達美樂 (DPZ) 2014 Q1 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Q1 financial results earnings call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions).

Thank you.

Ms. Liddle, you may begin your conference.

Thanks, Bonita.

Thanks, everybody, for joining us this morning.

We should be an hour or less.

We will give an opportunity for some prepared remarks as well as Q&A.

I would also ask that members of the press who are on the call realize this is for investors and stay in a listen-only mode.

And then I will turn all of your attention to our Safe Harbor statement in the event that any forward-looking statements are made during the call today.

We are going to kick it off today with Mike Lawton, our Chief Financial Officer, who has some prepared remarks.

Thank you, Lynn.

Good morning, everyone.

I'm pleased to report that we delivered solid results for our shareholders during the quarter.

Our international and our domestic divisions posted strong same-store sales growth.

We opened a significant number of new stores and our adjusted EPS grew 15.3% over the prior-year quarter.

I will start my review of the quarter by looking at our systemwide sales, which are also known as global retail sales.

These are the total retail sales of the franchise and Company-owned stores worldwide.

Global retail sales grew 9.1%.

Foreign currency was a headwind and when we exclude the adverse impact of foreign currency, global retail sales grew by 11.3%.

The drivers of this growth included domestic same-store sales, which rose 4.9% in the quarter, lapping a positive 6.2% from last year.

This was comprised of franchisee same-store sales, which were up 5.2%, and Company-owned stores, which were up 1.5%.

Although we don't provide specifics of order count and ticket for competitive reasons, we did drive an increase in both order counts and ticket this quarter.

Also we are pleased to report that we opened five net domestic stores consisting of 14 store openings and nine closures.

In the full-year 2013 we had growth of 58 net stores, and our goal is to exceed that this year domestically.

Our international division had another very strong quarter as a same-store sales grew 7.4%, lapping a solid prior-year quarter increase of 6.5%.

Our international division grew by 97 stores this quarter, made up of 109 store openings and 12 closures.

Turning to revenues, total revenues were up $36.2 million or 8.7% from the prior year.

This increase was primarily a result of three factors.

First, higher supply chain revenues resulting mainly from an increase in commodity prices and higher volumes; second, higher international royalty and supply chain revenues due to increased same-store sales growth and store comp growth; and, third, higher domestic royalty revenues due to same-store sales growth and the positive impact of increasing our store count over the trailing four quarters.

Moving on to operating margin, as a percentage of revenues, consolidated operating margin for the quarter decreased to 30.2% from 31.1% in the prior-year quarter.

Some of the drivers of this decrease included the following: Company-owned store operating margins decreased slightly as a percentage of revenues, due primarily to higher food costs, and our supply chain margin percentage decreased from 11.3% to 10.5%, due primarily to an increase in commodity cost.

The average cheese block price in the first quarter was $2.16 per pound versus $1.67 in the same period last year.

Pork and other meats also increased during the quarter, which led to our overall market basket increasing 6.9% during the quarter.

As a reminder, food commodities are generally priced on a constant dollar markup to our franchisees, therefore higher commodity prices do not impact our supply chain dollar profit.

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

Because of the increasing commodity prices we need to make a significant update to our commodity projections.

We have previously communicated that we expect that commodities would be flat or down to as much as 2% in 2014.

Due to the recent increase in commodities, primarily cheese and pork, we now expect that commodities we use in our system will be up 4% to 6% in 2014 versus 2013 levels.

Despite the fact that we have diversified monetary risk, currency exchange rate negatively impacted us this quarter by about $1.3 million versus the prior-year quarter, due to the dollar strengthening against most currencies.

We continue to expect that currency exchange rates will be a headwind for us for the remainder of the year.

Turning to G&A expenses, G&A decreased by $1.4 million or 2.6% quarter over quarter, primarily driven by a $1.7 million pretax gain on the sale of 14 corporate stores that we detail as an item affecting comparability in our 8-K.

Going forward, the sale of these stores will shift some income from corporate stores into franchise royalties.

We have previously indicated that are estimated full-year G&A would increase an additional $5 million to $9 million over 2013 levels due to increases for e-commerce and technological support, international support, and the growth of the team there and other strategic initiatives, offset by lower non-cash comp expect.

We now expect our full-year G&A will increase $4 million to $8 million over 2013, primarily a result of the gain that I previously mentioned.

Keep in mind, too, that G&A expense can vary up or down, depending upon such [things] as our performance against plan, which makes our variable performance-based compensation.

Regarding income taxes, our reported effective tax rate was 36.6% for the quarter, which is slightly below our expected range due to the reversal of a deferred tax valuation allowance that we also detail as an item affecting comparability in our 8-K.

We currently expect our effective tax rate for the foreseeable future to be in the 37% to 38% range.

Our first-quarter net income was up $6.1 million or 17.6%.

This increase was primarily driven by higher domestic and international same-store sales, international store growth, and the $1.4 million after-tax gain on the sale of 14 corporate stores, all of this offset in part by the negative impact of foreign currency exchange rates.

Our first quarter diluted EPS as reported on a GAAP basis was $0.71.

On an as adjusted basis, our diluted EPS was $0.68 for the first quarter.

The $0.68 is a $0.09 or 15.3% increase from the $0.59 in the first quarter of last year.

Here's how the $0.09 difference breaks down.

Our improved operating results benefited us by $0.09; foreign currency negatively impacted us by about $0.02; lower diluted share count, primarily due to our share repurchases benefited us by $0.01 and lower interest expense benefited us by $0.01.

Turning to our use of cash, during the first quarter we repurchased a retired approximately 221,000 shares for $15.1 million at an average price of $68 a share.

So far in the second quarter we have repurchased 154,000 shares.

We also returned over $11 million to our shareholders in the form of a quarterly dividend.

We did make our required $5.9 million principal amortization payment in the first quarter.

Due to the terms of our debt we will also be making a $5.9 million required principal amortization payment of the second quarter of 2014.

Although we had expected that we would be up to stop making required payments in the second quarter, due to meeting the 4.5 times ratio specified in our agreements, we didn't meet this threshold.

Debt to EBITDA, which you can see in the financials and is the closest approximation that a financial statement user can see to the actual ratio we need in order to cease making required payments, but the actual calculation is impacted by cash movements within our securitization structure that did not impact -- and they don't impact operations or financials but they did impact our ability to meet the ratio.

Going forward, we will continue to evaluate the opportunity to cease making required payments once the securitization terms are met.

In closing, we are very pleased with the results in the quarter.

We will continue to focus on improving our operating performance, growing our global store base, and utilizing our free cash flow to drive shareholder value.

Thank you for your time, and now I will turn it over to Patrick.

Thanks, Mike.

As you heard, this quarter's headline is that we once again delivered strong, consistent results.

And we are particularly pleased with the store growth in our international division, which was especially robust.

Overall, it was a great start to the year.

We had a busy first quarter.

Domestically we had strong sales results, good order growth over last year, and a great promotion for our Handmade Pan Pizza.

Our advertising featured our very talented store team members, and I am delighted that this campaign seems to have resonated well with our customers.

We also wrapped up our analysis of franchisee profitability in 2013, and we are pleased to see that profits continued to increase.

Franchisees reported that store-level EBITDA was up to about $82,000 last year from $75,000 in 2012.

We continue to focus on this important metric because increasing per-store profitability results in a healthier franchisee base, and with a high return on investment in stores it ultimately helps drive store growth.

It also puts our system in a better place for store reimaging.

We have been ramping up the process of getting stores updated across the system with our corporate stores leading the way.

We are well underway to having our Team USA stores reimaged in the next two to three years.

Another area of intense focus for us right now is corporate store performance.

Company same-store sales performance has lagged franchise stores in a meaningful way for the past two quarters.

While it will take a little time to get the stores where we want them, we want you to know that we are working to turn these results around.

During the quarter, there was a fair amount of discussion about the particularly cold and snowy weather in much of the country and its possible impact on our business.

Typically, weather does not have an impact on our quarterly sales because it tends to be very regional and also short in duration.

However, this winter was atypical.

Our best estimate is that weather drove between a 1% and 1.5% positive impact on sales in the quarter.

Moving to new product news, in the US we recently launched our first new food product since the Handmade Pan Pizza in the fall of 2012.

It's called Specialty Chicken.

It's boneless chicken with a pizza twist.

We know that chicken is a popular side item for us and that boneless chicken sales have grown 11% in the last three years for the whole quick service industry.

This product gives us the opportunity to showcase chicken and do it in a way that is unique to Domino's.

It's also a product that is good for store profitability, which is important to our system and brings some new product news to our brand.

On the international front we have some great milestones in key markets.

In India we opened our 700th store, a huge achievement for the fastest growing market in our system.

By focusing on both quality and service, they have been pioneers and are dominating the fast food market in India.

Despite the fact the economy is going through a rough patch, store unit economics are still strong enough to sustain robust store growth, and they are expanding into new cities.

We are very proud of their accomplishments.

We are also pleased with the progress being made in Japan, where we recently opened our 300th store.

Since being acquired by our Australian master franchisee, this market has continued its strong performance with excellent sales and store growth.

We continue to be very optimistic about the changes and growth opportunities in that market.

I recently visited Australia and I am impressed with what our master franchisee is doing in that market.

They not only to continue to build profitable stores in a fairly mature market, but they also have really stepped up their game in service and product quality, plus they have excellent marketing, which is helping to keep brand dominant in their market.

While highlighting some markets, I'd like to point out our recent agreement we signed in South Africa with a new master franchisee.

Taste Holdings is based in Johannesburg.

They are publicly traded company that operates nearly 150 pizza restaurants under the Scooters Pizza and St.

Elmo's Pizza brands.

We expect the vast majority of these will be converting to Domino's pizza units in late 2014 and through 2015.

This gives us an excellent entry into the southern region of Africa, which is a continent with attractive future growth opportunities for our brand.

It's young; it's increasingly very digital with good mobile phone penetration, an emerging consumer class, growing urbanization, and a modernizing retail sector.

In terms of population and consumer purchasing power, sub-Saharan Africa is roughly the same size as India.

Stay tuned for more from this region of the world.

While our international business is certainly a major driver of growth, technology also continues to advance our brands as we lead the industry with technological innovation.

This week we launched an iPad app that features amazing images that take advantage of the iPad's high-definition retina display.

The team used gaming and animation software to power the incredible 3D graphics of our new Pizza Builder.

It's a great app and I would encourage you to try it out.

We also recently announced that our Android app will accept payment with Google Wallet, which is a free mobile payment system that allows customers to store debit cards, credit cards, loyalty cards, and gift cards electronically on their mobile phones.

It's just the kind of flexibility and convenience we feel is important for us to offer to our consumers, and apparently Google thought it was pretty cool that we signed up, since they called it out specifically on their earnings call.

Another consumer convenience we have discussed before is profiles, which is the ability for consumers to store their pizza orders and credit card information.

We added about 2 million more profiles in the first quarter, so we are now up to 9 million profiles.

And about half of our mobile app sales remain using established profiles in the first quarter.

Overall, digital now comprises 45% of our sales with some recent weeks at 50% of sales.

We are really delighted with what digital ordering is doing for our business in the US and around the world.

Finally, I would just add that we are off to a great start this year.

We grew stores at a nice clip, had robust domestic and international sales, and despite some headwinds from FX and food cost, delivered strong EPS growth once again.

That enabled us to pay an increased dividend and buy back a significant number of shares, more continued evidence of our commitment to shareholder returns.

I am very proud of our team and our results.

Our franchisees are running great businesses all around the world, and they are doing so under a name brand with increasing recognition and strength.

With that, I will be happy to take any questions.

(Operator Instructions) Jeffrey Bernstein with Barclays.

Couple of questions on international -- obviously a very, very impressive start to the year, at least -- well, from a comp annual perspective.

You mention something about the royalty rates.

I'm just wondering, the frequency of opportunity you have to update the royalty rate, both in international and domestically.

Maybe you can give some sort of range in terms of the high versus low of those percentages.

It would seem like over time with the very strong performance there would be the opportunity to increase those rates.

And then I had a follow-up.

Yes, the opportunity on the international side is very rare.

We have very long-term contracts with our master franchisees.

And ultimately, those contracts and their confidence that they are going to be able to build the Domino's business and generate a great return for themselves or their shareholders, if they are public -- that's what attracts capital.

And that's what has generated the strongest growth, really, in international of any of the major players in the restaurant industry.

So those opportunities are very rare.

Our average, as we've said before, is around 3%.

Our master franchisees themselves have some ability to change their rates to sub franchisees.

And if that happens, then we have got some ability to do something.

But overall, you are not going to see material changes in those rates.

And the US, how does that compare to the US?

Obviously, you don't have those big master franchisees.

But what's the range and the average now?

Our contracts are at 5.5% with some incentives out there.

We may be just slightly below that.

I think we're between 5.4% and 5.5% average, and it has been that way for a very long time.

So I would not expect anything there.

Got you.

And in terms of the sales mix, obviously now pushing a little bit more into -- I guess the chicken is the most recent push.

Just wondering whether you could give any directional color in terms of however you slice it, whether it's value versus premium under domestic sales mix or pizza versus protein versus sides.

Just wondering the trends over time, and it sounds like you're pretty happy with the profitability of the chicken.

Just wondering if you could rank the profitability of each of the big core components of your menu.

Pizza is great business, and that's the core driver of comp growth.

It is certainly where the vast majority of profitability comes from in our system.

Chicken is a great part of our business.

It's the second-largest part of our business, but it is materially smaller than our pizza business.

But it's a good-sized business.

And right now, given the way commodities have been moving, the fact that we have got a chicken-focused promotion out there right now is a good thing, and nicely timed.

But ultimately, you're talking about value or premium.

Our pricing has been quite consistent now over the course of four or five years, and that is really a reflection of where consumers are and the value that consumers demand.

And as long as that's what they are looking for and we are continuing to drive growth in our franchisees' profitability, which, as I mentioned previously, we did again quite nicely in 2013, we are going to be pretty consistent in our approach to pricing.

Mike, if I could just ask you -- you mentioned looking at which quarter you can stop making that $5.9 million payment once the rate gets to a low enough level from leverage.

You didn't mention anything about a potential boost to the leverage.

Again, I wasn't sure where rates are today.

It's just not as compelling, and therefore you're more focused on getting the leverage down to that certain level, so you can stop making those payments?

Right now we continue to watch where rates are.

But it's not -- as you say, it's not that compelling.

And we expected that we would stop making the payment, probably still high probability that that would stop next quarter.

And we will just continue to watch.

We are quite content with where we are, which is at the 4.5 times level.

Got it, thank you very much.

Mark Smith with Feltl and Company.

I just wanted to follow up on commodity inflation and competitive environment.

What is your opportunity to take price today?

Well, as I mentioned in my part, we did take -- the ticket is up a little bit.

And that's not really from taking price as much is being very careful and sharp on the coupons that you to offer.

As I know you are aware, most of the transactions that take place have got some kind of a deal associated with them.

So, I think there's more opportunity to be careful about your couponing than there is to take menu price up at this point in time.

While you may see a little bit of adjustment, I wouldn't expect anything major as long as -- our current expectation is commodity prices will come back down.

It has taken longer than we expected.

We got exactly what we expected out of chicken, which is meaningful, and that's lower.

It's really a pork and cheese situation right now and making the presumption that they hopefully will still come back down fairly in either the second or, at worse, third quarter, I don't think you'll see a lot of pricing adjustment.

Does this give you an opportunity as we have seen the trend of mom-and-pop's going away and some of the smaller regional guys, does this give you an opportunity over the next year to add more domestically, as you can withstand some of these pressures better than smaller peers can?

Yes.

No, that's absolutely -- we think our size and scale and ability to buy effectively and pass those savings through to our stores is clearly a strong competitive advantage.

And so yes, I think it does put us in a stronger position from a share standpoint.

Perfect, thank you.

Joe Buckley with Bank of America Merrill Lynch.

Hi, it's Andrew for Joe.

You called out the underperformance of Company stores compared to franchisees over the last several quarters.

Considering the re-franchising activity during the quarter, does it make sense to further re-franchise as evidence your franchisees are great operators?

Our franchisees are great operators.

And I would tell you, there have been times when our corporate stores have outperformed the franchise side and the other way around.

Right now, we're in a moment where the last two quarters we have had some pretty material underperformance.

There are some execution issues that we've got to get fixed.

We like where we are with our store counts on the corporate side today.

We use it as not only a way to generate good returns for our shareholders and at the profitability levels we have today, we do that.

We use it to test new things, and that's important for us.

But I will tell you, critically and, I think, fundamental to why we run stores is it's where we develop talent to lead our franchise system both domestically and around the world.

And so based on that, I would tell you, I think we are you comfortable in the range that we are in.

We have always said from time to time you are going to see some opportunistic transactions, both buying and selling, and you are going to see us building stores, importantly.

So there's not necessarily a magic number, but I would tell you that range we are in today with the level of talent we are able to generate through there to meet our needs and the returns we are generating out of the stores, we feel pretty good about where we are.

And can you talk a little bit more about the remodeling program, for instance how many you did this quarter and any insights you are learning such as the mix of carryout growing or if guest counts at remodeled stores are outpacing the system?

Yes.

It's still fairly early on that.

I would tell you, as we just announced out to our system now, what, three or four months ago, those efforts are just ramping up now.

I think you're going to start seeing a lot of reimages starting second half of this year.

So we have got a couple hundred out there today that have been done over the course of the last year to 18 months.

That number hasn't really materially changed in the first quarter.

I think second half, and then the years out from that is when you're going to see most of that activity.

Okay, thank you.

Alvin Concepcion on with Citi.

Just a couple questions related to the Pan Pizza.

It seems it is brought on some incremental new customers and the product seem to have long-term staying power.

Now that you have had it over year and a half, what if you seen with regard to loyalty from those customers you have taken on?

And when they do return, do those customers always tend to come back for the pan or do you have a propensity to try other items you are promoting?

They buy both Pan and Hand Tossed.

And when we launched this Pan, we knew that there were Pan occasions that were going to competition from our customers.

So people who were buying our hand-tossed pizzas wanted a change of pace and they were going elsewhere because we didn't have a good offering.

So this has really mostly been about picking up more occasions from our existing customers who were taking their pan pizza business elsewhere.

But what that has just higher loyalty from those customers as they are giving us both of those occasions.

So, we continue to be very pleased with how it is performing.

It's a terrific product.

And as you saw again in the first quarter, it has had some real staying power for us with our customer base.

Great, thanks for that color.

And finally, you mentioned 45% of your sales are now digital.

Can you talk about what that has done for store profitability or even productivity as that mix has increased over the past year?

It absolutely helps and it helps on essentially every measure.

The ticket is higher.

Order accuracy is higher for the customers, since they are taking their own orders, so customer satisfaction is higher.

And the profitability of the order is a little bit better as well.

And it's also more efficient to market to those people who have already signed up.

And we continue to make advances, so with the profiles set up, the ability for those customers to reorder quickly if they set up profiles is terrific.

So, continues to be a very positive thing for our business and certainly an area where you are going to continue to see focus.

But as we said, just in the last month or two now you have seen a number of other things -- Google Wallet, the iPad app.

We are continuing to drive innovation at a very high pace in this area, and it's something that is going to continue to be part of our core strategy.

Great, thank you very much.

Alton Stump with Longbow Research.

Good morning, and good job on the quarter.

Just to follow up on the pricing question earlier, I think there was in reference more to Company-owned stores.

But on the franchise front in the US, are you getting any feedback from them on average if they plan to take any pricing, given particularly cheese costs moving up so hard here for the last couple of months?

Look, we all watch it.

And it is certainly an area that we will all talk about.

None of us like to see record high on cheese, and obviously pork moved as well.

I actually commend our franchisees.

I think they have been remarkably disciplined about recognizing that this is relatively short term and about just taking some of that in the first quarter.

That said, our franchisees still did very well in the first quarter and we think profits were actually up a little bit versus the first quarter of the previous year, not a lot but a little.

And the volume, clearly, that we saw in the first quarter carried the day.

And they understand that sales growth and keeping our customer base happy and loyal is ultimately what's going to drive long-term profitability and growth in the business.

So, overall, I think they have been remarkably disciplined about looking at this for what it is, which has been a relatively short-term movement that persisted a little longer than, frankly, we had hoped it was going to.

But we are already seeing some easing on cheese.

It's back down some over the course of the last couple of weeks.

Hopefully, that will continue.

But overall, they have been quite disciplined.

Well, you know, I was actually asking you -- obviously, your job isn't to be cheese cost experts.

But we have seen quite a bit of relief over the last three or four weeks here.

Any outlook as to if it could head down further from here?

Our expectation is that it is going to continue to ease.

We don't think it's going to happen quickly.

But over the next few months or couple of quarters our expectation and, certainly, the market's expectations as you look at forward curves is that it's going to continue to come down.

We will see.

There have been a couple of components that have driven it.

One was weather and there were some areas where production per cow was down because of the extreme weather.

Obviously, as we are warming up now, that is going to get somewhat better and production should get better.

Input cost are very good.

Corn costs, feed costs are very good.

But the other part of it has been the export market, and dairy exports in general have been up.

And that has driven the demand side overall on this.

So we will see.

Our expectation is that it's going to continue to ease, but it is going to take some time for that.

We are going to be watching it closely.

But over the next couple of quarters we are hopeful that we are going to see it head down somewhat more.

Thank you.

I had just one quick follow-up and then I'll hop back in the queue.

As I think about this chicken launch, obviously it's very early, just the last couple weeks here, but any color even as rolling this out in the test market or in the group studies, how this compared to some of recent launches, which is obviously been very successful, whether it's the Pan Pizza or prior to that?

Any color on that front that you can give us?

Yes, that's on the second quarter, so I really can't get into that.

Okay, that's all I had.

Thank you guys.

Brian Bittner with Oppenheimer.

First on the US comps, you brought up winter weather helping you 100 to 150 basis points.

First question is, how did you come up with that estimate.

And then the second question on the US comps is, even after that acceleration, the two-year trend actually accelerated almost 300 basis points.

So after you answer the weather question, if you could just go into some other dynamics that drove the acceleration in the first quarter, anything you can point out from -- obviously technology continues to help.

But from a technological, market share, menu mix perspective would be helpful.

I'll take the weather question.

What we did was we ran everything through our media mix model and we looked at what we expected by market versus what we got.

So I could tell you we have a pretty sophisticated model, but at the same time you have to take it all with a bit of a guess as to what the right numbers are.

But we've always tried to give you the best picture we can as to what we think is happening.

So after running it through the model we looked at -- and that includes looking at markets where there isn't any impact from snow, areas where you got more snow than what we had the year before, areas with less snow that are impacted.

And we come out with something in this range of them a 1% to 1.5%.

The only thing I would add to that, Brian, is we also then just as part of, all right, does this all makes sense -- we looked at our carryout and delivery mix and our delivery next was a little stronger than we would have expected otherwise, which was clearly a function of the weather as well.

So, we think it was in that point to point and a half range.

Obviously, the blend between our carryout and delivery business insulates us somewhat.

To your other question about what is driving the comps, I think there have been a few things.

I think we have done a good job buying our media and our media has been up a little bit over the course of the last few years, just from a not only efficiency standpoint but effectiveness.

And some of that is just a function of growth of the system.

The more we are driving comps, the more dollars that we got to put back into driving the brand.

Clearly an important part of this, though, is digital.

I think digital continues to be a strong part of our business.

We see the effect it has on customer retention and frequency, and that has clearly been a big driver of our results and continues to be a big driver of our results.

And overall, the execution from our system and our franchisees has been strong, and we are seeing great results from them as we look at our kind of internal measures of the surface levels that they are giving and their execution.

I'm proud of our franchisees and our whole system and how they are performing.

And that builds overall momentum within the system as well.

Okay.

And have you told us what percent of the corporate stores are reimaged as of now?

Yes.

I think it's -- we haven't but I think it's in the range of about a quarter of them right now.

I think it's around 100, maybe just slightly over 100 of them today are reimaged.

Okay, because I thought it was more because I'm trying to better understand the comp underperformance at the corporate level.

You talked about execution being down.

I was just wondering if there is any correlation between execution and a store reimage or anything like that.

But it seems that 25% it must be -- it's just not really having an impact yet anyway.

It's just -- it's straight up execution.

And then the last question -- the $4 million to $8 million of G&A year-over-year -- Mike, did you say that includes the gain on sale?

Yes.

That's the primary reason that we reduce the increase is just to reflect that we get the unusual gain in there.

Got it, thanks.

John Glass with Morgan Stanley.

You talked about the majority of pizza sales are still on a deal.

And that reminded me of that persistence in the industry.

How much less of a deal have you been able to sell pizzas on and when you do it on mobile or through the Internet?

Is there a material difference?

And related to that, how close are you to be able to do one-on-one marketing so that you are not offering me a deal if I wasn't going to take anyone anyway, so you improve your profitability that way?

Yes.

It's interesting.

Customers online tend to use coupons a little bit less.

Even though they are there and in front of them, they use them a little bit less and it's part of why ticket is somewhat higher.

They also just add more food items for the digital orders.

But that's a fairly small effect on that.

So, I think overall we look at three buckets of orders.

We look at orders that are going out at menu price, we look at those that are on the national offer, and those that use local coupons.

And you can manage pricing within each of those three areas.

And overall, there is some effect with the digital that has clearly been a little bit positive for the ticket over time.

And that is how we think about it, I guess, is looking at each of those three areas, what is going to drive volume and then managing the profitability within it.

And just following up on that, so if you decided not to show coupons to customers as they logged in, do you think that's a dangerous precedent that they are going to end up thinking you end up being more expensive than your competition?

No.

Coupons have to be there.

If the coupons are available to any customers, we're going to have been there for them online.

And they have got to know that they've got access to great value digitally when there are ordering.

And then just the last piece of that is when do you guys to start to or have you already begun to send people individual offers, either because they haven't ordered as often as -- in the past or you want to upsell them something specific, how have you done that so far and are there plans to increase that?

Yes.

We've done some things in terms of targeting groups, but there is lots more to come as we get more sophisticated about managing our database and people within it, there's still lots of opportunities on that front for us going forward.

Thank you.

John Ivankoe with JPMorgan.

As you seen a significant uptick in the number of people with profiles, how have you seen that customer change, if at all, from having a profile to not having a profile in terms of things like order incidents, average ticket, and maybe in reference to the previous question, your ability to communicate to that profile-holding customer directly?

In other words, how good is this for Domino's Pizza?

It's a positive on all fronts.

And it's -- once they have given us that information and particularly if they put a credit card in, their ability to get through the process quickly and their ability to access favorite orders quickly -- all of that is a positive for the customer.

So it's a positive for us.

And we can see it in behavior.

And by behavior, that customer is ordering more often and maybe ordering a little bit more?

Just as there has been an increase in digital ordering, do you view profiles as another leg, as a future sales driver?

Yes, we do.

Okay, thank you.

Peter Saleh with Telsey Advisory Group.

I just wanted to ask about the marketing spend in the second quarter and maybe a little bit into the third quarter and how you are planning that with the World Cup this year, if you're planning to spend more dollars this year on advertising.

You are not going to see big shifts because of that.

Remember the way our funding works on our advertising is it's a percentage of the sales from our stores.

So as overall system sales increase, that means that absolute volume of those dollars is growing.

But in terms of material shifts between quarters you are not going to see any.

Great, and then can you just comment a little bit on -- there has been a lot of talk, a lot about headlines on the fast casual pizza space really starting to pick up steam here in terms of units and the growth.

And while it's still small, I think when you look at the next couple of years of it might be a little more significant.

So, can you just comment on how you guys are planning to combat the growth in fast casual pizza?

Yes.

We think that all of the things we are talking about do that effectively.

So getting our stores looking better, reimaging our stores, building some new stores, putting them in better locations, combined with better food that we've ever offered, combined with a digital platform that we think is really second to none, having some seating in these reimaged stores, making it more welcoming for those who like to sit down as they wait or to eat, as well.

Really, opening up the kitchens so that people can see the quality of the food -- all of those things make us a better brand for consumers in general and make us more competitive within whatever the competitive set is going to be out the next few years.

And the only thing that I would repeat is that we continue to see the largest players in the category taking share from the independents.

And so, to the extent to which you are seeing some of these newer players growing a little bit, they are clearly not taking share from us today and potentially taking even more share from some of the other locals and independents, as we also are taking share from those players.

All right.

Thank you very much.

There are no further questions.

Are there closing remarks?

We appreciate all of you taking the time to be on the call and for the questions.

And we look forward to being back together with you on July 22 to discuss our second-quarter earnings.

Thank you, everybody.

This concludes today's conference call.

Thank you for your participation.

You may now disconnect.