Thank you for standing by and welcome to Domino's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] 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 third quarter of 2023. Today's call will begin with our Chief Executive Officer, Russell Weiner; followed by our Chief Financial Officer, Sandeep Reddy. Russell and Sandeep will leave ample time for questions and discussion. As this call is for our investor audience, members of the media and others should be in a listen-only mode. 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 maybe referenced on today's call. 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 conference call is being webcast and is also being recorded for replay via our website. I'd now like to turn the call over to our Chief Executive Officer, Russell Weiner.

Thanks, Ryan, and good morning, everybody. My remarks this morning will focus on several new initiatives that are designed to create significant shareholder value in the months and years ahead. We launched our new loyalty program, Domino’s Rewards on September 12. And here are some of the mechanics that are really meaningful to our current and prospective customers. First, we lowered the spend threshold to earn points from $10 down to $5, and this change will make us even more competitive in the carryout segment where ticket tends to be lower. Our second change was creating more attainable redemption opportunities for lower frequency customers. So in the past, they needed to order six times to get a free pizza. Our new program features redemptions at 20, 40 and 60 point tiers and offers items from eight different categories on our expansive menu. Joining pizza at the 60-point level, are the big sandwiches, pastas, and lava cakes; at 40-points, we feature our lines of bread twist and Stuffed Cheesy Bread; and at 20-points, we offer single-serve beverages, Parmesan Bread Bites and Dipping Cups. So, more items to choose from with redemption options after just two purchases. While the program just launched, we've seen meaningful redemptions at the 20 and 40-point levels. So customers are clearly engaging more with Domino's Rewards. These strategic improvements will be a significant value driver for our brand and company. We plan to grow active users and order frequency, unlocking continued share growth in both the delivery and carryout segment. Our second value-creating initiative is entering the aggregator marketplace for delivery orders. Our integration into the Uber Eats platform is proceeding as planned. We'll achieve our goal of Uber Eats providing delivery orders to all our U.S. stores by the end of the year. We expect this initiative will drive incremental delivery volume from new customers, increase our share of the pizza delivery market and create stronger economics for our company and franchisees. This will begin in a measurable way in the first quarter of 2024. We want to exceed the expectations that the incremental customers will get through Domino's Rewards and Uber Eats. Now the way to do that is through best-in-class delivery service. And that's why I'm pleased to announce that we ended Q3 of 2023 back at our pre-pandemic Q3 2019 delivery times. This improvement was achieved through many of the best practices highlighted with franchisees during our Summer of Service program. This focus is important for us to provide an excellent delivery experience for new customers flowing in from Domino's Rewards and the Uber Eats channel. We want these experiences to lead to loyal lasting customers who will provide considerable lifetime value for our brand and our company. Now I'll talk to our renewed commitment to the all-important role innovation plays in the pizza category and our ability to continue to build our brand. We launched pepperoni Stuffed Cheesy Bread on August 28. The Stuffed Cheesy Bread launch is indicative of two things that you're going to see from us going forward; bringing news to our existing non-pizza platforms and leveraging Domino's Rewards. For the launch of pepperoni Stuffed Cheesy Bread, we lowered the redemption points required from 40 to 20. It's great to see a product and technology innovation work so well together, and this is an example of the kind of purposeful innovation I've talked about in the past, innovation that serves many functions. In this case, we've got a new product that makes an existing platform top of mind with customers, all the while encouraging customers to sign up for and continue to take advantage of our improved loyalty program. So more customers, more orders and more market share, all leading to more top-line growth and greater profit. Another example of purposeful innovation is the Emergency Pizza promotion we launched just a few days ago. Customers who order Domino's will have 30 days to claim a free pizza to use in any emergency they see fit, whether dinner was burned or maybe circumstances or making things a bit tougher to afford. Customers who place an order on our e-commerce platform will automatically earn a Domino's Emergency Pizza. They'll have 30 days to redeem their Emergency Pizza and, of course, must be members of Domino's Rewards to do so. Another innovation designed to drive more customers, more orders and more profit. We're also driving purposeful innovation behind technology to improve customer service and a team member experience. On October 3, we announced undertaking this challenge with the best in the business, Microsoft. Our two companies will collaborate on Generative AI solutions that will create the next generation of pizza ordering and operations technology. Together, our teams are focused on two important goals: first, transforming customer experiences by enhancing the ordering process through personalization and simplification; and then second, streamlining operations and quality control with more predictive tools. I couldn't be more excited to work with Microsoft on this critical endeavor. Finally, I want to address one of the most important topics for all of us here at Domino's, and that's profit, profit for our stores and profit for our company. Despite our predicted and previously discussed softness in our U.S. same-store sales, our operating income margin improved as did our estimated franchisee profitability for the year. What that means is that the sales improvements we expect to realize in Q4 and even more significantly in 2024 will flow through a more efficient model for Domino's and our investors. I am confident about our future, including the more immediate future, here at Domino's. With that, I'll turn things over to Sandeep.

Thank you, Russell, and good morning to everyone on the call. Before I go through our financial performance for the quarter, I wanted to give an update on Russia. Our master franchisee DP Eurasia, announced their process to exit the market, as detailed in our earnings release. As a result, we closed the remaining 143 stores in the market during the third quarter. For the purposes of global retail sales growth and our net store growth, we have removed the Russia business from both the current and prior year. Moving on to updates on our actions to drive the long-term profitability of Domino's and our franchisees. First, pricing. During the third quarter, the average price increase across our U.S. system was 3.2%. We now expect average realized pricing to moderate to slightly below 1% in the fourth quarter when we left the carryout Mix & Match pricing change from October 2022 and incorporate the impact of trends we are seeing from our newly launched Domino's Rewards loyalty program. Second, cost efficiency as we continue to drive margin recovery. We drove an improvement in our operating income margin, which grew by 190 basis points versus Q3 2022. We now expect operating income margins for the year to reach 2021 levels. Third, positive retail sales growth, excluding foreign currency impact in our U.S. and international businesses, drove operating income improvement. Now for our financial results for the quarter. Excluding the positive impact of foreign currency, global retail sales grew 5.1% and due to positive international sales comps and global net store growth. U.S. retail sales increased 0.9%. International retail sales, excluding the positive impact of foreign currency grew 9.4%. During Q3, same-store sales for the U.S. business decreased 0.6%. The decrease in U.S. same-store sales was driven by order count declines, partially offset by a higher average ticket, including the pricing actions I mentioned earlier. Our U.S. carryout business continued its positive momentum in Q3, with same-store sales plus 1.9% and rolling over a plus 19.6% performance in 2022. The delivery business continued to be challenged in Q3, in line with our expectations stated on the last call, with delivery same-store sales minus 2.3%, rolling over a minus 7.5% in Q3 2022. As mentioned on the last call, we expect delivery orders to have an improvement in trend in Q4, as our updated loyalty program and our Emergency Pizza Promotion have now rolled out. And that followed by a considerable improvement in 2024, as a result of transaction growth from our Uber Eats partnership and the other initiatives previously shared with you. Including consistent trends versus Q3 in our carryout business, we expect U.S. sales comps to be positive in the fourth quarter. Shifting to unit count. We added 27 net new stores in the U.S. with 28 store openings and one closure, bringing our U.S. system store count to 6,762 stores at the end of the quarter. As we had previously indicated, the U.S. four quarter net store growth rate stabilized during the quarter at 1.8% consistent with the rate at the end of the second quarter. We remain confident the store growth rate will improve during the fourth quarter with further acceleration into 2024. As of last week, 72 stores are under construction in the U.S., the majority of which are expected to open in Q4. Domino's unit economics remained strong with continued EBITDA growth for our U.S. franchisees. We are on track to deliver estimated average franchisee store profitability of at least $155,000 in 2023 up from the $150,000 we indicated on the last call. Same-store sales in our international business, excluding foreign currency impact, increased 3.3%. Our international store count decreased by 35 net stores comprised of 190 store openings and 225 closures. Closures were primarily driven by the previously mentioned exit of the Russia market and its remaining 143 stores, along with store closures from Domino's Pizza Enterprises as mentioned on our last call. Our current trailing four quarter net store growth rate in international was 5.9%. When combined with our U.S. store growth, our trailing four-quarter global net store growth rate was 4.5%. We expect our global unit growth to track to or slightly below the low-end of our 5% to 7% two to three year outlook. Despite strong gross openings, we will be pressured by elevated store closures this year that we believe are mostly behind us. Since these closures were underperforming stores and certain underperforming markets, we do not anticipate this will materially impact the financial benefit of our new international store openings. Thank you. We will now open the call to questions.

[Operator Instructions] And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Thanks. Good morning. The Domino system clearly has two new drivers in your relaunch of Rewards in the upcoming Uber Eats initiative. And you seem very confident that this is going to drive incremental demand. You even had the Summer of Service initiative earlier this year to get the system ready for higher order counts. And just as it relates specifically to this Rewards relaunch, it happened a month ago. So we're a month in. And it'd just be really helpful to understand the early reads on this initiative. I know you expect improved comp trends in the fourth quarter. I think you said positive comps. But any incremental color would be helpful on whether it's driving true incrementality and how it's behaving relative to your pre-launch expectations for the relaunch.

Good morning, Brian, it's Russell. Thanks for the question. And we're really - I'd say very excited about how this has come out of the gate. We've done two things with the rewards program and both are working, right? Purposely, we took the dollar level down entry level from $10 to $5. That's really important, especially when you think about our carryout customer. We have a national deal at $7.99. So prior to this change, you couldn't get the national deal and loyalty points. So this has been a really nice way to bring in lighter users and carryout customers. That's on the front-end. And then on the back-end, we talked about we have eight different ways, eight different platforms now that you can use your points. It used to be that you had to buy six times in order to get a free pizza. Now you can buy as little as two times to get free items and what that does is it really plays with frequency of lighter users. So you're right, that's what we projected beforehand what I can tell you as we've moved in so far, that's exactly what we've seen. We've seen a lot of folks doing that with Domino's Rewards.

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, and thanks for all the color you guys provided. Russell, I wanted to ask about the Uber Eats partnership, which you guys seem also very excited about, that really kicks into gear next year. But I think you guys have had it in a few markets so far now for either a couple of months or so. Any thoughts or any detail you could provide on the early reads there, or any - how it's performing versus your expectations, and if you've had to make any adjustments so far to the program going forward? Thanks.

Yes. Thanks Peter. Obviously, it's something we're all really watching closely these pilot markets, and I call it pilot versus test market because we're really not using any marketing, either outside or inside the Uber platform at this point. This is really more to test out what I call kind of the handshake between two really large platforms I mean Domino's, we already deliver more pizzas than anyone in the country, and so as we take on these incremental orders, we just need to make sure that technology works. That's what we're doing now and then certainly making sure the staffing is right, and we're working with Uber and our franchisees to do that. So we've been in Las Vegas right now. And what I can tell you is things are going as planned, and we're now continuing that - those pilots moving in over the next - the course of the next few weeks into Houston, Miami, Detroit and Seattle, both corporate stores and franchise stores. So all is going as we expected, and we're still on target for a national launch at the end of the year.

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 very much. I just actually a clarification of the question. I just wanted to make sure I understood that the growth opens in the U.S. are on track to the global numbers on that are more about international closures. But then the question I had was about the loyalty. You said that you're seeing more engagement. I guess when would you expect to see the increased frequency? If you have these sort of lower frequency customers who are only coming a couple of times a year, might it take a while for you to know the impact of the change in the redemption tiers? Or is there anything you can tell us about frequency, whether it's average or the low frequency customer that you might be seeing that could give us some color as to what the impact on transactions might look like over time?

Sure. I'll answer both your questions. I think your first question was bout closures in the U.S. In the U.S., we actually - we closed one store this past quarter. And I think Sandeep talked about franchisee EBITDA. And when you think about what drives store opens, and remember, he said that we've got visibility into over 70 builds right now. So you've got visibility into builds. You've got franchisee EBITDA at 155. These stores when they open - stay open. There's a lot of excitement about building stores at Domino's Pizza. We've been under 20 annual closures in the U.S. since 2017. So we have a strong U.S. pipeline and those stores stay open. On the loyalty side, what I can tell you, obviously, it is really early in, but what we were looking for is lower level redemption levels amongst customers, and we're seeing that in spades. So we'll have more information longer term once we get through a couple of purchase cycles, but pretty much right away, we're seeing what we wanted to see there.

And Sara, I'll just add on, on the global net unit growth. That's really driven by the international closures that we talked about in the last call, and now we're seeing it come through in the Q3 numbers as well. And that's the big driver of the adjustment and the expectations on the '23 level.

Thanks.

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

Great. Thank you. I wanted to ask another on the U.S. new open trajectory. And maybe a little more thoughts as it relates to U.S. franchisee demand to open those stores and the expected acceleration into 2024. I guess how much of this is - you've got some really compelling sales drivers. The top-line is going to look better. The returns are going to look better. How much of it maybe is the staffing is in a better place than it has been over the last 12 months to 18 months, 12 months to 24 months? If you could just kind of unpack a little bit of the sort of demand shift from what we've seen maybe over the last 12-plus months to what you guys expect in 2024 and beyond in the U.S., that would be great? Thank you.

Yes, Dennis. Well, you've obviously done good research on the business. You hit a lot of those there. I think it's - all those things are coming back, right? So the headwind on opens that were there with permitting and all that, those have started to subside. Staffing is back where we needed to. I want to reiterate how proud I am of our system. We are back at 2019 service levels, which is - it's a big deal, and it talks about where we've gotten our staffing to. Second is - the second big chunk is over what folks are seeing on the returns of the businesses they currently own. And as EBITDA continues to go up, if I'm a franchisee, I'd say, wow, EBITDA is at 155 right now, and that's on relatively flat sales in the U.S. And we know what's coming in the Q4, and we know it's coming with Uber in Q1, so today. And so that there's a lot of interest to make sure that we service this volume. I think lastly, this carryout business that we're leaning into, store growth is so important. The franchisees realize that. Right now, when we opened a new store, even when the store is split. So when we take an existing service area, and we split it, about 80% of those carryout customers are incremental. And so when you look at the headwinds that have subsided and you look into the present and the future as the franchisees, there are a lot of reasons to build a Domino's store.

And Dennis, I'll just add on something, because I think we've – in previous calls, we talked about the build cost, right, where we expected to - the build costs have gone up about 20% versus 2019. Frankly, build costs are coming in a very similar level for 2023 from what we've seen so far. And look, profit has actually gone up. We updated last time to $150 million, now its $155. So obviously, returns are going to be more and more compelling, given that dynamic. And frankly, with the Uber opportunity coming next year, we expect to see even more growth in 2024 in terms of profitability of the stores. So our appetite is very strong.

Thank you guys, appreciate it.

Thank you. One moment for our next question. And our next question comes from the line of Saransh Gokhale from JPMorgan. Your question please.

Hi, this is John Ivankoe. Hopefully, you can hear me. The question is actually on the Microsoft announcement. And I do want to put this in the context of 20-plus years of in-house point-of-sale development a closed system. Obviously, there are significant benefits that came with this closed system but also considerable costs. So I just did want you to frame and I think it's a five-year agreement that I read in the release, just kind of how you see this balance changing, both from a benefit side. Of the equation, what the franchisees are going to see, what the customer will see, what, of course, you will get as a company, but also the cost side of the equation, this is actually an opportunity to perhaps on a net basis, slow some of the technology spend that Domino's has actually been famous for over the years? Thank you.

Hi. Morning John, that's great point, as you look back in the history of Domino's, we certainly have built more things internally when it comes to competitive points of difference. I think we've always said, you can't outsource a competitive point of difference. We do outsource things that are really out there in the field that really are in a competitive point of difference what have we done here in this case. There's going to be a competitive point of difference, with Generative AI solutions. And we think we've got the resources and the pizza expertise internally. What we've got with Microsoft is the best in the field externally. And so you take those two things together, and it's not just cost, it's also an impact. This is a journey that if we could pick anyone to do it with, we would pick Microsoft. And so right now, the focus is really on two areas with them, first on transforming the consumer experience by enhancing the order process through things like personalization, and simplification. And the second is streaming - streamlining operations and quality control with some more predictive tools. So yes, this is kind of a hybrid here, best-in-class, both best-in-class pizza, best-in-class AI and our teams are very excited to work together.

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

Yes. Good morning. Thanks for taking the questions. Maybe just a broader question on the consumer and what you're seeing there? And how maybe behaviors may be evolving, whether it's through delivery carryout, domestic international, curious what your analytics are showing you and how things are changing? Thanks.

Yes. Our approach, no matter what the consumer environment has always been the same, which is to provide the best relative value for our customers and that hasn't changed not only the U.S., but internationally. I'd like to point to a couple of best practices that have been exported around our boost weeks. We just had boost weeks in Mexico and Canada with television behind them just like we do here in the States. Those are the best weeks that those countries have had. And so I think just in general, customers are looking for value. Now, what we're trying to do here at Domino's is position the value more than just price. And that to me is the beauty of Emergency Pizza. And I want to talk about that a little bit. Essentially what Emergency Pizza is, is old school buy one get one free as a former marketer, right? But because of the tension in the world right now around the economy and things like that, people, their antennas are up. And so instead of calling it a buy one get one free, our creative marketing department decided - or buy one get one later, which is essentially what this is. You buy a pizza now, you can get your Emergency Pizza whenever you want over the next 30 days. We call it Emergency Pizza. The mechanics are still the same, but the message is going to resonate because of the economic that you're talking about. So best-in-class value is important, but making sure we break through with not just a value message, a strong brand message is critical, and I think we're doing that.

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.

Hi. Good morning, and thanks for the question. So just on the outlook updates, can you expand maybe a bit more on what's driving the changes there? For retail sales, is it simply international performance to date or are you seeing anything in the current quarter that's leading to the update? And then on net unit growth, just to clarify, is the Russia exit not a factor in the updated unit growth outlook? Thanks.

Thanks, Chris. I'll just answer that question for you. So on the retail sales outlook, I think we're taking into consideration the nine months, the three quarters that have passed plus the expectations that we have for the fourth quarter and that's incorporated in what we're talking about. As you noted, it includes an expectation of positive comps in the United States and an expectation of a strong growth in the international business as well. So I think from a unit growth standpoint, what we have taken into consideration is the closures that have happened internationally. That's the big driver of the modification that we made over there. But overall I think our U.S. business, as Russell talked about earlier in terms of visibility and trajectory, looks very solid and I think the entire change in unit growth on a global level is based on international business and the closures there.

And let me just put some, maybe some perspective on those closures. The ones that Russia obviously were talked to ahead of time, Domino's Pizza enterprises announced over the summer that they were going to have closures as part of a kind of a short-term business adjustment on their side And we saw those in Q2 and Q3. What Domino's Pizza Enterprises also did was they talked about that they were not going to change and they were still bullish around their long-term outlook for 2033 still at 7,100 stores. So I see this as kind of both of these as one-time-ish events. You take those two blocks of closures out, we closed less than 15 stores in international this quarter. And from an opening perspective, still stayed right around 1,000 store openings for trailing 12 months, we opened up over 1,000 in 2021 over 1,000 in 2022, and so that's just a little bit more color around our international store openings.

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. Good morning. In the press release, you talked about the lift from third party and loyalty hitting in 2024. I’m wonder about this quarter, what sort of net same-store sales impact do you expect from loyalty in 4Q, the higher orders minus perhaps higher redemptions. And come to think of it, I'm not really sure what sort of lift you're expecting from loyalty over time. I think for some reason, we were thinking something like a couple of percentage point boost from loyalty and more of like a step change, not something that ramps, and of course, the magnitude and the ramp part, I'm not really sure about either. I'm just wondering how you're thinking about magnitude and perhaps a ramp phase to loyalty. Thanks.

Yes. Thanks, David. I think both Sandeep and I will answer this one. On loyalty, loyalty is one of a few things. We've got loyalty, Pepperoni Stuffed Cheesy Bread, Emergency Pizza. All things that we absolutely think are going to know are going to affect our Q4 numbers, and we're seeing that out of the gate. The third party piece will start in Q4 in December and that will be ramping up certainly big time next year. From a loyalty perspective, as soon as we get more information on how that is affecting the business, we'll let you know. But I can tell you, short-term, folks are interacting with the loyalty program and our innovation at a higher level than I expected coming in.

And Dave, I want to just add something to that, just so you can get a sense of cadence in terms of what's been happening with the comps and what our expectations are for Q4. If you note, we actually had a reduction in the impact of pricing from 2% roughly to a little bit under 1% in our expectations for Q4. And this was driven really by the increased redemptions that we were seeing from loyalty, Domino's Rewards, which is great because it actually is more than offset by incremental transactions, and that is implicit in our expectations of the comp that we're talking about for the fourth quarter being positive, which if you think about it, if you have a roughly 1% impact on pricing, this implies transactions are nearly flat or better in the total business. And so this - the good news about this is we expect this improvement in transactions to come both in delivery as well as carryout. And remember that carryout, we're lapping the Mix & Match promo pricing, which was done in October 2022, so we lose a bit of pricing over there, but we still expect to have consistent trends in the fourth quarter on carryout too. So feeling really good about the balance of the impact of the loyalty program on Q4, and it's definitely an accelerator of transactions.

Thank you.

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.

Thanks. Good morning, guys. I don't think you commented just on food basket. But is it fair to assume you've seen a couple of quarters of that being lower. And as we think about store margins and supply chain profits that, that probably continues into the fourth quarter at this point?

Yes, Brian, a really good question on the food basket. I think we – when we reported in July for the second quarter, there was so much volatility, particularly on cheese. That volatility did continue, but the trend line that we drew in the third quarter ended up still being favorable to us, as you saw and what we reported for minus 1.7% in the basket. Things are still a bit volatile, but I think overall trends seem to be pointing to favorability. And when you think about the franchisee store profitability going from 150 to 155, a big driver of that improvement, whether improved basket, both in Q3 and perhaps a little bit of an expectation of a little bit more tailwind as we go into the fourth quarter. So that's how we see the food basket and franchisee profitability, but supply chain margins also - if food baskets ends up being deflationary in the fourth quarter will benefit from a margin standpoint.

Thank you.

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. Sandeep, I was hoping you could help just with the supply chain and how we should think about that going forward. The productivity benefits continued in 3Q as you indicated in 10-Q. With this still around the neighborhood of 70 basis points and at least versus our model, it looks like the labor cost in the supply chain business were a bit higher in 3Q than they were in 2Q. Could you speak to that the durability of that as well?

Yes, Andrew. I think when we look at supply chain, you're right, the biggest driver of the margin improvement is the procurement productivity that has been there earlier, and we expect that to continue into the fourth quarter as well. When we look at what happened in the third quarter, I just talked to Brian about this and we got the benefit of the food basket actually impacting the margin slightly favorable. There was a little bit of labor pressure, but I think a lot of that is more driven by the opening of the Indiana center that we'll lap over. So overall, I think, we're very happy with the trends that we're seeing in supply chain margins. And if you go back to the - the answer I gave to Dave on transactions, guess what that does. It's going to drive more volume through our supply chain centers and therefore, drive more profit out of our supply chain centers.

Very good. Thanks.

Thank you. One moment for our next question. And our next question comes from the line of Chris O'Cull from Stifel. Your question, please. Chris O'Cull: Thanks. Good morning, guys. Russell, I appreciate your comments earlier about the importance of Domino's offering the best value to consumers. But Domino's won't be offering international deals like Mix & Match on the Uber platform. So I'm trying to understand what proposition Domino's can offer on Uber that will be as effective against the competition? And I'm also curious if you think Domino's can obtain a similar share of the 3P pizza delivery market that it has off of the 3P platform.

Chris, great question. Let me take a step back and just make sure I talk about our strategy, both on our assets and then on Uber and I'll get to your question, but I want you to understand kind of the broader piece here, because at the end of the day, we want to drive incrementality. And when you think about our assets, if you're a customer and you want the best prices or you want the best loyalty program, you're going to come to dominos.com. There are going to be some customers, and that's why we're going into this marketplace. That are either only Uber customers or maybe have both. And because of that, what we want to make sure we're doing is, price it in such a way that if we don't have consumer incrementality, we at least are positive on the margin side for our franchisees. And so while we'll have our entire menu on Uber, we'll have a slight premium to our menu price on that channel. Now, menu prices at Domino's Pizza are still very competitive. And so I think within that platform, we'll be competitive. The second thing that we do really well, and you see this in our digital media, the Uber marketplace is a digital platform for us. And so we've got our National Advertising Fund budget and all the expertise we have from being on Facebook and all the other social media platforms. We're going to bring that into Uber, and we're going to drive folks within that platform with our marketing money. If you're in that platform, we're going to drive you the Domino's. And we have a lot of expertise on how to do that. And once you're there relative to other menu prices that you're going to see from the competition, we'll be in a really good place. So I think we'll be a value player there, and we'll have high awareness once you're within that platform. And so absolutely, I think we can get to our fair share on that platform, as well as eventually the entire marketplace for aggregators. Chris O'Cull: Thank you.

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

Great. Thank you for taking my question. When we think about loyalty and the opportunity for carryout to participate there, a lot of the conversation has been focused on third-party marketplace and some of the initiatives that have been put in place to unlock delivery. But can we circle back to other carryout initiatives and how you think about building that piece and that's been a strategic point of focus in prior calls. And just so as we think back you think forward to 2024 and beyond. Can you talk a little bit more about how you're building the awareness and scaling up the carryout side of your business as well, please?

Yes. Great. Carryout is one of my favorite topics, most recently, I'll just point to the two-year 21.5% comp in the - on the carryout business there. It's a really strong channel. Remember, last time, we talked about two really big incremental channels of growth for Domino's Pizza, right? The first was getting our fair share of the aggregator business. That's $1 billion net of incrementality. But the second is our fair share of carryout. What's our fair share of carryout? And by the way, carryout has been our most aggressive growth over the last decade ago from a share perspective. It's one in three just like we do one in three deliveries. And that's like a $2 billion opportunity. And so we're going to continue to lean in. Now the nice thing is what we're seeing is the stuff that we're doing, really affects both parts of our business, the more we're learning, I think we've talked about before that the customers are pretty separate customers. But at the end of the day, they're pizza customers. So things like Pepperoni Stuffed Cheesy Bread, things like Emergency Pizza are going to work across both ends. And actually we've seen really nice redemption on Emergency Pizza from carryout customers, which is - it's been surprising to me. You'll also see us though continue to lean in on both the marketing and the operations piece of it, right? So, the marketing, you've seen carryout tips before. I'm sure that one's going to come back. Phone ordering is really important, believe it or not. We have a large number of our customers coming in on online ordering, but we still need to make sure that the phones are there so operationally, and we're answering those calls right now, and about 3,000 of our stores have call centers as potential overflow. And so driving the top line, driving the marketing, driving the funnel there, but also having the operational support are both things that we need to do and we will be doing.

Thank you.

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. Jim Sanderson, your phone might be on mute.

Sounds like Jim is waiting for his Emergency Pizza, so we'll make sure we get that to him.

All right. One moment, we'll move on to our next question. Our next question comes from the line of Danilo Gargiulo from Bernstein. Your question, please.

Thank you. Can you share any feedback your franchisees are giving regarding their access to credit? Because with rising interest rates, they're seeing at their end, are there any incremental pressures outside of your control that might be slowing down the net unit growth expectations going forward? And if so, are you contemplating incremental incentive for franchisees to navigate these hard times?

Yes. Thanks for the question, Danilo. And I think that's a really good question, and that's a very fair point. But I think where we are with the franchisees, I'm going to start with the cash flows that the franchisees are generating because as you think about where we were last year, $139,000 per unit to now $155,000 and above. It is basically definitely a much significantly improved operating cash generation situation for the franchisees. In that backdrop, it is very fair to talk about the credit situation in the marketplace, which is definitely tighter and much more expensive. And so I think franchisees are cognizant of that, but I think as we talk to them, when they look at the trajectory of the business, when they look at the opportunity for growth in the business, they definitely have a very strong appetite for unit development as Russell talked about earlier and I talked about on the prepared remarks. And from an incentive standpoint, as a company, we've always actually worked with franchisees on incentive programs and we'll continue to do that. And so I think as we look at the opportunity for growth, it's in both our interests to look at it and that's something that we will continue to do.

And I'd just say as an early indicator, if I look at what we've got in the pipeline this time this year versus this time last year, it's much more aggressive.

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

Hi. Thanks for the question. Sandeep, last quarter you talked about some of the supply chain efficiencies you'd seen in the first half of the year. I'm wondering how that's looked in the third quarter and going forward. And then, can you just remind us the process of raising some of these fixed spreads on the supply chain cost. You've had mid-teens to high-teens inflation in the last couple of years on a cumulative basis. Obviously, there's a process through which you could raise those spreads on the franchisees, the dollar spreads over time. And I'm curious how often you look at that or how that process goes in raising those. I'm just curious, any thoughts would be helpful. Thanks

Thanks, Greg. Really good question. I think from a supply chain profit standpoint, as we've talked about all year, we've had procurement productivity benefits, right? And that predominantly is food. And when it actually ties back to you - the last part of your question, which is how do we take a look at adjusting the margins that we basically are taking on, what we're serving on to the franchisees. And so I think a lot of this benefit is flowing through our P&L, clearly, when we talk about the procurement productivity. We'll continue to optimize around this. But I think what has really been great is with the adjustment of volume that has actually happened in the last couple of years leading up into this year, the supply chain flow through has become much tighter as we've actually gotten adjusted to the lower level of volumes. All that's about a change because I think we've reset capacity to be able to deal with volume growth that is expected to come but with a much, much leaner operating model and a much more efficient operating model. So from a profitability standpoint, we continue to expect to see improvements, not massive improvements, but improvements. The big focus should be profit dollar growth from a supply chain standpoint with transaction growth that's coming in the fourth quarter and beyond.

Thank you. One moment for our next question. And our next question comes from the line of Steven Gojak from Cleveland Research. Your question, please.

Yes. Thank you. More of a near-term question, but it does look like you ran a boost week or at least a 50% off offer that first week of October. And it looked like it was outside of the normal pre-COVID cadence you have for those types of promotions. Just curious on the strategy and timing of what looks to be an incremental boost week promotion and particularly doing that, the week ahead of the Emergency Pizza deal, and then how much does that play into the positive fourth quarter outlook that you've laid out earlier in the call? Thank you.

Yes. Steven, we don't - we will not be doing another boost week this quarter that our cadence is to do it quarterly. Obviously, we'd like to keep you guys on your toes, so that's why we don't know. So we maybe we do like to keep you on your toes, but we pick strategic time periods in which to do with it. Obviously, we talk about a stepped up fourth quarter and so getting this out early, I think, makes a lot of sense. I also want to make sure that when we talk about promotional cadence that I touch on, I know this wasn't a direct question, but I know a lot of you have these questions about our product innovation. And I just want to make sure you understand that we're leaning into that again. If you look at our product innovation this year, we've had two major launches. The last time we had two major launches was 2011. And interestingly enough, one of those two launches was Stuffed Cheesy Bread, and so how fitting is it that we've got pepperoni Stuffed Cheesy Bread now in the marketplace. And we're really - and we're doing that purposely because we're seeing a change in the dynamic. If we look back several years and you think about Domino's, we didn't do a lot of product innovation. We did a lot of technology innovation. We built delivery vehicles, all of those kinds of things, and we're going to continue to do that. But we're realizing we need to do more of now is lean into product innovation. And I'll use cheesy bread as an example of how it's really, really working well for us. So we've got platforms. Like I said, we launched Stuffed Cheesy Bread in 2011. We launched sandwiches in 2008, we launched pastas in 2009. A lot of people don't know that we've got these platforms. Even though they're pretty robust mix, there are a lot of people out there that don't know we have them. And so what do we do with Stuffed Cheesy Bread. We launched a new SKU. Believe it or not, we are selling more pepperoni Stuffed Cheesy Bread s now than we are base regular Stuffed Cheesy Bread. I have - I have been doing promotion – I have been doing innovation most of my professional career, and I've never seen a line extension outperform the base. So one, when you do product innovation like this, you get sales on the new product. Two, is you bring awareness back to these great platforms that we have. And then third, what we're doing with the launch is we're leveraging our loyalty program. And so normally, Stuffed Cheesy Bread is a 40-point redemption. In this case, for a limited time, we're doing 20 points. And so you see about how we're working all of these things together is not a one-trick pony. There are kind of three levers going on at one time. I just want to make sure folks on the call know we're going to continue to lean into all types of innovation, including product.

Thank you. One moment for our next question. Our next question comes from the line of Nick Setyan from Wedbush. Your question please.

Thank you. Just a question on how you're thinking about company margins over the medium to longer term. And obviously, pre-COVID over 20% company margins. Just given all of the changes going forward in terms of loyalty, third-party delivery post two, three years of inflation, pricing now seems like it's going to be pretty close to flat. How should we think about company-owned margins not only in Q4 but 2024 and beyond?

So Nick, I think it's a really good question. And if you look at the company margins in the third quarter, we expanded about 350 basis points, I think, in gross margins. And that was on the back of, I think, a 270 basis points improvement in Q2. So we continue to look at margin expansion in company store margins, and I do acknowledge that it's definitely on peak levels. But there are a number of initiatives that we have been taking as we've been going along. Obviously, from a pricing standpoint, we talked about being late to take pricing a little bit, but I think that's - all of that is actually caught up with us. And I think the other thing we've actually been doing is looking at the cost structure within the P&L, and that is being optimized as well. But overall, the big driver of further improvement in terms of profitability is going to be transaction growth. I talked about transaction growth earlier, which is going to impact the fourth quarter. It's going to impact next year even more. And I think when you see that, we're going to be able to leverage the fixed cost on the P&L a lot better on the company store margins and we'll make the march towards where peak margins used to be over time.

Yes. I think the way I look at it is we are going into 2024 with an improved operating model, both for DPZ and our franchisees. As I said earlier, what we had talked about where we thought Q3 would land and it's kind of landed where we expected. Think about the foundation now of this business, right, in a quarter that was essentially flat in the U.S. business, margins improved and the franchisee profit has improved. And so you take that and you bring in the orders that we expect both in Q4, but especially in 2024 that just leverages really, really nice. And so the foundation of Domino's is ready to be leveraged.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of David Tarantino from Baird. Your question please.

Hi, good morning. Had question on pricing and value. And I guess, one part of it is, I was wondering, how you and your franchisees are approaching pricing as you think about 2024? And then the second part of the question is, with this Emergency Pizza promotion, it does seem like, maybe you're leaning a bit more towards value or into promotions even outside of the Rewards Program. So I guess are you thinking about leaning in more frequently on value promotions like the one you're running or as you think about 2024.

Yes. I think really, the - when you think about 2024, you should think about the actions we've taken over the last couple of years, which includes the pricing we took on our Mix & Match. And while we're always going to look at pricing and if there are ways to optimize it, I think it's reflective in the franchisee EBITDA, that the pricing we took last year was the right thing to do. And it's something that, again, as reflected in their EBITDA is something that we continue to do next year. I'm so excited about pricing even through these tougher economic times. Again, we'll look at things if we need to change it, but I feel pretty bullish that this level of pricing is actually going to just be more of a relative value for customers as we get into next year. As far as Emergency Pizza, look, we always have the - there's always advertising we do and always has a promotional price or some kind of promotional effort. Again, I'm really excited about the kind of feedback we're hearing both from you and from customers because the takeaway is, Wow, this is a lot of value. And it is a lot of value, but it's no more value than we've traditionally done in prior promotion. What it means and kudos to our marketing department is these ideas are breaking through.

Thank you. One moment for next question And our next question comes from the line - and this will be our final question for today comes from the line of Jeffrey Bernstein from Barclays. Your question, please.

Great. Thank you very much. Russell, just wondering if you could talk a little bit about the broader pizza segment, it does seem like over the past year, we were talking a lot about maybe customer fatigue, post-COVID and the consumer is keen to get out again. I'm just wondering if you could talk about where you think we are in that spectrum, maybe the current category performance versus Domino's. And if you could just remind us looking back to past slowdowns, the performance of delivery versus carryout in prior downturns, I think most investors are expecting maybe a consumer slowdown going into 2024. So I'm just wondering how you're - two components of your business have historically performed in that type of environment? Thank you.

Yes, sure. Let me first talk about the pizza segment. And historically, it's been a one, 1.5-point growth category. I don't expect that to change significantly. What's been great about Domino's Pizza is when you look at that category, we've been able to by far grow the biggest share amongst that. And so I think the growth of the category is going to continue. What's nice when you think about the pizza category is 40 plus percent of it, a little more in carryout than delivery, is on regionals and independents, folks who really don't have the scale in advertising or supply chain or store growth or advertising spending that we do. And so if that pizza kind of growth kind of continues that where it is, then there's no reason that we can't continue to lean in and gain share. It's - we've done it before and we'll do it again. As far as downturns, I mean, the last big downturn I remember coming out of was 2009 when we launched our new inspired pizza. And obviously, you saw what came out of that, which is growth both in the carryout and delivery standpoint. I think we're going to continue to see what we've been seeing. And we've been talking about folks down switching into the pizza category, down switching into value, this is going to happen I think a lot more in carryout than this delivery because delivery will also have some health switching, right? Delivery - there's delivery fees, there's - there are tips, there are things that it caused that channel to be a little bit more expensive. So I think we will see down switching at both, probably a little more out switching to eating at home for delivery. But the beauty for us is while that's happening, we're opening up to the Uber platform. And that platform has customers that are higher income customers in delivery. And so if there is a slowdown in that, we're now opening ourselves to a platform that really has a little bit more elasticity in that place. So no matter what the economics look like next year, I think both on the carryout and the delivery business, we're going to be a really good place.

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

Well, we appreciate talking to everybody today and we look forward to seeing you at our Investor Day either live or via video on December 7. Looking forward to it. Take care.

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