Dominos Pizza Inc (DPZ) — Q4 2018 Earnings Call Transcript

Thank you, Jonathan, and hello everyone. Thanks for joining us. Today's call will highlight the results of our fourth quarter and full year results for 2018. The call will feature commentary from Chief Executive Officer, Rich Allison; and Chief Financial Officer, Jeff Lawrence. This call is primarily for our investor audience, so I kindly ask that all members of the media and others to be in a listen-only mode. A friendly reminder to our analysts, we have asked you to stick to one question on this call because we want to give all 20 or so of you the chance to participate. We will provide each of you with the opportunity for more in-depth one-on-one calls later today. In the event that any forward-looking statements are made, I do refer you to the safe harbor statement you can find in this morning's release, the 8-K, and the 10-K. In addition, please refer to the 8-K to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. And with that, I'd like to turn the call over to CFO, Jeff Lawrence.

Thank you, Tim, and good morning everyone. We are pleased to report our results for the fourth quarter and full year fiscal 2018. During the quarter, we continued to build on the positive results we posted during the first three quarters of the year and we delivered strong results for our shareholders. We continue to lead the broader restaurant industry with 31 straight quarters of positive U.S. comparable sales and 100 consecutive quarters of positive international comps. We also continue to increase our store count at a healthy pace as we opened 560 net new stores in Q4. Our diluted EPS was $2.62, which is an increase of 25.4% over the prior year quarter. This increase primarily resulted from strong operational results and a lower effective tax rate. With that, let's take a closer look at the financial results for Q4. Global retail sales grew 6.5% in the quarter pressured by a stronger dollar. When excluding the negative impact of foreign currency, global retail sales grew by 9.5%. This global retail sales growth was driven by increases in same-store sales and the average number of stores opened during the quarter. Same-store sales for the U.S. grew 5.6% lapping a prior year increase of 4.2%. And same-store sales for our international division grew 2.4% rolling a prior year increase of 2.5%. Breaking down the U.S. comp, our franchise business was up 5.7% while our Company-owned stores were up 3.6%. Both increases were driven primarily by higher order counts in addition to some ticket growth as consumers continue to respond positively to our overall brand experience. Our Piece of the Pie loyalty program once again contributed meaningfully to our traffic gains. Our international comp for the quarter was driven entirely by order growth. During the quarter, all of our geographic regions were positive. Our comps were negatively impacted when compared to the prior year as our Q4 2018 did not include New Year's Eve. We estimate that both our U.S. and international comps were negatively impacted by approximately 0.5 point by this calendar shift. We expect Q1 2019 to be positively impacted by the calendar shift. Separately and as discussed at our Investor Day, U.S. comp in 2018 was negatively impacted by a 1 point to 1.5 point, due to our store split fortressing strategy and investment we are willing to make towards our long-term growth. Our international comp was also negatively impacted by store split. On the unit count front, we are pleased to report that we opened 125 net U.S. stores in the fourth quarter, consisting of 127 store openings and two closures. For the full year, we opened 258 net U.S. stores, the most U.S. net store openings we have had since 1988. We are also very pleased to announce that our international division added 435 net new stores during the quarter. The 435 net new stores were comprised of 472 store openings and 37 closures. For the full year, we opened 800 net new stores in our international division. On a total Company basis, we opened 560 net new stores in the fourth quarter and 1,058 net new stores for the full year 2018, demonstrating the broad strength and attractive four-wall economics our brand and franchisees enjoy globally. Turning to revenues, total revenues for the fourth quarter were up $190 million or 21% from the prior year. As a reminder, we adopted the new revenue recognition accounting standard in the first quarter of 2018. As a result, we are now required to report the franchise contributions to our not-for-profit advertising fund and the related expenses, gross on our P&L. Although this did not have an impact on our reported operating or net income in the fourth quarter, it did result in a $112 million increase in our consolidated revenue. It is important to note, although these amounts are included in our financial statements, they are restricted funds that can only be used to support the Domino's brand and are not available to be used for general corporate purposes. The remaining $77.7 million increase in revenues resulted primarily from the following: first, higher food volumes driven by strong U.S. retail sales resulted in higher supply chain revenues; and second, higher U.S. retail sales, resulting from higher same-store sales and store count growth, resulted in increased royalties and fees from our franchise stores as well as higher revenues at our Company-owned stores. International royalty revenues were down from the prior year quarter, primarily due to the negative impact of changes in foreign currency exchange rates. FX negatively impacted international royalty revenues by $3.6 million versus the prior year quarter due to the dollar strengthening against certain currencies. For the full fiscal year, foreign currency negatively impacted royalty revenues by $1.1 million. Moving on to operating margin, as a percentage of revenues, consolidated operating margin for the quarter increased to 38.2% from 31.5% in the prior year quarter. This increase resulted entirely from the recognition of U.S. franchise advertising revenues on our P&L from the new accounting guidance I mentioned previously. Company-owned store margin was down year-over-year and was negatively impacted by both higher food and labor expenses as compared to the prior year quarter. Supply chain operating margin was up year-over-year and was positively impacted by procurement savings but was negatively pressured by labor and delivery costs. G&A costs increased $15.8 million as compared to the prior year quarter, driven primarily by continued investments in technological initiatives as well as investments in our supply chain, our marketing, and our international teams. We also had two items that largely offset for the quarter: a $4 million pretax gain on the sale of Company-owned stores to franchisees in Q4 2017, which reduced G&A in that period; and a $4.6 million reduction in G&A in Q4 2018 resulting from the adoption of the revenue recognition guidance primarily related to the reclassification of certain advertising expenses out of G&A into U.S. franchise advertising costs. U.S. franchise advertising costs were $112.9 million in the fourth quarter. As a reminder, beginning in fiscal 2018 we are showing U.S. franchise advertising in our revenues with an equal and offsetting amount of expense in our operating costs. Interest expense increased $6.8 million in the fourth quarter, driven by increased net debt from our most recent recapitalizations and a slightly higher weighted average borrowing rate of 4.1%. Our reported effective tax rate was 17% for the quarter, down significantly from prior year. This was primarily due to the lower federal statutory rate of 21% and tax credits resulting from the federal tax reform legislation enacted at the end of 2017. The reported effective tax rate included a 0.8 percentage point impact from tax benefit on equity-based compensation. We expect that we will continue to see volatility in our effective tax rate related to equity-based compensation. When you add it all up, our fourth quarter net income was up $18.3 million or 19.6% over the prior year quarter. Our fourth quarter diluted EPS was $2.62 versus $2.09 in the prior year. Here is how that $0.53 increase breaks down: our lower effective tax rate positively impacted us by $0.44, including a $0.57 positive impact from tax reform and a $0.13 negative year-over-year impact related to lower tax benefit on equity-based compensation. Lower diluted share counts, primarily as a result of share repurchases benefited us by $0.12. Higher net interest expense resulting primarily from a higher net debt balance negatively impacted us by $0.09. The gain on store sales recorded in Q4 2017 negatively impacted us by $0.06. Foreign currency negatively impacted royalty revenues by $0.05. And lastly, most importantly, our improved operating results benefited us by $0.17. Let's now turn to our use of cash. First and most importantly, we invested nearly $120 million in capital expenditures for the full year. We continue to invest in our supply chain to keep up with our rapid growth, including opening our New Jersey Center in Q4 and starting work on two additional supply chain centers, one in South Carolina and one in Texas. We also continue to invest in our technology capabilities. During the fourth quarter, we repurchased and retired approximately 636,000 shares for approximately $162 million at an average purchase price of $255 a share. For the full year, we repurchased nearly 2.4 million shares for approximately $591 million at an average purchase price of $248 a share. During the fourth quarter, we also returned $45 million to our shareholders in the form of two quarterly dividends and made $9 million of required principal payments on our long-term debt. Subsequent to year-end on February 20th, our Board of Directors increased our quarterly dividend approximately 18% to $0.65 per share. As always, we will continue to evaluate the most effective and efficient capital structure for our business, as well as the best way to deploy our excess cash for the benefit of our shareholders. We'd like to remind you of the 2019 annual outlook items that were shared at our Investor Day in January. We currently project that the store's food basket within the U.S. system will be up 2% to 4% as compared to 2018 levels. We estimate that foreign currency could have a $5 million to $10 million negative impact on royalty revenues in 2019 as compared to 2018. We expect our growth CapEx investments to be in the range of $110 million to $120 million, as we continue to improve and build supply chain capacity and capabilities and invest in technological innovation. We expect our G&A expense to be in the range of $390 million to $395 million for 2019, and do please keep in mind that G&A expense can vary up or down, as our performance versus our plan, as that affects variable performance-based compensation expense and other costs. Separately, and as a reminder, we will be adopting the new lease accounting standard in the first quarter of 2019. The adoption of this standard will result in significant growth on our balance sheet, but it is not expected to have a material impact on our income statement. Overall, our solid consistent momentum continued and we are very pleased with our results this quarter and for the full year. We will remain focused on relentlessly driving the brand forward and providing great value to our customers, our franchisees, and our shareholders. Thank you for joining the call today, and I'll turn it over to Rich.

Thanks, Jeff, and good morning everyone. I'm pleased with what was a terrific fourth quarter, one that capped another outstanding year for Domino's. Our results continue to outpace the industry and our franchisees across the globe continue to make me extremely proud. I plan to keep my commentary rather brief today, mostly due to the fact that we recently held our Annual Investor Day, which was a great opportunity to communicate detail around our strategy and my thoughts on my first six months as CEO of this tremendous brand. We certainly hope you found it to be helpful, filled with substance, and time well spent. The updates and concepts we discussed centered around one thing: what matters. Today and going forward, I'm going to frame up our quarterly performance around these elements, areas and metrics that I am most focused on as we execute the long-term strategy designed to help us achieve our goal of becoming the pizza industry's dominant number one. So let's revisit what matters. Retail sales growth matters, and once again we delivered. Our global retail sales growth reflected a strong balance across our U.S. and international businesses. For both businesses in Q4, our growth reflected a healthy blend of unit growth and traffic-driven same-store sales. Looking first at our U.S. business, double-digit retail sales growth in Q4 was comprised of a very healthy and order count driven 5.6% comp and 125 net new units. The fourth quarter marked our 31st consecutive quarter of positive U.S. same-store sales growth and capped a very strong top line performance in 2018, above our three to five year outlook range and continually driven by focus, fundamentals, and execution. I'm so proud of our U.S. franchisees and teams who continue to lead the Domino's system. Turning now to International, we delivered strong retail sales growth for the fourth quarter and a double-digit result for the whole year. Fourth quarter net unit openings were particularly strong and represented a significant acceleration over previous quarters. Same-store sales performance can certainly improve versus what we have all come to expect, but I'm pleased to see all of our comps coming from order growth. During the quarter, we had two important milestones. First, we opened our 10,000th store outside of the United States, a testament to the unit growth engine this segment has provided to the business over a lengthy period of time. In addition, the fourth quarter was officially our 100th consecutive quarter of positive same-store sales growth. To think that we have grown sales in our international business for 25 straight years and 100 straight quarters, still honestly blows my mind and is a testament to us having the best international model in QSR. I credit our master franchisees and global operators for helping the brand achieve such an impressive milestone. Continuing our discussion of what matters, let's turn to value. Value matters and continues to be a significant part of our strategy. We remain the only player within our category to deliver value in a sustained, meaningful and reliable fashion. As we have for nearly a decade, our $5.99 delivery and $7.99 carryout offers in the U.S. continue to resonate with our customers. But beyond just the price point, we continually search for and deliver additional customer benefit to the overall value equation. Technology, leadership, and our loyalty program matter. Although this call is about the fourth quarter, I can't help but note something exciting we introduced earlier this month. We launched a technology and loyalty platform like no other of its kind. The Points for Pie program allows customers to send photos of any pizza using our AI interface we call the Pie Identifier and earn points in our Piece of the Pie loyalty program. It is one more example of how we do things a bit differently, always trying to stay ahead on how we make news. Generate brand engagement and in this case grow awareness and participation in our loyalty program. As we updated you at Investor Day, this platform with over 20 million active users has been a meaningful driver of sales performance and frequency over time, and I am very excited about the launch of this unique program. Franchisee profitability and unit economics matter. Franchisee profitability is at the center of everything we do at Domino's. We anticipate average U.S. franchise store EBITDA to be in the range of $137,000 to $140,000 per store for 2018 with global cash-on-cash returns at better than a three-year payback. Very few in this industry, and certainly our category, will provide this figure. We will continue providing information on store-level economics because it is a top priority for us and certainly should be for you as shareholders of any restaurant brand. The health of our business and system is heavily reliant on our franchisees' success. And their enterprise growth and profitability will be a certain priority for me as CEO. Few metrics demonstrate the relationship between store-level economics and growth potential better than unit openings and most notably closures. You have heard us discuss for several years now how closures is a top indicator of the health of a franchise system and I'm thrilled to say that we closed only nine U.S. stores in the full year 2018. When combined with international, our global closures number of 125, of a base of nearly 16,000 stores is a true testament to strong global unit economics. A component of the Domino's story that gives me a great deal of confidence and belief in our long-term potential. Our proven four-wall economics continue to pace the industry and it's just another reason why there has never been a better time to be a growth-minded franchisee at Domino's. In closing, I'm very pleased with our fourth quarter and full year 2018 results. By focusing on the long game and what matters, I am extremely confident that we are well positioned for success. 2019 is only the beginning of our pursuit to win and accomplish our long-term goal of becoming the dominant number 1. And with that, we're happy to take some questions.

Hey, guys. Great, thanks. I just wanted to ask about the international, real quick on, I think you said the comp growth has been driven primarily by order growth. What's the dynamic going on with the check? Are you seeing your franchisees internationally discount to drive some of that traffic, or just any commentary on the check would be helpful.

Sure. Pete, it's Rich. On the check, what we are consistently trying to do as a brand across the globe is to stay focused on value. We talk about it a lot in the U.S. with $5.99 and $7.99, but we're also focused on it in our international markets as well. And the approach that our growth-minded master franchisees are taking is really around driving transactions, driving order count as opposed to taking price increases over time. So what you saw in 2018 was really that continued focus to make sure that we're driving growth the right way.

Great. And then just domestically, the comp growth of 1% was still a little bit below what we were anticipating. Did you see any deterioration in delivery times or any shift in consumer behavior in the fourth quarter versus prior or was this pretty much in line with your expectations?

We're really happy with the comp growth in the U.S. in the fourth quarter. As stated earlier, it's a traffic-driven comp which is exactly what we like to see with the business really healthy across all dimensions.

Hi everybody, this is Tim. I'd like to reiterate, we really would like you to stick to just one question on this call, please.

So, you previously talked about loyalty programs as something that come with sort of a natural pathway, has been one of the reasons, you expanded it outside of just digital transactions. Should we take the Points for Pie's promotion as an indication, that half-life was starting to become more apparent in the existing program, and you needed a new jump start? Can you just sort of put that in context of overall performance and confidence in the loyalty program?

Sure. Karen, the loyalty program has continued to be a significant driver of comps for us since its launch now, a little over three years ago now. And as we mentioned at Investor Day in January, we passed the mark of 20 million active users. The Points for Pie program is a terrific enhancement to that program and our loyalty program does have a half-life, and our approach was not to wait until we hit ours, but to continue to bring more news and to bring more interesting ways for consumers to sign on with our program and get actively involved in it. And I'll remind folks on the call that when we structured the loyalty program Our Piece of the Pie rewards back in 2015, it was done with the mind towards driving transactions, and everything about the program structure and the enhancements that we've made to it over time are all about making sure that we drive transactions and frequency with our customer base.

Thank you. With respect to the comp and sort of that comment, I think about the calendar shift that you made. Is there anything else we should consider given that Easter comes later, so Lent, the timing of Lent occurring a little later? Does that play into the quarterly comp at all or some things to factor in? And then also with the comp assumption, pricing calendar shift in a lot of our wages went up in certain states. Is that another factor to think about in 1Q, just a higher pricing domestically?

Yeah, Matt, it's Jeff. We'll primarily enter this for Q4 since we're in Q1 right now and we can't report on that. But what I can tell you is, it did hit us by about 0.5 point, the calendar shift. We'll get most of that back, obviously in Q1. As far as any kind of seasonality or quarter versus quarter start in 2019, I'm not really that worried about it, that we're executing and putting up the numbers we want that'll be rounding here type of stuff.

Hi, good morning. My question is on the domestic comp trends, and I know when you add back the calendar issue, the comp Q4 was pretty similar to what you had in Q3. But the comparison was quite a bit lower. So when you look at maybe on a two-year stack basis, it does look like the business decelerated but I guess my question is that the way you look at it? Did the business decelerate and how does that change your thinking or does not change your thinking about your 3 to 6 comp target as you enter 2019?

Hi David, it's Rich. In my view, the business did not slow down from 2017 to 2018. When comparing the entire fiscal years of 2017 and 2018, looking at global retail sales, our U.S. business grew by 11.1% in fiscal 2017 and by 11.2% in fiscal 2018. In the fourth quarter, we increased by 7.6% in 2017 and by 10.2% in 2018. We are very pleased with our retail sales growth across the business, which is the key metric we focus on. Additionally, we were very satisfied with the comp in the fourth quarter for a couple of reasons. First, it was fueled by significant order count growth and transaction growth. Second, it aligned well within our long-term expectations.

Hi. Thanks. Just about the company-operated comps and that spread, I know it's a very small part of your system, company stores in the U.S. either bear greater sort of splits or are more affected by aggregators. And then, can you say anything about that sort of what appears to be kind of on a one and two year basis of widening gap for the company stores and whether that has any kind of portend for the system overall?

Yes, in the company-owned stores, which are mainly located in eight urban markets, you will see a bit more impact from splits because all the openings we have in our corporate store business are realignments of territories. If there is an aggregator impact, it's certainly focused in those areas. We don't have any concerns in the quarter regarding our corporate store growth. We feel optimistic about the growth and profitability in that sector, although the characteristics tend to lean more towards the urban environment.

Hi, good morning. You've mentioned the anticipated split impact in the U.S. I understand that you report your international comparisons without considering the split impact. Could you share what that might look like in the fourth quarter and if you have any trends over time? Additionally, is the effect of splits increasing, decreasing, or remaining stable as we analyze that business over the past couple of years?

You know, John, we shared with you back at Investor Day, the point to point and a half on the U.S. side of the business. We don't have a similar number to share with you on the international side; it's really going to vary country by country depending upon what state of the growth curve that we happen to be in, in that particular country. And in some of our markets where we are more penetrated today, you may see a little bit more of an impact there and in other markets where we've got a lot more white space left to fill, you're going to see less impact. But if we come back to our three to five year outlook for same-store sales growth of 3% to 6%, it takes into account the fact that we will take some headwinds on that due to the impact of the splits. And as we talked about in our Investor Day, this is an investment that we're quite happy as a brand to make. And our franchisees have been quite happy to make, because it's necessary to drive the overall retail sales growth and overall profitability in the business, primarily at the franchisee level as well as a franchise.

Hey, I wanted to ask about international operations. Could you tell me how many conversions occurred in the quarter? Also, I noticed that the comparables seemed a bit softer than I anticipated. I'm curious about what might have caused that and whether the count was below your expectations, including any regional factors that may have been involved.

Hi, Greg. We're not going to report specifically on the number of converted units. The primary conversion in the fourth quarter was the continued conversion of Hallo Pizza in Germany, and we are very pleased with the progress that DPE is making there. You can refer to their release from about 36 hours ago for more details on that. Regarding the international comp, we would love to see that number a bit higher. I want to be fully transparent about that because our long-term trends have certainly been better than where we were in the fourth quarter. That said, we will always experience some fluctuations in various markets around the world. In the fourth quarter, we were softer in a few key markets in Europe and the Pacific region specifically. However, when I look at the underlying health of those markets, we have strong market share positions, great unit economics, and strong management teams in place. Even with the slight weakness in the fourth quarter comp, when we take a step back and evaluate our retail sales growth, driven by that comp and the unit growth we are witnessing, I am still quite pleased with the growth trajectory of the business.

Hey all, thanks for taking my questions. This is actually for Will this morning. I was just hoping you could clarify the comp a little bit more in Q4. You mentioned in your prepared remarks that the same-store sales growth included some ticket growth. I'm curious if that check growth is slightly higher than what we usually see and what drove that. Thanks.

Yes, it's Jeff. We had a strong comparison in the fourth quarter for the U.S. business. Along with the growth in retail sales, we achieved a 5.6, primarily driven by increased traffic. We also saw a fair amount of what I would describe as smart ticket growth. By leveraging our analytics capabilities in collaboration with our franchisees, we identified opportunities to increase ticket size. However, we didn't significantly raise prices across the board; our franchisees are implementing price adjustments more strategically based on the data. Overall, it was mostly about traffic, with a bit of smart ticket growth included.

Yeah, thanks. I had a follow-up regarding the corporate stores, and I guess this applies to the franchise stores as well. But are there any opportunities to mitigate some of the cost pressures that you're seeing, especially around the labor to kind of slow the margin pressure we are seeing at stores?

Yes, this is Jeff. In the store environment in the U.S. and many other countries, we face challenges across multiple areas, with labor being a significant one. Our corporate store margins for the year were notably impacted by the labor rate. The operations team did an excellent job in finding efficiencies, but it wasn't enough to counteract the rising labor costs. These increases come from two main sources: government-mandated labor rate hikes, which we comply with, and the current robust economy in the U.S., where employment is high, necessitating higher wages. While I don't have a strong opinion on the reasons behind these increases, we need to adapt to maintain those efficiencies. We're investing more in store technology, especially with consumer-facing systems like point of sale. However, we are also re-evaluating how we can employ technology behind the scenes for labor scheduling in our corporate stores and sharing best practices with our franchisees who make their own choices in this area. There are always opportunities regarding margins and labor, and I believe that improving volume and traffic will enhance our chances of increasing dollar profit. Though the labor environment is challenging, we must keep striving to navigate these issues.

Chris, just a couple of things to add to what Jeff was just describing in terms of some of our near-term efforts. The real game-changer over time on labor is going to have to come from our efforts to fortress our markets. The most expensive thing that we do is take a pizza from point A to point B. And as we look forward over time to reducing the radius of these delivery areas, in addition to driving incremental sales for household, which we've talked about in the past, we are also looking to reduce the cost per delivery and it just makes sense. Of course, the shorter the distance, the shorter the drive time, getting that driver out from the store to the customer and back to the store, the lower the labor costs for that specific delivery. And as we see wages rising in cities around the country, this is the key lever over the coming years in terms of reducing that delivery costs. To go alongside a lot of the things as Jeff described that we're trying to do around, being smarter about our scheduling and how we think about using technology to make the flow of product from the store out to the customer more efficient.

Thank you very much. I know you guys have expressed your satisfaction with your fourth-quarter comps in the U.S., but I'm wondering if you now think execution is optimal at the store level using in-store employees and optimal in terms of availability of delivery drivers. Obviously, I have heard now and I've heard before the comments about reducing delivery stands, but are you currently staffed the way that you want to be or their execution issues that are popping up in various markets, that might be constraining comps from what they otherwise would be?

John, on execution we're never satisfied. We are as fast as we've ever been in getting out to the customer and we believe we're better than the competition, old and new, but we're never satisfied there. So the short answer is, yes, we need to get better, both in terms of the average time that it takes us to get pizza to our customers and also with the variability around those times. And that's something that we're working on each and every day. The driver labor market and availability of drivers certainly plays a part in that. And as Jeff said, it is a very tight labor market right now. So we've got to make sure and our franchisees have got to make sure that Domino's Pizza is the best place for those drivers to work when they have many more choices today than they had five years ago. So what does that mean for us, well, the most important thing in terms of driver wages and satisfaction is how many deliveries per hour do these drivers get. That drives the compensation. And when we look at the places around the country where our franchisees have in and built out their store networks to fortress where we cut those delivery zones, down from nine minutes down to six minutes or five minutes, we find that our drivers are making more money in turnover in those places is less. So it's not a short-term play, it's a long-term play, but we are very much focused on it, John, and we wanted to be a great place to work now and also to create opportunities for our drivers of today to become the franchisees of tomorrow. Ninety percent plus of our franchisees in the U.S. started off delivering pizzas or started off answering the phones in our stores. And one of the really terrific things that is happening right now with the resurgence in store growth in the U.S. is that we are developing new franchisees at a faster pace than we have in many years. And so we're attracting drivers, not only for the near-term wages, but also for those that have the vision around the longer-term opportunity to potentially be a franchise owner at Domino's Pizza. We think we've got a terrific value proposition for them.

Thank you. Just wanted to ask about your international store growth. Did that, first did that come in about as expected? And then secondly, as we look forward into 2019 and beyond should we be thinking about a step up in that development of some of your newer markets starting to ramp up. And then separately, you talked about the G&A investments in your international teams, where exactly is that going? And as you start to become a bit more dispersed in your geographical mix, does that mean you have to broaden out your investment in G&A?

So, Jeremy, on the store growth we were very pleased with the fourth quarter, the international store growth. As we talked about on some of our calls earlier in the year, store growth got off to a slower start than we wanted to see in the earlier part of the year. And our expectation at that time was that it would pick up over the course of the year and we were pleasantly very pleased to see that in fact happened. As we look out going forward, I remain very confident in our 6% to 8% outlook for store growth. And I'd say that because the fundamentals of our four-wall economics in the business are still very solid with a payback in the international business of around three years on average with a number of our markets, even much faster than that. One of the things that happened in 2018 that also gives us confidence is that we really seeing an acceleration in the brick markets in particular. And Russia, China, India all had terrific years in 2018 store growth. And we in Brazil are very optimistic going forward. We got new ownership in the market, they're building up the great foundation as the previous master franchisee put in place. So feel good about the three to five-year outlook and I feel very positive about our aspirational goal of 25,000 total stores globally by the end of 2025. Your second question, I think you snagged a second one there was around G&A. And we're investing in our international business really to help our franchisees continue to grow. And one of the things that we've talked a little bit about over the last several quarters post the leadership change that we adhere here at Domino's is we've been building some centers of excellence in our business and that's something that our Chief Operating Officer, Russell Weiner is working hard on every day and the thought behind that is to take some of the capabilities that have driven our U.S. business and make them more available to our international markets. And one of the areas there is around our data analytics and our decision support capabilities. And so we're going to be looking over the years to come to take some of the analytics, some of the data-driven, decision-making that have helped us to be so successful in the U.S. and port that out to more of our international markets.

Thanks for the question. Wanted to ask about market share in the quarter and specifically wondering if you saw any shift in the areas where you took share specifically looking at the independence relative to the larger brands, whether you're taking any incremental amount from the larger brands. And then just perhaps if on the carryout side you saw greater gains there given the increased focus over the last couple of quarters. Thanks.

We are continuing to gain market share at a strong pace across our business, both in the U.S. and internationally. In both markets, our growth has significantly outpaced the overall market growth rate. As we mentioned in January at our Investor Day, more than 100% of the transaction growth in the U.S. pizza category over the last four years has come from Domino's. If you exclude Domino's from the market, the remaining players experience transaction declines. This shift in market share comes from various competitors, and we are open to gaining share from both larger and smaller players. In our different business segments, we are consistently increasing our share in both delivery and carryout. Despite being the leading player in the market, we still have substantial potential for market share growth due to the fragmented nature of the category.

Great. Thank you. First, Rich, just want to compliment you on your television ads, it's nice to see you on a more regular basis.

Thanks, Jeff.

Sure. Separately, just on the international front and I recognize that, it's tough to make broad brush comments when you're talking about so many different countries. But, the fact that the comp did come in slightly below the long-term range, it seems like it's the lowest in many years. Does it make the 3% to 6% guidance for the next multiple years look a little aggressive, just wondering, especially when you commented that, you had a couple of weaker markets, but in reality, all markets are positive. So it doesn't seem like there is a big headwind that you're all of a sudden going to be able to correct, seems like it's more just a slow and steady across pretty much all of your markets. So I'm just wondering how you think about or why you're confident in such a re-acceleration or why not perhaps lower that long-term guidance since we all know that I guess the total retail sales growth that you focus on?

Yes, as I mentioned earlier, we were not entirely satisfied with the fourth quarter results in the international business, but that does not weaken our confidence in our ability and that of our master franchisees to continue driving same-store sales growth internationally in the long term within the 3% to 6% range. The fourth quarter figure of 2.4% represents a mix of results. While all regions showed positive growth, there were some markets that performed poorly and others that did exceptionally well. Looking at our largest international markets, which significantly influence our overall performance, both we and our master franchisees see opportunities for improvement. Some of the short-term pressures come from macroeconomic factors, while in other cases, our short-term performance did not meet our expectations due to execution issues. We are not making excuses but remain confident about the opportunities ahead.

Great. Thanks. I just wanted to quickly follow up on the international franchise side. The number of closures internationally appears to be the highest on record. I'm curious if there are any conversion-related issues contributing to this. Additionally, regarding the U.S. market, you mentioned that the loyalty program has been in place for about three years and has significantly driven traffic. Can you clarify how this program impacts same-store sales? Are the results coming from acquiring new members, increasing visit frequency among existing members, or raising spending levels with those members? Thanks.

You should also look into that and be a bit strategic at times. Regarding the international closures, some of these were related to conversions. Whenever a conversion happens, there is often some overlap, leading to certain closures. We also experienced a few more closures in our smaller markets than we usually do. In those situations, it involved unprofitable units or locations that may not have been optimally placed. It’s necessary to close a unit, which we dislike, but if it’s beneficial for the overall health of that market and aligns with our long-term growth objectives, we are prepared to accept that short-term impact. As for your second question about loyalty, the simple answer is yes, in both ways. We are boosting sales and engagement with our current loyalty members while also attracting new members to our program. When we refer to 20 million members, we mean active members who have placed an order through our loyalty program in the last six months. We continue to see excellent engagement from both those who joined us three years ago and those who came on board in 2018.

Thank you. When you look at the 500 basis points of deterioration in domestic to your trends from Q3 to Q4, in both 2017 and 2018. Both of which include a 50 basis points headwind from the calendar shift. But do you think there is a new element of seasonality in the business that you believe is emerging? And if so, what do you think is driving that?

Yeah, this is Jeff. The short answer is no, no more seasonality to the business than has ever been in there. Still a simple business, it's one where you just got to go out and execute every day. But no new seasonality or any impacts from that.

Good morning. Just wanted to ask about the 1% to 1.5% impact, you guys talked about in fortressing of 100 comp. I think by my count this was the seventh year in a row that you've seen your overall unit growth accelerate in the U.S. If that does continue to accelerate, is there any concern about in the kind of 1 to 1.5 debt becoming a bigger number? Going forward or is it, am I not thinking about that correctly if we continue to see it was unit growth expand in coming years?

Yes. When we consider future unit growth and communicate with our franchisees about opening new stores, we definitely assess the potential impact on the same-store sales of existing locations. Our evaluation of new unit openings involves examining the anticipated cash-on-cash return for the new store in conjunction with the expected payback for the entire cluster. For instance, if we can secure a territory to establish a new store, the cash-on-cash return for that store might be approximately 2.5 years, while the return for the cluster could be around four to 4.5 years. Each situation is unique, and this is merely an illustrative example. We collaborate closely with franchisees to ensure that the new store is beneficial, as well as to understand its influence on the overall cluster. Franchisees perceive this as a short-term investment; they may relinquish a small amount of same-store sales from existing locations now to foster the long-term growth and profitability of their businesses. One aspect we are particularly enthusiastic about is our franchisees' profitability in 2018. In terms of profitability, we often cite the $137,000 to $140,000 per unit figure for franchisees. Additionally, we also consider the overall profitability of the franchisee enterprise. Currently, the average franchisee operates nearly seven stores, which translates to each franchisee generating over $900,000 in EBITDA, a figure that has been rapidly increasing over recent years. Our focus remains on both unit-level economics and the overall financial performance of our franchisees.

Well, thanks everyone. We appreciate your time today and we look forward to discussing our first quarter 2019 results on Wednesday, April 24.