達美樂 (DPZ) 2015 Q1 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the first-quarter 2015 earnings conference 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, even begin your conference.

Thanks, Kelly.

Good morning, everybody.

You know the drill.

We are going to start with some prepared remarks this morning and then open to Q&A.

But we do set this up for investors primarily so I would kindly ask the members of the press to be in a listen-only mode for the Q&A session and also to turn your attention to our Safe Harbor statement in the event that any forward-looking statements are made.

And with that, I would like to introduce our participants today.

The first will be Mike Lawton, our Chief Financial Officer, and then we will follow up with Patrick Doyle, who is our CEO.

And he will make some prepared remarks, then we will open for Q&A.

So with that, Mike, are you ready to go?

Thank you, Lynn.

Good morning, everyone.

This quarter our positive momentum continued as we posted fantastic same-store sales in both our domestic and international businesses.

We opened a significant number of new stores and our adjusted EPS grew 19.1% over the prior-year quarter.

We are pleased with this earnings growth, particularly in the face of strong foreign-exchange headwinds.

Global retail sales, which are the total retail sales at franchise and Company-owned stores worldwide, grew 10.4%.

When we exclude the adverse impact of foreign currency, global retail sales grew by 16.4%.

The drivers of this growth included domestic same-store sales, which rose by 14.5% in the quarter.

The increase this quarter was comprised of franchisee same-store sales, which were up 14.4%, and Company-owned stores, which were up by 15.9%.

This was due primarily to strong order growth.

We also saw some ticket growth during the quarter.

We are pleased to report that we opened 17 net domestic stores in the first quarter, consisting of 22 store openings and five closures.

For the trailing 12 months we opened 93 net domestic stores.

Our international division had another strong quarter as same-store sales grew 7.8%, lapping a prior-year quarter increase of 7.4%.

Our international division also grew by 93 stores, which is made up of 140 store openings and 47 closures.

We had more closures than usual this quarter as we recorded 36 closures in Peru.

We are working to reopen the market.

Over the past four quarters our international division has grown by 658 stores.

Turning to revenues, total revenues were up $48.2 million or 10.6% from the prior year.

This increase was primarily a result of three factors -- first, higher supply chain center volumes as well as increased sales of equipment to stores in connection with our store reimaging program.

The supply chain increases were partially offset by lower commodity cost which were passed on to franchisees.

Second, higher domestic same-store sales and store count growth.

And last, higher international royalties, again from increased same-store sales and store count growth which was partially offset the negative impact of foreign currency exchange rates.

Moving on to operating margin, as a percentage of revenue consolidated operating margin for the quarter increased to 31.3% from 30.2% in the prior-year quarter.

The main drivers included improved Company-owned store operating margins, which benefited from lower food cost and fixed cost leverage.

This margin increased as a percentage of revenues from 23.9% to 26.2%.

Our supply chain margin percentage increased from 10.7% to 11.2%, primarily from a decrease in commodity prices.

As a reminder, commodities are generally priced on a constant dollar markup to our franchisees.

Therefore, lower commodity prices do not impact our supply chain dollar profit.

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

The average cheese block price in the first quarter was $1.54 per pound versus $2.16 in the same period last year, which led to our overall market basket decreasing 5.9% as compared to the prior-year quarter.

We have previously communicated that we expect commodities we use in our system to be down 2% to 4% in 2015 from 2014 levels.

At this point in the year we now expect that the commodities we use will be down 3% to 6% in 2015 from 2014 levels.

Currency exchange rates negatively impacted us in the quarter by $3.6 million versus the prior-year quarter, due to the dollar strengthening against most currencies.

We have previously communicated that foreign currency could exceed an $8 million to $12 million negative impact on pretax earnings for 2015.

Due to the dollar continuing to strengthen during the first quarter, we now need to update our foreign currency projections for the full year.

Based on current projections, we estimate that foreign currency could have a $14 million to $20 million negative impact on pretax earnings for 2015.

Again for perspective, we estimate that a 1% strengthening of the dollar against our basket of currencies has roughly a $0.015 to $0.02 negative impact on our full-year EPS.

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Now, let's discuss our G&A expenses.

G&A increased by $9.9 million in the first quarter versus the prior-year quarter.

$1.7 million of this change was from a nonrecurring gain we recognized in the first quarter of 2014 on the sale of 14 corporate stores.

We have detailed this as an item affect in comparability in our rate case.

The remaining increase in G&A was due to several factors.

First, we made planned increases in e-commerce and technology support.

I would point out that our investments in technology are partially offset by transaction fees that we receive, which are currently running around $1.5 million per month.

Then our higher same-store sales led to increases in volume-driven expenses such as franchisee incentives, variable performance-based compensation, and Company-owned store advertising contributions.

For the full year we now project that our G&A could he in the range of $270 million to $275 million for our 53-week year.

We estimate that the extra week will drive approximately $4 million of this total expense.

Keep in mind, too, that are G&A expense for the year can vary up or down by, among other things, our performance versus our plan as that affects variable performance-based compensation expense.

Regarding income taxes, our reported effective tax rate was 37.6% for the quarter.

We continue to expect that 37% to 38% will be our effective tax rate for the foreseeable future.

Our first-quarter net income was up $5.8 million or up $7.2 million when excluding the items affecting comparability.

This as adjusted 18.3% increase was primarily driven by the higher domestic and international same-store sales, global store growth, and supply chain volumes offset by the negative impact of foreign currency exchange rates.

First-quarter diluted EPS as reported on a GAAP basis was $0.81.

This $0.81 is a $0.13 or 19.1% increase from the $0.68 as adjusted EPS in the first quarter of last year.

This is how the $0.13 difference breaks down.

Foreign currency exchange rates negatively impacted us by $0.04.

Lower diluted share can primarily due to share repurchases benefited us by $0.005.

Higher tax rate negatively affected us by a $0.005.

And importantly, our improved operating results benefited us by $0.17.

Now turning to our use of cash, during the first quarter we repurchased and retired approximately 291,000 shares for $29.5 million at an average price of $101.46 a share.

So far in the second quarter, we have repurchased 178,000 shares.

We also returned nearly $14 million to our shareholders in the form of a quarterly dividend.

Overall, our strong momentum continued in the first quarter and we are very pleased with our results.

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

Thanks, Mike.

It was an outstanding start to 2015.

Many who follow the Domino's story continue to ask the same question: what catalyst can we point to in helping explain our momentum and continued positive performance?

While I may run the risk of sounding repetitive, the truth is the truth.

The fundamental strength of the business and the equity in our brand name have proven again and again to deliver a strong financial outcome over time and in multiple macro environments.

Global net store openings were the highest in a decade for the first quarter and our trailing 12 months net store openings number is now at 751, and a net growth of over two stores per day.

This momentum along with our same-store sales helped us deliver 19% adjusted EPS growth despite the effect of foreign-exchange headwinds from the strong dollar.

Domestically, we now have had 16 consecutive quarters of positive same-store sales.

Our last negative quarter was rolling over 14.3% from the quarter where we launched our New and Inspired pizza.

Our extraordinary streak of positive consecutive quarters in international has now reached a whopping 85.

All in all, we are very pleased with the start to 2015 and the fact that our story of strong fundamentals and sustained performance continues.

Looking specifically at a first-quarter domestic business, I am incredibly proud of our 14.5% same-store sales comp.

We are accomplishing this by building brand equity over time through our compelling advertising, innovative technology, strategic menu management, strong operations and, more recently, store reimages.

It has proven to be a winning combination.

One of the things that excites me the most when it comes to our domestic franchisees is the progress we have made and store level profitability.

The results are now in on 2014 franchise profitability.

It was a record-setting year with a domestic average of approximately $89,000 in EBITDA per store.

Our work here is not done, and we will continue to keep this top of mind in everything we do, but I am very pleased this continues to trend up to even higher levels.

And even with franchisee's investing in reimaging in the new Pizza Theater look they are continuing to build the stores and drive domestic store growth momentum.

Wrapping up in our domestic business, I think about our current ad campaign, where we rather ceremoniously dropped pizza from our name as one that presents the state of our brand extremely well.

We are more than just pizza, and that goes well beyond product and menu offerings and into the overall experience that continues to connect customers with our brand.

One of those connection points is certainly technology and our leadership position of unmatched innovation continues to evolve the brand and revolutionize the Domino's customer experience.

About 50% of our sales in the US now come via digital ordering channels.

Our approach continues to shape this new tech to table category, and our innovation won't slow down anytime soon.

We recently unveiled three highly innovative new ordering platforms, Pebble and Android Wear smartwatches as well as the ability to now order on the smart TV through our partnership with Samsung.

So in addition to being more than just pizza, on the technology front we are proud to say we are clearly now more than just mobile, whether it be smartwatches, smart TVs, or voice-enabled platforms such as Ford Sync and Dom, our virtual ordering system, we are fulfilling our goal of enabling customers to order from Domino's anytime, anyplace.

These strategic investments in technology have continue to pay off in driving results and increasing shareholder return, and we are committed to these investments and doing what it takes to maintain our position as a technology leader.

On the international front, as Mike mentioned, it was yet another strong quarter.

The business continues to serve as a prime growth driver.

Same-store sales remain very strong and the performance of our publicly traded master franchisees including Domino's Pizza Group, Domino's Pizza Enterprises, and Alsea has been nothing short of terrific.

We have seen great performance from some other standout markets too, notably Turkey, Canada, and Brazil, and we are also pleased with the improving same-store sales in India.

These results certainly demonstrate our continued global success as we have now exceeded 21 consecutive years of quarterly same-store sales growth in international.

We were very pleased with 140 gross store openings in the first quarter as well as market openings in Azerbaijan and Cambodia.

I am very excited about the master franchise leadership in these markets and their enthusiasm about introducing the Domino's brand to local customers for the first time.

We also continue to pursue a common point-of-sale platform in our international stores with about 60% of stores outside the US now using Domino's PULSE.

It is a great example of sharing best practices with our master franchisee partners.

We look forward to the operations management digital tool that Domino's PULSE offers being utilized by stores across the globe, just as they have in the US.

While there are many international markets leveraging digital in impressive fashion, there are still plenty of markets that have yet to launch online ordering and have tremendous digital opportunity.

Even with this, we continue to average about 40% of digital sales in our channels in international markets.

We continue to collaborate and share best practices around the world to help more markets reach their full digital capability.

Wrapping up my commentary on the first quarter, our fundamental strength and continued momentum paved the way for a very strong start to 2015.

I am encouraged by our franchisee profitability and the US improvements in job growth and employment, something that, as I have previously noted, correlates to more pizza orders.

I am encouraged by our undeniable position as a technology leader and digital innovator.

I am encouraged by the repeated success of our international business.

And beyond metrics and figures, I am both encouraged and inspired by the Domino's global team and how we have begun yet another year with passion, energy, and results.

Thanks for your time.

I will now open up for questions.

(Operator Instructions) Karen Holthouse with Goldman Sachs.

Congratulations on a great quarter.

Looking out as you go from here in the year, what are your thoughts as you are looking at your company stores and then franchisees on the wage environment and minimum-wage increases in some states, other signs that wages are coming up, and plans to help manage through that, help your franchisees manage through that, what are the opportunities to offset it?

It's very manageable.

When you are generating this level of top-line growth, we are very comfortable with the environment.

We certainly -- it's something that we can manage through.

Minimum-wage is a starting wage.

And frankly, the vast majority of the team members in our corporate stores and our franchise stores are delivery drivers.

And delivery drivers with tips are making substantially more than the minimum wage.

So, we are actually very comfortable that we are going to be able to manage in this environment.

And then just a quick modeling follow-up -- the change in G&A guidance: how much of that relates to technology spending versus just higher bonus accruals versus something else?

It's a little bit of both.

And it's not a significant change from what was out there before.

It is a little bit higher but it's certainly, as you can see, the variable component which also includes things like advertising contributions and corporate stores is significant.

Great, thank you.

Chris O'Cull with KeyBanc.

Patrick, has your recent advertising campaign resulted in an increased mix for non-pizza items, or is there anything else you can tell us about how guests could use or how you expect guests to use you differently with this campaign, maybe different occasions?

Yes, it absolutely does.

We've done this mix and match promotion that we had out there probably once a year on average, something like that, to remind people of the other product offerings that we have.

And when we do that, it certainly drives mix of other products.

And we saw that again in the first quarter.

What I would say is we are and will continue to be overwhelmingly a pizza company.

It is the majority of what we sell and it's going to continue to be the majority of what we sell.

But we've got great sandwiches and pasta and chicken and other items on the menu and we make sure we remind people of that on an occasional basis.

And it works.

And then I had a question regarding franchise contribution rate to help recover some of the investment in the digital platform.

Has that changed at all or is there any plans for that to change?

The numbers reflected in the first quarter don't reflect a change.

There certainly can be changes going forward.

Okay.

Thanks, guys.

John Glass with Morgan Stanley.

I'm wondering, given the strength in comps, if throughput is now an issue.

In other words, you've got such huge demand and that has been very clear.

Is there a bottleneck in the stores?

Do you have to do things to relieve that bottleneck, or capacity constraints given this level of sales gains?

In the first quarter of the year with a lot of whether knocking around, although I would say the weather was -- even though regionally was pretty tough, it was not an abnormal first quarter for weather.

Certainly, you are going to feel some of that.

And we did a little bit.

Our highest volume stores are getting a little capacity constrained.

And so you are seeing some stores that need to add some new equipment, to add some new ovens.

But I'll tell you that's the highest quality problem you will ever face and certainly something we know how to deal with.

But yes, there are certainly some small percentage of our stores that are seeing volumes now that frankly they were built for when they were built 10 or 15 years ago.

That make sense.

And you talked a lot about, over the last several years, of technology and leader in ordering.

But I'm wondering if there's a way to use technology for the deliveries side as well.

Some restaurants have begun to experiment with Uber or other kind of new technologies on the deliveries side.

Is that an opportunity for you in some respects, or is the delivery driver in that piece of the business sacrosanct and that's not what you look for to gain further efficiency?

We've got the best real-time delivery system around.

And I guess what I'd say is when you think about an Uber or some of the other folks that are coming in, the technology that they are using is terrific.

But at the end of the day they are service companies.

And it's about can you find great people who are motivated?

Can you back them up with great systems that are going to help them be efficient?

We've been doing that and doing that very well for a long time.

And so are there things that we can do that potentially are going to make us more efficient?

Sure.

And it is part of the investment that we make in technology to help our folks be more efficient over time.

But are we going to wind up using somebody else to do it, something like that?

No.

We are plenty busy and plenty efficient with our people and they want to see a Domino's delivery driver showing up looking great, in uniform.

And that's certainly the way that it's going to continue.

Got you.

Thank you.

Alton Stump with Longbow Research.

Of course, great job on the quarter.

Obviously a huge comp, in particular.

Can you talk about the specialty chicken launch, which if I recall was April of last year?

If you are still seeing it benefit to comps year-over-year in the first quarter.

And then as you look out in coming quarters, if you can talk about any sort of new product plans?

Obviously, you probably don't want to get specific but just any color on what you plan to do on the new product front in coming quarters.

Yes.

So specialty chicken did very well for us.

Our chicken mix continues to be higher than it was before we launched specialty chicken.

So at some level is it part of what's contributing to our comp?

Yes, it probably is, though I'd say at this point that that's more at the margin than a big part of it.

And in terms of new products, we absolutely have lots of things in the pipeline that we can turn to.

But I think the overall message, as we've talked about before and certainly as we talked about at our Investor Day in January, we think our discipline around our menu and launching fewer things in a bigger way and doing that very thoughtfully and purposefully so that we are able to execute well in our stores is continuing to be a fundamental strength for us.

And with what we think was, at least from those who have released so far, the best comp in the restaurant industry in the first quarter, we think our approach on this is working awfully well.

Real quick, if I could follow up -- and if I missed this, I apologize.

But I think you guys have talked about 2% to 4% comp growth in the US heading into the year.

Is there any update on that range after, obviously, the huge first quarter?

That's our long-term guidance for you.

14.5% is a little higher than 2% to 4%.

So, yes, we were off the high-end of that for the quarter.

But obviously we are incredibly pleased with the comp in the first quarter.

And I guess what I would say is 2% to 4% is the long-term guidance that we've given but we're awfully pleased to have beaten it by 10% plus.

We're pretty happy with that.

Got it, makes sense.

Thank you.

Jeffrey Bernstein with Barclays.

Great, thank you.

Two questions.

First one, Patrick, thank you for that help on the 14% bigger than 2% to 4%.

That was a very strong result, so congratulations.

We want to be transparent, Jeff.

Thanks.

No, I appreciate all the help I can get.

The first question was on the comp.

We've heard from a lot of people in the industry that the quarter started off heroic and then slowed.

I know you don't give monthly sales but I'm wondering whether you can opine upon what you saw something similar and maybe whether you can make any comment on the broader industry, because I know you talked about the industry maybe growing at 1%.

I'm wondering whether this is a Domino's phenomenon or is all of a sudden just a resurgence across broader pizza segment.

And I have one follow-up.

I think the pizza category is doing a little better than the restaurant category overall.

I think it's up maybe more 2% to 3%.

But there's no question that we are taking share right now with the numbers that we are putting up.

And in terms of within the quarter I am not going to comment on that.

What I would say is what we are seeing is that the employment market looks awfully healthy out there.

And we've said it many times and it continues to be true.

Employed people buy more pizza than unemployed people.

And so when we look at the overall market, the overall restaurant category, we are continuing to see the employment picture looking good.

People are continuing.

Month to month we are continuing to add jobs.

Certainly, we would like to see that a little stronger than we saw it the last month or two.

But the trend is clearly up.

The recovery is continuing.

And we've said often that that correlates to higher pizza category consumption and we are certainly seeing that playing out again.

Got it.

And then just on a balance sheet perspective, Mike, there was no mention of leverage positioning, and, obviously, Domino's being a heavily franchised business that's always a key part to the story.

I just wondering were there any comment in terms of closely monitoring the markets or if you are content with leverage flowing to that four times or below range or how we should think about that over the next 12 months.

As we've said, we are comfortable in the 3% to 6% range.

We are still solidly into that range but we will continue to monitor, and we will continue to evaluate what we think is the best approach for us.

Great, thank you.

Brian Bittner with Oppenheimer & Co.

A follow-up on John's earlier question.

You talked about some stores that are becoming a little bit capacity constraint.

What type of values are those stores doing so we can at least imagine what the upside in the current asset base looks like in the US, potentially?

Well, we've always said we think there are at least 1,000 stores yet to be built in the US.

And as unit economics are continuing to improve, we like the building momentum on that.

I released the final estimate on franchise profitability last year at $89,000 with moderating food cost, as you saw in our corporate store numbers, and with the comp that we put up, clearly first quarter this year was better than first quarter last year as well.

So the cash flow per store continues to go up.

And so, we are feeling pretty good about how that plays through over time.

And from a capacity standpoint it certainly means that as sales go higher there's even more opportunity to continue to build.

So we are feeling good on that front.

I appreciate that.

I should have frame the question differently.

What I'm asking is the actual stores that are seeing some capacity constraints on volumes.

What type of AUV levels are they doing so we can think about what type of AUVs those stores are doing versus the overall portfolio?

Got it.

And if I want to get into giving a specific number on that.

It depends on the store.

We've got stores that are 1,200 square feet, and they are pretty capacity constrained.

If they are doing $30,000, $40,000 a week it's tough to do that out of the small store.

But we've got stores -- I can think of stores on military bases that essentially have two lines, they are effectively double the capacity in a single store.

And they can do substantially more than an average store.

So there's not a single answer that I can give on that.

But what I can tell you is, with the increases in volume we are seeing there are certainly more stores that are falling into the category of being a little capacity constrained and there are really two ways to solve that, either putting more equipment into existing stores or building more stores.

And both of those are relatively straightforward to do and are pretty good for our shareholders.

Okay, thanks on that.

And last question -- you guys obviously have a lot more insight into the business and the trends than we do.

The acceleration in the business to mid-teen comps is obviously incredible.

And I think what I'm really trying to understand better is when you look at your business and you see that inflection, how much of it is due to you truly being at the epicenter of a tightening labor market?

And how much of this is doing what you are doing with the technology things and new products, just thinking about macro versus micro here?

Yes.

If you look at what I said earlier on category growth, that we think category growth is more in the 2% to 3% range, and that includes store growth in that number.

That's not just same-store sales.

We are clearly outperforming the category by a lot right now.

So it is more about things that we are doing in the business.

And I guess I've got to fall back on what I've said before.

It's about just a lot of different things coming together -- getting the food right, having the best franchisees in the business.

And I mean that, we've got terrific franchisees who are leaning into the business right now, they are excited about what's happening, they are staffing up as volumes are growing so they can continue to give great service.

It's about the advertising that has been very effective.

It's about we think some of the best, if not the best use of technology in the category, giving customers a better experience, it's about getting stores reimaged.

I would remind you that's still only 20% to 25% complete in the US.

So it's just a lot of different things that have been coming together that we've been talking about that are really all happening right now.

And that strengthening the brands in the minds of consumers, which is building pretty phenomenal momentum in the business.

Makes sense.

Thanks, Patrick.

Peter Saleh with Telsey Advisory Group.

Great, thanks.

Congrats on the quarter.

I wanted to ask about -- you mentioned the remodels but can you give us an update on the returns that you are seeing on the remodels and then also on the relocations?

How many relocations do you guys expect to do at this point?

And is there any impact when you relocate from maybe a less desirable location to a better location on the carryout business?

So I'll take the last one first.

Yes.

The relocations that are getting done you see a bigger bump on sales and more of that is within carryout.

What you are going to see is it still going to be a minority of the stores that are going to relocate over the course of the next couple of years.

This is primarily going to be about reimages.

And my answer on reimages and the results that we are seeing continue to reflect exactly what we've said in the past, that an individual store getting reimaged -- you will see a very low single digit, a point, two points, maybe three points in lift versus the stores around it when the reimage is done.

What we always have believed and I think what you are seeing play out is that it's really more about the overall brand momentum as you are getting lots of these done and people start rethinking Domino's Pizza, it's really more about overall brand momentum than it is about the specific store that's getting done.

And we are still roughly the two-thirds delivery, one-third carryout business.

And so it makes sense.

Only a third of our customers are walking into the store, maybe.

If you take a little bit lower, so maybe 35% or 40% of orders, you are going to have less of an immediate impact on comps sales from a reimage in a specific store.

But given what we are doing with the overall business and the brand and technology and the food quality and service, everything that we are doing, we can't have stores that don't reflect our overall brand image.

And we think it adds to the momentum of the brand.

So that's what we are seeing.

The individual store reimaging don't produce that they gave bump in the near-term, but we do think it's part of what's feeding into the overall brand momentum.

Got it, great.

And then on pricing or menu pricing, I know lots of the other restaurants have talked about higher pricing than historical, at least for this year.

How are you and the franchisees thinking about pricing in the environment where you've got commodities actually coming down but you're probably seeing some labor pressure as well?

I think the answer is really in the profits that you are seeing in the stores.

They had record profitability last year.

They did that in an environment where commodities were up pretty dramatically.

Now that commodities are easing you are seeing that play through in even better profitability.

And our system, our franchisees were exceptionally disciplined last year; when commodities were up a lot they decided that the long-term benefit of the customers feeling good about the value they are getting was more important than simply covering a little bit of short term pressure from a cost standpoint.

And this year that's going back the other way.

So any pressure that you see on wages, which again for us is reasonably minimal because most of our people are tipped and are making far more than the starting wage, you are seeing a lot of discipline in our system.

But they are benefiting now as commodities have gone little bit lower and it's playing back, ultimately to discipline around doing what the consumer needs, what our customers need to continue to give us more of their business.

Great, thank you very much.

Joseph Buckley with Bank of America.

Thank you, good morning.

Patrick, you mentioned the tip aspect of the drivers a few times.

The drivers -- are they paid a tip credit wage or are they paid at least the minimum wage and then tips on top of that?

It depends on the franchisee.

So remember, over 90% of our stores in the US are owned by franchisees.

They control that.

What I can tell you is it is all over the board and it's really market dependent.

So there are places where people could pay tip credit and they are not, there are places where they are paying above the starting wage, there are places where people are paying out of the tip credit.

But you pay for what you need to pay to have good people in the stores and be staffed.

But what remains true is that with tips our drivers are certainly making, on average, $10 plus and probably substantially more than that as you look across the country.

So they are doing well.

And so it's really more about market demand for labor than it is about the starting wage.

And in the Company stores is it a tip credit wage?

That varies also by market.

There are some markets where we are doing that.

There are some markets where we aren't.

There are also some markets where we can't, where tip that it wage is not available and you pay the same minimum as non-tipped employees.

Okay.

And then just another question on consumer activity.

Obviously, your comp is not reflecting the macro.

But the macro may be a small part of it.

But are you seeing customers willing to spend more?

Is the mix going up, or are add-on items going up?

Are you seeing the customers willing to spend a little bit more aggressively?

Not particularly.

We have been asked the question before on gas prices going down.

We just don't think that's a particularly big factor in consumer spending right now.

You have certainly seen the same data that we have that savings rate may have even gone up a little bit in the last three or six months.

So I don't think that's really playing in and we are not seeing that.

Mike mentioned in his prepared remarks that this was overwhelmingly about order growth for us.

But our ticket was up a little bit, though I'm would remind you that ticket is both a function of price and what they are buying and kind of the basket of products that are in the order.

But no, I wouldn't say that we are seeing a particular change in customers' willingness and ability to pay more.

And people are remaining disciplined, coming out of crisis now five, six, seven years ago, customers are smarter, they are remaining disciplined, they continue to want value, which is a function of both the quality of the food and the quality of the service as well as the price.

And I've not seeing a dramatic change there.

Okay, thank you.

John Ivankoe with JPMorgan.

Congratulations, obviously -- very exceptional.

I did want to talk about the restaurant modernization and I guess maybe more specifically the Pizza Theater in terms of what some initial experience has been in terms of sales lift, how far along you are with that in terms of the overall program, if the costs are where you want.

And I think a theme that has been discussed a lot on this call is whether that can actually start to push business two things like lunch and earlier in the week and what have you, where I think most Domino's stores would in fact have capacity if they don't have capacity on a Friday or Saturday night, for example.

Right.

John, I think the broad answer is that we have always been very, very good at delivery.

We haven't been particularly differentiated on carryout and experience that the customer has in our store.

And so getting that right starts with having a good environment for the customers and, I would add, importantly, for the team members.

Our team members prefer to work in these new stores.

And so it helps us get better people.

It helps us be staffed in the stores.

And it's relatively early in this process.

We still are only 20% or 25% reimaged in the US.

We are moving very quickly on that.

There's numbers are going to continue to go up very quickly over the course of this year and next year, and really until the end of 2017.

It's probably too early to say that there are dramatic shifts in dayparts and mix and that sort of thing.

But what I would say is having a great environment for customers in our stores certainly gives us far more opportunity looking forward to do something that's differentiated for our carryout customers, as well.

And it's certainly something that we are looking at.

We are excited about the prospect of getting better there.

But this is foundational.

They've got to look good first.

If I may, obviously there's a lot of attention, probably even more so in the investment community then maybe even the consumer, but certainly a lot of attention in both places around this personally made, what I'm going to call it Neapolitan style pizza.

Do you want to have the Pizza Theater in place before you start looking into a segment like that?

Or does a segment like that make sense for Domino's?

Or could you even basically serve the customer or serve that demand within your existing format?

Yes, so if you look at some of what people are calling the fast casual players, it's about food quality, it's about the environment, it's about open kitchen, it's still about giving speed of service.

We think we are doing all of those things and doing it better than most.

As you get into the specifics of your question, which is really around the product itself, and maybe a wood-fired oven, a thinner crust, that sort of thing -- I don't think you are going to see us doing that.

But certainly having all of the rest of the things in place, we are going to watch.

You are not going to see us bringing lumber into the stores soon to start cooking the pizzas.

That just isn't going to work with our model.

I think we know you wouldn't, Patrick.

But it does give us an opportunity to look at things.

So I don't think you are going to see us go all the way over there.

But it does give us an opportunity as we are showcasing the food to look at how we drive that even more strongly.

Thank you.

There are no further questions in queue at this time.

Presenters, are there any closing remarks?

No.

I just want to thank everybody for getting on the call.

I know it is a very busy earnings season right now, and I look forward to talking to you again as we discuss our second quarter earnings on July 16.

This does conclude today's conference call.

You may now disconnect.