達美樂 (DPZ) 2015 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Domino's Pizza Q4 and year-end 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).

I will now turn the call over to Miss Lynn Liddle.

Please go ahead.

Thanks, Dennis, and good morning everyone.

We're coming to you from beautiful snowy Ann Arbor, Michigan.

We made it through a snowstorm to be here with you today to announce our year-end 2015 results, and we are very happy to be here.

I'll remind investors or all the folks on the call that this is for investors primarily, so I'll kindly ask that members of the press to be in a listen-only mode, and also turn your attention to our Safe Harbor statement that is in the press release and the 10-K in the event we say something that we shouldn't say that is forward-looking.

We are going to follow our usual procedure of prepared comments from our CFO and CEO, and then we'll open it up for your questions.

So, as we begin, I would like to introduce Jeff Lawrence, our Chief Financial Officer.

Thank you, Lynn, and good morning everyone.

We are thrilled to report our results this morning for the fourth quarter and full year 2015.

During the quarter, we continued to build on the positive results we posted during the first three quarters of the year and we delivered fantastic results for our shareholders.

Our international and domestic divisions posted strong same-store sales growth, we opened a significant number of new stores, both domestically and internationally, and adjusted EPS grew 26.4% over the prior-year quarter.

Before we jump into the numbers, I would like to first remind everyone once again that our fourth quarter included an extra week this year.

Typically, our year consists of three 12-week quarters and a 16-week fourth quarter, but in 2015, our fourth quarter consists of 17 weeks.

Additionally, we also completed our recapitalization during the fourth quarter, which also impacted our as-reported amounts.

In the earnings release we filed this morning, the impact of both of these items has been adjusted out of our 2015 results as items affecting comparability.

With that in mind, let's jump into results.

Global retail sales, which are the total retail sales at franchise and Company-owned stores worldwide, grew 17.6% in the quarter.

Again, these numbers were benefited by the extra week.

When we exclude the adverse impact of foreign currency, which was a headwind for us all year, global retail sales grew by 25.2%.

The drivers of this retail sales growth included strong domestic same-store sales, which rose by 10.7% in the quarter.

Broken down, our US franchise business was up 10.7% while our corporate stores were up 10%.

Both of these comp increases, which are not affected by the extra week, were driven primarily by traffic or order count growth.

We also saw some ticket growth during the quarter.

What's even more impressive is that this 10.7% increase was lapping an 11.1% increase in the prior-year quarter, a double-digit on a double-digit.

We are also very pleased to report that we opened 88 net domestic stores in the fourth quarter consisting of 92 store openings and four closures.

For the full year, we opened 133 net domestic stores.

This net domestic store growth is the highest number of openings we've had in 15 years.

Our international division had another strong quarter as same-store sales there grew 8.6%, lapping a prior-year quarter increase of 6.1%.

This marked the 88th consecutive quarter or 22nd year of positive same-store sales growth for our international business.

Our international division added 323 stores during Q4 comprised of 348 store openings and 25 closures.

For the full year 2015, we had record international growth of 768 net new stores.

When adding in the domestic store growth, we opened 901 net new stores globally, which is the most store growth we've had since the brand was rapidly expanding back in the 1980s.

Turning to revenues, total revenues were up $98.2 million or 15.3% from the prior year.

This increase was primarily a result of four factors.

First, the extra week increased revenues by an estimated $49.7 million.

Second, higher supply chain fed our revenues, which were driven by higher food volumes related to strong US comps, as well as increased sales of equipment to stores in connection with our global store reimaging program.

These supply-chain increases were partially offset by lower commodity prices.

Third, higher domestic same-store sales and store count growth resulted in increased royalties from our franchise stores and higher revenues at our Company-owned stores.

And last but not least, higher international royalties, again from increased same-store sales and store count growth, which were partially offset by the negative impact of foreign currency exchange rates.

Currency exchange rates negatively impacted us this quarter by $6.4 million versus the prior-year quarter, due to the dollar strengthened against most of our currencies.

For the full fiscal year 2015, foreign currency negatively impacted revenues by $19.9 million.

Now, moving on to operating margin, as a percentage of revenues, consolidated operating margin for the quarter increased to 31.2% from 29.5% in the prior-year quarter.

Operating margins benefited overall from lower commodity costs in the quarter and higher sales in all of our business segments.

Looking specifically at Company-owned stores, operating margin there increased to 26.5% from 23.2%, driven primarily by lower food costs and to a lesser extent the leveraging impact gain from higher store sales.

The supply chain operating margin also increased, this time to 10.8% from 10.1% due primarily to lower commodity costs offset in part by higher labor costs.

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 percent of revenues.

The average cheese block price in the fourth quarter was $1.63 per pound versus $2.11 in the same period last year.

This helped drive down our overall market basket by 7.1% as compared to the prior-year quarter.

Let's now shift to general and administrative expense.

G&A increased by $6.3 million in the fourth quarter versus the prior-year quarter due to several factors.

First, we estimate that $4.7 million of these G&A expenses were incurred as a result of the extra week in the quarter.

Next, our planned investments in our team, primarily in eCommerce, international and technology, also contributed to this increase.

Third, our robust sales and earnings led to increases in volume driven expenses such as variable performance based compensation and franchisee incentives.

And finally, these increases were offset in part by the non-recurrence of a $5.8 million asset impairment charge we took back in 2014.

Moving down the income statement, net interest expense increased by $13.6 million in the fourth quarter and by $12.5 million for the full year, primarily as a result of increased net debt from our 2015 recapitalization.

Switching to income taxes, our reported effective tax rate was 36% for the quarter and 37% for the full year.

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

Our fourth-quarter net income was up $14.7 million, or 30.7%.

When you exclude the estimated impact of the extra week, the 2015 recapitalization expenses, and the 2014 asset impairment charges, all of which are identified as items affecting comparability in our earnings release, the net increase in net income was primarily driven by higher domestic and international comps, global store growth, and strong supply-chain volumes.

Our improved operating results were partially offset by the FX headwinds I mentioned just a moment ago.

Our fourth-quarter diluted EPS as reported was $1.18 versus $0.85 last year, which was a 39% increase.

Our fourth-quarter diluted EPS, as adjusted for the items affecting comparability that I just mentioned, was $1.15 versus $0.91 in the fourth quarter of 2014, which was a 26.4% increase.

Here is how that increase in diluted EPS as adjusted breaks down.

Foreign currency exchange rates negatively impacted us by $0.045.

Our higher interest expense primarily as a result of our higher debt balance negatively impacted us by $0.05.

Our lower effective tax rate benefited us by $0.015, and lower diluted share counts benefited us by $0.07.

But most importantly, our improved operating results benefited us by $0.25.

For those of you looking for a 17-week EPS number without the recapitalization, you would take our as adjusted diluted EPS amount of $1.15 for the quarter and add back an estimated $0.12 for the impact of extra week.

Now, turning to our use of cash, over the course of the year, we had total share repurchases of $738.6 million.

Of this amount, we repurchased and retired approximately 1.3 million shares for $138.6 million or an average price of $107.08 per share through our open market share repurchase program in the first three quarters of the year.

Separately, in the fourth quarter, we received and retired approximately 4.9 million shares in connection with our previously announced $600 million accelerated share repurchase program.

At final settlement of the ASR program, which will be completed and recorded by the end of the first quarter of 2016, the Company will likely receive and retire additional shares.

We also used cash to repay $564 million of our debt during the year, primarily related to the $551 million partial repayment of our 2012 notes in connection with our recapitalization.

Separately, we returned over $80 million to our shareholders in quarterly dividends.

When you add the share repurchases and the quarterly dividends together, the end result is that we returned more than $800 million to shareholders during 2015.

Moving to capital expenditures, we invested approximately $63 million in CapEx in 2015, primarily in our stores, our supply-chain centers and our most important technology initiatives.

As we look forward to 2016, I'd like to remind you of some information we shared at our investor day in January.

We currently project that commodities we use in our US system will be flat to up 2% as compared to 2015 levels.

We estimate that foreign currency could have an $8 million to $12 million negative year-over-year impact on pretax earnings in 2016.

For G&A, we expect to have increases for eCommerce and technological initiatives, which remember are partially offset by transaction fees we receive.

We also plan to have increases for other strategic initiatives.

We expect total G&A expense to be in the range of $290 million to $295 million for full-year 2016.

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

In 2016, we expect gross capital spending to be approximately $60 million as we will continue to invest in improving our image, our technology and our supply-chain capabilities.

Overall, we are pleased with the results we achieved in 2015 and remain very excited about our continued growth prospects.

We do not take these results for granted and are committed to continuing to drive the brand forward with a focus on relentlessly increasing sales and unit economics for our franchisees and driving continued growth and shareholder value.

Thank you for your time today.

And with that, I'd like to turn it back over to Patrick.

Thanks Jeff.

So, that was an outstanding year.

If there is one question I continue to get from the many who have become interested in us in recent years, it's about the cause of our success and what catalyst or event we can point to to explain it.

We welcome the question because, truthfully, it allows us the opportunity to take people through this multi-layered story.

Our success didn't happen overnight and was certainly not due to the push of one button or the pursuit of a single element.

It's been the result of a steady build over time and we are extremely pleased with the results those efforts are producing.

From our landmark US pizza turnaround six years ago to our accountable, honest, and transparent marketing and communication with consumers, to our unmatched innovation as a clear technology leader, and more recently the overhaul and redesign of our store image worldwide, we have truly taken a brand that once stood for delivery convenience and, frankly, little else, to one that now stands for so much more.

There are two critical elements to our steady strategy -- continuous focus on improvement and big, bold ideas.

In any competitive landscape, the team with momentum and operational excellence can be very difficult to stop.

And as we sit today, it's nearly impossible to argue against Domino's proven strengths in both of these areas.

This approach helped produce an incredible 2015.

And beyond just numbers and results, I am encouraged by the winning attitude and culture throughout our team and franchisee base globally, along with our relentless focus on avoiding complacency.

You won't find us spending any time marveling at our past success.

Instead, we look ahead and focus on whatever it takes to always get better.

Nothing has brought this idea to life quite like our domestic business, where our performance in 2015 was just tremendous.

From an execution and energy standpoint, our US franchisees had what I would consider their best year in our Company's 55-year history.

We delivered 12% same-store sales growth domestically for the year, and have now racked up seven straight years of positive sales growth in the US.

We achieved another record year of franchise profitability at an average of more than $120,000 per store.

This level of health in our franchisees' unit economics is very much a result of their hard work, passion, and energy.

Our domestic franchisees are making more money than at any time in our history, and that is helping to open even more stores.

It's a positive cycle and the momentum certainly continued in 2015.

We are also proud of our accomplishment of reimaging half of our US stores by the end of 2015.

Store reimage is all about providing a welcoming atmosphere and customer experience upgrade, and I am very pleased with the dedication, focus and progress our franchisees have demonstrated towards this goal while continuing to execute at extremely high levels and not lose focus on the business at hand.

Our loyalty program which was launched during the fourth quarter has produced encouraging early results, feedback, and engagement from our digital customers.

This introduction had a positive impact on the fourth quarter, and we look forward to continuing to introduce it to our growing digital audience and learning more along the way.

It was a great year on the supply-chain side as our team did a great job of reacting to the significant volume growth in 2015.

As we look forward the next few years, it's clear we will need to invest to expand our supply-chain capacity to continue to support growth throughout our system.

I also want to note that because of the generosity of our customers, as well as hard work from dedicated franchisees and store members, we were able to set yet another record in raising $5.4 million for St.

Jude Children's Research Hospital.

One of my favorite moments of 2015 was having the privilege of cutting the ribbon on the Domino's Event Center, a beautiful addition to the St.

Jude campus in Memphis.

We continue to be extremely proud of this partnership and the over $30 million we have helped raise since the partnership began in 2004.

It's impossible to highlight our thriving business without discussing technology.

We ended 2015 with over 50% digital sales in the US, and for the first time in our history, more than half of our national television campaign topics were directly related to digital initiatives.

Technology is now simply part of our brand fabric and identity.

We promoted voice ordering, loyalty and, most notably, our 15 ordering platforms that now include text and Twitter, be it emoji, Samsung TV, Ford SYNC and smart watches.

Just last week, we announced that customers can now order on their Apple Watch.

Time will tell what is next.

We also continue to grow our digital presence within international markets, helped by the increasing adoption of our Pulse point-of-sale system and the growing opportunity of global online ordering which is currently active in 12 markets.

I am encouraged that this will help our franchisees abroad compete better and grow faster.

Nearly 45% of our international sales now come from digital channels, with some areas of the world exceeding the 70% mark.

And we're pleased to see more markets developing this capability.

But innovation requires investment and I want to take the opportunity today to make an important point in this regard.

Digital is having a tremendous impact on our performance.

We aren't willing to give up our lead or the unparalleled digital experience we offer customers when it only seems to be getting better.

Therefore, we will continue to invest as long as we keep seeing these strong returns.

Keep in mind as well that we receive a transaction fee for every digital ordered in the US, and those international markets using our platform, and it's a win-win for our system.

Franchisees get the best digital experience in QSR quite affordably, and we benefit from some offset to our investment.

The paradigm has changed dramatically and it's our job to be mindful, as always, of investing wisely while refusing to let go of our lead.

And speaking of staying on top, the best international model in QSR continued its phenomenal run in 2015.

We have now reached a rather unbelievable streak, 22 consecutive years of positive same-store sales.

With strong sales and another terrific year of rapid store growth, the business continued to grow and our master franchisees performed at the highest of levels.

We opened six new markets in 2015 -- Azerbaijan, Cambodia, Georgia, Portugal, Belarus, and the birthplace of pizza, Italy.

And we once again saw outstanding sales performances from countries such as Australia, the UK, Mexico and Canada.

We added 901 net new stores globally last year, reaching 12,530 stores worldwide.

India was our biggest store growth champion for 2015 adding 159 net new stores and recently hitting the 1,000th store milestone, the first market outside of the US to do so.

As of the fourth quarter, we had 3,800 international stores reimaged.

Around the globe, store returns are driving an accelerated pace of store growth and reinvestment and attracting competitive pizza brands to convert to Domino's.

In addition to brand conversions in South Africa and France, we recently announced a conversion in Germany and are looking forward to the energy and potential that our master franchisees Domino's Pizza Enterprises and Domino's Pizza Group will together bring to that important market.

And lastly, we recognized some milestone anniversaries as both Japan and the UK celebrated their 30th year in business.

I couldn't be more pleased with the strength and steadiness of our international business despite a tough economic landscape in many international markets.

It's truly a tribute to a great team and fantastic group of master franchisees.

In summary, I can't say enough about how pleased I am with our 2015 performance.

The momentum behind this brand is tremendous.

We know our identity.

We pursue innovation relentlessly.

We genuinely even in the face of great success look for ways to be better.

We are big and bold with our ideas.

We would rather risk and fail than not risk at all.

We are honest and accountable.

This identity exists because we have a franchise base that is second to none, both in the US and abroad, getting it done each and every day.

Thanks and I will now open it up for questions.

(Operator Instructions).

Brian Bittner, Oppenheimer.

This is Mike [Tamas] on for Brian.

Obviously congratulations, great comps and great end to the year.

Just wondering, how do you think about the business as you look towards 2016 and the comps?

Should we be thinking about this on a two- and a three-year comp basis?

What's the best way to think about that?

And then sort of tying in, you mentioned the loyalty program helped the fourth quarter a little bit.

So anything else you can talk on there?

Is there some sort of big bump early on that sort of gets a little bit more normalized as we move out several months into the year out from the launch?

Anything you could provide there would be helpful.

Thank you.

So, first, I'll take the answer on loyalty.

We feel good about the start on loyalty.

It is still going to be some time I think before we really see the full impact of that and understand how it's affecting customer behavior.

You need to see a number of cycles of customer repurchase I think before you fully understand it.

But clearly we are happy with the start.

Our long-term guidance is 2% to 5% domestically.

And clearly, we've been performing above that level.

But as we look at our business, we think that, over the medium to long-term, that's the right answer for you as you think about the business.

Certainly looking at two or three year comps makes sense.

And so I think most of you are doing that in your analysis on the business.

There's always going to be some movement quarter to quarter, but clearly we are pretty pleased with our results both on a one-year and a multiple-year basis.

Good.

Thank you.

John Glass, Morgan Stanley.

Just first on the loyalty program, I don't think you'll probably give us a sense of how much it contributed to the comp, but I thought I would ask.

Then maybe just membership, what's the rate of sign-up versus your expectations or can you give us sort of a sense of how well embraced it's been so far, what you need to do if it needs to grow further, how you will incent people to sign up?

We're off to a strong start with it.

And you guessed correctly.

We are not going to give kind of specifics around it.

And honestly, it is going to take some time for us to really understand that.

As I said, until you've seen multiple repurchase cycles, you are not able to really be able to project how it's affecting frequency.

But we are very happy with how it's rolled out.

We are getting very good feedback from the customers.

If you look at kind of the reviews that it's getting, it's been very well accepted by consumers.

We are not going to disclose kind of the enrollment numbers, but clearly we feel good about how it has launched and about the feedback that we are getting from customers on it.

That's helpful.

On the unit growth, I think, in the last couple or three years, you've gone from essentially 0% in the US on a net basis to like 3%.

If that's correct, is that the right way to think about 2016 and 2017?

Have you talked to your franchisees and is there an aggregate number that maybe is higher than that, and maybe what is that?

And related to that, delivery businesses are unique in that you can't just open a store unless you -- you have to sort of consider impact.

Has there been any discussion in the franchisee base about getting impacted on delivery areas or have you been able to negotiate that pretty well?

So, we've got the right with our franchisees to look at delivery areas.

There is an area that is assigned to them, but there is a smaller area that is protected for them under their 10-year contract.

As we look at the business, and the growth we've had in the business and the returns that are getting generated at the store level, it has clearly helped accelerate the store growth.

And we still see 1,000 plus stores that can be built in the US.

The ramp up in growth is a reflection of the growth in the business and the great returns that our franchisees are getting by investing in building new stores.

We are getting strong returns from those new stores as they're opening.

So I think you are seeing growing excitement from the system about expanding the system in the US.

So we feel good about where we are.

And you've probably heard me say many times that while there are many in the industry that put out a lot of press releases around contracts that are being signed, about how many stores are going to be built, particularly as they are going into new markets, we largely just don't do that because our view is that the franchisees are smart, and when they are seeing strong returns, they're going to build more stores.

Stores get built because capital moves towards where there is a strong return, and there is a very strong return on building Domino's Pizza stores right now in the US.

And in the vast majority of our international markets, that's ultimately what's accelerating the unit growth.

Over time, our view is kind of 5% to 7% growth overall on our global store counts, and we think that's a very realistic view of what you should expect from us.

But that target does not necessarily pertain to the US, or what is that target in the US then?

That's a combined growth for both.

Okay.

So, that's a full up domestic and global -- and international store level growth is 5% to 7% range.

It has clearly been predominantly international over the last few years, but it has been our expectation that, as we improved the returns, that you were going to see more of that shifting into the US.

And so I feel good about the momentum we've got in the US.

I feel great about the store level returns.

And so that 1,000 more stores that I'm talking about in the US I think is very realistic.

Thank you.

Karen Holthouse, Goldman Sachs.

Thank you for taking the question and congratulations on a fantastic quarter to say the least.

Looking at the fourth quarter, we've I think historically thought of the category or the pizza category as something that benefits from inclement -- actually benefits from inclement weather.

Was there any sense that a relatively mild start to winter may have been a tailwind?

May have been a tailwind?

It would actually be the other way around.

I'm sorry, been a headwind, sorry.

Yes, been a headwind?

I think our answer on this is, as we've looked at it over time, bad weather, as long as it's not too bad, is a net positive for the business in the near term.

But the real answer is that with the variety of weather of the different geographies that we are operating in, when you're looking at a full quarter of results, we just don't think it is really that material of an effect.

So could it have been a little bit of a headwind for us?

Maybe, but not enough that it really materially affects the results.

And then one other quick one.

It's obviously pretty hard to find a hole to pick in a 10.7% comp.

But within that, were there any just regions in the US that were particularly strong or particularly -- or were underperformers?

No.

There really weren't.

It was very broad-based.

Great.

Thank you.

Alton Stump, Longbow Research.

Good morning, and I offer my congrats as well on a great quarter.

I guess looking back at the US store growth, I was surprised how much growth you end up having for the full year.

Are there any certain regions, Patrick, that like you are seeing the strongest growth here in the US?

I think it's pretty broad-based.

There are still areas of the country where we are somewhat less penetrated than others.

Interestingly enough, probably the area where we have the most opportunity still to grow over time is actually the Midwest, where we are based.

But really when we look around the country, there is an awful lot of kind of fill in growth that you're going to be seeing.

So there aren't many markets where we don't have a good base to grow from.

So, as we kind of prioritize markets around the country for growth, an awful lot of it is a dozen stores here, a dozen stores there.

If there's any concentration left today that I think geographically looks like there will be a little bit more than other areas, it's probably in the Midwest.

Got you.

And one quick follow-up and I'll hop back in the queue.

There's been a lot of hype, some of it media driven recently, about a supposed price war in the US pizza category.

It would seem that you guys are not responding to that or maybe not even seeing it.

Any color on sort of what you're seeing not just from a major player that has been out there with some pretty aggressive ideals, but even smaller players, are they using lower cheese costs to discount more heavily, just kind of raw competitive environment you are seeing.

Honestly, we are really not seeing it.

Clearly, our results were strong, and so if we saw it, we didn't feel it.

But if you look at the category over the last few years, first of all, Domino's has had the same national price point now for six or seven years.

You guys have seen ticket in the category probably growing a couple of points a year pretty consistently over the last five or six years, so 1% to 2%, in that range.

And so I've seen the same discussion about it but honestly overall, we just aren't seeing it, and it clearly has not been affecting our business.

Got it.

Thank you.

Steve Anderson, Maxim.

Good morning.

I wanted to ask about something that ties up in the last couple of conference calls and it's regarding your insurance costs.

I know you had to increase your costs with regard to a couple of incidents that occurred during the year.

I just want to see if those trends had normalized during the quarter.

This is Jeff.

On our casualty insurance, as you know, we took kind that unexpected charge in Quarter 3. At the time, we said we were going to make sure we are doubling down on our safety efforts and making sure that we manage it the best way we can.

It's only one more quarter on the books, but we didn't have an unexpected headwind or a tailwind on insurance from a casualty perspective during the quarter.

And as we get into 2016, the expectation, at least for management, is hopefully we can make an impact by managing it better and kind of getting back to that normal run rate.

So the Q3 charge we did think was certainly out of the ordinary for us, at least given our history, but for us, it's all about making sure we are managing it the best way we can, and that will be our focus going forward.

Thank you.

Peter Saleh, BTIG.

Thanks and congrats on the quarter.

I wanted to ask about the mix and match menu.

Just curious.

Given all -- I know you guys said you didn't see any real impact from the discounting going on, but did you see at all the incidences of the mix and match, and have customers gravitated a little bit more towards that in the recent past?

I think the way to think about it is, first, the overwhelming majority of our sales are pizza and are always going to be pizza.

We've got great other products on our menu, and we want people to be aware of those, and particularly we want people to be aware of those when they are ordering in larger groups.

And so there is always, in a group of four or six or eight people, there's going to be somebody who may not be as interested in ordering pizza, and if they don't know about the options that Domino's has, we may lose that whole order.

So when we advertise mix-and-match, we will get a little bit of a bump in those other products in the near term.

But as much as anything, it's about driving awareness of those products over the long term so that people know there are some other choices.

And as much as anything, that's about making sure that we are an option for larger groups that know that there are things they can order beyond just the pizza.

Got it.

And then on the loyalty program, just circling back, did the pizza profile, did that help with the enrollment in the quarter for the loyalty program?

Absolutely it did, yes.

And the profiles that we've got now and the information that we have with our customer base is a very strong benefit for us, and it's what allows us to be rolling out the platforms that we are as quickly as we are for digital ordering.

It gives us a real leg up when we roll out something like the loyalty program that we already have a strong profile on the customer and their information.

And really signing up for loyalty, if you had a profile, was about checking a box and that accomplished it and you were now in the program.

So we look -- as an eCommerce company, we are always looking at conversion rates.

We want to understand of people who are starting the process to order, what percentage of them actually complete the order.

And if you give them something that is too complicated along the way, like a long enrollment for the loyalty program, you may actually hurt your sales in the near term.

So the fact that we already have a lot of information made that sign-up easier, and it absolutely helps.

Got it.

And then the last question, can you guys give us an update on the franchisee EBITDA at the end of 2015?

I don't know if you guys called that out in the call.

I may have missed it.

What was the final number?

We don't have the final final, but it is north of $120,000.

Excellent.

Thank you very much and congrats on the quarter.

John Ivankoe, JPMorgan.

My congratulations as well, obviously tremendous.

On the supply chain piece, that segment, at least from our perspective, has become increasingly difficult to model, and you had a completely blowout fourth quarter.

Could you help us separate how much of that is -- and I think we understand store growth and comp, but how much of that was due to equipment sales related to the remodels and whether there was any lumpiness in the fourth quarter that may not recur -- or maybe will occur into 2016 and beyond?

So, when you think about supply-chain, the first thing you have to remember is that as cheese and other commodity prices go up and down, it's really going to mess with your percentage margin comparison.

So that's first and foremost.

When you think about dollars, margin in 2014, about $131 million, $149 million in 2015, which you can find in the 10-K.

More than anything, this is about selling more food in the stores, which is requiring more food from the supply chain vendors.

There is definitely some leverage that you get from leveraging the existing supply-chain system, but going against that is also, as we have gotten a lot busier, we are working a lot harder to keep up with the growth.

So when we think about profitability there, it's mostly about food volumes that's following the comps in the US.

Separate from that, and you mentioned it, is equipment and supply chain sales to our stores that are reimaging and building stores, both in the US and including some international franchisees who buy their store packages from us as well.

Again, you think about that, we have been accelerating store count growth.

Obviously the reimages are now about half done but not done yet, another couple years to go, so as you think about it going forward, it should be more of the same on balance.

Okay.

And if I may, just to follow-up on that, Patrick, in your comments, you mentioned needing to invest in the supply chain based on how much your volumes have increased.

Could you shed some more light on that?

Does that mean additional distribution centers?

And could you talk about what potential profit impact could be from that?

Yes.

I think the answer is over time we will need to.

And if you look at the growth in our business over the course of the last five or six years, the volumes in total from our system are up in the range of 35%, 40%.

And so at some point, you're going to need to build some more capacity into the system.

It's obviously a great problem.

The way I would kind of think about that is, first, we gave kind of the guidance for this year to you at investor day.

The second thing is that our CapEx into reimaging and relocating our team USA stores, our corporate stores, is actually going to be going down as that reimage program kind of wraps up.

So I don't know that you're going to see a dramatic change in the level of CapEx going forward, but we certainly are going to have to look at ways to increase the capacity in the system to make sure that we are giving great service to our franchisees and their stores.

Thank you.

(Operator Instructions).

Jeffrey Bernstein, Barclays.

Thank you very much.

Two things.

Just one, asking about there's been a lot of questions on the pizza category and the competition and discounting.

If you prune that out a little bit and look maybe at for example quick service and all the burger discounting going on, I am wondering whether theoretically do you think about you perhaps playing in the same sandbox with the QSR players, or do you view pizza as a distinct occasion?

There's no sign of it in the fourth-quarter results.

I'm just wondering how you kind of think about it theoretically and perhaps historically there's more of a tie in to casual dining discounting than quick service, but just wondering how you think about the discounting on either end of the pizza category.

It's a good question because we certainly do look at it.

You're going to have more direct impact from the pizza competitors that we do from burgers or chicken or sandwiches or anywhere else.

And we've told you in the past that's what's interesting about the pizza category is, because it is so unconsolidated, we think we actually feel the effect of competitive activity less than most categories in the restaurant industry.

So, do we look at it?

Absolutely.

And at some point, is there an overall share of stomach question?

I think there is.

But because of the overall size of the restaurant industry and the relative fragmentation of market share within the pizza industry, we just don't feel the effect of any single competitor's movement in price or promotional strategy in a material way on our business in the short-term.

We might feel it a little bit, but it just doesn't have a big material effect on the business.

So we watch it, we are certainly aware of what's going on there, but in terms of short-term impact, it just isn't that big.

Got it.

The one other thing was just on the return of cash.

Obviously, in 2015, it was heavily skewed by the recap and the $600 million ASR.

I'm just wondering as you think now about 2016 and the leverage is already on the books, just wondering how you and the board think about the balance of I guess share repo versus dividend.

It looks like, from a dividend perspective, you made a nice boost, but the yield is somewhat of a modest low 1% range relative to the outsized repo.

So, how do you think about that going forward?

Any reason why the dividend, kind of the regular dividend wouldn't go up just to be commensurate with the stability of the business model?

On the dividend, as we put out this morning, another really big increase year-over-year, a 20% plus increase.

Last year it was more than a 20% increase on the quarterly dividend.

The board has decided again and it's up to them in the future to decide going forward that the quarterly dividend was going to be -- continue to be an important part of how we return free cash to our shareholders.

On the buyback specifically, and as you mentioned, the ASR is winding up, it will be done by the end of Q1 here.

We do have $100 million kind of left over from the recapitalization that we weren't able to efficiently deploy in the ASR or otherwise in Q4.

So, we are starting kind of from a cash flush position as we start the year and you can actually see that on the balance sheet as of the end of Q4.

So how we spend that and how we view that, again, will be determined by the board.

But I think what you've seen from us is if it makes sense, we will pursue buybacks.

If it doesn't make sense, we will go heavier on a dividend.

So it really just depends on what the board is thinking at that point in time.

Understood.

Thank you.

Joe Buckley, Bank of America Merrill Lynch.

Thank you.

Just a couple of questions.

The step up unit growth in the US, is that primarily existing franchisees, or is it a combination of existing and new franchisees?

It's all existing franchisees.

So we are essentially 100% internally grown franchisees.

So our franchisees are successful managers, are supervisors within our system, and then they apply to become a franchisee.

And even those new franchisees coming into the system, I think we had just under 20 last year who franchised, and so those were already people working within Domino's.

Essentially all of them become franchisees the first time by buying a store, not building a store.

So really all of the building of stores is coming from existing franchisees.

Thank you.

And then just a quick question on the economics of the loyalty program.

With food costs down so much, I'm sure I guess (technical difficulty) but as you work through the first full quarter of it, any thoughts on how the economics of it work for the franchisee relative to the discount that the free pizza represents?

I think franchisees are excited about the overall momentum in the business.

They just finished a record year for profits, and I think there's a lot of energy around the loyalty program.

I think, as you know, when you launch loyalty programs, the goal is to make them simple upfront so people can understand the program, and then, over time, you see people maybe tweaking them a little bit as they can see exactly how customers are using the program.

But overall I think our franchisees are excited about the program and hopefully how it's going to affect the business long-term.

Okay.

Thank you.

Steve Anderson, Maxim.

Following up on the question of variability within different markets, I want to turn to international.

Have you seen any discrepancies between -- certainly within the -- the comp number you did was very strong, but have you seen differences between different geographies like Europe versus Asia or India, some of the other geographies where -- I mean I know India had shown some weakness in the economy overall, but you've been able to grow that market as well.

I just wanted to get a little bit more color on each of the individual countries.

Overall, it really has been quite strong and pretty consistent.

You are right on your comment on India.

Certainly the economy there had gone through a little bit of a downturn, but I think the economy is continuing to improve.

We had terrific store growth there last year, maybe not quite as robust same-store sales growth as they had had three or four years ago, but, overall, amongst major markets in our international portfolio, it's been pretty consistently strong.

Thank you.

Greg Badishkanian, Citi.

This is actually Fred Wightman on for Greg.

Just a question on the loyalty program.

One of the other larger QSR loyalty programs recently switched from a frequency to more of a dollar based approach.

Just wondering if you could provide your thoughts on the benefits of the two different styles.

Yes.

We're trying to drive volume in our business.

It's about driving frequency and retention of those customers.

I think it's a fundamental choice that brands need to make on whether or not it's going to be about driving ticket and overall sales versus frequency of the customers.

And we clearly chose that we want to drive order counts within our system.

So, it's a clear choice that you make.

I am aware of the example that you are talking about and the change that they made, and you'd obviously have to talk to them about why the shift in focus on that.

But for us, as low as our market share is overall within the pizza category, we think it makes sense to be focusing primarily on order counts.

(Operator Instructions).

At this time, there are no further questions.

Please continue with any closing remarks.

All right.

Thank you everyone.

I look forward to discussing our 2016 first-quarter earnings with you on April 28.

Ladies and gentlemen, thank you for joining the Domino's Pizza Q4 and year-end 2015 earnings conference call.

You may now disconnect.