Thank you for standing by, and welcome to the Domino's Pizza's Second Quarter 2023 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. Ryan Goers, Vice President, Finance, Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today for our conversation regarding the results for the second quarter of 2023. Before we begin, I would like to announce that we will hold our Investor Day on December 7, in Ann Arbor, Michigan. Chief Executive Officer, Russell Weiner, and the entire Domino's leadership team look forward to hosting you at our headquarters. Today's call will feature commentary from Russell 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-Q also apply to our comments on the call today. Both 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 discussed in our filings with the SEC. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. I 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. Today's 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.

Well, thank you, Ryan, and good morning, everybody. I'm going to open today with some brief remarks regarding our current focus and the momentum we're creating here at Domino's Pizza. Sandeep will then provide a high-level overview of our quarterly financial performance, followed by ample time for your questions and discussions. We are executing our plan to restore delivery growth here in the United States. Efforts to improve service and staffing and drive value and innovation will continue to make a difference, driving order counts in this important segment of our business. Our delivery service levels ended Q2 nearly two minutes better than Q2 of last year. And with the agreement we recently announced with Uber Eats, Domino's will benefit from a large and growing cohort of delivery customers. We believe these transactions will be incremental and provide a meaningful increase in the number of customers who leverage the Domino's delivery experience. Domino's delivered one out of every three pizzas in the U.S. prior to our decision to compete in the aggregator marketplace. According to Circana, aggregator sales for delivery among U.S. quick-service pizza restaurants have grown to almost $5 billion for the 12 months ending May of 2023. We plan to get our fair share of this market over time. The opportunity represents over $1 billion in incremental sales for our U.S. business. And our research indicates that most of the transactions we gain from participating in this segment will be incremental customers and sales. This has also been supported by what we've learned from our Domino's Pizza international master franchisees who've already developed a $1 billion business taking orders from aggregators. We have here at Domino's a common-sense process for making business decisions. We ask ourselves this important question: 'Is it the right thing to do for the long-term growth of our brand and the business?' Our extensive evaluation indicates that by participating in the aggregator marketplace will drive net incremental orders over the long term by tapping into a new group of consumers. In addition, our contractual agreement has secured the protection that we require to maintain control over our customer data and assess the incrementality of the platform. And most importantly, orders placed through the Uber Eats platform will be delivered by Domino's delivery experts. So, we're excited to begin accepting orders through the Uber Eats channel later this year and look forward to reporting the results of this important growth initiative. Successfully executing an aggressive plan to get our fair share of the scaled pizza distribution channel isn't new to us. We approached the carryout pizza segment in a similar manner back in 2011. Carryout pizza was a smaller percentage of our business before we took thoughtful aggressive action. And today, our carryout business is almost $2.5 billion larger than it was in 2011, making Domino's the number one carryout pizza brand in the U.S. Despite this impressive growth, our current aspiration is to drive our carryout market share even further to at least the same market share we enjoy in pizza delivery today. We need to earn an additional 10 points of market share to reach our fair share in the carryout segment, and this 10 points represents about $2 billion in additional retail sales. Outside of the U.S., Domino's and Uber Eats operate in 27 of the same markets. Our new global deal has the potential to bring Uber Eats' customers to 70% of Domino's stores around the world with improved economics for our international franchisees. Next, I want to talk about another important initiative for us, the new and improved loyalty program that we'll be launching in the U.S. in September of this year. The program will reduce the requirements to earn and redeem loyalty points. This will positively impact our carryout customers as well as help us retain our current and new delivery customers. Finally, we have two exciting innovations that are coming to the U.S. market in the third quarter; this keeps with our stated intention of increasing the pace of innovation. We launched Domino's Pinpoint Delivery in late June. Delivery innovation, as you know, is the core of who we are, so we're thrilled to give customers this new delivery option by allowing them to receive their order nearly anywhere just with the drop of a pin on our app. And in late August, we're going to launch Pepperoni Stuffed Cheesy Bread. Pepperoni Stuffed Cheesy Bread follows the successful launch of Domino's Loaded Tots, and it is delicious. It brings news to our Stuffed Cheesy Bread platform, which was launched over a decade ago. The stuffed cheesy bread line is a significant part of our menu mix and provides a healthy margin for franchisees. My message to you today is more; more sales in both carryout and delivery, more ways to reward customers with our new loyalty program, and more innovation, both technology and product-related. We will drive orders with innovation and value, we'll tap into those incremental marketplaces as I talked about, and then we'll bring customers back with best-in-class service and a new and improved loyalty program. This is our go-forward plan at Domino's Pizza. Our momentum will build starting in Q4 and will significantly impact the performance of our business in 2024 and beyond. As importantly, this momentum should drive continued EBITDA growth for franchisees. Our Mix & Match offer at $6.99 remains a strong value for customers and has helped our franchisees accelerate store-level profitability through Q2. That profitability is higher than it was this time last year despite inflationary headwinds. And I expect it to continue to grow as a result of the sales-building initiatives I just outlined. So, there are many exciting things underway here at Domino's Pizza. And now for an overview of our Q2 financial results, I will turn the things over to our CFO, Sandeep Reddy.

Thank you, Russell, and good morning to everyone on the call. I'll begin with updates on our actions to drive the long-term profitability of Domino's and our franchisees. First, pricing. During the second quarter, the average price increase across our U.S. system was 3.9%. We expect average pricing to be similar in the third quarter before moderating in the fourth quarter to approximately 2%, when we left the carryout Mix & Match pricing change from October 2022. Second, cost efficiencies as we continue to drive margin recovery. We drove improvement in our operating income margin, which grew by 240 basis points versus Q2 2022. This was despite foreign exchange rates having a 15 basis points negative year-over-year impact on operating income margin during the quarter. We now expect full-year operating income margins in 2023 to reach or exceed 2019 levels. Third, positive same-store sales growth excluding foreign currency impact in our U.S. and international businesses for the third consecutive quarter drove operating income improvement. Now for our financial results for the quarter. Excluding the negative impact of foreign currency, global retail sales grew 5.8% due to positive sales comps and global net store growth. U.S. retail sales increased 1.7%. International retail sales, excluding the negative impact of currency, grew 10.1%. During Q2, same-store sales for the U.S. business increased 0.1%. The increase in U.S. same-store sales was driven by a higher average ticket, including the pricing actions I mentioned earlier, partially offset by order count declines. Our carryout business remained strong in Q2, with same-store sales plus 5.6%, rolling over a plus 14.6% performance in 2022. The U.S. delivery business continues to be challenged. Q2 delivery same-store sales declined 3.5%, rolling over a minus 11.7% in Q2 2022. We expect Q3 same-store sales trends in our delivery business to be challenged similar to Q2. However, we expect a slight improvement in trend in Q4 as our updated loyalty program begins to roll out, followed by a considerable improvement in 2024 as a result of transaction growth from our Uber Eats partnership and other initiatives Russell has shared with you. Shifting to unit count. We added 27 net new stores in the U.S. with 30 store openings and three closures, bringing our U.S. system store count to 6,735 stores at the end of the quarter and our four-quarter net store growth rate in the U.S. to 1.8%. Domino's unit economics remain strong with continued EBITDA growth for our U.S. franchisees. We are on track to deliver average U.S. franchised store profitability of at least $150,000 in 2023. Moving to international. Same-store sales in our international business, excluding currency impact, increased 3.6%. Our international store count increased by 170 net new stores, comprised of 223 store openings and 53 closures. Closures were driven by the closure of the Denmark market, closures in Brazil as our master franchisee there continues to optimize its store base, and some closures in Russia where the master franchisee has indicated an intention to exit the market. Domino's Pizza Enterprises, one of our publicly-traded master franchisees, recently disclosed their intention to close an additional 65 to 70 underperforming stores. This will likely occur during our third quarter. These reductions in underperforming stores will pull down our net store growth rate in the upcoming quarter and for the full year. However, our new store builds in international continued to be robust and we anticipate returning to our full-year run rate of net store growth in 2024, once these store closures are behind us. Our additional 170 net stores brought the current trailing four-quarter net store growth rate in international to 6.3%. When combined with our U.S. store growth, the trailing four-quarter global net store growth rate was 4.7%. We now expect our 2023 global retail sales growth to track between the low end and midpoint of our two to three-year outlook of 4% to 8%, driven by stronger international same-store sales. And we continue to expect our 2023 global unit growth to track to the low end of our 5% to 7% two to three-year outlook. Despite strong gross openings, we will be pressured by international store closures this year. Since these closures will be underperforming stores in certain challenged markets, this is not anticipated to materially impact the financial benefit of our new international store openings. Finally, the capital structure update. A debt leverage ratio of four times to six times is the appropriate leverage for our company and moves within the range depending on the level of interest rates. We have operated with this range of leverage for almost 20 years. In today's interest rate environment, you should expect us to use our free cash flow to make investments to grow the business, create strong shareholder returns through our dividend and share repurchase strategies, and retire debt when it's in the best interest of our shareholders for us to do so. As always, we will be opportunistic if credit markets warrant additional borrowing or refinancing. Thank you. We will now open the call to questions.

Certainly. And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Good morning. Thank you. It seems like you really do have two new tangible catalysts to stimulate incremental demand, with one being the Uber Eats partnership, and two, being the relaunch of your loyalty program in September. You've talked about the size of the prize with the Uber Eats partnership being $1 billion, but how quickly could it be impactful to the business once it's launched? And as it relates to the relaunch of loyalty, have you attempted to size up how powerful of an opportunity this could be, or maybe you can rank order it in importance relative to the Uber Eats partnership for us? Thanks.

Good morning, Brian. I believe we have three key catalysts. You mentioned the Uber partnership and the loyalty program, and we've discussed carryout extensively as well. Since we focused on carryout in 2011, we've gained $2.5 billion, and we anticipate another $2 billion just to achieve our fair share. At Domino's Pizza, we believe that in any pizza-selling category we compete in, we should secure our fair share, which means capturing one out of every three deliveries, so there's still significant potential for carryout growth. There are many questions to address, so let me clarify a few points, and you can follow up if I've overlooked anything. The $1 billion figure we discussed in the U.S. is incremental. We're excited to be partnering exclusively with Uber for the first 12 months, after which we have options in our contract to proceed as we choose. This $1 billion represents our fair share of the $5 billion U.S. aggregator pizza delivery market, which we aim to access eventually by engaging with broader competitors on the platform. Regarding the loyalty program, I appreciate your attention to Ryan's question. When brands refresh their loyalty programs, I often feel disadvantaged as a customer since it usually leads to reduced benefits. However, we're taking a different approach. The adjustments to our loyalty program reflect the opportunities we see in our business. Carryout is one of the catalysts, and the new loyalty program will acknowledge that carryout customers generally have lower ticket amounts, meaning the threshold for earning points will also be lower. Additionally, we aim to involve customers at all engagement levels. We anticipate a significant influx of new customers, and while our current program requires 60 points for a reward, the new program will offer points at various levels of redemption. We believe this will be a genuinely improved and profitable initiative for both our customers and our franchisees.

Thanks for working with me on that.

Sure.

Thank you. One moment for our next question. And our next question comes from the line of Peter Saleh from BTIG. Your question, please.

Great. Thanks. Russell, I wanted to revisit the discussion about the loyalty program and the upcoming changes in September. Can you provide more details? Are we transitioning from a transaction-based model to a spend-based model? How will this be structured in September? I'm trying to understand if shifting from transaction-based to spend-based will put any additional pressure on order counts, and I want to clarify the framework of the new loyalty program.

Yes, good morning, Peter. We are strong supporters of the loyalty program. As I mentioned earlier, we focus on lifetime value and long-term business decisions. It's evident that order count is essential for franchisee profitability in the long run. Therefore, this will remain a transaction-based program. A significant change is that we will permit transactions at a lower level, which we believe is vital for increasing participation in the program. Currently, you need to accumulate 60 points to redeem for a pizza. In the future, you'll still be able to get a pizza for 60 points, but you will have options with lower value products to participate, which we think will positively impact order counts. Generally, ticket amounts are managed through our various platforms with Mix & Match, and customers often handle this on their own. We also have a strong A/B testing system in place, and there is ample appropriate upselling on our website and apps.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Sara Senatore from Bank of America. Your question, please.

Great. Thank you. FYI, I guess I have another two-part, one-part question. The first is I'm just trying to understand the sort of carryout opportunity. I guess I always thought the distinction between Domino's and independents was perhaps a little bit more evident in delivery, just because of the speed of service and things like the tracker. So, from a carryout perspective, I guess, is it harder to make inroads because perhaps the advantages are less pronounced, or how are you thinking about that? And then, a separate question is just on pricing and the gap versus the industry, and it sort of seems to me that it keeps widening, the industry ahead of you. Is that going to translate into better traffic trends, or is there an opportunity to price? Thanks.

Sure, I'll provide a two-part answer. I apologize for the early call this morning; I usually have more time to prepare. Regarding carryout, what really influences this segment is proximity. Our strategy of fortressing involves opening stores closer to customers, which enhances efficiency for our delivery drivers. Similarly, placing a Domino's Pizza near the competition, like local pizza companies, helps us generate more incremental transactions. In fact, carryout transactions are even more incremental for us than delivery ones. Carryout customers often seek value, and many choose this option to avoid tips and delivery fees. Domino's Pizza offers superior value due to our purchasing scale, making us very competitive in the carryout market. When it comes to pricing, our approach has always focused on volume. We ensure that our franchisees can profit with each order, and we've discussed their increased profitability. After establishing profit per order, we adopt a high-volume mentality, pricing to encourage frequent purchases of Domino's. I don't anticipate positioning ourselves at the high end of pricing. Rather, I expect our franchisees to achieve high profitability while we deliver top-notch value to customers.

Thank you.

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

Thank you. And thanks for all the details on the sales drivers, definitely helpful. The third-party partnerships, the carryout and loyalty all seem quite impactful. But Russell, wondering if you could just speak to some of the other maybe slightly less impactful sales drivers, that e-commerce upgrade, the Summer of Service, some of the tech and the menu innovation that you spoke to and seemingly will be a bigger part of the business going forward. Just curious if you could sort of help frame up how impactful you think about some of those other drivers are. Thank you.

I appreciate your question. While headlines often capture attention, it's the underlying details that really drive them. Instead of focusing solely on the main drivers, we should consider the factors behind them, many of which we've discussed previously. Alongside the notable growth in carryout sales this year, we've strengthened the fundamental aspects of our business. These improvements will enhance our ability to leverage the other drivers you've mentioned. We're seeing better profitability for our franchisees and ourselves, as Sandeep highlighted regarding our operating income margins. The Summer of Service initiative is contributing to enhanced service quality. This quarter, our service time has improved by nearly two minutes compared to the same period last year, and it’s even better than last quarter. The collaboration with our franchisees and sharing best practices have made a significant difference. Currently, about 50% of our stores are participating in the Summer of Service initiative. In summary, we are seeing improved profitability, better service, and the introduction of a new loyalty program. From an innovation perspective, our strategy focuses on purposeful innovation. We don’t just aim for a specific number of new products or technologies; instead, we consider the broader mission we want to achieve for our brand over time. Product innovation is important, and we have two significant launches this year alone. However, we believe that innovation extends beyond merely introducing new products. If the sole focus is on new offerings, it can detract from the core product and damage service quality. Therefore, we also prioritize other aspects, such as our recent launch of Pinpoint Delivery, which highlights our commitment to technological innovation. We refer to these innovations as tech-quity drivers, as they enhance our technology equity. This initiative also demonstrates to consumers our intense focus on delivery. By showcasing our dedication to the delivery process and having our own vehicles, including the recent electric vehicle launch, we communicate our passion for every aspect of the customer experience. This commitment fosters long-term brand loyalty. Consequently, we recognize the need to excel in delivering orders through our platform, reinforcing our position as delivery experts in the pizza industry. Although your question had one part, my answer encompasses multiple aspects, reflecting our enthusiasm for delivery at Domino's Pizza.

That's great. Thanks, Russell.

Sure.

Thank you. One moment for our next question. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question, please.

Thank you for the question. Russell, I'm interested in the details regarding the new agreement with Uber and what benefits you'll receive from it. I recall you mentioned in the release that you'll be obtaining sufficient data. What were your initial goals for the relationship during the negotiations, and what will the arrangement look like moving forward? Thank you.

Yes. Sure, Greg. On the data standpoint, it was really important for us to get the data that we need to have in order to analyze the incrementality of the platform. And so, we are getting that. We appreciate that in the partnership. The other thing, and it probably hits you over the head, of course, but we are delivering the pizzas. And if we deliver the pizza, that means we need every piece of information in order to deliver that pizza, which is the customer's name, address, and contact information. And so maybe those two things, the ability to analyze the incrementality and the fact that we're delivering the product, hopefully gives you a sense of what kind of data we'll be getting here.

Thank you. One moment for our next question. And our next question comes from the line of Andrew Strelzik from BMO. Your question, please.

Good morning. Thank you for taking my questions. I have a question about value and food costs. Do you expect to keep experiencing food deflation going forward? I'm wondering if the overall delivery environment is affected by price sensitivity, and if there's a chance to use deflation to ease some of the pressures on consumers. How do you view this situation? Thank you.

Hey, Andrew, it's Sandeep. So, I think really important points that you bring up. I think from a value and food cost standpoint, as you know, we've actually had pretty significant volatility on the food basket over the last, call it, seven quarters. So, I think when you look at '23 specifically, the food basket is basically up on a year-to-date basis about 1%. Last quarter was a deflationary quarter with the minus 2.4%. And obviously, when you look at the guidance that we provided of 3% to 5%, if the current level of food basket deflation that happened in Q2 continues, it's mostly driven by cheese, by the way, we should continue to see material upside on the food basket as we go through the balance of the year. This makes a huge difference to the profitability of our franchisees. And I think that helps repair some of the pressure that they took last year in their profitability. So, from a price opportunity standpoint, I think what we've been very clear about from the get-go is value, value to the consumer. So, if there is a way to actually pass value to the consumer through all of our different promotional platforms, we always look to actually maximize that opportunity. And that will continually be the way we actually approach this as well. It's too early to actually talk about where we're going to take this. But the framework through which we'll analyze it is exactly the same as what we've always had on pricing.

Yes, I would like to add to Sandeep's response. Now that we are entering this new channel of aggregators, it's crucial to recognize that we have a fresh opportunity to create value. The best prices and offers will be available at dominos.com or through our apps. Our new loyalty program can only be accessed via our apps or dominos.com, as well as Pinpoint Delivery, which will serve as our value channel. However, the aggregator platform provides us with a different perspective. We don't need to attract every customer on that platform; instead, we should focus on the right customers. We want value-oriented customers to visit dominos.com. This aggregator channel will serve as a premium pricing opportunity, particularly targeting higher-income customers. Therefore, this situation allows us to discover more ways to deliver value to our customers while also benefiting our franchisees in a higher income, higher price marketplace.

Great. Thank you very much.

Thank you. One moment for our next question. And our next question comes from the line of Chris Carril from RBC Capital Markets. Your question, please.

Thanks. Good morning. So, on development, thanks for all the context around international, but I did want to follow up on the U.S. outlook. So, can you expand on just the pacing of U.S. development that you're expecting here for the balance of the year? And then, beyond this year, how soon do you think that improving profitability and all the top-line drivers that you already spoke of can actually translate into more meaningful acceleration in U.S. store growth? Thanks.

Great question, Chris. I'll address that. Regarding the international perspective, I know your focus was on the U.S., and I’ll get to that shortly. On a global scale, we open a new Domino’s Pizza every eight hours, which is something our team takes significant pride in. As Sandeep mentioned, we anticipate store growth to gain momentum toward the end of this year and into 2024. To give you some insight into this, consider the perspective of our franchisees or investors. If you’re planning to open a store and invest your money, you want to ensure profitability. This year, we expect our franchisees to achieve at least $150,000, an increase of $11,000 from last year, indicating profit growth. You also want to assess the track record. Over the past 12 months, we’ve only closed 16 stores, which amounts to just 0.2% of our total base, whereas the average for quick-service restaurants is around 1.5% to 2%. The last time we closed more than 20 stores was back in 2016. This strong performance is why I believe we will continue to open more stores than our competitors, as our profitability is better and our track record is impressive.

I just wanted to add one thing to this, Chris, which I think is super important, because when we talked about the development outlook last quarter, we talked about it beginning to inflect in Q4, and then actually be very strong in 2024. This was before thinking about the Uber partnership. And I think when you think about the Uber partnership, this is a tremendous value to the franchisees. And the reason I say that is if you think about what Russell just talked about, all of our national promotions and all the special deals that we have will only be on our platform, which means that what is actually being sold on the aggregated platforms will be essentially menu price, which actually drives great profitability for the franchisees and great flow-through to them. And those are all incremental transactions as we talked about going into '24. So, the increase in profitability for the franchisees is going to be very material on top of what we already talked about in the last call. And this, if anything, further accelerates the momentum in unit development in the U.S. going into '24.

Great. Thanks so much.

Thank you. One moment for our next question. And our next question comes from the line of Brian Harbour from Morgan Stanley. Your question, please.

Yes. Thank you. Good morning. So, just on the aggregator partnership, could you remind us again, it sounded like the $1 billion number you've cited was over multiple years. And as you perhaps, at other partners, have you thought about any sort of incrementality internationally? And then related to that, you talked about kind of fighting for your fair share on those platforms. How else will you kind of do that besides just appearing? Do you intend to market that heavily? Do you intend to emphasize kind of service times relative to some of your peers? What are the other ways in which you actually compete against most of your peers who, of course, are already on those platforms?

Yes, Brian. In terms of our international operations, we already have a $1 billion business established. We expect to see similar growth as we expand into those additional 13 Uber Eats markets. I want to remind everyone that combined with the U.S., we will be present in 28 markets overlapping with Uber Eats. This means that due to the locations of our stores, 70% of them will experience the increased volume we discussed. The $1 billion figure is a net number, just to clarify. You did a great job addressing questions about our competitive edge in the U.S. market, and one crucial aspect is our service. We believe we will provide the best service experience in the pizza or restaurant industry. Our priority is ensuring that the pizza arrives at your home warm and delicious. A key point I made in my initial remarks to our franchisees during the Summer of Service is that we are unique in making your order from the moment it’s placed, with no one else handling it until it reaches you, the customer. We prepare it and deliver it, and we believe this process is quite special. Additionally, while we position ourselves at a premium price, Domino's also offers good value. Our menu prices reflect various offerings, so I expect us to deliver value. Regarding service times, I anticipate our performance will be at the higher end. When you receive the product, that experience will be excellent, as it will have never left Domino's' hands. Lastly, we will allocate marketing funds strategically, focusing solely on the platform. We will not spend money to attract consumers to the platform but aim to direct them to Domino's once they are there. We have secured a return on advertising spend consistent with our digital media purchasing strategy, which we believe will be profitable. We also have expertise in digital media purchasing across various platforms, and I am eager to see our potential there.

Thank you. One moment for our next question. And our next question comes from the line of David Palmer from Evercore ISI. Your question, please.

Thanks. In the prepared remarks, you talked about how Domino's was on its way to restoring growth in U.S. delivery. It's great to just hear a mention of that. And is your thinking that the Uber Eats deal will get you to U.S. delivery same store sales growth? Or are there other major factors you're contemplating when you're targeting that? And I ask that because the lower check minimum for loyalty sounds like it would be helpful to carryout transaction, but it's unclear what that would mean for delivery, if anything. And then, maybe for Sandeep, did you contemplate this move to aggregators over a multiyear period when you lowered the multiyear growth targets earlier? Thanks so much.

Yes, David. The loyalty program is really not just focused on carryout. I mentioned the carryout piece because that's really the front end on ticket. We expect, obviously, through this deal as well, to get a lot of customers really interested in Domino's Pizza. And so, we want to have interactions for delivery customers at the low end, and that's one of the incremental things that we're driving here.

Yes. And Dave, to add to your second question regarding whether the aggregated deal was considered when we revised the two- to three-year outlook in February, no, it was not. At that time, we had not reached the point where we believed we were going to move forward with it. That's the context we should keep in mind.

Thank you.

Thanks.

Thank you. One moment for our next question. And our next question comes from the line of John Ivankoe from JPMorgan. Your question, please.

Hi, thank you. I wanted to talk about delivery in general, but maybe specifically, what you've learned or have taught or have picked up as part of Summer of Service in terms of how that could change some of the mechanics of the way that delivery is working to make you more efficient. Certainly, it's good to hear about an improvement of two minutes in service times; it's better than the one minute we were talking about before. But how big of an opportunity is that to significantly improve the service times? And if you can make some comments about your access of attracting and retaining delivery drivers, is that a headwind or tailwind at this point as you see it? Thank you.

Thank you for your question, John. I'll begin with how we're attracting delivery drivers. We've seen an increase in applications for delivery drivers compared to 2019, which is encouraging. This influx is contributing to our enhanced services. We now have more drivers, and I haven’t discussed our electric fleet much, but we have around 1,000 electric vehicles and even more non-electric ones. This availability has particularly benefited stores struggling to recruit delivery drivers, as there are many individuals with driver's licenses who lack access to vehicles but are eager to work for Domino's Pizza, positively impacting our momentum. As part of our Summer of Service initiative, we aim to sustain this progress in a few ways. One important aspect is raising awareness; every franchisee in the U.S. is gathering in Ann Arbor for this purpose, emphasizing the importance of the delivery experience and accountability. Additionally, we’re sharing established and new best practices with our franchisees. I'm eager to discuss some of these practices at Investor Day. The operational dynamics for Domino's Pizza today differ significantly from just a couple of years ago, and these changes are positively affecting our service. On the technology front, we've introduced new systems in stores as part of our next-generation store system aimed at enhancing service quality by supporting our franchisees and team members better. For instance, many of our stores are now preparing pizzas before customers finalize their online orders and are dispatching orders to drivers even before they return to the store. By making pizzas prior to order completion and streamlining the dispatch process, we are improving efficiency. Thus, Summer of Service focuses on best practices and introducing AI-driven services to enable our franchisees and team members to work more effectively.

Thank you very much.

Thank you. One moment for our final question. And our final question for today comes from the line of Brian Mullan from Piper Sandler. Your question, please.

Hey, thanks. Just a question on international business, specifically on China. Just wondering if you could comment on how the business is doing today, give us a sense of how things feel in regards to the macro and the consumer over there right now for the balance of this year. Understanding the long-term opportunity is quite big, just hoping to get your current take on the state of operations in the market and maybe the development outlook over the near term. Thank you.

Hi, Brian, thanks for the question. Look, we're really excited about the China market. I think we're doing extremely well. I think now that we've actually come out of the COVID years, we've actually seen a very strong growth in productivity over there. Great development actually happening and huge potential for runway in terms of future development. And it is going to be one of the biggest growth opportunities in the international portfolio. We are super excited about it.

I would say China is one of our top international markets, and given that there are over 10,000 stores still to build in those markets, it clearly plays a significant role.

Thank you. One moment for our next question. And our next question comes from the line of Joshua Long from Stephens. Your question, please.

Thank you for taking my questions. I was interested in your thoughts on marketing and messaging as you develop your platform for different consumer types. We've discussed before how the delivery consumer is distinct from the carryout consumer, and now considering the third-party opportunity. You have a lot of transaction data; where do we stand on the opportunity to explore that and make use of it? What changes or investments might be necessary? Any high-level insights you could provide on how to integrate this from a marketing and communications standpoint would be appreciated.

Yes, absolutely, Josh. It’s crucial to understand that there is a consistent marketing message underlying everything we do. While I won’t disclose specifics, it’s clear that customers seek a great overall pizza experience, regardless of the ordering method. This focus has enabled us to maintain strong brand messaging over the past 10 to 15 years. We’re fortunate to be in a position where there are numerous media channels available. Our marketing message is supported by highly targeted media buys. For instance, we can effectively reach carryout customers who value control and cost, as well as delivery customers who prioritize quick delivery and large orders for events like birthday parties. I believe that Domino's will have a consistent meaning to our customers, but we will utilize media to personalize our messaging even further with what I consider an exceptional marketing budget. This brings me to the last part of your question: I am excited about our push towards personalization. We have millions of users in our database and are already personalizing our messages. The tools for this are continually improving, and that’s where we are directing our investments to lead the way in this area.

Thank you.

Thanks.

Thank you. One moment for our next question. And our next question comes from the line of Andrew Charles from TD Cowen. Your question, please.

Great. Thank you. I'm trying to fuse a two-part question on Uber into one-part, so please bear with me here. But first, just given the reduction in ad fund earlier this month, will Uber Eats be funding advertising the platform in 2024? And then, secondly, I appreciate that you're structuring the partnership with franchisee profitability at the center. And so, what I'm curious about is qualitatively, not quantitatively, will the commission borne by franchisees be a fixed fee for these orders or a percent of the order volume?

Let me first address your question. I appreciate the one-part question, but I need to provide a two-part answer. Regarding Uber, first, on the marketing funds we discussed earlier that are currently covering some of our tech investments related to marketing, that funding comes from a surplus in that budget. This money wasn't intended to be spent this year or next year, so we have sufficient funds to continue our annual efforts to increase the amount of GRPs for our customers, even in an inflationary environment. That hasn't impeded us at all. I'll leave it to Uber to explain their funding plans. I mentioned earlier how our marketing strategy will function within the platform. Sandeep, could you elaborate on the commission structure?

Yes. And I think it's a really good question, and there's quite a few things that are in there. And so, I'm going to actually kind of unpack them a little bit for you. So, I'll start with the tech fee itself. Well, the tech fee is based on order counts. So every incremental order that actually comes through the platform, a tech fee will apply, same with any other order. So I think that's one. And I think the rest of it is what will royalties be payable on basically in terms of what we report. It's really the food sales as well as the delivery fee. So, our calculation of same-store sales and retail sales will include those. And if there are any service fees or service charges that Uber actually charges, those really won't appear in our numbers; those will be directly from Uber. So hopefully that helps you kind of understand the structure of how this is going to work.

Thank you. One moment for our next question. And our next question comes from the line of Jim Sanderson from Northcoast Research. Your question, please.

Hey, thanks for the question. Just wanted to follow up to the discussion on Uber and marketing programs. I'm wondering if you plan to participate in some of the free delivery charges or free promotions that we see often on third-party aggregators? And if there's any concern that, early on, you might see some cannibalization of your own delivery business? Thanks.

Yes. Our delivery fee and franchisee level delivery fees are all contemplated in our pricing structure. And so, no, I don't think that's going to be affecting our profitability at all. And as we're on the platform, anything they want to do with their customers to drive them to buy Domino's Pizza, that's really upside for us.

That would be at their expense?

Yes. I want to be clear that the ways we're spending our money is specifically on things that we can measure with something called return on advertising spend, and so that would be how we drive a customer on Google or any other kind of social media or digital media.

And just to clarify one thing, I just want to make sure we touch on it. But any promotional activity on the platform would have to be agreed with us. And I think we'll do that in partnership with them. So, I think that we'll be thinking through the holistic lens of those promotions.

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

Good morning. Russell, you mentioned that staffing levels are going to be crucial and that improvements are being made in staffing. Can you provide insight into the staffing situation in the Domino's stores and whether you anticipate any staffing challenges in meeting the increased demand from aggregators if the opportunities you expect materialize?

Yes, that's a great question. I hope and expect that we currently do not have enough delivery drivers for the increased volume we anticipate. However, I am confident that we understand what it takes to address this challenge. We've learned a lot during a difficult period of hiring drivers, and we are implementing effective hiring practices and improved training. Additionally, we're seeing a decrease in turnover at our corporate stores, along with the expansion of our fleet. So yes, I do expect to need more drivers, and I believe we will be able to recruit them.

Thank you. One moment for our final question. And our final question for today comes from the line of Jeffrey Bernstein from Barclays. Your question, please.

Great. Thank you very much. I guess, putting some closure around the Uber discussion. I know for a long, long time you guys had deemed that a partnership was presumably not in the best interest of the company and franchisees. So, something, I guess, very recently maybe tipped the scales to push you to sign up now. I'm just wondering if you could talk about what kind of pushed you over the edge, and I assume there are still some lingering headwinds that you're still conscious of and watching closely that perhaps where some of the headwinds you were anticipating before. And if you could just share maybe what will be the consideration set at the end of 2024 to decide who you partner with going forward, whether it's still just Uber or whether you add somebody else, like what would drive that decision? Thank you.

Thanks, Jeff. For us, it came down to three key elements: scale, scope, and incrementality. The pizza delivery business in the aggregator QSR market is significant, now valued at $5 billion. We are the leading pizza delivery company in the country, yet we do not sell a single order through this channel. Given the $5 billion opportunity, we plan to compete vigorously for our fair share. The second element is scope; the terms of the deal are very favorable for both us and our franchisees, both internationally and domestically. I mentioned earlier that now 70% of our stores will have access to potential orders from Uber. Lastly, incrementality is crucial. Our work internationally and the studies conducted in the U.S. demonstrate our ability to manage this as a separate channel effectively and increase volume. These factors weren't always aligned before. To be candid, we are fundamentally a delivery company, and we needed to ensure we could handle our own orders efficiently before considering additional volume. We are now achieving that, as evidenced by our improved service times, and we are prepared for the next wave of orders.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Russell Weiner for any further remarks.

Well, thank you so much, everybody, for joining the call this morning. Sandeep, Ryan, and I, we really look forward to speaking with you again in October to discuss our Q3 2023 results. Have a great day.

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