達美樂 (DPZ) 2012 Q1 法說會逐字稿

(Operator Instructions).

Ms. Lynn Liddle you may begin.

A couple of quick house keeping things. Make sure that you do take a look at our safe harbor statement in the event that any forward-looking statements are mentioned and then also this is an investor designed call, so please members of the media if you would be in a listening only mode, we appreciate that. We have some prepared remarks this morning followed by Q & A, and we're going to begin with our chief financial officer and then our C.E.O. will join us after that. So we are going to start with Mike Lawton, Chief Financial Officer.

Thanks, Lynn. Good morning, everyone. During the first quarter we continue to grow our same store sales both domestically and internationally. And had strong store growth in our international markets which we believe shows that our strategies are working. We continue to drive shareholder value with 12% adjusted E.P.S. growth. Overall we are pleased with the operating results during this quarter. During the quarter -- recapitalization of our company, and as a result we incurred certain expenses that effected comparable this quarter. Which are disclosed in our filings issues this morning. Subsequent to the quarter, we used a combination of cash on hand and some of the proceeds from our recapitalization to reward our shareholders with a $3 per share special dividend.

So now let's dive into our first quarter results. I'll start by looking at our system wide sales the ever the quarter. Our global retail sales which are the total resale sales that franchisee and company-owned stores worldwide, grew 7.2% in the quarter when excluding the impact of foreign currency. When we include the negative impact of global retail sales grew 6.1%.

The drivers of the global retail sales growth included domestic same store sales which grew 2% in the first quarter. Lapping a negative 1.4% in the prior year quarter. Broken down, franchise same store sales were up 2.1 for the quarter while company owned stores were up 1.6%. Also, international had another strong quarter as same store sales grew 4.7% stores which was lapping a very strong 8.3% in the prior year quarter. We closed a net nine stores domestically, made up of13 store openings, and 22 closures. Our international division brew by a net 77 stores this quarter. Bringing the total store count to 4912 as of the end of the first quarter.

Turning to revenues, our total revenues for the first quarter were down $4.6 million, or 1.2% from the prior year quarter. This decrease was driven primarily by lower company -owned store revenues resulting from the sale of 58 company owned stores during 2011, and to a lesser extent, lower supply chain revenues. The decline in our supply chain revenues was due primarily to reduced volumes which resulted in lower order counts at the store level, and a change in the mix of products sold per order, these declines were partially offset by higher commodity prices.

Our promotions this quarter focused on side items. Primarily stuffed cheesy bread, and parmesan bread bites. While these did not end up growing order count, They did as intended raise tickets, and sales, and store-level profits.

The previously mentioned decreases in organized businesses were offset in part by higher international revenues resulting primarily from same store sales, and store count growth. And higher domestic franchisee a revenues. 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 28.7%, to 28 -- to 29.8% quarter over quarter. This was due primarily to a change in the mix of revenues attributable to fewer company owns stores and increase franchise revenues.

Operating margins for our company owned stores as a percentage of revenues increased 2.9% from the prior year quarter, in part due to the positive impact of a higher average ticket. These increases were offset in part by a .6% decrease in supply chain margin percentage, verses the prior year quarter, primarily due to an impact of slightly higher commodity cost, higher fuel cost, and to a lesser extent lower volumes.

As a reminder, food commodities are priced on a constant dollar mark up to our franchisee's. Therefore increases in commodity cost do not impact our supply chain dollar profit, they do, however, negatively impact our supply chain margin as a percent of revenues. The average cheese block price in the first quarter was $1.52 per pound, verses $1.69 in last year's quarter. which moderated the overall increase in our market basket during the quarter. We continue to expect our market basket for 2012 will increase 1% to 2% over 2011 levels, which is consistent with what we saw in the first quarter. We have fixed pricing on approximately 35 to 40% of our expected purchases in 2012.

Turning to G.N.A. expenses. GNA increased 1.3 million, or 2.7% quarter- over -quarter. When you exclude the $1.7 million impact from the sale of company owned operations in 2011, and the $300,000 of recapitalization related expenses occurred in 2012, GNA was down $700,000. This $700,000 decease was due primarily to lower variable performance based bonuses quarter-over-quarter and the timing of experiences. We have previously indicated that in 2012 we expect an additional 8 million, to 10 million of incremental GNA experience from 2011 reported levels. Which seems to contradict what I just said. Please remember that variable GNA included variable compensation, and fluctuate from quarter-to-quarter. Where we stand today, we still expect to have higher GNA in 2012, but we are currently trending towards the lower end of the range previously given.

Regarding income taxes, during the first quarter we had a higher effective tax rate versus the prior year quarter due primarily to evaluation allowance recorded on a deferred tax asset of $900,000. We continue to expect a 38% to 39% will be our normalized effective tax rate for the foreseeable future. Our net income as reported was down 23.5%, this decreases was primarily the result of 7.4 million dollars of after tax expenses, that effected comparable this quarter, these are outlined in a table in our 8 K. Our net income benefited from high earnings, domestic and international same store sales, international store growth, and higher company owned store margins and it was negatively impacted by our lower supply chain margin. Our first quarter diluted E.P.S. as reported on a GAAP basis was $0.35. And $0.47 when adjusted for items effected comparability. These items are outlined in the 8 K release this morning. The $0.47 of the $0.05 or 12% increase from the $0.42 as adjusted E.P.S., in the first quarter of last year.

Here is how the $0.05 difference breaks down. Our improved operating results benefits us by $0.05. Our lower diluted share count primarily due to our share repurchases in 2011 benefited us by $0.02. Foreign currency exchange rates negatively impacted us by $0.01, and our higher interest expense for the quarter negatively impacted us by $0.01.

Let me step back for a moment and talk about our interest rate going forward. As a result of our recapitalization, our all in interest rate, including fees and amortization of financing costs, will be approximately 5.7%, which is lower than the rate prior to the recapitalization. This rate assumes no draws on our revolver.

Now turning to liquidity, we ended the quarter with almost $215 million of unrestricted cash, of which approximately $185 million was paid out after the end of the quarter in the form. A $3 per share special dividend. We'd also like to remind everyone that we currently have $82 million remaining authorized under our open market share repurchase program, for future share repurchases. This is another way that we can deliver returns to our shareholders, and management will continue to evaluate all potential means to deliver these returns. In closing, we are pleased with the results in this quarter. We will continue to focus on driving shareholder value through our operating results and our use of strong cash flow. Thanks for your time today, and now I will turn it over to Patrick.

Thanks, Mike, and good morning, everyone. And thank you for joining our call. I can report that we delivered another good quarter, with positive E.P.S. growth, robust international unit and same store sales growth, and positive U.S. sales comp's that fell exactly in the middle of our long -term guidance.

Our brand and system continue to strengthen both domestically and internationally, and our technological leadership continues to resonate with consumers around the globe. Our international brand equity comes from having a recognized name that's known for quality products, excellent service, and engaging technology. For example, one of our international store growth leaders this quarter was Turkey. A market with excellent store operations and great service. And digital ordering is driving gains in countries like India and the U.K., where they recently reported a 44% increase in online sales. And that mobile orders now comprise 16% of the U.K.'s total digital orders.

These business drivers are behind an international enterprise that produces strong stores with excellent returns, which in turn spurs franchisee to build more stores. And are the reason why our international business continues to grow at the rate and pace we have seen over the last few years. As a matter of fact, as of last quarter, we now have more Domino's pizza stores outside of the U.S. than we do within the U.S.

I want to take a moment to really punctuate that point, and congratulate our Domino's international community for reaching this incredible milestone. It's a testament to our strong international franchisee's and our international team, and more proof of the opportunities that exist for our company on the international front. This achievement was helped by robust unit growth in the first quarter, one of the strongest first quarter store growth performances in our company's history. In fact, it marks the highest first quarter global store growth number for Domino's in a decade. And the highest Q 1 for our international division ever. The day when Domino's Pizza, worldwide has 10,000 stores is not far off. It's a milestone I look forward to celebrating soon.

International sales, meanwhile, continue to grow strongly in the first quarter as well. I've often said that pizza isn't recession proof, but it is recession resistant, and we've proving that theory right now in many of our European markets are the economy has been weak. Our Asia region also posted strong results with solid sales in Japan, Australia, and South Korea. The U.S. also performed well again this quarter sustaining the positive sales trend on our bigger base, and continued to benefit from the great brand equity we have built over the past few years.

During the quarter, we once again promoted a non pizza side item, parmesan bread bites, which was excellent for building ticket, and also very profitable item for the stores to sell which makes our franchisee's happy. While it didn't drive traffic like a pizza focused promotion might do, we felt that focusing on promoting some higher margin items combined with promotions for some higher traffic driving items during the year would balance out our marketing calendar and drive up store profits and sales in 2012. Our corporate stores posted better profits in the first quarter, and our Franchisee's saw strong profit growth as well. We know that profitable Franchisee's make for a healthy system. Our focus is on helping Franchisee's -- and to turn those profits into new stores so that our domestic store growth rate improves.

Managing our marketing calendar is an important part of managing our system, from a store growth and sales perspective. So some promotions may be designed to drive margin, and others to drive more traffic. But we're making sure we are managing the promotions and brand message for the entire system, and it's one of the most important jobs of a franchisor.

One topic that's been all over the news is the price of gas. So I thought I'd spend a moment on that topic. Let me remind you that for us the biggest potential impact from gas prices is the effect it can have longer term on commodity prices. At the story level, Franchisee's may have to pay delivery drivers an increase in mileage reimbursement, but it usually not a big impact in overall store costs. In our supply chain, we experienced the impact of diesel prices but we also have fuel surcharges that help offset some of those costs. So while we do care about higher fuel costs the direct impact to us and our system is smaller than many people assume.

One thing that continues to impact our system in a decidedly positive way is technology. In the first quarter here in the U.S., we launched our new Android app joining the I-Phone app that we launched last June. We're happy to report that roughly 7% of our total U.S. sales now come from mobile devices. Including our two apps and existing mobile website. The new Android app is already over 1% of total sales. So over 20% of our digital sales now come from our mobile site and these two apps. The I-Phone and Android apps are definitely helping sales, and they give consumers the ordering access that they have asked for and expect from an innovative company like ours.

Our recent T.V. commercial highlights and other unique invasion from Domino's. We're using our iPad pizza hero game to hire great team members. customers well making online pizzas with the game, they might just get hired at a local Domino's store. We are probably not going to get a flood of new hires this way, but it does demonstrate that we are using innovative thinking here with technology often at the core. And we've got more technology news on the way this year. With Kevin Vasconi, our new Chief Information Officer onboard, we're excited about what the team can do to build on our technological advantage.

While technology differentiates us from many in our sector, another important feature of our business story is free cash flow, and the financial management of this company. We averaged over $2 million a week in free cash flow over the last 12 months. This robust cash flow stream enables us to use our cash for any number of purposes for the ultimate benefit of our shareholders. Most of you were probably on our call March 19th, when we reviewed our successful recapitalization, so I'm not going to repeat all the details from that call, but I would like to reiterate that we are very pleased with the new debt structure, and that we were able to reward shareholders with a $3 special dividend. It shows our commitment to shareholders and our ability to make significant moves to reward them. So with store level profits improving consistent sales and store growth off to a great start combined with the successful recapitalization of our debt, I'm pleased that 2012 has started off well. With that, I'd like to open the line for questions.

(Operator Instructions).

And your first question comes from the line of Bryan Bittner with Oppenheimer.

Thank you very much. So the market was looking for a little bit higher domestic comp's in the quarter. Maybe we can first address the trends there. I understand the 2% was definitely in line with your long-term outlook, but I still think there's several reasons why I think the domestic comp could out perform that goal in the more medium term. I think it might be logical to think that maybe the fantastic weather we had in January and February might have shifted some spending away from delivery in the near term, so maybe you can talk to us about what you saw from a weather effect internally? Maybe how you think about that internally. I realize you don't like to address inter quarter trends or talk about how trends happen throughout the quarter, but any color you can give us on that would be great.

Yep. Thank you, Bryan, it is Patrick. First of all, I will take the weather one. So we did a lot of analysis on weather, and did some re-depression analysis, and really dug deep on it. Because is something that gets talked about a lot across our industry, and this was for us as negative a weather quarter as we can have. That said, our analysis said that it's still just wasn't that big a deal for the quarter. You know, it probably was a couple of 10ths of maybe slightly more than that, but it really was not a big effect. So when we kind of pulled out the weather by region, and looked at the overall effect, at the end of the day, for the quarter, it really was not that big a driver of the comp result. So you know, I think the answer is first what you said, which is our long-term guidance is kind of 1% to 3%.

For the domestic business, and we came in the middle of that. Obviously we've been performing the last couple of years at a higher level than that. But we think what we are proving is that we can grow off of this new higher base. That said, I think when we look at the quarter, you know it really -- the net effects of the quarter were primarily driven by what we were choosing to promote. Parmesan bread bites sold very, very well. But you're not going to drive robust order growth with a side item. There's -- you know, the analogy would be burger chains going on air selling French fries.

The answer is you want people to know the "parm" bread bites are there, it is effective for driving ticket and profits within the store, which I think really was the big positive news story out of the quarter, where store level margins moved really, really nicely forward. Fought quarter was good. And first quarter was even stronger. We saw the corporate store margins were up 2.9%, and we saw nice movement from the franchisee's. And that's something that I've been kind of calling out for a while that we are very focused on and it wasn't something that we were seeing the level of improvement that we wanted over the last couple of years.

We saw really nice store level margin improvements. So I think that's -- those are kind of the different factors. Weather really was not that big a deal. It was -- it was as bad as it could be for us by being good, you know in the middle of the winter, but we just didn't see that much effect out of the weather. So I think honestly, we can kind of take that one off the table. And it really came down to what we were promoting, how it effected the overall traffic of the business, but we love what it was doing for store profits, and we are still growing off of that higher base.

And the restaurant margins have definitely improved. I guess the best way for shareholders to realize the benefit of that is for it to translate into unit growth.

Yep.

Just because of the model. So maybe you can talk about maybe the Marvin improvement? Hewett's obviously impacted the franchisee's earnings, what about the backlog for unit growth? Maybe you can talk about the U.S. backlog for unit growth for 2012 and 2013.

Yeah, I think the answer is you are still not going to see anything meaningful in the near term on store growth. But over the medium term, getting store level profits to where they want to be is clearly can become a driver for us. So I -- wouldn't start raising expectations around domestic level store growth in the near term. But our view is very strongly that stores get built because they should be built. And it takes some time for that to cycle through. But our Franchisee's are in a much better place with their overall profitability than they've been. And frankly, then playing over to the international side, it is why we are seeing just incredibly robust results from the international side on store growth.

If you look at the 77 net up on the international side it's the best we have ever done in the first quarter with the international business and you will see that it's up pretty markedly from first quarter last year. The one thing that I would say on the domestic side is if you look at the trends on closures that trend is definitely moving in the right correction. So that's part of that net growth. Are the stores that are at the bottom that aren't doing as well, that are kind of getting weeded out, you know, the answer is you'll see some sequential reduction in the number of closes, that's probably showing up before you are going to see gross store openings.

And this is just the last question from me, how should we think about the strategy for the rest of the year for the U.S.? Is it going to be a strategy where you're continuing to try to drive margin improvements and focus less on driving traffic? Or is it going to shift back towards traffic? How do we think about the strategy because it did shift in the first quarter.

Yep.

And you know ---

I think the answer is you are going to see balance for us over the course of the year. And it's got to be a balance of both ticket and some things that are more center of the plate for us that means pizza. That are going so drive volume more and order counts more. But we look at it on a overall basis over the year. And obviously I am not going to get into the specifics around what's coming, but I think the answer is expect some balance around side items and pizza.

All right, thanks, Patrick.

All right, thanks, bye.

And your next question comes from the line of John Glass with Morgan Stanley.

Thank you, if I can follow up on that line of questioning in the U.S. comp's. Why did you choose now to focus on store level margins? I have gone back just quickly and looked at store level margins, it seems like they have never been better, it's not as even I would think there's a big complaint, that they should be higher, but maybe you can just underscore that, is there a significance or increased concern that margins should be higher by the Franchisee's? And I'm also surprised that given your ability to advertise both online, and use the online messages as well as your promotional activity on traditional media, that you couldn't balance both, drive traffic as well as check, and maybe just a final -- night as well ask them all at once, how much did order counts actually fall, what was the order of magnitude, just so we understand what the balance was this quarter?

We aren't going to get into the specifics on the orders but the answer was is they were a little negative. But that's as specific as we will get on it. And a number of things kind of going into that. But we're -- so that's the -- kind of that side. The margins I -- in terms of Franchisee profitability, you are right, they were very very good. And relative to where they have been, and you asked our Franchisee's concerned about the profitability level, the answer is clearly there. They are unanimous in that they would like them higher. And so would we. And I guess the -- I think the real punch line on that is if you look at domestic unit growth for Domino's, we haven't moved for two decades. Really. There have been years that have gone up and down, but the practical answer is store growth hasn't moved now for quite some time. And we're going to fix that over the medium term. And part of that is getting unit level profits to a higher level than where they have been. So we've got to do that in a balanced way.

It's not a -- this may sound like it is a big shift in strategy. You know it's not. We've wanted to move store level profits up. We've made nice progress the last couple of years. We've made particularly good progress in 2010. 2011 we made a little progress not a loot.

And you know it's something that we continue to focus on. We feel like if we can get unit profits moving consistently the right direction, that's ultimately going to create great value for our shareholders because it can generate store growth.

I don't want to get ahead of myself in terms of expectations around that, the expectations we've given on stores are that the vast mass majority of that in the near term is going to come from international. And that's -- that's really robust. But I understand, you know, there are fundamentally four levers for growing the top line in this business. International stores and comp's and domestic stores and comp's. And we've had three of the four of those moving nicely. We've got to figure out a way to get that fourth one going, and we are spending a lot of time and effort on figuring out how to get the store growth going. It is going to take some time, but fundamentals of that is continuing to improve store level possibility.

If I can just -- one quick follow up, what store concern I can only see store level margins of your corporate stores I'm not sure if that analogy carries over maybe franchisee's are not as profitable, I understand they pay a royalty, buthow much better -- what are do you think Franchisee's levels today, and how much better do you think they need to be in order for them to start opening stores again?

Yeah, so -- first of all, from a corporate store standpoint, the royalty is included in there. It comes into our kind of into the G.N.A. ultimately. But in terms of how we measure store level profitability, we look at it on an apples to apples basis. Franchise to corporateand on average, dollar level profits Franchisee's still make somewhat more none than our corporate stores do. You know, we don't have perfect visibility on all of the stores profits. Franchisee's profits in the first quarter, but we know they move very nicely the right direction. I can't tell you if her exactly the same kind of movement as we saw in the corporate stores, but we get enough of them on a period basis to know that they are moving nicely in the right direction.

Okay, thank you.

And your next question comes from the line of Jeffrey Bernstein with Barclays Capital.

Great, thank you very much. A couple of questions. Just first a follow up on the U.S. comp trend. Just wondering whether you'd give any color in terms of sequential trend through the quarter? Only because it seems like the broader industry might have slowed later in the quart per. And I think the debate going in, when you look at comparisons for the U.S. business, obviously this past year you lap add negative 1 to 2 points, which some of people may have expected a stronger comp but then two years ago was your best comp in a long, long time. So I am just wondering -- how you think about kind of year ago, verses two years ago, maybe consensus was too aggressive. I don't think if you want to share what your internal target was, I know it is one to three long term. Just trying look get a sense of one verses two year. especially because we look at the rest of the yearAnd the one year becomes more difficult from a comparison standpoint.

Yeah, so -- not going to get into splitting out trends within the quarter. But you've got exactly right on the comp's going back. It was a little negative, I think it was 1/4 negative last year. But that was rolling over 14.3 the previous year. So it's a little bit unusual that you would be talking about a three year comp, that you really kind of need to. Last year was very much a reflection of the previous year, and I think frankly over achieved verses where all of us thought it was going to be. And so -- really, I think the answer is go back to kind of the long -term guidance, which is what we've said is we've built this new bigger base of business. And we really believe that expectations should be over the long-term that we're going to grow kind of low- single digits off of that new higher base. We don't expect to give it back. We expect to grow off of it, but 2% is kind of right in the middle of really where we kind of expect the business to be, you know, Over the medium to long term.

Okay, so then you look out to the rest of the quarters of this year, into the first quarter as we have talked about home run, was more -- but despite the balance you are talking about you would say for the rest of the year, that's more of a reasonable run date, and it wasn't a short fall in the first quarter that would correct itself and still drive the outside comp the rest of this year.

Yeah, I guess. I'd go back to the one to three. That's -- that's where we think expectations should be. Obviously they are going to be quarters that are over or under that, but that's where we think we're going to be the majority of the time, and that's kind of why we choose that range. I think Mike wants to look back to something.

Yeah, I want to go back to an earlier comment that Patrick made on store level margins. Which you can see in the 8 K royalties have not been backed out of that number. So it's not -- just a correction of a statement. But when we look at comparable profits, when we look at profits between franchise and corporate, we line them up on an exact same basis and Franchisee's are on a dollar basis a little more profitable than the corporate stores.

And the Franchisee's definitely did enjoy more profits in the first quarter of this year.

Got it. And just Patrick, one other follow up question. On the international side of things, I know you talked about Europe was a little weaker, but pizza is somewhat resistant at the present time. Whether there were some slow downs in your key markets. Some of your -- some of your international results have sustained themselves pretty impressively. But I'm just wondering if you are seeing any signs of a slow down perhaps in Europe rather than Asia.

The answer is it has held up really well. And we've felt it a little bit in southern Europe, in kind of Greece, and Spain. One thing that I have said many times and continues to be true is happen -- I think the best predictor of the health of this category is employment levels. And so if you see the employment changes out there, at least at the extremes in Europe, Spain at 24.4, and Greece I think is in the -- at least in the high teens. You know, we feel that, but I'll tell you overall, Europe is holding up very very nicely. And it's been something that when I look at kind of the list of things that I worry about, we look for weakness in Europe, clearly the economy has been weakening over there. And we are just really not seeing it showing up in our business. So we're feeling pretty good about it.

Great to hear, thank you.

And your next question comes from the line of Mitch Speiser with Buckingham Research.

Great. Thanks very much. Patrick, just continuing to focus on U.S. unit growth, now with margins looking like they are steadily improving, can you just maybe discuss some of the key constraints as to why franchise unit growth has not been maybe as strong as some people would like it to be? And it sounds like you are putting a lot of resources behind trying to get Franchisee unit growth going. Can you discuss maybe some of the things that you are thinking about to spark the U.S. unit growth.

Yes. I think there are a couple of things that go into it. And you know one has been over the last couple of years, you know as we have had some stores that were not performing as welleven though we have been making progress coming out of the downturn, you have a bell curb on store level profits and so while the averages have been moving, some stores didn't move as quickly or were at a lower base. And for our Franchisee's for our healthier better franchisee's a smart decision on their part from a straight R.O.I. perspective was to buy some stores that weren't performing as well. And so we've had Franchisee's that were growing pretty strongly, but they were buying stores that were not performing as well, or were even distressed. And so as we see that starting to ease, and it definitely has, and it is part of why you see fewer closures in the quarter, and if you look at those closures sequentially over the last few years you're going to see kind of nice progress being made on that front. That's -- kind of one part of it. They have to choose where their capitol is going to go, and if there's a steady supply of stores that they can buy, and turn around, that's a smart investment decision for them. And ultimately, it makes us a better system.

So while in the very short term I might like them to be building stores, the fact is over the medium-term, longer- term, we're far better off as a brand and as a system, to have the stronger players buying the stores that aren't performing as well.

So the other side of that equation is what does it take for them to start building new stores. And -- and the choice is starting to go away on buying stores that aren't as good then when do they start generating new store growth, that becomes an R.O.I. decision for them, as they look at improvements in their P.N.L's, it is going to change their confidence around the business.

We still are looking at availability of financing being a little bit of a problem still for particularly for smaller players. Our larger players are able to tap the debt markets again. Single store folks that want to build or buy a second store, that's still is constraint. There is not as much availability of debt financing out there for the smaller players as there was. And that's something that I'm not sure I see easing. I think they will be a tough market for a while for smaller players to access the debt market. I think it is going to move to more local banks and relationships that that they have than some of the sources of financial that were out there.

Larger players very different story. The larger lenders are back in, and our larger Franchisee's are clearly able to capture the debt market again. So we still think that there are one knew stores to be built over the longer term in the U.S. That's going to take time. It's going to take time for us to get real moves in store growth in the near term. I wouldn't start building expectations around that in the near term. But it certainly something we are focused on. We have a very great team that we have built around this. And so they are out understanding this and what the obstacles are, and hopefully that's a lever we will be able to get moving again. It's going to take some time before that can be a meaningful lever I think for share holder value creation.

Thanks and if I can slip another in there, online orders you gave us several metrics, if you gave us this one I apologize, but just on the total percent of online orders. In the U.S., and where that was about a year ago?

Yeah, so we're north of 30% now, and a year ago we were probably 5 points lower than that. Something like that. We are probably in the 25 range. And the other thing that has moved along briskly is the mobile side to this. So 7% of total orders now are on mobile, that's seven out of north of 30 on total. So you are looking at better than 20% of our digital orders are now on mobile. By the way, we dug up the numbers and I got this one right. We were right around 20 on digital sale as year ago.

Great. And just one last one. The food cost basket for the year, you mentioned is unchanged, can you tell us what it was in the first quarter?

As I mentioned in the script it was between 1% and 2%, which is what we expect for the rest of the year.

Okay, thanks for that.

And your next question comes from Joe Buckley from Bank of America.

Just a couple of questions. Just was on the QSRP category in the first quarter, Patrick, and I know you don't want to talk about going forward, and I understand, but what are you promoting so far in the second quarter? I know you have the new orders in pizza, offering but what else have you been promoting so far in the second quarter?

So Artisan, as you said, and kind of early we carry out special, and we've also got some of the cheesy bread mixed in, which was a little more fourth quarter play -- just into the first quarter. But a little bit more in the fourth quarter when we were doing that.

Just your thoughts on the pizza category in the quarter. Q.S.R. in general has been strong. Has the pizza category lagged overall, is it kind of in line?

Yeah, -- I think -- and I know there's -- I heard a different number thrown out there from one of our peers. Our belief is that you are seeing low single digit growth in the category. I think you may be seeing share gains from the national players verses the regional and local. Players and it may be why there's a difference in the number I'm talking about in what one of our peers was talking about. I'm looking -- I believe at the total category, so not just the national players but also the regional and smaller players. And I think that's kind of a couple points up, and I think the nationals are doing a little better than that. Clearly with Pizza Hut coming out with their number -- there's some share shift going towards the national players and we'll find out about the third national I guess tonight.

Okay, and then Mike just a question for you on the international side. When I look at the overall revenue growth, are the differences between the -- kind of traditional franchise royalties and fees and the distribution revenues that included in the international?

The distribution revenues were relatively flat because of -- double checking. But -- I think that overall the distribution revenue was relatively flat, but I'm having trouble checking the number here. Yeah, it was very flat. So most of the growth did come out of the royalties.

And the distribution revenues being flat, would that be a function -- I guess currently is impacted commodity prices impacted, is there anything else that would have made it flat?

Yeah it is the relative strength of Canada verses the rest of international. Because the only place we own the distribution centers is in Canada. And so Canada I think was not quite as robust as the rest of international. And that's why you see a little bit of a shift towards more royalty revenues from distribution.

That makes good sense, thank you.

And your next question comes from the line of Stephen Anderson, with Miller Tabak.

Yes, good morning. Just two quick questions. First of all you mentioned that the android app now contributing about 1% of total sales is that the number that is used for the total contributions of the first quarter Koch, or how should we look at this, and how should we look at it going forward?

It is a little over 1% now. So no it was not the average of the first quarter, because it launched towards the end of February, and has ramped up very very nicely. In terms of number of downloads we are really pleased with how it is performing and we kind of go back and look at the growth curb on that verses the iPhone. And so there are some mix shifts in there. That's not all incremental and we see some coming off the website, because the app is a better overall experience. But the total on mobile is now north of 7% which is just a very very nice move for us. And we continue to see that growing.

Now is the contribution more from the ramp up in android faster than it was from coming from I-Phone or vice -- or how does that compare.

No, I think it is -- I think it is reasonably comparable. And I think overall Android has a little higher share than kind of the iPhone platform. And so you know over time probably the answer is that it get as little bit bigger, just because there are more android phones out there, I think than iPhones in total. But overall in terms of the ramp, I think it is pretty comparable.

Final question, what do you see in India? I remember there was a big youth driver the last quarter in terms of restaurant sales.

I can't get into specifics because they are publicly traded and they haven't released their numbers yet. But I would tell you, in general the answer is everything is still on track and it's a market we're very very excited about.

Okay, thank you.

And your next question comes from the line of Alvin Concepcion with city.

Good morning, I just wanted to get some more clarification on your comment that your marketing for pizza verses side items would be more balanced, so relative too the first quart err, would we expect more marketing focus on driving order counts,Which would then impact profitability, or was the first quarter more indicative of the balance?

Well, first quarter was pretty side item focused. It was -- we had early week carry out special, but you know service some cheesy bread, and then mostly "parm" bread bites. So I guess since we are out right now with Artisan, the answer is it can be at least a little more balanced. Because the first quarter was pretty much about the side items. With the exception of the carry out special. So over the course of the year, it is going to be balanced, first quarter was probably more weighted towards side items.

Great, and were there any noticeable changes in the mix of delivery orders verses carry out orders in the quarter?

No. Consistent with the past.

Okay, great, thanks a lot.

And your next question comes from the line of Peter Saleh with Telsey Advisory Group.

Great. Thank you. I just wanted to ask about the domestic franchisee's, can you remind us again, are Franchisee's allowed to open or own any other concepts aside from Domino's.

So you have 1100 Franchisee's and something that's kind of unique about our system. Is their focused on us, so those who have come up through the system, are dedicated to Domino's. We have just a few that we kind of experimenting with over the last couple of years that have come in with is outside experience. But that's a very small minority of the overall. So the vast vast majority of our just operating Domino's pizza stores.

Great. And then the vast majority of your unit growth is really coming from international and we do continue to hear of weakness in Europe from many of your peers, so just wondering what is your confidence in the new unit growth, expectations over the next 12 months? If we do see weakening in same store sales over in Europe?

Yeah, I mean -- first I'd go back to the previous answer which is we really haven't seen it in Europe yet. But I -- look, at some point, if you see a weakening, of comp's does that start to play into your store growth at some level, yeah. But what I would say is what you're seeing right now is more an acceleration and that's because unit level economics are on average pretty robust in our international business. And, you know, so it would be almost more of a momentum effect if things slowed down than kind of an actual change in the R.O.I., short of them turning negative. And so it might effect kind of just their level of confidence. But, you know, the returns are incredibly good right now on average. And that's why you are seeing -- you're seeing the kind of robust growth we are getting.

Great, thank you very much.

And your next question comes from the line of Mark Smith with Feltl and Company.

Hi, guys, I think most everything has been asked, I just wanted to clarify a few things. First, you said that delivery verses carry out there's no real changes. Is that flat sequentially, or on a year over year basis is if you can talk more on that, do you see any effect from weather on carry out and then lastly, can you talk about how much you were promoting in this quarter verses a year ago.

A year ago we had a couple of very significant one week promotions on carry out. And we did not have the same thing this year, we were promoting Monday, Wednesday, we've got more of a regular carry out offer going for to develop that type of customer. I think as you said kind of proportionately we haven't seen a big change, and part of the reason for that is year on year over the last few years we haven't drown in the carry out business as a percentage of total sales. We may have seen a bigger increase this year if we run the same carry out specials that we did a year ago. Because -- but instead we aren't seeing that because the natural growth numbers kind of are off maybe offset by the fact that we were kind of heavily emphasizing that last year. So we're seeing kind of flat on both. We are not seeing a big change but that could be due to the mix of the offers.

Does the weather help when it is warmer? Do more people feel like driving over to the store to pick it up.

As Patrick said on weather, we don't see big differences, but we certainly would expect that our carry out business would see a bit more benefit with the good weather. We didn't see a lot of shift this year verses last year.

It just -- we pull apart hard of looking at that, it was going to be as -- you know it was going to be the best quarter for us to really understand how much it can effect it because it clearly the weather was very very warm, which is -- generally a bad thing for us. And it just didn't amount to that much of a change. That much of an effect.

Okay. And then real quick, I know that you talked about the pizza category, but did you guys see any different competitive pressure or easing in kind of pricing pressure this quarter? You know -- no, not a lot. Pizza Hut was out with their box of pizza, and bread sticks, by you know, overall, one of the things we always keep in mind around here is the majority of our competition in the pizza industry is not the national players. The majority of our competitors out there, and most of those competitors are the regional chains and the local chains, and that's going to tend to not drive as much movement in kind of their promotional practices etc. So overall, I wouldn't say we saw really meaningful differences in terms of what they were doing, but I just as importantly, you know I always try to remember the bulk of our competition is not the other national chain.

Great, thank you.

And your next question comes from John Ivankoe Jr. with JPMorgan.

Hi. Thank you. Hopefully quickly. In Europe, or I guess maybe even your developed markets more specifically, was there anything that either happened in the first quarter or recent quarters from a promotional product development perspective that's really really worked for you guys that shows how again, that you can take or even grow share or grow traffic in what should be as you pointed out a declining overall industry environment? Is there anything specifically going on there that we might not be seeing?

I think technology is a big part of that over time. I think that's the newest, biggest, leverageble competitive advantage that we've got both domestically and internationally. So I think that's the most important one.

For example, in the U.K., you were indexing even more than the U.S., is that correct.?

Yeah, in terms of total -- in terms of total digital, yes, it is higher.

Okay. And in continental Europe, again, it is surprising to -- you weighed out the total employment to not see fairly significant contraction in your business. To your knowledge on the franchise level, they haven't had to resort to significant the price pointing have been able to hold steady.

Yeah, it has held together pretty darn well. I think some of it is -- the category is still certainly much less developed outside the U.S. than inside on average. Our view over the longer term is you've got kind of a 5% growth in the category outside of the U.S. And kind of low single digit growth inside the U.S. And so some of it is -- I think there's still more room for the category to grow. Outside of the U.S.

Great, understood, thank you.

Yep. By the way, I was hoping it was going to be your dad asking the questions but unfortunately I guess it was John Ivankoe Jr.

(Laughter)

And there are no further questions.

Okay. I guess there are not. so with that I'd like to thank you all for participating in today's call, and we look forward to speaking with you in July for our second quarter call, thank you.

This does conclude' s today's conference call, you may now disconnect.