to continue into the first half Of 2023 and that is going to put pressure on the unit growth that we expect to see as we go forward In 2023. And I think in terms of what the catalyst would be, the answer is a little bit in terms of what I talked about On the U. Speaker 400:34:56S. Growth itself and the cadence. So the first half of the year is going to continue to be pressured for the same reasons that it was pressured in 2022. But as we move into the second half of the year, the pipeline that we have for 2023 looks really encouraging. And I think this is on the back of Economics have continued to be very compelling. Speaker 400:35:15We're delivering $137,000 in EBITDA with all the pressures that we face from an inflationary standpoint On food costs, labor and just general costs in the P and L and that's literally within $6,000 of 20.19 levels. And most encouragingly, the exit rate from Q4 had the EBITDA levels that we're estimating above 2019 levels. This is really a manifestation of the price increases that we took on the national offer of a mix and match in the Q4 in particular For carryout, beginning to flow through, the flow through benefits for the franchisee P and L are very compelling And we feel that if this continues, this cadence as we move forward in 2023 notwithstanding the 3% to 5% food basket increase that they're looking at, Franchisees are in a very good place to continue improving their profitability and that's why we feel so confident with the pipeline that we're seeing in 2023. Economics back it up. Paybacks continue to be very strong at roughly 3 years. Speaker 200:36:21Thank you. Thank you. Operator00:36:24Thank you. One moment for our next question. And our next question comes from the line of Peter Saleh from BTIG, your question please. Speaker 500:36:34Great. Thanks. Russell, you alluded to some changes to the rewards Program in 2023, I was hoping you could add a little bit more color to that. That feels like it could be Meaningful driver as it's been a driver for you guys for several years in the past. So just any update on that would be beneficial. Speaker 500:36:56Thanks. Speaker 200:36:57Sir, good morning and thanks, Peter. As I said during my remarks, we've been pleased with this program. We launched it in 2017. We've got Over 30,000,000 active members, 77,000,000 total members and really at this point as we think about The evolution of the rewards program, it is about taking the best and keeping the best of what we have and then continuing to dial up on where the opportunities are. And so, and we're not going to talk to the specifics of it now, but I think when you see us launch it later on this year, You'll see those who are joining the program, continue to are going to continue to enjoy the positives of it. Speaker 200:37:40And probably some of our less frequent customers are going to be incented to do more. And I should tell you, I'm sorry, I misspoke, The launch of the loyalty program was 2015, not 2017. Speaker 500:37:53Thanks. And then just one follow-up for Sandeep. Is it possible to get restaurant level margins for the franchisees back to 2020, 2021 levels With this mix of carryout delivery or do you really need delivery to research here to get back to those types of margins? Thanks. Speaker 400:38:18Thanks, Peter, for that question. Look, in terms of where we were in terms of restaurant level margins on the franchisee side, What you did see from a cadence standpoint was the profitability, it really went up Pretty significantly between 2019 2021 from 143 to 174, I believe in 2021. But I think the cost increases that have actually come through have been really significant. And I think until that kind of beds in and the price increases that we've taken We start normalizing. It's going to take some time. Speaker 400:38:54Over time, of course, I think we get back to those levels of profitability in Absolute dollars, but I think in the short term, we're looking at small steps and I talked about Q4 specifically because we are now inflecting. We're now inflecting the trend and I think with the adjustments that we've made on the pricing architecture, we're in a good place with the franchisees And we hope that as we move into 2023, this continues to accelerate and helps them actually see even better profitability in 2023. Operator00:39:25Thank you. One moment for our next question. And our next question comes from the line One moment. From Sara Senatore from Bank of America, your question please. Speaker 300:39:39Yes. Can you Can you hear me? Thank you. I wanted to ask about sort of comments on the comp and the macro environment. We're really not Seeing very much softness or evidence of price sensitivity across the rest of the industry. Speaker 300:39:55And I understand delivery might be different, but I guess The question is twofold. One is, is there any reason to think that maybe your pricing could be higher? You seem to be lagging the industry by 2 to 4 points and that's roughly where your comp gap is, I would say. So as you think about pricing, is there room to maybe take more on the menu and perhaps Less on delivery fees. And then separately, does this increase the likelihood or the Attractiveness of partnering with aggregators, not delivery as a service, but as a marketing platform, virtually everybody who has Done that has suggested that the income cohort is higher on aggregator platforms and that it's incremental To the to whomever may be ordering through the proprietary ordering. Speaker 300:40:45So I'm just trying to piece together everything that's happening in the context of pizza being A very good value in Absolute, but the lag versus the overall industry and maybe some drivers. Thanks. Speaker 200:40:58Yes. Thanks, Sarah. It's a great question. I think what I'll do is take a little step back and just give perspective on our business. As you said, it's a unique one. Speaker 200:41:0960% of our sales are delivery. When we talked in our comments about the QSR delivery category, Down the pizza delivery category was down. Domino's actually gained share. So it's not the prettiest way to gain share, But in a macroeconomic time where the entire delivery QSR category is pressured, We grew share in the pizza category. That's 60% of our business. Speaker 200:41:37And when that's 60% of your business, you're going to see the numbers fall out the way they did. Now, What I like to think about when I talk about the present and future of Domino's is how much more diverse we are than we were years ago. So think about our carryout business that's not encumbered by any of those headwinds. It was up 14% to 15% in Q4, over 30% over the last We have 3 years, dollars 1,000,000,000 over the last 3 years. That's really a business that's on fire. Speaker 200:42:07And then internationally, we Open more organic stores than we ever have in our history. And so I think you just need to have that perspective of looking at our entire business, How we're performing in delivery, how that performance is actually making us better. So when we come out of this, we're going to be a better delivery company, but how the more complete Domino's is in a better place as we head through these tougher times. So if I were to take that as a backdrop as to your second question on aggregated for delivery, again, like I said, we're continuing to grow Share of delivery pizza here. We do work with aggregators globally. Speaker 200:42:50We've got $1,000,000,000 in sales outside of the U. S. Where we're learning every day. And while we do that, we're doing things like continuing to improve our ordering experience and improving the loyalty program as I spoke about to make sure our delivery ordering experience is better than everybody else's. Operator00:43:12Thank you. One moment for our next question. And our next question Comes from the line of Jeffrey Farmer from Gordon Haskett. Your question please. Speaker 600:43:22Good morning. You guys stated that you're proud of the work that you've done with franchisees To address labor constraints in delivery business, can you just elaborate on what you've done there To sort of shore up some of the driver need, and do you believe that staffing shortfalls are no longer having A material impact on your relative same store sales performance? Speaker 200:43:48Yes. Thanks for the question. Look, we're satisfied with the We're never going to be satisfied until every delivery is there as expeditiously as we can get it. So we're satisfied, but what I'd say is we have more work to do. So our service times are better. Speaker 200:44:06They're not better Than they were in 2019 and that's a place we need to go. When you look at our corporate stores, trying to think about that as A proxy for what's going on in the rest of the business, corporate stores are hires are at pre pandemic levels now, turnover is down, Job applications are up and we're getting people through the system faster on applications. We talked about call centers. We didn't really mention it on this call, but about half our stores are on call centers right now. Not every single call goes through the call centers, but they're there to help, and that makes the job easier for our team members. Speaker 200:44:48We have a lot of operation simplification processes that we've put into place that we're really excited sharing with you guys when you And then something that I'd point to that we just launched was this EV fleet. So we have an EV fleet of 800 Vehicles, but that actually is part of a larger kind of strategic Shift you're starting to see with our franchisees and corporate stores and purchasing vehicles. And what that enables us to do is attract folks who've got Drivers' licenses, but maybe don't have access to vehicles. So when you put all that stuff together, you're seeing a more efficient inflow of people, More efficient operations, new pools of driver, that's why you're seeing the sequential improvement in the first and 5th quintile. And that's why we got another Boost Week coming up back to the regular cadence as we said we would do in Q3. Operator00:45:51Thank you. One moment for our next question. And our next Question comes from the line of Brian Mullen from Deutsche Bank. Your question please. Speaker 100:46:01Hey, thank you. Just a question on Speaker 600:46:03the carryout business in the U. Speaker 700:46:04S. In the quarter, same store sales were up 31% versus 2019, very, very strong on an absolute basis. It sounds like that trend 1st 19 did decelerate a little bit, a few 100 basis points versus the 35% you saw in the 3rd quarter. Just wondering if you could speak to the dynamics you think were at play in the quarter in carryout and what might have been behind that deceleration, if anything worth noting? Speaker 400:46:30Brian, good morning. I think, look, on our carrier business, when we look at it, when we look at 3 year stacks Of 31% on a business that has actually grown over $1,000,000,000 over the last 3 years, you get to a point where The sequential change is sometimes going to be off a little bit, but I don't think it really reflects on the underlying business. The underlying business is extremely strong. We are really pleased about what we're seeing in the Carrier business, both as we look back on 2022 and as we look forward into 2023. So, super happy with what we've seen. Operator00:47:10Thank you. One moment for our next question. And our next question comes from the line of Dennis Geiger from UBS. Your question please. Speaker 600:47:20Great. Thank you. I wanted to ask another one on the U. S. Delivery challenges and how you address those biggest issues there. Speaker 600:47:27Russell, you just mentioned a focus on making the order experience better than everyone else's. And I think at the end of your prepared remarks, you gave a bunch of points of focus for sales going forward. But can you talk just a bit more about The biggest opportunities to address the delivery pressures right now, just how difficult it is to overcome This kind of macro pressure and but again, ultimately, how you can do that within your brand? Thank you. Speaker 200:47:54Yes, sure. Look, I mean, I think part of the answer to your question within your question. The delivery pressures are a macroeconomic thing. And so, Like I said, while it's not a pretty way to grow share, when you're growing share in a category that has got headwinds, that means you're kind of outperforming the rest of the category. Now that's not what we like to see in our overall numbers, but you're really talking about macro pressures. Speaker 200:48:20And so what I look at is all the things that we're doing now to get better in delivery with hiring folks, with Having a tighter circle of operations with innovating, with technology, all of these things, so that what is now a share increase in a category that's got headwinds, When those headwinds will subside and look, I joined during the time during the last recession, we boomed out of that recession, Because I think as we said last time, we knew this, delivery because of delivery fee and because of tips, They're going to have extra headwinds during these economic times. So I like to look at how are we performing during these times? Are we getting better during these times? So when that pressure is gone, you should see us accelerate. Operator00:49:09Thank you. One moment for our next question. And our next question comes from the line of Andrew Strelzik from BMO. Your question please. Speaker 800:49:19Hey, good morning. Thanks for taking the question. Mine is actually a follow-up to your prior answer. And I guess, my question is about Balancing kind of maybe being more aggressive and kind of creating a bridge through the macro challenges instead of maybe what sounds like a more Incremental approach is kind of how I'm understanding what you're talking about, kind of incremental steps and then a real acceleration as the macro improves. So how do you think about potential Speaker 200:49:53Yes, Andrew, great question. And that's kind of what I was Talking to really at the end, look, during COVID, we were clear during the pandemic that we had capacity issues. And so the type of delivery innovation there you are seeing more on things like car side delivery or Contactless delivery and so I'm not going to talk to innovations moving forward, but that's an important piece for us. If we want to break out of the category, then we need to break out of the category from an innovation standpoint and that's we'll talk product later. I could talk Tots all day, but there are innovations that are going to help us in addition to EV fleet on the technology side That should help us break away from the crowd. Operator00:50:47Thank you. One moment for our next question. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question please. Speaker 100:50:57Hey, thanks for the question. Russell, you talked a little bit about broadening value from the national coupon offers to maybe the rest of the menu. Can you expand on what that looks like and Maybe what customer feedback you're getting that's driving you to or franchisees to reassess that? Thanks. Speaker 200:51:14Yes, sure. Thanks. Well, I just want to reiterate our positive look to the change we made in our mix and match moving to 699, both Delivery and carryout, it was absolutely the right thing. As you know, our franchisees and local stores control their own menu pricing And all the models in the world, all the experience in the world with the headwinds and changes in Food cost and labor and things like that folks pretty quick. And I think if we were to look at some of our stores, Things that are not on promotions, so menus and maybe some case delivery fee, price may have got a little bit of ahead. Speaker 200:51:58We need to be of value, not just in our national offer. Sometimes people want medium 2 top pizzas. A lot of times they want medium 2 top pizzas, but sometimes they want other things too. And it's just making sure that we have the right value across the other pieces of our menu. We'll be working with our franchisees on that. Operator00:52:20Thank you. One moment for our next question. And our next question comes from the line of Lauren Silverman from Credit Suisse, your question please. Speaker 900:52:30Thank you for the question. I appreciate all the commentary on franchise EBITDA and payback. Can you just level set where development costs are running today? I think they were around $350,000 or so in 2019, Trying to figure out where that stands now. And then Sandeep, I think you might have said franchise V EBITDA could actually grow in 2023 versus 2022. Speaker 900:52:51Did I understand that correctly? Speaker 400:52:54Yes. Thanks, Lauren for the question. And I'll start with the last part, then we'll go back to the first part. So I think in terms of franchise EBITDA, we expect 'twenty three to be improved versus 'twenty two for sure, Given the pricing changes that we made towards the back half of the year and the lowering pressure from food basket and costs That we anticipate in 2023. But I think in terms of the development costs, the answer is it kind of varies. Speaker 400:53:22It depends on where exactly where We're building stores and there's a big range in terms of development costs around the country. And so as we're coming out of this constrained environment where we had Permitting and store construction issues. We are basically seeing that there is some cost pressure for sure, But I think getting into specifics on what that number is, is probably not right until we see this play out over the course of 2023. And I think at the right time, we'll be in a position to give you a better update in terms of where things are at. But essentially from a payback standpoint, The 3 year range of payback is still very much what franchisees are looking at and that's why they're making the investments they're making. Operator00:54:07Thank you. One moment for our next question. And our next question It comes from the line of John Ivankoe from JPMorgan. Your question please. Speaker 1000:54:17Hi, thank you. A 2 parter, if I may. First, U. S. Unit Development 1.9 percent, you've talked about splits of around 50 basis points. Speaker 1000:54:27So that would Suggest something like 25% on average of a split store comes from existing stores. And I wonder as you kind of think about The footprint going forward to 8,000 stores, if there'd be a way to reduce the sales impact from those splits, because obviously to the most nearby It would be much greater than 25%. So that's the first part of the question. And secondly, I think it's been some time since we talked about The test or some initiatives that you were specifically doing in the Houston market, if I remember correctly, is there anything To share that you're seeing there that I guess in theory we could see publicly if we went and found that selection of stores That maybe has some application to the Domino's system from efficiency or effectiveness in store delivery, whatever, We can maybe get a little preview of some of those initiatives on this call. Thank you so much. Speaker 400:55:25So I'll start off On the impact on unit growth and a split impact of what you're saying basically that you're referring to, John. As you we started really updating again during the course of 2022. And if you saw, we went from, I think, 0.7% fortressing impact And the Q2 2.5 percent now. So the impact on from fortressing is becoming less and less in terms of What effect it's got on the same store sales? We don't see it being a very, very significant impact As we move forward, but as we said, again, we're going to update if it really deviates from that. Speaker 400:56:09There's plenty of growth still that we actually see in our runway. We have the opportunity mapped out by our internal teams And we know that we can definitely go after that in the pipeline that we have from franchisees is on the back of Knowing what that opportunity looks like, the economics that they see coming out of it. And so I think we feel pretty good that we're the right balance on that. Speaker 200:56:33Yes. I would just add, John, we're transforming this company right now. Obviously, the delivery business is a hot topic today, but Carryout QSR is significantly bigger than delivery QSR. And so what we see is every time we open up a new store, not only do our Delivery times get tighter and hot pizza is actually hot food in general, by the way, which is why we're launching our tots because people want hot potatoes, pun intended. The delivery times get tighter, but also the carryout volume is very incremental. Speaker 200:57:09Consumers don't want to Customers don't want to walk that far, drive that far to get their pizza. So part of the transformation of this brand Into a more complete company is absolutely continuing to drive this store growth. As far as some things that we were doing at Houston, I think rather than me trying to describe things Overall call, I would really invite you to come to our meeting later this year, We're going to show that stuff live. It's just super hard to describe. But I would say at the end of the day, these are processes that enable us to get a hot Pizza to customers, obviously in a safe but faster way, but also improve the experience in the store for our team members and the resulting quality of that product. Speaker 200:58:02So hopefully that's enough to wet your whistle to come to Ann Arbor. Operator00:58:08Thank you. One moment for our final question. And our final question for today comes from the line of David Tarantino From Robert W. Baird, your question please. Speaker 200:58:20Hi, good morning. My question is on The margin outlook and Sandeep, I was wondering if you could help to frame up how you think the EBIT margin will progress If you hit the low end of your targeted range in 2023. Speaker 400:58:41Yes. So that's a great question, David. So look, I mean, as far as we're concerned, the guiding principles that we've actually outlined is Revenue should be growing faster than expenses. So when you look at our guidance range on global retail sales and you look at our guidance range on G and A, you can see that Essentially, even at the low end, our G and A is basically below that in terms of growth at the midpoint. And so I think straightaway that gets you into a place You can be margin accretive. Speaker 400:59:11So that's point number 1. Point number 2 is, we actually experienced a lot of headwinds this past year from foreign And I think that actually had a 50 basis point negative impact on our operating margin in 2022. Unfortunately, Given where we are, we still see a little bit more headwind, but not in the same magnitude given where current rates are. And so that would be an offset to some of that operating improvement. But from a mix standpoint with the corporate store sales that have actually happened, We'll now get 3 more full quarters from that. Speaker 400:59:45That helps our margins. So I think overall when we look at the margins, My expectation for margins is that margins will improve. But I think when we talked about pre pandemic margins of 2019 margins, With the currency headwinds that we experienced in 2022, that's probably further away than 2023, but it's not something that we're saying is unattainable. It's more a question of time and some of the other factors that hit the P and L. Operator01:00:14Thank you. This does conclude the question and answer session At the end of today's program, I'd like to hand the program back to Russell Weiner for any further remarks. Speaker 201:00:23Well, thank you, and thank you everybody for joining the call this morning. Sandeep and I look forward to speaking with you in April to discuss our Q1 results. Until then, we'll talk soon. Operator01:00:34Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.Read morePowered by