Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Domino's Pizza Inc (DPZ, Financial) achieved positive order counts in both delivery and carryout segments across all income cohorts.
- The company reported a 7.2% growth in global retail sales, excluding the impact of foreign currency.
- Domino's Pizza Inc (DPZ) remains on track to achieve its guidance for annual global retail sales growth of 7% or more and operating profit growth of 8% or more.
- The new loyalty program has significantly increased active members and redemption rates, driving transactional growth.
- Domino's Pizza Inc (DPZ) has seen improvements in international comps, particularly in Europe, Asia, and the Middle East markets.
Negative Points
- Domino's Pizza Inc (DPZ) temporarily suspended its net store growth guidance due to challenges faced by its master franchisee, Domino's Pizza Enterprises (DPE).
- The company expects to fall below its net store growth target for international markets by approximately 175 to 275 stores in 2024.
- Higher carryout mix, which carries a lower ticket than delivery, partially offset the comp tailwinds.
- The company faced higher G&A expenses driven by labor costs and the worldwide rally expense.
- Domino's Pizza Inc (DPZ) did not repurchase any shares in the second quarter due to the volatility of the interest rate environment.
Q & A Highlights
Q: Can you provide more details on the loyalty program's performance and its impact on the business?
A: (Russell Weiner, CEO) The loyalty program has been tremendous this year, driving light users and frequency, engaging carryout customers, and increasing new users. Orders with loyalty redemptions in carryout have doubled compared to last year. (Sandeep Reddy, CFO) This program is a multi-year driver of comps, similar to the Piece of the Pie Rewards launched in 2014, which compounded comps over several years.
Q: What led to the shortfall in unit growth guidance, particularly with DPE?
A: (Sandeep Reddy, CFO) The shortfall is due to increased store closures and slower new store openings by DPE, particularly in Japan and France. This was not anticipated during our Investor Day last December. Despite this, our long-term guidance for global retail sales growth of 7%+ and operating income growth of 8%+ remains intact due to the low volume of the closing stores.
Q: How confident are you in maintaining your annual targets given the current economic environment?
A: (Russell Weiner, CEO) Despite consumer spending slowing, we have grown orders across all segments, including delivery, carryout, and international. This demonstrates the strength of our brand. Our positive order counts in a challenging economy give us confidence in maintaining our targets.
Q: Can you elaborate on the value strategy and its impact on sales?
A: (Russell Weiner, CEO) Our value strategy focuses on providing consistent value across all our platforms, not just low prices. This trusted value proposition drives order counts and integrates customers into our loyalty program, creating a sustainable growth model.
Q: What are the learnings from the Uber Eats partnership, and any updates on potential DoorDash integration?
A: (Russell Weiner, CEO) Uber Eats is performing as expected, contributing 1.9% of sales and on track to reach 3% by year-end. We have adjusted our strategy to a high-low pricing model to attract more customers. The exclusivity with Uber runs through Q1, after which we will evaluate the potential for integrating DoorDash based on the economics and performance.
Q: How are you addressing the challenges in international store openings and closures?
A: (Russell Weiner, CEO) We are confident in our international growth, particularly in China and India, which are increasing their store opening targets. The closures in Japan and France are low-volume stores, having a minimal impact on overall profit. Our diversified presence in over 90 countries helps mitigate such challenges.
Q: What insights did you gain from the recent worldwide rally with franchisees?
A: (Russell Weiner, CEO) The rally was highly successful, with 98% of attendees taking away key messages. Franchisees are excited about the Hungry for MORE strategy, focusing on delivering delicious food and operational excellence. This alignment and enthusiasm across our global system are driving positive results.
Q: Can you discuss the impact of wage inflation on store margins and profitability?
A: (Sandeep Reddy, CFO) Wage inflation has impacted margins, but we are nearing the lap of these pressures. Despite this, profit dollars are growing, and we expect margin improvement and profit growth for the full year. The franchisee stores are seeing balanced profit growth, supporting our confidence in achieving our profitability targets.
Q: How is the new loyalty program affecting customer behavior and frequency?
A: (Sandeep Reddy, CFO) The new loyalty program is driving increased frequency, with consistent trends in 20- and 40-point redemptions. This is creating a faster frequency flywheel, as customers continue to transact and redeem more frequently.
Q: What are the strategic priorities and concerns of franchisees globally?
A: (Russell Weiner, CEO) Franchisees are excited about the Hungry for MORE strategy, focusing on delivering delicious food and operational excellence. They are also interested in renowned value and have adjusted their marketing strategies accordingly. The rally highlighted the alignment and enthusiasm across our global system, driving positive results.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
