達美樂 (DPZ) 2016 Q4 法說會逐字稿

Good afternoon, my name is Jacqueline, and I will be your conference operator today. At this time I would like to welcome everyone to the Domino's fourth quarter and year end 2016 results conference call.

(Operator Instructions)

Thank you, Timothy McIntyre, you may begin your conference.

Thank you, Jacqueline, and good morning, everyone. Thank you for joining our fourth quarter and full year 2016 earnings call. Before we begin, all of us at Domino's Pizza want to join the rest of the investor community in acknowledging the loss of Joe Buckley from Bank of America late last year. Joe was a gentleman and a friend to many of us, and we will miss him.

As you know, this call is primarily for our investor audience, so I kindly ask that all members of the media and others be in a listen only mode. I also refer you to our Safe Harbor statement that is in both this morning's 8K release and our 10K in the event that any forward-looking statements are made. We'd also like to take a moment to acknowledge and welcome Domino's new general counsel, Kevin S. Morris who joined the company on January 2. He's here with us this morning.

Our plan today includes prepared comments from our chief financial officer Jeff Lawrence, and chief executive officer, Patrick Doyle followed by your questions. One minor note, our presenters are normally in the same room when we conduct these calls, but they are in different locations this morning, so it might help if you have a question specifically for Jeff or Patrick to let us know that. And with that, I'll turn it over to Jeff Lawrence.

Thank you, Tim, and good morning, everyone. We are thrilled to report our results for the fourth quarter and full year FY16. During the quarter we continued to build on the positive results we posted during the first three quarters of the year and delivered fantastic results for our shareholders.

We continue to lead the broader restaurant industry with 23 straight quarters of positive US comparable sales and 92 consecutive quarters of positive international comps. We also continue to increase our store count at a record pace as we opened nearly 1300 net new stores in 2016. These factors all contributed to our EPS growing 28.7% over the prior year quarter adjusted EPS.

Before we review more of the numbers, I would like to remind everyone that our fourth quarter results in 2015 included an extra week and the impact of our 2015 recapitalization. Typically our year consists of three 12-week quarters and a 16-week fourth quarter, but the fourth quarter in 2015 consisted of 17 weeks. These items affected the comparability between our 2016 and 2015 financial results and is outlined in more detail in our earnings release filed this morning. With that, let's take a closer look at the financial results for the fourth quarter.

Global retail sales, which are the total retail sales at franchise and Company owned stores worldwide improved 7% in the quarter. When excluding the impact of foreign currency, and the extra week in 2015, global retail sales grew by 18.1%. The drivers included strong domestic same sales which grew by 12.2% in the quarter. Broken down, US franchise business was up 12.1% while our Company owned stores were up 13.7%.

Both of these comp increases were driven by order count or traffic growth as consumers continue to respond very positively to the overall brand experience we offer them. Our piece of the pie loyalty program continues to contribute significantly to our traffic gain while overall ticket decreased slightly during the quarter. It was the third year in a row that our fourth quarter domestic comp increased double digits.

Moving to the unit count front we are pleased to report that we opened 98 net domestic stores in the fourth quarter, consisting of 104 store openings and six closures. For the full year, we opened 171 net domestic stores. Our international division had another solid quarter as same store sales grew 4.3%, lapping a prior year increase of 8.6% and like the US business, driven mostly by traffic. Our international division also added 461 net new stores during Q4 comprised of 487 store openings and 26 closures.

For the full year 2016, we had record international growth of 1110 net new stores which did include 254 store conversions. Our international growth continues to be strong and diversified across markets, driven by outstanding unit level economics. When adding domestic and international store growth together, we opened an all time brand record, 1281 net new stores globally demonstrating the franchisees' excitement and commitment to our global brand.

Turning to revenues, total revenues for the fourth quarter were up $78.3 million or 10.6% from the prior year. When excluding the extra week in 2015, revenues were up 18.5%. This increase was primarily a result of three factors, first, higher supply chain center food volumes driven by strong US comps and store growth. Second, 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 finally, 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 international royalty revenues by versus the prior year quarter due to the dollar strengthening against certain currencies, primarily the British pound. For the full FY16, foreign currency negatively impacted royalty revenues by $8.9 million.

Now, moving onto operating margin, as a percentage of revenues, consolidated operating margin for the quarter was relatively flat at 31.1%. The operating margin in our corporate stores decreased to 24.8% from 26.5% driven primarily by higher food costs, higher transaction related expenses and increased depreciation expense from our pizza theater re-imaging program. Lower insurance expenses benefited the operating margin and partially offset these decreases.

The supply chain operating margin increased to 11.2% from 10.8%. The primary driver of this increase was also lower insurance expenses versus the prior year quarter. Commodity costs decreased slightly this quarter and did not have a material impact on the operating margin. Let's now shift to general and administrative expense.

G&A increased by $11 million in the fourth quarter versus the prior year quarter. Excluding the estimated $4.7 million impact of the extra week in 2015, G&A rose by $15.7 million due primarily to several factors. First, our planned investments in technology primarily in eCommerce and other technological initiatives and the teams that support them. Please note that these investments are partially offset by fees reported as revenues that we received for digital transactions from our franchisees.

Second, our strong performance led to higher performance based compensation expense and third, higher advertising expenses at our Company owned stores which increased as a result of our positive sales growth. Moving down the income statement, interest expense decreased by $6.9 million in the fourth quarter as the prior year quarter included $7.3 million of charges related to our 2015 recapitalization that did not recur in 2016 as well as an extra week of interest.

Our weighted average borrowing rate was 4.6% in the quarter while, our effective reported tax rate was 38% for the quarter. When you add it all up our fourth quarter net income was up $10 million or 15.9% as reported. Our fourth quarter diluted EPS as reported was $1.48 versus as reported EPS of $1.18 dollar the prior year which is a 25.4% increase.

When comparing fourth quarter as reported EPS to the prior year as adjusted EPS amount of $1.15 a share, it was an increase of 28.7%. The fourth quarter of 2015 EPS was adjusted for items affecting comparability, which again is detailed in our earnings release.

Here is how that $0.33 increase breaks down. Lower diluted share count primarily as a result of share repurchases during the year benefited us by $0.12. Our higher interest expense negatively impacted us by $0.03. Our higher effective tax rate negatively impacted us by $0.04. And FX negatively impacted royalty revenues by $0.03.

Most importantly, our improved operating results benefited us by $0.31 which does include $0.02 of a positive impact from the new year's calendar shift. Now turning to our use of cash. First and most importantly, we invested nearly $60 million in capital expenditures for the full year as we continued to aggressively grow our technology capabilities. During the fourth quarter we repurchased and retired 102,000 shares for $16.4 million at an average purchase price of approximately $160 per share.

During the fourth quarter we also returned $18.2 million to our shareholders in the form of our quarterly dividend, and made $9.6 million of required principle payments on our long-term debt. Over the trailing 12 months we returned nearly $375 million to our shareholders in the form of share repurchases and dividends. As always, we will continue to evaluate the most effective and efficient capital structure for our business as well as the best ways to deploy our excess cash to the benefit of our shareholders.

As we look forward to 2017, I'd like to remind you of some information we shared at our investor day just in January. We currently project the commodities we use in you are US system will be flat to up to 2% as compared to 2016 levels. We estimate that foreign currency could have an $8 million to $12 million negative year-over-year impact on royalty revenues in 2017.

For general and administrative expense we expect to increase our investments in eCommerce and technological initiatives which please remember are partially offset by transaction fees we receive. We expect total G&A expense in the range of $340 million to $345 million for 2017. Please do keep in mind that G&A expense can vary up and down by among other things our performance versus our plan as that effects variable performance based compensation expense and other costs.

In 2017, we expect our gross capital spending to be approximately $75 million, as we will continue to invest capital into our technology and our supply chain capabilities. Overall, our tremendous momentum continued, and we are thrilled with our results this quarter and for the full year. We will remain focused on relentlessly driving the brand forward and providing great value to our shareholders.

Thanks again for joining the call today, and with that I will turn it over to Patrick.

Thanks, Jeff. And good morning, everyone. What a year it was. While our results and performance certainly speak for themselves, when I think about 2016, two things absolutely stand out, first, the global alignment around our steady approach based on continued fundamental strengths and our long-term mentality, and second, the relentless energy and passion demonstrated by our franchisees, team members and leadership in once again facing the challenge of sustained success head on.

I am frankly not completely surprised by this when keeping in mind who and what we are, true pizza people with an uncommon passion for what we do. Over 90% of our domestic franchisees started as drivers, pizza makers and hourly workers in our stores. And this home grown culture shapes so much of what we do and how we do it. I'm constantly reminded and always proud to see that complacency just isn't a part of our global culture.

Instead we remain mindful that we are a work in progress brand, and our constant focus on permanent improvements in the customer experience reminds us to never stop working to be better than we were the day before. Those who joined us for our investor day last month heard me talk about how true sustainable competitive advantage takes time.

2016 was an outstanding year, but this is as much -- about much more than just a quarter or a single year time frame. It goes back over a decade, a time period defined by smart disciplined risk, difficult decisions, investing and innovating to win, and always keeping the long-term in mind with every move we've made. It was critical that we think differently about how to have the best food and approach our menu, operations and new product strategy in new and different ways.

It was critical we position ourselves for future technology innovation, which today stands unmatched by anyone in our category. It was critical we take a hard look at our store image and put a defined plan in place to get it right. And it was critical that we establish the strongest, most mutually productive and profitable relationship with our franchisees of anyone in the industry.

While much of this won't show up in headlines or on a press release, these elements have created the foundation and fundamental strength that continues to drive our success. Our domestic franchisee base has never been stronger, and we certainly had a strong finish to 2016 with phenomenal sales results during the fourth quarter and full year.

Our international business completed its 23rd consecutive year of positive same store sales growth in what is becoming a familiar story, another year of amazing store growth. And around the world on average, we opened a new Domino's store every 7 hours in 2016, which is an amazing thing to consider.

The business model continued to show its strength with impressive flow through to the fourth quarter and full year bottom line. This coupled with our second consecutive year of double digit same store sales in the US and another rock solid year across the rest of the globe shows that our global alignment and brand momentum have never been stronger.

I use the word phenomenal when describing our domestic business last quarter, and I'm starting to run out of adjectives so let's go with this, our fourth quarter was remarkable, it marked our 23rd consecutive quarter of positive same store sales and a rather astounding 34% on a 3-year annual basis. This truly demonstrates our commitment to sustaining success and is a testament to our long-term steady strategy at work.

I couldn't be more proud of our US franchisees and corporate team members for a job incredibly well done in 2016. And on that note, I'm very pleased that our franchisees are reaping the rewards of their hard work. 2016 marked a new record high in our 8th consecutive year of increasing domestic franchisee profitability with an average of close to $135,000 per store.

Store level EBITDA is a figure we care very much about and is one valuable way to measure health of the business against competitors and the industry, which is why we provide it to you in such a straightforward transparent manner. Our goal of being number one for customers is matched only by our goal of being number one for franchisees. Healthy unit economics are a key way to ensure this, and it's fair to say this was very much the case again in 2016.

Domestic store growth continues to show impressive momentum. We opened 98 net domestic stores during the quarter and 171 net domestic stores for the year, the best in over 15 years. We are nearing completion of our pizza theater re-image program and will be substantially done by the end of 2017.

I remain encouraged by our team's efforts and our domestic franchisee's focus on continuing to invest, to grow and win. US store growth is certainly an area of the business with work still to be done but very much continued in the right direction in 2016. In addition I'm also very pleased to report that we've set another record, one that's very special to me and everyone in our entire system.

Domino's participation in the thanks and giving campaign raised a record $7.3 million for the kids of St. Jude children's research hospital. It was our fifth consecutive record setting campaign and brought the total money raised since partnering with St. Jude 13 years ago to over $38 million. I sincerely thank our customers and franchisees for their support of this very proud partnership.

To wrap up our domestic business, I am confident our people remain focused on the future, rather than on the past, but with that said, I offer very deserved congratulations to our US franchisees and corporate team members for a truly outstanding 2016. The accolades certainly don't stop in the US as our international business wrapped up an excellent 2016 with strong sales and outstanding store growth.

Our net store growth of 1110 is the highest in our history and included successful completed conversions in South Africa and Germany. We opened our 8000th international store as well as a new market, Sweden, during the fourth quarter. Our recent highlights include both China and Indonesia reaching the 100 store milestone and both Germany and the Netherlands hitting the 200 store mark.

In their most recent earnings release, 3 of our 4 public master franchisee partners announced double digit same sales store growth. Stand out markets including Australia, Canada, Brazil and Russia. In the face of some challenging market economics and the highest year end sales comparison in our recent history, the best international model in QSR came through once again with a tremendous year.

Our master franchisees worldwide are simply getting it done, growing at a rapid pace, executing at high levels and extending the Domino's experience to new neighborhoods and customers throughout the world each and every day. It is impossible to focus on our results and the importance of innovation without a few digital highlights. 2016 was another big year as our digital lead remains unquestioned and our innovation ordering -- our innovative ordering platforms remain unmatched.

I'm very pleased at the true global expansion of our technology platforms and processes. We now have 25 markets using our global online ordering, a program with terrific potential that I continue to be very excited about. And our international markets are at nearly 50% of total sales coming from digital.

More than 11,100 stores are using Domino's Pulse, our proprietary point of sales system, and in today's digital landscape, common POS has become a major differentiator. We'll continue to take this competitive advantage we have created in the US and grow and implement it across the globe. In the US we reached 60% of sales via digital channels at the end of 2016, and while this is a nice threshold on paper, I continue to reiterate that touting percentages is not what truly tells our digital leadership story.

Instead, I urge you to focus on our unyielding commitment to offering the best digital experience possible, direct partnerships with global technology leaders, Apple, Amazon, Google and Facebook just to name a few, more ways to order and access the brand than any within our competitive face and a simple focused digital loyalty program that customers can easily join and even more easily understand.

We remain very committed to investing to win and in maintaining this important lead. There's not much else to be said about what was an extraordinary year for Domino's. In closing, I reiterate three things, our strategy remains consistent. We didn't accomplish success in 2016 by changing course, and we certainly don't plan to now.

Fundamentals will lead the way. We will continue to play to win. This means disciplined investments, relentless innovation, and continuing to take smart risks. And lastly, we genuinely remain a work in progress brand, always seeking to improve and progress. As much as we are proud of our success, we wake up every morning motivated to improve what we continue to see as a customer experience that can get much better. And we remain as committed to this as ever heading into 2017.

Thanks, and I will now open it up for questions.

(Operator Instructions)

Your first question comes from Brian Bittner from Oppenheim and company. Your line is open.

Thanks. Congratulations on a wonderful 2016, guys. You know, the question is now that you have a year of hindsight when you look back at first quarter of 16, and what happened from there, you accelerated from there, and you never looked back. I understand that there are many factors that are contributing to your strong sales results but you did mention and pointed out the rewards program as a big contributor to more recent success. Do you have any way of fully sunsing the magnitude of this impact and anything you could share with us on what that may be.

Yes, Brian, I guess we're going to repeat what we have said before, which is it was a significant contributor to our comps in 2016. We do know pretty exactly how much of our comp came from the royalty program but we're not going to disclose that for competitive reasons, but what I would reiterate was it was a significant part of the progress for 2016, but along with a lot of other factors that were going right, but clearly it worked for us, and we continue to be very positive about it.

Okay. And then just last question, on the carry out business, are you seeing growth, same store sales growth in line with the delivery business or faster or slower than the delivery business.

No, it's been pretty consistent across carryout and delivery, and you know, it has grown as a percentage of our business over the last 10, 15 years, so carryout has in general grown a little bit faster than delivery, when I joined Domino's almost 20 years ago, we were 85 or 90% delivery. It's now more kind of 2/3, 1/3. So over time, our carryout business has grown faster but more recently I think they have been growing pretty much at kind of the same pace.

Okay. Thanks, Patrick.

Thank you, Brian.

Operator. Your next question comes from Chris O'Cull from KeyBanc, your line is open.

Great, thanks. Good morning, guys, and congratulations on a great year. Patrick, we've heard a few of the larger players in the category talk about how sales stepped down in September and continue to be weak in the first quarter. Is there any evidence that you see that suggests the category has started the year off strong or weaker in sales? Yes, I'm not going to get into this quarter's results but, you know, if you look at a lot of the comments that have been coming out, they were as much about the fourth quarter as they were about kind of what they're seeing early in this year, and, you know not to state the obvious, but with our comp for the fourth quarter, we clearly weren't feeling that, and so, you know, we continue to feel pretty good about the category overall through the end of the fourth quarter, and I'm not going to get into kind of talking about the first quarter as, you know, you're used to us not doing.

That's fair. And then Patrick, are you seeing anything different among regional players in terms of their ability to compete?

No. You know, I think, you know, while we clearly grew share overall in the fourth quarter and, you know, we may have seen a little bit more of that coming from some of the national players then maybe in the past, we continue to believe that, you know, the big story over the medium to long-term is it is very tough to see how a regional player is going to compete in, you know, against kind of the national players and the strength that we have with our digital platforms. So I think that, you know, the overall thesis of kind of the big national players taking share from the regional players continues to be in place, and, you know, as I've said before, you know, the great small local player, you know, who knows half of their customers and they do a great job, they've got an ability to compete. But if they're not executing well or if it's a regional player, trying to figure out, you know, how to compete with digital, I think it's very difficult for them.

That's helpful. Thanks, guys.

Thank you.

Operator. Your next question comes from Gregory from bank of America, your line is open.

.

Hey, guys, can you talk a little about the, I think Patrick said there's still work to be done on the domestic unit growth fund and I know that continues to step up, and how are you approaching growing demand from the franchisees to open new stores, is there a pace of unit growth you're looking to get to or a pace of unit growth that would be too high. Just trying to get a sense for how you're thinking about that stepping up going forward?

Yes, what you've seen, Greg, really is a very consistent, you know, upward trend in kind of our net unit growth, and you know, that's certainly something we hope is going to continue. We continue to see, you know, a big opportunity for unit growth in the US as our same-store sales have increased, that only creates more opportunities for more stores to open up over time, so, you know, we continue to feel very good about the momentum you're seeing from our domestic store growth. We think there is still a very good runway for growth there, and you know, the one thing that I would highlight and we talked about this at the investor day, is you know, look at the net store growth but also, you know, look at it in kind of its component pieces and, you know, what you'll see is, you know, we had a remarkably low number of closures in 2016, which is, you know, a reflection of the overall strength of our system right now, so not only are, you know, a lot of our franchisees optimistic and they're building more stores and we're seeing, you know, an increase in the gross number of openings, you're also seeing an extremely low number of closures, and I think it's important to kind of pull those apart both for us and kind of as you look at the category overall to kind of understand, you know, kind of the relative strength of our system right now.

Great. Thanks.

Operator. Your next question comes from Matt from Evercore IFI. Your line is open.

You consistently give this industry size data in your 10K and this year it showed the pizza category having the best growth in the last decade with carryout taking a share, and dining in was up quite a bit. My question is that consistent with what you're seeing from competition in the category with dining in, and do you think that pizza is a category which has been losing share for a long period of time is having a renaissance where as a category it will, you know, take share back from other formats?

Yes, Matt, this is Jeff. You know, when we think about the industry in the United States, you know, between 35 and $40 billion kind of growing low single digits over time. It's still a healthy industry, I think, overall, and when you look at the sub segments of carryout and delivery versus dine in, we certainly believe that we are in the right two sub segments of the pizza industry, both carryout and delivery. Both different occasions, both different needs states, both very profitable places to be in, you know, if we were to start a company today, we would start a company in carryout and delivery and not in pizza dine in, so, you know, industry data is industry data, but to me the health of the overall category is there, certainly carryout and delivery strength is there, particularly for us as we strive to outcompete the other folks in the industry, and we're glad we're not in the dine in business.

Got it. My second question is on the international royalty late, I know that can vary considerably based on the market that you're in, but that slipped a little bit in 2016. Is that a function of the markets that you're growing in today, and does that continue to slip or should this be roughly on 3% on a go-forward basis.

Yes, so overall, it's going to stay right in that kind of 3% number. It may inflect a little bit based on, you know, the Nicks of the market, some folks pay a little bit higher than that. A couple pay a little bit lower. 3%ish is the number you're going to largely see there. The one thing that I would tell you is as weapon continue to push the point of sale system out globally and as Patrick mentioned we now have 25 markets around the world not named to the United States that we will deliver in the next 24 hours, you know, ECOM capabilities to 25 countries around the world, those digital fee revenues will go into international revenues as well, so that may have a little bit of a play as you look to calculate kind of the rough royalty rate, but as you think about the contractual rate for royalties, the answer is it should stay right around that place. The other thing you have of course is the conversion. You have 254 conversions in 2016. Ouch the gate, we will generally on a market by market basis give them a little bit of royalty relief as they really put that money into changing the signs and the leaseholds and such, so it works out for everybody. You're certainly seeing a really high number of those conversions in 16 and so that also plays into it a little bit as well.

Okay. Great. Thank you.

Thank you.

Operator. Your next question comes from Will from seasons. Your line is open.

Thanks, guys. Just considering the industry backdrop, the commodity outlook you gave earlier, and then the fact that it looks like you're continuing to take actually more share from peers given what we have seen so far, how are you thinking about your aggressiveness around price points as we look to your messaging for 17, and do you feel like we're in an environment where you need to actually become more aggressive with the price points to continue to get these types of traffic gains or do you feel like we've hit at least somewhat of a bottom in the near term in terms of where competitors are willing to go.

No, Will, we have been incredibly consistent on our pricing for, you know, a number of years now. I mean, you go back, you know, four, five, six years, and you know, we have been very very consistent. So, you know, overall, from a pricing standpoint, I really don't see it any more or less competitive right now within the pizza category than we have seen in the past. And, you know, I think you're seeing a very consistent approach to value from us as well. So, you know, I think it's a pretty steady as it goes sort of environment from a pricing standpoint.

Thank you. And a quick follow up if I could on menu innovation and also kind of the customer and franchisee feed back as it relates to. That very active here in the past few years and very successfully so, so I'm curious sort of what your customer is telling you in terms of we're wanting more items and also what the franchisee is saying in terms of either we have the capacity to do that or maybe we're sort of hitting a capacity issue at this point?

No, I think what you have seen, Will, is you know, our customers, you know, obviously just from how they're behaving, which is ultimately more important than even what they're saying or saying they're happy with our approach, and, you know, what you have seen from us is, you know, is maybe one new launch a year. They have tended to be, you know, permanent additions to our menu, which we think is important. We don't like spending time and energy and training and advertising on things that are going to go away, you know, shortly after we launch them. And, you know, so I think you're going to continue to see that in our franchisees, you know, based on sales growth, on profit growth, you know, they are clearly very happy with the approach that we're taking as well. And, you know, and you've even heard that from some of our competitors, I mean, when you role out new products, you know, it requires focus and effort and training and so our view is, you know, to do that only for things that we think are going to have a material impact on our business, and, you know, clearly it's worked pretty well.

Thank you.

Operator. Your next question comes from Karen Holthouse from Goldman Sachs, your line is open.

Hi, good morning, this is actually Greg for Karen today. I was just wondering if you could provide us with a calendar shift that you consider for the first quarter, specifically maybe around Easter whether we should expect any material impact from that?

Yes, the short answer is no. There shouldn't be anything material for the Q1 calendar in 2017. It will be more about how well we execute around the world.

Thank you.

Operator. Your next question comes from Jeff Bernstein from Berkeleys your line is open.

Great. Thank you. Two questions, maybe first just on the competition from the online ago gators, I know you talked about it at your investor day, whether it's order or delivery, I'm sure you're closely watching that trend, especially as they go after what seems to be your delivery dominance. I'm just wondering what you look at to assess maybe the success of these third parties and how you go about protecting if you do anything different as you see them start to have some success or whether there's just, at this point, no near term concern from that perspective, and then I have one follow up.

Jeff, we continue to watch it very very carefully, and you know, as we've said, at our investor day, it frankly has been maybe a bigger sort of an impact outside of the US than inside the US. And I would particularly call out china where the ago regators are very developed, but in the US, you know, our share of total digital food orders has been flat to even up, so I'm not talking about the share of our orders that are digital. I'm talking about the share of total digital food orders that are going through Domino's. We're continuing to be very very strong overall. And so, you know, near term, we still have not seen any real impact. We think the economics of our model and, you know, the fact that frankly for our franchisees we are by far, you know, the best deal in town, you know, we think is part of why we're able to be successful continuing to drive growth with our digital orders and our overall business, so certainly something we're going to continue to watch very carefully, but not something we have seen significantly impact our business yet, particularly in the US.

Got it. And then just on the international comp, clearly hard to argue with 92 consecutive quarters of positive comps and I think Patrick you mentioned that three of your four international franchisees, noted double digit comp. I wasn't sure if I heard that right. We hear about others with increasing volatility, and pressure on the more recently political debate or push back, I'm just wondering, do you hear anything from your franchisees that have you watching the trend more closely or my narcotics you're seeing a change in trajectory, trying to assess the international landscapes with a pretty good look from your view.

I think overall it's absolutely fine. The comp in the fourth quarter was, you know, right in the middle of our long-term guidance that we give, and we're rolling over, I think, an 8 1/2 in the fourth quarter of 2015, so, no, overall, I think we're still feeling very good about our international business, and really not seeing any particular dislocation outside of the US.

Great to hear. Thank you.

Operator. Your next question is from Alton Stump from research. Your line is open.

Once again, great quarter, guys.

Thank you, Alton.

You know, just had two questions, first off, on the store growth front, you know, I think more interested than the US, of course, pickup you're seeing as far as net units build, international jump, you know, actually I think now for the last six years in a row has seen the pace of growth pick up and a pretty sizable jump particularly here in 16 versus what you have seen the last couple of years. Is there any reason to, you know, that might slow down at all. Was there anything special whether it be conversions, et cetera, in 16 that will not repeat itself in the current year?

Yes, the conversions is the big ones, you know, and as we said there were 254 conversions last year, and you know, that conversion process is done in Germany. It's done in South Africa. There are some left in the conversion that we were doing in France, but still a relatively low number there, and so mostly those conversions are now in the rear view mirror. So that is, you know, a little bit more on kind of the one time side, and you know, what I would say, though, overall, if you remember from our investor day, is, you know, we raised our unit guidance, you know, globally to 6 to 8% and that's on a higher pace, so you know, overall, we're feeling good about it, but those conversions are going to be more of a one-time event.

Thanks, and then just quickly on the US, I think most of my questions have been answered but I just want to ask about the launcher, a couple quarters into that launch or quart and a half anyway, you know, just curious sort of what your learning so far, if there may be opportunity to expand beyond, you know, three varieties that you had nationwide currently for the prepacker salads?

Yes, so I'm not going to talk about anything we're maybe going to do in the future, but, you know, clearly very happy with the salad launch, and the customer reaction as you can tell from the sales growth was very good.

Okay. Thank you.

Thank you.

Operator. Your next question comes from John glass from Morgan Stanley, your line is up.

Thank you so much. In thinking about the US business, it strikes me that your advertising budget is as same store sales and that's faster than the industry. Can you give a relative sense of how big your advertising budget is versus peers and are you at that point where an incremental dollar spent in advertising is worth or or other ways to direct ha money or salting it away for a period of time if you don't think it's the case now.

No, we're still finding that the return on investment on incremental advertising is very good. You know, remember that, you know, when you look at television you've seen pretty consistently, you know, five, six, 7% sort of inflation in ratings, or I'm sorry, in rates on GRPs, and so, you know, some of the growth is just being absorbed with what's going to be inflation and media overall. You know, we have continues to spend more on digital and get a very good return there as well. So, you know, overall, the fact that, I mean, you're absolutely right, our advertising dollars have continued to grow as our system sales have grown in the US but we're, you know, that's part of what keeps the momentum building on the business. And you know, and part of what's contributing to the overall comp is, you know, our share of voice continues to increase in the pizza category in the US, and you know, you asked kind of where we stand versus others, you know, I think overall right now we're, you know, we're basically in the same range as Pizza Hut. We are certainly much bigger than anyone else. Measurements on that are not perfect because, you know, as you get down into digital and local advertising spends, you don't always have perfect visibility on that. But, you know, we're basically, you know, in the same range as hot end and the two of us are bigger than other folks.

Thank you. And then just the topic of tax refunds has come up many times in the course of retailer earnings over the last several weeks and there's been a delay this year which seems to be catching up. Historically has the timing of tax refunds impacts your business at all.

I will be honest, until I saw people starting to write about it over the course of the last two weeks, I had never even thought about the timing of tax returns. I don't know, Jeff, if you've got anything to add to that?

Yes, I mean, in our pizza you're more worried about people getting their paychecks every two weeks than you are about a tax refund that happens once a year. Again, our franchisees are operating at a high level. That's way more important than any of the external stuff.

Got it. Okay. Thank you.

Operator. Your next question comes from the line of Alex Slagle from jeffreys, your line is open.

.

Thanks, Patrick, a question with the pulse POS now in 25 international markets and majority of the international stores but the percentage of stores on GOLO remaining modest as some of the bigger franchisees have their own systems. What's it going to take to see a meningful ramp in the portion of international stores on your global online ordering platform where you can then get the transaction fee and further fuel the investment?

Yes, so the first thing you said I want to correct something. You said that pulses in 25 markets. Pulse is in the majority of our markets at this point. And so that's the POS system. Global online ordering is the digital ordering platform and that's the one that's in 25 markets. We're continuing to add markets. You know, part of the ramp that you have seen on expenditures on digital ordering, and our platforms has been building the team to on board, you know, markets and internationals, so you're going to continue to see that grow, you know, this year and going forward. We think it's a real competitive advantage for those markets because for the same reason that, you know, I say it is difficult for a regional competitor in the US to have their own digital platform, so if you've got 100 or 200 stores, you know, it is very difficult to kind of build your own platform. It is every bit as true for our master franchisees outside of the US. So unless they have got real scale, you know, and look at our big four public master franchisees who, you know, have an awful lot of stores in critical mass, it's debatable whether or not it is wise for them to do it themselves. Probably more efficient for us to do it for them. But they certainly have the scale that they can do it well, but for the smaller players, you know, I think you're going to continue to see them come onto our platform.

The one thing I would add to that is, you know, as Patrick said we're now at about 80% of our global store base on one point of sale system. That is a huge competitive advantage as you think about scaling the technological investment over, you know, now what is just a huge, huge number and that allows you to do the ECOM stuff kind of what you get the people on the point of sale system. Not to be understated as a strategy that we pursued coming u on two decades ago, which was to take the long and the hard road on the proprietary point of sales system, and so we're very bullish about what that can mean for us going forward and for our brand.

Thanks. That's helpful.

Operator. Your next question comes from John Ivankoe from JP Morgan. Your line is open.

Thank you so much. Firstly, just in terms of the technology, the ordering fee that you charge the US franchisees, I think it's currently $0.21. Obviously the franchisees get a lot of value for that, you know, $0.21. Just kind of want to get your thoughts in terms of potential, you know, pricing and how your franchisees would feel about you taking that pricing, so that's the first point. And then secondly, you know, you've guided to G & A of 2017, 240 to 350 million. A lot is technology oriented. What do you expect to accomplish with that money. Is it just around big data, understanding the customer, is it going to be customer facing, does it make store level operations easier, you know, if you can, if you feel okay doing it, you know, talk about what kind of specific tangible return you expect to get from current Tex if possible.

So John on the first part of the question, around pricing, we are at $0.21 to our franchisees, and you know, our goal is to give the best digital experience to our customers and to our franchisees, and so to have the best digital platform in the restaurant industry, and we want to do it for the best value. Is there an ability as, you know, we make investments to move pricing, you know, yes there is. But what we want to do is create more value for our franchisees than anyone else in the restaurant industry and to do it for the best possible value.

Yes, and then kind of on your second question. This is Jeff, you know, G & A we've guided 17. We do it a year out because we're in a dynamic environment where we want to put investments to work in the places where we think there will be an ROI technology. Could not be more of a focus for us there. That's the big part of why we continue to see that going up. What does it get you, it gets you a little bit of everything. I mean, it gets you a fantastic point of sale system, now in 80% of our stores worldwide. It allows you to continue to keep up on consumer facing and really to stay ahead and get ahead of the competitors on all the consumer facing things, our anywhere platform, we were able in 16 to launch things like facebook messenger, technology we're really excited about that launch in particular. That's one of 16 or 17 ways you can access the brand, and it's also about, you know, instore stuff, so it's about store operations and efficiency, and so technology is permeating our brand, no matter how you look at it, and so we want to continue to invest. The bad news about technology is that it's expensive. The good news is it's really expensive. A lot of the other guys just can't compete. And I will go back to the point I made earlier which is when you do it with one point of sales system, as opposed to 3 or 5 or 10, which some other brands run, I cannot tell you how important of an advantage it is, so it's really permeating all through the brand, consumer facing, in the store, and also the analytics, the reason why you see the commercials you see, the reason you see the promotions you see from us is because we spend a lot of time rolling through that data. And it's not, you know, it's not the TV commercial because Patrick likes it or I like it, it's the one that tested the best. It's all areas, we're going to continue to pour gas on it, and you know, we're pretty excited about the possibilities.

Thank you.

Thank you.

Operator. Your next question comes from mark Smith from and company, your line is open.

Hi, guys, just curious in international, I know that you're getting to the end of the conversions are there more opportunities internationally or potentially domestically for more conversions?

Yes, there probably are not any on the domestic side, at least not any of any real scale. I mean, it's always possible we find, you know, a little five-store group or something somewhere, but that hasn't happened in my memory even in Domino's. On the international side, there are a few, but it's pretty limited at this point, I mean, really the big constraining factor on conversions is, you know, what our footprint looks like, you know, where that potential conversion might be and as we get bigger and have a stronger footprint in a lot of markets around the world, you know, the opportunity to do that gets smaller and smaller, so, I mean we were, we had a couple dozen stores, like maybe 18 stores in Germany before we Saturdayed the conversion there. Obviously a very very big market. We had no presence in South Africa, and we had very limited presence in kind of Normandy and Britain, which is where the French conversion is that we have been doing. So it really comes down to presence, and, you know, because you've got a delivery area, and you have kind of locked down, you know, where a store is going to be able to deliver to if you've got a lot of overlap between, you know, your footprints and a potential conversion footprint, the economics just don't work for doing a conversion. So there's still a few out there, but, you know, certainly what you saw last year I think is going to be unusual.

Okay. And then one quick follow up, everybody in the industry is certainly focused on labor costs. Can you just give us an update on where you guys are in kind of initiatives to improve labor efficiencies?

Well, that's something that we are constantly working on. You know, as we look at some of the investments that we're making in technology and analytics and, you know, a lot of those things are about, you know, efficiency in our stores, finding, you know opportunities for efficiency, but, you know, at the end of the day, one of the best ways to deal with, you know, any pressure on costs is grow your sales, and you know, we have been doing that, and there's a lot of efficiency that comes from just simply putting more volume through your stores and, you know, that has a, you know, kind of a positive ongoing, you know, visit yows circle of effect on the business, which it allows you to continue to be consistent around the value that you are producing for your customers. It allows you to, you know, to be able to pay your team members well so your stores are staffed so you can give good service, which is going to grow your sales. I mean it just, the momentum in the business simply gives you a, you know, a much more flexibility in how you approach it and, you know, and it has clearly been part of the positive effect, just sales growth themselves allow you to do things to continue to get that sales growth and manage that labor line.

Great. Thank you.

Operator. And your final question today is from Steve Anderson from maxim group. Your line is open.

Yes, thank you, and most of my questions have been answered but I do have one follow up question. A few of your peers in the industry have talked about the NFL season having affected sales not just in pizza but also outside pizza. Have you been able to take a look at some of your, you know, weekday or weekend data and see if you have seen any changes in the rate of increase on say NFL game days versus the rest of the week?

No. No, I mean, you know, the NFL continues to be a great property. We advertise on the NFL. You know, somehow that wound up getting an awful lot of press, you know, in the fall about ratings, but what I would tell you is that, you know, ratings overall across, you know, across prime time, has continued to, you know, to be down a little bit. Our Sundays continue to be strong as a category and we had a great comp in the fourth quarter, so, you know, we continue to be very happy with the NFL, how it effect as our business and there was no difference for us in the fourth quarter of last year than we have seen previously.

Thank you.

Operator.

Okay. With El if that's the last of the questions, I want to thank everyone for getting on the call today, and we look forward to discussing our first quarter results with you on April 27th April 27th.

Operator. And this concludes today's conference call. You may now disconnect.