達美樂 (DPZ) 2011 Q2 法說會逐字稿

Good morning.

My name is Carrie and I will be your conference operator today.

At this time I would like to welcome everyone to the Domino's Pizza second quarter 2011 earnings conference call.

(Operator Instructions).

I would now like to turn the conference over to Ms.

Lynn Liddle, Executive Vice-President of Communications.

Thank you.

Ms.

Liddle, you may begin your conference.

Thanks, Carrie and welcome everybody, to our second quarter earnings call.

We will ask the media to be in the listen-only mode for this call as it is intended for investors and then as usual we will have all of you look to our Safe Harbor statement in the event that we do have any forward-looking statements today.

With me today I have our CEO, Patrick Doyle and our Chief Financial Officer, Mike Lawton.

And we are going to begin with some prepared remarks and then we will open it up to Q&A.

So I would like to introduce Mike.

Thanks, Lynn and good morning, everyone.

Before I discuss the results for the second quarter I would like to make a brief comment on our recently announced refinancing.

As you may have seen in a separate press release we announced the intention to refinance our existing securitized debt with a new securitized debt facility to be issued in a private placement transaction.

Due to securities law restrictions we will not be discussing the refinancing or answering questions regarding it on the call today.

And, our investor relations team will not be able to answer inquiries of any kind including those on the quarter results or the refinancing until after the transaction closes.

All of your questions regarding the refinancing will be answered after the closing when we hold another conference call.

We appreciate your respecting these guidelines in the Q&A session.

So now, let's dive into the second quarter results.

This quarter the momentum continued as we posted strong same-store sales results in both our domestic and international businesses.

We also continue to grow our bottom line in the quarter with 21% adjusted EPS growth over the prior year.

Starting with global retail sales, which are our total retail sales at franchise and Company-owned stores worldwide they grew 9.6% during the quarter and that is excluding the impact of foreign currency.

When including this positive impact our global retail sales grew 14.5%.

Looking at the different business units.

Our domestic same-store sales grew a strong 4.8% in the second quarter.

This was rolling over a positive 8.8% domestic sales comp in the prior year.

Broken down, franchisee's same-store sales were up 4.8% while our Company-owned stores were up 5.3%.

We closed a net 15 stores domestically during the quarter made up of 13 store openings and 28 closures.

Our overall store growth in the quarter was solely generated by our international division which grew by a net 72 stores.

International same-store sales were up 7.4% in the second quarter rolling over a positive 6.2% a year ago.

This marks the 70th consecutive quarter of positive same-store sales for this division.

Our total revenues for the second quarter were $384.9 million.

a $22.5 million or 6.2% increase from the prior year.

Approximately $10.1 million or 45% of the total revenue increase was attributable to our supply chain division largely due to higher commodity costs for the -- than in the prior year quarter.

The increase was also attributable to higher international revenues resulting from same-store sales and store count growth as well as the positive impact of foreign currency exchange rates due to a weaker US dollar.

Further, our domestic franchise revenues increased due to higher same store sales and the benefit of fees paid by franchisees related to the insourcing of certain services including online ordering and a call center.

As mentioned on previous calls, we also incur a corresponding increase in G&A expenses for the insourcing of these initiatives with the net result being break-even for the Company.

Partially offsetting these revenue increases were lower Company-owned store revenues primarily resulting from the sale of 26 Company-owned stores to a franchisee during the first quarter of 2011.

More detail regarding our revenue by business unit can be found in our 10-Q which was filed this morning.

Moving on to our operating margin.

As a percentage of revenues our consolidated operating margin increased 1.1% from 27.7% to 28.8% quarter-over-quarter.

This was due primarily to a change in our mix of revenues attributable to fewer Company-owned stores and increased franchise royalty revenue.

This was offset in part by lower supply chain margin percentage which was impacted by higher commodity prices.

As a percentage of revenues our Company-owned stores operating margin increased 0.6% from the prior year quarter due primarily to labor efficiencies and lower average labor rates.

This was offset by commodity price inflation including cheeses and meats as well as higher delivery cost.

Our supply chain margin decreased 0.5% from the prior year quarter mostly due to the impact of higher commodity and fuel costs.

With food commodities priced on a constant dollar markup to our franchisees, note that increases in commodity cost do not impact our supply chain dollar profit.

They do, however, negatively impact our supply chain margin as a percentage of revenues.

Our top commodities including cheese increased versus the prior year quarter.

The average cheese block price in the second quarter was $1.68 per pound versus $1.40 last year which drove it over 5% increase in our market basket in the second quarter.

During the second quarter the cheese block price rose to over $2 per pound.

We anticipate the price during the second half of the year to come down slightly but still remain relatively high.

Given higher than originally anticipated cheese prices we currently expect our overall market basket for 2011 will increase by 4.5% to 6% over 2010 levels.

This was up from our previously communicated range of 3% to 5%.

Turning to G&A expenses.

G&A increased by $2.8 million or 6.2% quarter-over-quarter.

This $2.8 million increase was due primarily to the additional expenses that we incurred for insourcing certain services including online ordering and a call center.

The company expects to add additional personnel in our IT and international groups during the second half of the year as well.

Regarding income taxes.

We had no items of note this quarter.

And continue to expect that 38% to 39% will be our normalized effective tax rate for the foreseeable future.

Our net income as reported was up $2.6 million or 11.6% for the second quarter.

This increase was primarily the results of our strong domestic and international same store sales growth, international store count growth and lower interest expense.

This was partially offset by the gains from our 2010 debt repurchases and higher general and administrative expenses.

Our second quarter diluted EPS was $0.40 and included no items that affected comparability in the second quarter of 2011.

This $0.40 is a $0.07 or 21% increase from the $0.33 as adjusted EPS in the second quarter of last year.

Here is how the $0.07 difference breaks down.

Our operating results benefited us by $0.08 and our lower interest expense benefited us by $0.01.

Offsetting these amounts was a $0.02 negative impact resulting from our higher diluted share count primarily for shares issued for options exercised in our higher average share price, offset by our share repurchases.

Turning to our financial position.

We ended the quarter with $78.6 million of unrestricted cash and generated $36 million of free cash flow during the first half of 2011.

In the second quarter, we utilized some of our available cash to repurchase and retire approximately 1.75 million shares of our common stock for a cost of $41.4 million at an average price of $23.71 per share.

And during the third quarter our board of directors replenished our open market share repurchase program.

We now have $200 million authorized for future stock repurchases.

In closing we continue to have great momentum which has driven solid results for us during the first half of 2011.

We will continue to leverage our strong cash flows opportunistically for the benefit of our shareholders.

Thanks for your time today and now I will turn it over to Patrick.

Thanks, Mike.

And thanks to all of you for being here today for our second quarter earnings call.

As you saw from our release this morning we announced some really very strong sales and EPS results for the quarter.

Our second quarter is demonstrated the continued strength of our brand and overall business model.

We were able to report these strong results because our global franchise model continues to drive excellent free cash flow.

Our domestic business continues to demonstrate its strength and our international division is truly best in class.

Domestically our results were due to many of the same business drivers we have discussed before.

Our larger base of new customers and better repeat business.

Our continued focus on product quality including our improved chicken and a continuation of giving good value you to our consumers.

We will always be true to our core as the pizza delivery experts but we have an opportunity to improve and optimize our carry out business as well which resonates well with consumers during this anemic economic recovery.

Carry out is a part of the business that we have always participated in that now has grown to a full one third of our sales.

With additional focus we feel it can be a stronger part of our domestic business model moving forward.

We also feel it provides us with the opportunity to take even more market share in our category.

We remain focused on our are barbell pricing strategy with every day value carry out specials and specialty pizza promotions and we will always highlight our strong consumer message of delivery and service as evidenced by our current promotion which began yesterday featuring our tracker technology.

Internationally, we have had 17.5 years of positive quarterly same store sales, an impressive feat for any restaurant or retailer.

To give you a little perspective, kids going to college this fall were just being born the last time we had a negative same store sales comp in international.

Part of the success in international is due to the exceptional operational performance of our master franchisees.

A few notable examples include Turkey which grew by 30 stores in the second quarter and had an impressive double digit comp increase with a total of 192 stores as of the end of the quarter, their continued success is due to top notch execution in that market.

Australia also continues to maintain their flawless execution along with impressive product innovation and industry leading market share.

I'm also pleased to say Mexico's launch of the new and inspired pizza has continued to gain momentum and is now in its second phase including a new barbell pricing strategy similar to what we have done successfully here in the US.

Ultimately, we continue to perform very well internationally and have established a presence in over 70 markets outside the US.

Our international business with minimal capital investment from us shows why our master franchise model works so well.

It is an exciting part of the Domino's story and one that continues to thrive.

The fact that we have got over 4500 franchised international stores in such a wide variety of markets means we have a niece balance of economies and currencies which tend to offset each other so that we can produce consistently positive results regardless of what is going on in an international country or business.

Moving over to the cost side of our business.

Some of you may have notice the run-up in cheese prices over the past 8 weeks.

Part is due to a large industry recall of cheddar cheese in late May which sets the market price for all block cheese including our mozzarella.

While this was expected to be a short-term price spike, demand also increased recently, taking prices higher.

We are taking these increases lightly because we are always focused on franchisee's profitability at the unit level.

Every year we set a goal to increase franchise profitability.

More expensive cheese is obviously going to make the internal goal more difficult this year.

Part of our strategy to keep the store profits strong for franchisees includes implementing cost improvement tactics and other tools available in our point of sale system to help beat this cheese price spike.

Our supply chain division remains committed to doing everything it can to mitigate cost increases for our stores.

While generating a good return for our shareholders, a key strategic purpose of our supply chain business is to generate a competitive advantage for our stores relative to our competition.

So in conclusion, our primarily franchised system combined with our efficient supply chain business and diversified global geography is what makes Domino's a dependable free cash flow generator.

In short, I'm proud to be reporting another excellent quarter.

With that, I would like to turn it over to questions.

(Operator Instructions).

Your first question comes from Mitch Speiser with Buckingham Research.

Great, thanks very much.

Patrick can you discuss the online ordering percent in the US and how that has trended versus perhaps the first quarter and the year-ago period?

It continues to move up.

The summer tends to have a little bit of a lull as we get into late second quarter.

The upward move on that has tended to flatten out a little bit most years and we see that but we are continuing to be up on a year-over-year basis and I think as you are aware we have also launched our iPhone app recently and are pleased with the initial uptake on that and consumer response to it.

It continues to be a strong part of the business.

You know, we are still in that 25% plus range overall on online ordering.

And we typically see students come back in in the fall as when we start to see that moving back up again.

Great, thanks.

It seems like the carry out percentage or can you comment on that?

Has that carry out percentage moved up?

And is there any target where you could take that carry out percentage of sales?

I don't know that we have got a specific percentage target on carry out.

What I would tell you is over the last few years carry out overall in the category has been a little bit better than delivery.

And as we have focused on it a little bit more we have seen some nice move in our carry out numbers.

We are a delivery company first and foremost.

We are going to continue to focus hard on that but we continue to believe that there is an opportunity to grow the carry out business and we are seeing some of that.

And it is why we have been running some carry out specials here recently.

Great.

And then my last question and then I will pass it onto the next one is just on the point of sale system you did mention there are initiatives through the point of sale system to control food costs.

Can you comment on that a bit further?

Yes, what we are doing is as we are working with the system and clearly we are feeling a little bit of pressure at the unit level with the cheese block as high as it is right now.

You know, we are just working on a number of initiatives.

We have got terrific visibility into the stores and the costs in the stores so we are looking at it at a number of opportunities to just manage the food costs better in the stores.

That may also include managing the coupon mix that we have got out there to take a little bit of margin there if possible without changing what we are doing with the national promotions.

So it is really across-the-board but as we have got this one platform across our domestic system it is really a powerful way for us to go in and analyze unit level profitability all the way down to the store level and help our franchisees look for opportunities on margin.

Thanks very much.

And congrats on a great quarter.

Thanks, Mitch.

Your next question comes from John Ivankoe with JPMorgan .

Hi.

Thank you.

Also just a question on the franchise margins.

A few years ago, and this is a case in your system and a case in at lot of systems sometimes an excessive focus on cost can sometimes affect the customer or employee experience.

We were hoping you could give us a sense if anything that happens on the cost side is going to bring continued increases in guest satisfaction scores which has been a huge reason for your success.

The second question if I may when we think about margins and costs in general a logical and very easy solution to that is pricing.

If you could talk about whether your brand, the industry the consumer is in a place where the pricing can become more aggressive, thanks.

You're exactly right.

In terms of the costs we have to be very careful on making sure that we are delivering value to our consumers.

Our stores right now, I am proud of the performance of our franchisees and our corporate stores and how they are operating.

Our service level measures, our audit measures continue to improve in the stores.

So we are doing a very, very nice job of executing out there at the store level.

At the same time, we have got to cause look at where there are opportunities for waste out there.

So that can be everything from looking at how we are managing food within the stores, you saw in our corporate store margin results for the quarter that we have gotten some labor efficiencies year-over-year.

And even as we are out there with promotions at the national level that continue to get the phone to ring or, more importantly these days, to get the internet orders and app orders coming in.

We look at what the other coupons are surrounding that and whether or not there is an opportunity to focus in a little bit on the specials that are being given around those national promotions.

So it's certainly a delicate balance.

As you heard, we raised our commodity range expectation for the year a little bit so it is running a point or so ahead of where we thought it was going to be and that puts a little bit more pressure on the store level than we had been expecting.

So we are working hard on that.

It is an important focus for us.

While we are primarily franchised, our health as a business over the longer term or really over the medium term is going to be driven by the health and success of our franchisees.

It is something we watch carefully.

We have terrific visibility on what is going on based on the POS system and the back of house that we have got supporting that and we are working hard to find those areas that we can take a little bit without affecting the overall customer experience.

And the last question was pricing.

And I think the answer is we launched a new promotion yesterday which two medium two tops for $5.99 which is going to sound very familiar to everybody out there.

And the answer is it does very well for us at the top line.

It is why we have come back around to it because we have confidence in it.

But at the same time I think where the opportunity might be for very modest price increases is on the coupons that surround that.

And typically a national promotion is going to drive 15% to 20% of orders or so is a normal range.

So you have still got 75% plus of the business that can be set on other pricing around that.

So the goal is keep those customers coming in, keeping the order counts healthy but look at whether there are opportunities to be a little bit more efficient on pricing around it.

Very good.

Thank you.

Congratulations.

Thanks, John.

Your next question comes from Jeffrey Bernstein with Barclays.

Great.

Thank you.

A couple of questions.

Just first, Patrick, on the labor side of things.

I know this quarter you saw some leverage in down north of 150 basis points for your company stores.

Wondering considering that you lapped very strong leverage pretty much through all of 2010 as well, wondering perhaps how much of that is wage-tip credits.

I think you talked about recently, you were expecting that to potentially decrease in terms of less leverage as we move through the year.

Wondering if we could get color on the labor outlook for the back half and into 2012.

The impact of the tip credit continues to be significant but as we said before with decline over the year.

This quarter had good efficiencies in the corporate stores and that made up a significant piece of the 150 basis points that you mentioned.

While we had good volumes last year, we were still running slightly inefficient because we'd had a big run-up in our order counts, we have gotten much better at handling the volume.

We also have had significant growth in the carry out business this quarter and that also helped some of our labor efficiencies.

It was a combination of both the rate and the efficiency that gave us the benefit.

But to your question you will see the rate impact probably moderate a little bit as we flow through the rest of the year.

But we did see nice leverage in terms of hours per order or hours being run in the stores in the quarter.

The team is doing a nice job there running the stores more efficiently.

That should hopefully continue but you will see some of the rate gains moderate over the course of the year.

Got you.

And then on the commodity basically you bump it up 100, 150 basis point the full year in the basket.

I think you said thought you said cheese would come down from where it is now but not much.

Wondering what is your specific back half of the year cheese forecast based on what you see today?

I think we will stick with what we have said which is we do see it easing off here.

I don't think we are seeing it coming off a lot.

I mean going back to, you know, historical averages of $1.40, we are not seeing it getting back to those levels before the end of the year.

But we do expect that we are going see it coming down below $2.00 again before the end of the year.

But probably still somewhat higher than the typical range.

Got it.

And then just lastly, Patrick, I know in the past you have given some color on sequential trends whether it be throughout the quarter or into the next quarter.

I know we are obviously looking at a resurgence which I think you guys saw last year in the third quarter from a comparison standpoint.

Wondering any insight into trends through the second quarter into the third quarter, or perhaps even whether you even look at it on a comparison basis from a year ago or whether looking at year-agos in terms of trying to forecast future sales trends is not even the predictive measure any more.

The only time I have done that is if there was a move that was so significant that we felt that we needed to disclose that.

And, I guess what I would say on that is we were clearly very pleased with the second quarter comps both domestically and internationally and as we had said many times around the first quarter comp of 2010 it included a lot of initial trial.

What I guess the color I would give is our two year comp in the second quarter domestically was stronger in the second quarter than it was in the first quarter.

And that was now a some what more normalized number.

The number that we are just very pleased with is the two-year comp for both domestic and international was the same, and it is a 13.6% increase for both international and domestic on a two-year basis.

And we are just -- we are very, very pleased with that.

So nothing in terms of internally within the quarter that we are going to get into.

But I would tell you that we are certainly very pleased with kind of the overall momentum and while we really like the 4.8%, we like even more the 13.6% for the two year number.

I can understand that.

Congratulations.

Thanks.

Thanks.

Your next question comes from Joe Buckley with Bank of America.

Thank you.

First a question on the franchisee profitability.

Are they experiencing the same wage rate declines or have they moved to the tip credit before the company stores?

Most of them had moved earlier than we did and so they are not getting as much of that, if any of that this year.

There may be a few that are picking up some of that but for the most part that is more a corporate store effect this year than a franchise store effect.

Okay.

And question on the carry out business.

I know you are featuring a $7.99 price Monday, Tuesday, Wednesday.

Was that featured throughout the second quarter as well as currently or is that relatively new?

I think it was about the last eight weeks of the second quarter.

So it was most of the second quarter but not all of it.

Okay.

And Mike, just a question does anything change with the restricted cash as you approach the refinancing?

I have been instructed I'm not supposed to say anything at all related to the refinancing so I have to stick with that.

I thought that might be on the outer bounds of maybe you could answer but I understand.

Sorry.

Okay.

Thank you.

Your next question comes from Michael Wolleben with Sidoti & Company.

Thank you.

My question is back on the domestic comps here.

Clearly there is a huge retention that you had from last year and you'd mentioned that there is an increased frequency.

Can you give us a little color on new customers coming in or lapsed users you are seeing come back in and how related is that to some of these carry out specials that you are running?

The answer on carry out is always going to be a little bit harder to give than on delivery because when it is a delivery customer we always know who they are.

When it is a carry out customer if they walk in and buy we may not know exactly who that carry out customer is.

Sometimes we get the name and phone number if they ordered ahead of time but sometimes we do not.

It is not quite as exact an answer that as it may be on the delivery business.

I guess what I would say overall is the growth in the business really now going back five quarters has been driven far more by increased retention and frequency than by increases in the number of new customers or returning lapsed customers.

And that is, frankly, as we have been indicating on these calls going backward that is what has given us kind of the ongoing confidence that we had something pretty special going here because this is about customers being happier with the pizza and happier with their overall experience and that is a more sustainable thing than simply getting excitement around something new and you generate a lot of customers but you don't have as much visibility on whether they are going to be coming back around again.

So the answer stays very consistent with where it has been which this is really about better customer loyalty, better retention, better frequency more than being driven by new customers coming into the franchise.

We certainly get some of that, as we always do on an ongoing basis but the real increases are being driven from increased customer loyalty.

Okay.

And then can you give us an idea how to think of store level margins here?

You guys were-- 25% of sales with online ordering and you guys were starting to be able to leverage some efficiencies in labor there.

But now as carry out seems to be taking up a big chunk of sales, too, are those efficiencies kind of getting offset as you have to keep maybe another hand or two at the front of the store?

No, I mean if anything because we don't have a delivery driver on a carry out deal you are actually going to help that a little bit with carry out.

So no, if anything it as is a little bit of a positive.

It's going to have a little bit lower ticket but it's still a very profitable customer because you don't have the cost of delivering the order to the person's home.

Okay.

And then just lastly, I know you had mentioned adding couple of personnel to international.

Can you give us a better sense of the size or scope staff of that and how you feel about the infrastructure in place to continue growing internationally at this pace?

I guess I would say the business is clearly growing very, very quickly and we are getting a lot of margin leverage as you have seen out of the international business.

That is going to continue.

But we want to continue to fuel that growth.

So I think you are going to continue to see some modest increases in the support that we are giving that business.

Just based on the sheer numbers of stores getting opened and the continued growth in that business.

So I would expect to continue to see leverage on the overhead there but we are growing very quickly.

It is becoming a very, very big part of the overall Domino's Pizza story.

Great, thanks.

Your next question comes from Alvin Concepcion with Citi.

Hi, good morning.

Congratulations on a great quarter as well.

Just wanted to get a little more color on the iPhone app, from what you've seen so far is it mostly replacing online orders done over the computer or is it converting people who normally call in and are you seeing it drive incremental transactions?

What kind of things are you seeing there so far?

It is pretty early in to get quite that granular.

Certainly what we have seen from our international markets that have been operating with apps for awhile is there is incrementality to it.

There is a reason we have got it out there.

And it is performing well.

We are real pleased with where we are.

If you look at the ratings on apps I think we are right now at a four-star rating from the people using it and our competitors I think are both at three stars.

So we think we have got a better experience for our customers.

We are getting some recognition on that.

I think there was something else this morning that was on street.com talking about it as a top ten app for companies.

And so it is something we are excited about.

We think there is a real opportunity there.

And I think there is going to be some incrementallity but you are looking at something that has been launched now for maybe eight weeks.

So more to come on that as we see it operating for a longer period of time.

Great.

And I was wondering what you are seeing in the pizza category maybe just some thoughts on the health of the category and the competitive environment?

We are clearly leading on -- particularly when you look at a two-year basis.

But Pizza Hut domestically were negative a couple of points in the second quarter but they were rolling over a positive from the previous year.

I think their two year comp was a plus six.

We like being up more than everybody else, than our competitors.

We are clearly up more than the category.

We like the signs of a little bit of health that we see in the category.

It's still certainly not strong but it is a little bit better than it has been.

I guess the other thing I would say is I think we continue to believe that where you are seeing some pressure out there is on the regional chains.

Our performance and some of our large competitors' performance I think we are taking share out of some of those regional chains.

We certainly are at Domino's.

Do you think you are taking share from frozen pizza as well at this point?

I'm sorry, from what?

Frozen pizzas.

At home pizzas.

That's something we talk about a lot and we get that question a lot.

Frozen right now is negative year-over-year but we really don't believe -- when it has been up I have told you I don't know that there is lot of trading behavior between frozen and our category and I will give you the same answer when they're down.

I really don't think there is a lot of consumer trading behavior between frozen pizza and a hot, fresh delivered pizza.

I think there is simply more trading between frozen pizza and frozen macaroni and cheese or frozen lasagna or whatever else may be in the frozen aisle there.

It is off some right now year-over-year but I don't know that I would necessarily tie those two things together.

Great.

Thank you very much.

Your next question comes from Mark Smith with Feltl and Company

This is Shawn Bitzan sitting in for Mark Smith.

Can you give us an update on your commodity contracts?

We are -- we talked about before we are fairly locked in on our chicken.

Locked on in our wheat part way into next year.

The biggest commodity that we have, of course, is cheese and our agreement there helps cap the ups and the downs but it is not a fixed price contract.

We have also got some agreements on conversion cost on meats but the base cost of meats does flow with the market.

Our sauce is also something fixed up through the end of this year.

Are there any global regions showing extraordinarily strong strength or weakness in all of your markets?

It is really broad strength right now.

You know, we are just very, very pleased.

So there is certainly always going to be a little bit of relative strength or weakness out there but the one that I highlighted today in my script was Mexico and that is one that we talked about having lagged a little bit over the course of the last 18 to 24 months.

They started picking up in the fall last year and they are performing very nicely now.

So overall it is really very, very broad geographically and clearly leading the industry there both in terms of the comps that we are putting up but also in term is of store growth.

Thank you.

Your next question comes from Peter Saleh with Telsey Advisory Group.

Wondering if we could go back to the market share question.

Do you have any more specifics on terms of market share data, in terms ofhow much you gained over the past maybe year or two?

Well, it is -- you know, it as big category, right, you are at kind of $35 billion or so in the category.

So if you work through our retail sales, I don't have that number off the top of my head.

But, you know, if you look at domestically a 13.6% number for us on a retail sales base north of $3 billion you are looking at a pickup of $400 million or so.

And so you are looking at a point in terms of the overall category.

So it is not dramatic.

That is what gives us a lot of confidence in our growth potential is while we are taking some shares out there we are doing it tenths at a time.

It is a very, very big category.

But that is the order of magnitude that you are looking at is a share gain of a point or so over the course of the last 24 months.

And then in terms of lunch versus dinner, any shift or any change there?

Not dramatic.

We continue to see nice movement in our lunch business.

And are pleased with the progress that we are making there.

Dinner is clearly still dramatically bigger for us than the lunch business overall.

But lunch is developing nicely,.

Great, thank you.

You do have a follow-up question from Mitch Speiser with Buckingham Research.

Great.

Thanks very much.

As we think about the third quarter the comps comparisons do get a little more difficult.

Can you discuss now looking back a year, second quarter, I guess dipped off a little bit last year and third quarter upticked.

Was there anything in particular now that you have studied the data to just to comment on that trend over the second and third quarter last year?

Yes, we had a really, really good advertising campaign out in the third quarter last year and I think as we even said then the third quarter relative strength last year to the second quarter was a bit of a surprise for us at the time.

I mean it -- the fact that it actually accelerated exceeded our expectations.

So you are right, just straight numbers, the comp is a little bit tougher to roll over in third quarter to second quarter but we like where we are.

We like the repeat in frequency we are getting with our customers and we will take them one at a time.

Great.

Thanks.

And just on cheese, you mentioned a cheddar recall in the second quarter.

Is that supply back for my first question on cheese?

Certainly the direct impact of the recall is gone now and I believe that producer is -- it was not a supplier to us.

Didn't have anything directly to do with us but I think it was -- Mike, was it 30 million pounds or so that came out from -- that were recalled.

And so I think that has kind of been absorbed through.

Our expectation was that was going to be a 4 to 6 week event and we would start to see things move back down again.

I think what you are seeing now is a more of function of both domestic and global demand on cheese and combined a little bit in terms of that global demand with the dollar being relatively weaker.

It is making it a little more attractive I think for people to pull out of the US.

And so I think what you are seeing now is a little more normal market-based movement on the cheese block than anything to do now with the recall.

Great, thanks.

And just my last question, now there that you have the iPhone app should we expect an Android app?

We want to be everywhere our customers are.

So stay tuned.

We want to make sure that we are giving people the absolute best experience.

We are very pleased with where we are with the iPhone app and but we believe our strategy has been the right one which is to make sure that we have got things right and then it is going to be a real positive customer experience and we like where we are on a relative basis compared to our competitors on this.

Great, thanks very much .

Your last question from John Tower from Morgan Stanley.

Hi.

Just had a couple questions.

First, on that incremental G&A spend on the back half of the year, are you targeting any specific markets with that investment, China for example?

No, you are just seeing some general growth in the team over time as the business continues to grow.

But no, it is not, you know, specifically geographically focused.

And then secondly, I was hoping you could comment a little bit on the demographic of your customer base in the US really since you introduced online ordering and now obviously mobile apps, what has happened with the overall customer base?

You know, I don't know that we have seen a kind of a dramatic move on that.

You know, I guess what I would say is when we rolled out online ordering one of the surprises to us, frankly, was it was broader demographically and -- than we had even expected it was going to be.

So we certainly saw college towns having relative strength but I would tell you that there is less demographic differences in the use of online ordering than I think you would expect on the surface.

It is a very good question because I think our minds were kind of going the same place that yours is which is okay, you're rolling this out and this is going to drive, you know, a higher income, higher education level demographic more, and there may be a little bit of that but not a lot of that.

It is really quite demographically broad.

It's simply a better way to do business with us and everybody is figuring that out.

Thank you.

At this time there are no further questions.

All right.

Well, listen, I want to thank all of you for your time and your questions.

We will send out a notice for our future call regarding our announced debt deal once that process is concluded and I thank you all, once again.

This concludes today's conference.

You may now disconnect.