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Edited Transcript of DPZ earnings conference call or presentation 8-Oct-19 2:00pm GMT

Q3 2019 Domino's Pizza Inc Earnings Call

Ann Arbor Oct 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Domino's Pizza Inc earnings conference call or presentation Tuesday, October 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey D. Lawrence

Domino's Pizza, Inc. - Executive VP & CFO

* Richard E. Allison

Domino's Pizza, Inc. - President, CEO & Director

* Timothy P. McIntyre

Domino's Pizza, Inc. - EVP of Communications, IR & Legislative Affairs

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Conference Call Participants

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* Alexander Russell Slagle

Jefferies LLC, Research Division - Equity Analyst

* Alton Kemp Stump

Longbow Research LLC - Senior Research Analyst

* Andrew Michael Charles

Cowen and Company, LLC, Research Division - Director

* Brett Saul Levy

MKM Partners LLC, Research Division - Executive Director

* Brian John Bittner

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Christopher Thomas O'Cull

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst

* David E. Tarantino

Robert W. Baird & Co. Incorporated, Research Division - Co-Director of Research and Senior Research Analyst

* Dennis Geiger

UBS Investment Bank, Research Division - Director and Equity Research Analyst of Restaurants

* Gregory Ryan Francfort

BofA Merrill Lynch, Research Division - Associate

* Jeffrey Andrew Bernstein

Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst

* John Stephenson Glass

Morgan Stanley, Research Division - MD

* John William Ivankoe

JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst

* Jon Michael Tower

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Katherine Irene Fogertey

Goldman Sachs Group Inc., Research Division - VP & Derivatives Research Strategist

* Matthew James DiFrisco

Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst

* Nerses Setyan

Wedbush Securities Inc., Research Division - Senior VP of Equity Research & Senior Equity Analyst

* Peter Mokhlis Saleh

BTIG, LLC, Research Division - MD and Senior Restaurant Analyst

* Sara Harkavy Senatore

Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

* Stephen Anderson

Maxim Group LLC, Research Division - Senior VP & Senior Equity Research Analyst

* William Everett Slabaugh

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2019 Domino's Pizza, Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Tim McIntyre, Communications and Investor Relations. Please go ahead, sir.

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Timothy P. McIntyre, Domino's Pizza, Inc. - EVP of Communications, IR & Legislative Affairs [2]

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Thanks, Sonia, and hello, everyone. Thank you for joining us for our conversation today regarding the results of our third quarter 2019. The call will feature commentary from Chief Executive Officer, Ritch Allison; and Chief Financial Officer, Jeff Lawrence.

As this call is primarily for our investor audience, I ask all members of the media and others to be in a listen-only mode. In the event that any forward-looking statements are made, I refer you to the safe harbor statement you can find in this morning's release, the 8-K and the 10-Q. In addition, please refer to the 8-K to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. Our request to our analysts, we want to do our best to accommodate all of you today, so we encourage you to ask only one-part question on this call if you would, please.

With that, I'd like to turn the call over to Chief Financial Officer, Jeff Lawrence.

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Jeffrey D. Lawrence, Domino's Pizza, Inc. - Executive VP & CFO [3]

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Thank you, Tim, and good morning, everyone. In the third quarter, our positive global brand momentum continued as we delivered solid results for our shareholders. We continue to lead the broader restaurant industry with 34 straight quarters of positive U.S. comparable sales and 103 consecutive quarters of positive international comps. We also continue to increase our global store count at a healthy pace as we opened 214 net new stores in Q3.

Our diluted EPS was $2.05, an increase of 5.1% over the prior year quarter primarily resulting from strong operational results, offset in part by a higher tax rate. With that, let's take a closer look at the financial results for Q3.

Global retail sales grew 5.8% as compared to the prior year quarter, pressured by a stronger dollar. When excluding the negative impact of foreign currency, global retail sales grew by 7.5%. This global retail sales growth was driven by both an increase in the average number of stores opened during the quarter and higher same-store sales. Same-store sales for the U.S. grew 2.4%, lapping a prior year increase of 6.3%. And same-store sales for our international division grew 1.7%, rolling over a prior year increase of 3.3%.

Breaking down the U.S. comp, our franchise business was up 2.5%, while our company-owned stores were up 1.7%. The comp this quarter was driven entirely by ticket growth. While we continue to grow our overall delivery business, we continue to experience pressure on the delivery business comp from our successful fortressing strategy as well as from aggressive competitive activity. Our carryout business continues to grow at an impressive rate. On the international front, our comp for the quarter was also driven primarily by ticket growth.

On the unit count front, we opened 40 net U.S. stores in the quarter, consisting of 43 store openings and 3 closures. Our international division added 174 net new stores during Q3, comprised of 203 store openings and 29 closures. We have opened 1,174 units over the past 12 months, which we believe demonstrates the broad and enduring strength of our 4-wall economics, combined with the efforts of the best franchise partners in the restaurant industry.

Turning to revenues. Total revenues for the third quarter were up 4.4% from the prior year resulting primarily from the following: First, higher U.S. franchise retail sales resulting from both store count and same-store sales growth drove increased supply chain and U.S. franchise revenues. Higher international retail sales resulted in increased international royalty revenues but were partially offset by the negative impact of changes in foreign currency exchange rates. FX negatively impacted international royalty revenues by $1.5 million versus the prior year quarter due to the dollar strengthening against certain currencies. These increases were partially offset by lower company-owned store revenues resulting from the previously disclosed sale of the 59 corporate stores in our New York market to existing franchisees during the second quarter.

Moving on to operating margin. As a percentage of revenues, consolidated operating margin for the quarter increased to 38.5% from 37.6% in the prior year quarter and was positively impacted by the New York sale and higher revenues from our global franchise business. Supply chain operating margin was up 0.1 percentage points year-over-year, while our company-owned store operating margin was up 2.8 percentage points year-over-year driven primarily by the New York sale.

G&A costs increased $3.4 million as compared to the prior year quarter. G&A was benefited by the New York sale. As a reminder, we recorded a pretax gain of approximately $6 million on the sale of 12 company-owned stores in the prior year, which was recorded in G&A.

Our reported effective tax rate was 21.7% for the quarter, up 6.4 percentage points from the prior year quarter due to lower tax benefits on equity-based compensation. The reported effective tax rate included a 1.1 percentage point positive impact from tax benefits on equity-based compensation in 2019. We expect to see continued volatility in our effective tax rate related to equity-based compensation for the foreseeable future. When you add it all up, our third quarter net income was up $2.3 million or 2.7% over the prior year quarter.

Our third quarter diluted EPS was $2.05 versus $1.95 in the prior year, which was a 5.1% increase. Here is how that $0.10 increase breaks down. Lower diluted share count resulting primarily from share repurchases over the past 12 months benefited us by $0.05. Foreign currency negatively impacted royalty revenues by $0.03. Our higher effective tax rate negatively impacted us by $0.14. And most importantly, our improved operating results benefited us by $0.22.

Now turning to cash. During the first 3 quarters of 2019, we generated net cash provided by operating activities of approximately $325 million. After deducting for CapEx, we generated free cash flow of more than $280 million. On average, that is more than $1 million in free cash flow generated per day. I highlight our cash flow story not only to demonstrate our outstanding financial model and performance but also to remind folks of our long-term commitment of returning cash to shareholders.

To that end, we repurchased and retired $94 million worth of shares at an average purchase price of $244 per share during Q3, bringing our year-to-date total repurchases to $105 million and our total share repurchases over the past 12 months to more than $267 million. We also returned $26.9 million to our shareholders during Q3 in the form of a $0.65 per share quarterly dividend. On average, over the last 12 months, we have not only generated more than $1 million per day in free cash flow, but when you add our share repurchases and dividends together, we have also returned more than $1 million per day to our shareholders.

We are also excited to announce today that our Board of Directors has approved a new $1 billion share repurchase program, which will replace the remaining authorization under our existing program.

Before I turn it over to Ritch, I wanted to give you some commentary and update to our previously issued financial guidance for full year 2019. We have provided guidance of 2% to 4% increase for store food basket pricing in our U.S. system as compared to 2018 levels. We now expect we will be near the low end of this range. We have provided guidance of a negative $5 million to $10 million impact of foreign currency on royalty revenues as compared to 2018. We now expect we will come in closer to negative $10 million. We have provided guidance of $110 million to $120 million for CapEx investments. We now expect that our CapEx investments will be in the range of $95 million to $100 million. This reflects our ongoing disciplined approach to prioritizing and investing in the projects that will get us to dominant #1. We have provided guidance of $390 million to $395 million for G&A expense. We now expect that our G&A expense will be in the range of $380 million to $385 million for full year 2019. This update reflects the impact of the New York store sale and more importantly, our continued prioritization around investments.

Overall, our solid, consistent momentum continued, and we are pleased with our results this quarter. We will remain focused on relentlessly driving the brand forward and providing great value to all of our stakeholders, including our customers, the franchisees, team members and shareholders.

Thank you for joining the call today, and now I will turn it over to Ritch.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [4]

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Thanks, Jeff. Good morning, everyone, and thank you for joining us on the call today. I'm going to do things a little bit differently this morning than we typically do. I'll take a few minutes to walk through some highlights from the third quarter, but then I want to turn our attention to the revised outlook that we released to you early this morning. And after that, we'll take some time for some Q&A.

Let's start with the U.S. business and a few highlights there. It is an evolving competitive and operating environment in the U.S. right now, but I continue to feel that our fundamentals are solid and that the priorities that we have around the business are all in the right place. We remain, as always, steadfastly focused on delivering value to our customers and best-in-class unit economics to our franchisees.

The quarter yielded strong growth in our carryout business, and this was driven by great value, terrific advertising and also great-looking stores. And we continue to build more stores around the U.S. as we work to get closer to our customers. This not only improves our delivery service and economics, but it also brings a significant number of incremental carryout orders into our stores. When we look across the U.S., we now have over 90% of our U.S. system in our modern Pizza Theater image. This has truly elevated the carryout experience for our customers.

Turning to our delivery business. We continue to feel some pressure from the entry of many non-pizza QSR players who are enabled by the third-party aggregators. September started with the programs that we shared with many of you last month, all with a focus on driving traffic and order count gains. I'll share a few highlights from that. We launched our delivery insurance campaign, which some of you may have seen the advertising on TV over the last couple of weeks. This is a spin-off of our successful carryout insurance campaign. It reinforces our commitment to delivery with new features that enable customers to give us real-time feedback and also showcases our commitment to make every delivery a great delivery. One of the things I particularly love about this advertising is that it features 2 of our fantastic franchisees.

Second, we introduced a campaign adding additional crust types to our $7.99 carryout deal. We believe that adding more variety at that $7.99 price point will not only drive orders but also ticket to this rapidly growing part of our business. Our carryout business in the U.S. is now approaching 45% of our total orders, helping us to diversify our business into this carryout segment, which, as we discussed with you in the past, is significantly larger than the delivery segment today.

Finally, we're bringing additional value to the late-night daypart with our 20% off late-night deal. And this really is the first time that we've introduced incremental value dedicated to this daypart, 9 p.m. and later. And then beyond that, we've got many more exciting things happening as we look out toward 2020, and we shared some of these things with you just a month ago. We're continuing to progress in the test kitchen on menu innovation products. I personally just did another tasting last Friday afternoon, and I am excited about some of the things that we need -- that we may be able to bring to the market in 2020.

Service, as always, continues to be a major focus in our business, enabled by technology like GPS and also additional platforms that we are bringing out to our stores with the goal of making the day-to-day running of the business easier for our franchisees and our general managers. And then finally and as always, investments in programs to keep us top of mind with both digital and loyalty across both of our key businesses, delivery and carryout.

As I close off on the discussion of the U.S. business, I just want to highlight 6% retail sales growth in the third quarter. With that level of growth, we are clearly continuing to gain share in the pizza category and more broadly growing at a pace that exceeds most estimates of the restaurant industry growth rate for sure.

Let's turn our attention now to the international business. We had another solid quarter of retail sales growth in the international business driven by strong unit growth around the globe. We opened 174 net stores in the international business during the quarter. This reflects terrific unit economics that we continue to enjoy in many markets around the globe. And to that end, I'd like to highlight a couple of our emerging markets that I am excited about that are leading the way on growth.

During the third quarter, we opened 20 stores in China. And when we look at our retail sales growth year-on-year, the third quarter demonstrated 45% retail sales growth in China versus last year. Another one of our emerging markets, Brazil, opened 17 stores during the quarter, and growth there continues to accelerate under new ownership. We also have some of our larger and more established markets that are continuing to demonstrate strong retail sales growth. Japan and India are 2 more terrific examples of where the brand is growing around the globe.

While all 5 international regions were positive, our international comps certainly still are a work in progress and remain an area of tremendous focus for us around the world. But as I wrap up international, I do want to highlight the retail sales growth rate of 9.1%. Once again, we are clearly gaining share in pizza and growing at a pace that exceeds the broader restaurant industry.

So as we wrap up the quarter globally, our strategies around fortressing, value and best-in-class economics for our franchisees are progressing very nicely. The third quarter once again demonstrated the strength of the Domino's business model. We once again delivered strong retail sales growth, strong EBITDA growth and strong EPS growth even in the face of comps that frankly were below some of our historical averages. And when I look out at our franchisees around the world, I continue to be incredibly impressed with their focus and the competitive nature that they bring to their stores each and every day.

I'm also really proud that during the quarter, despite a lot of distractions, our team remained focused on the things that really matter: franchisee profitability, our franchisees' overall economic health and their ability to maximize the operational performance in their business. We're doing our part to support them with undoubtedly one of the strongest economic opportunities in all of QSR.

I also want to highlight what we've been doing to continue to build our brand and the direct relationship that we have with our customers. We now have more than 23 million customers who are active users in our loyalty program. And when we look at our broader database of customers, we now have 85 million active users of the Domino's Pizza brand. We have always and we will continue to value this direct relationship that we have with these customers.

So that's a bit about the quarter. I'm going to turn my attention now to the revised outlook that we shared with you in our earnings release this morning. Many of you were here with us just a few weeks ago for our investor open house. And during that event, I spoke at length about where we are today, how I believe we are positioned for the future and some of the important things that we're working on, both for the near term and also over the longer term. I realize that some of you weren't able to join us. If you weren't, that webcast is still available to you. It's out there at biz.dominos.com, and I'd invite you to listen in to hear some of our thoughts about these exciting developments in the business.

I'll tell you that since that open house, my views on the health of our business and on the long-term growth potential of the Domino's brand certainly have not changed. So why then, you might ask, did we change our approach to the forward outlook? Well, we believe that the evolving market conditions and the resulting uncertainty have reduced the relevance of a 3- to 5-year outlook. And in our view, the market is more dynamic now than it has ever been. The reality is that we don't have visibility into exactly how long some of these new entrants into the quick service delivery segment are going to benefit from the financial support of aggregators who are seeking to buy market share. These players are currently pricing below the cost to serve, offering free delivery or other deep discounts that are currently enabled by investor subsidies. So when we take all that into consideration, we no longer believe that a long-term outlook with a 3- to 5-year time horizon is that instructive to our investors. Therefore, we'll be using a 2- to 3-year time horizon for our outlook ranges for global retail sales growth, comparable unit sales in the U.S., comparable unit sales in our international business and also global unit growth. I want to be very clear. This is not a reactive decision but a proactive one to make our guidance more meaningful and more relevant to our investors in light of the current competitive landscape.

With all that said, our updated 2- to 3-year outlook is the following: 7% to 10% retail sales growth to be driven by 2% to 5% U.S. comps, 1% to 4% international comps and 6% to 8% unit growth. Let me talk a bit about each of those in turn.

The international comp. Our updated international comp reflects longer-than-expected weakness in some of our markets, recognizing that we've fallen below the previous outlook now for 4 consecutive quarters. And while some of this weakness is driven by the ongoing competitive pressures, I want to be clear that there are many opportunities for improvement that we and our master franchisees can influence. We are working alongside them every day through our Centers of Excellence, but these efforts are going to take some time to unfold.

When we look at the U.S. comp, the updated range for our U.S. comp reflects 2 things: first, the continued pressure from competitors who are pricing delivery below the cost to serve; and second, the comparable sales drag as we plan to further ramp up our fortressing program. Now I want to talk about that for a few minutes.

You might ask why do we intend to get even more aggressive in building new stores. Well, the answer here is twofold. First, these fortress store openings continue to be a compelling economic opportunity. That's both for us and for our franchisees. Second, we've got a unique opportunity right now to solidify market share gains for the long term as our competitors retreat and as these third parties fundamentally alter the economics of many players in the restaurant industry. We believe that a significant shakeout is coming to the industry, and there has never been a better time for Domino's to fortress. Our U.S. system is financially strong. We got terrific 4-wall economics and very healthy franchisees who will generate approximately $1 million each in average EBITDA this year. We believe that our franchisees are aligned with the strategies, and they continue to invest in stores and invest in their people. I am, as always, grateful for their partnership.

So in closing, we're playing the long game at Domino's for our investors and most importantly, for our franchisees. We firmly believe that now is the time to go on offsets and to take advantage of our continuing strength to drive profitable growth, to expand our market share gap to the competition and to further solidify Domino's as the dominant pizza brand.

So with that said, we are happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Brian Bittner of Oppenheimer & Co.

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Brian John Bittner, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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Question on the guidance. I assume all of us on this call completely understand the philosophy around changing the structure of how you're communicating your same-store sales guidance. But just a little more color on how you're approaching this 2% to 5% range. It's really not a dramatic change from what you were communicating. And as you know, people are going to be using that range to evaluate your performance from here quarterly and annually. So just a little more color on what that 100 basis point change on both sides of the equation is directly attributable to.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [3]

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Sure, Brian. Thanks for the question. Listen, as we take a look at it, it really is twofold, as I described in my earlier remarks. As we take a look at the U.S business, first, there is just a level of uncertainty in the near term around some of these competing delivery offers in the marketplace. And we know that has an impact on the comp and, therefore, felt that we needed to adjust that range down a bit. We also -- as we look forward over the next couple of years, we are moving aggressively to continue our fortressing program, and this is not just with our franchisees but also in our corporate store book business. We believe in this so adamantly that we have -- as we look at the 7 markets that we still play in with our corporate store business, we intend to fortress those 7 markets completely within the next 3-year time horizon. And we know that will also create some drag on -- additional drag on the comp in the near term. So it really is those 2 factors that led us to, a, restructure the time frame around the comp; and then b, to set the ranges at that 2% to 5%.

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Operator [4]

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And our next question comes from Nick Setyan of Wedbush Securities.

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Nerses Setyan, Wedbush Securities Inc., Research Division - Senior VP of Equity Research & Senior Equity Analyst [5]

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We're starting to see some of the QSR competition receiving deals that are actually very favorable to the restaurant. And so whether or not the third-party providers can sustain subsidization at that level is a theoretical question. But certainly, in the near term, those deals are going to allow those QSR burger players particularly, too, to become incrementally more and more competitive. And so I guess the question is, in the near term, what's the plan to compete both on value and around menu innovation?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [6]

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Yes. So as we highlighted just a few weeks back, we've got some opportunities, we believe, to continue to not only reinforce value in the marketplace but also to reinforce the Domino's Pizza service and the delivery expertise that we've been known for, for now almost 60 years. So in the near term, it is staying focused on our $5.99 and $7.99 Hero price points, aggressively continuing to push on service, working with our franchisees to make sure that we are providing great delivery service to our customers and really putting our money where our mouth is on that, as you see with our delivery insurance campaign that we have on TV now. We know that 2 of the main frustrations that consumers have around any delivery is the cost of it and then also getting their food on time every time. And so we're trying to make sure that we continue to address both of those.

As it relates to the menu, we are talking now on air about variety with our crust types, but also we've got the team working very hard on menu innovation as well. And just as of last Friday, I tasted some more terrific products. I think we'll have some great news coming out in 2020 that I think our customers will find exciting.

And then broadly, to the opening point of your question around the deals that are out there in the marketplace now, I think the restaurant companies have gotten smart, and they've realized that aligning with 1 delivery partner probably doesn't make a lot of sense. If you go out there and get 2 or 3 of them, you can get them to beat each other up and give you a better deal. So not surprising to us at all that, that's happening in the marketplace. And then long term, we're not sure how sustainable some of those economics are for the third parties, which is part of what drives that near-term uncertainty around the 2- to 3-year outlook. So we're going to continue obviously to keep a close eye on what's happening in the competitive environment but to really stay focused on the things that we can do and that we can control to drive value and service for our customers.

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Operator [7]

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And our next question comes from Chris O'Cull of Stifel.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [8]

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Ritch, my question is about the decision to ramp up fortressing. What gives you confidence that U.S. franchisees will execute this plan? Especially if comps are expected to slow, it would seem that slower comp performance would eventually weigh on their willingness to develop units. But maybe I'm wrong.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [9]

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Yes. So what really drives unit development is the cash-on-cash return for those new units, both the individual unit but then also the overall cash-on-cash return for the cluster or the area of stores that, that impacts. And what we continue to see in the business is that we've got very strong cash-on-cash returns. And I talked a little bit earlier, we're going to put our money where our mouth is on this as well with respect to our corporate store business. We're getting terrific returns in our corporate stores, and therefore, we're going to push aggressively over the next 3 years to fortress the territories that we operate in there. And we're hearing the same from our franchisees.

And the results around this, it's not only the near-term financial returns that franchisees get, but it's also how this reinforces their relationships with their customers locally because of the great service that they provide. I was just looking at some numbers this morning. One of the things that we love to do is give you over time some examples from around the business. We talked to you about Seattle in the past, and we talked to you about what we were doing in Las Vegas. And we talked to you about Roanoke, Virginia, and some of the things we're doing there. I'm looking at our Dallas-Fort Worth DMA. And if you lived in Lewisville, Texas, last week where we've got 3 stores, the worst-performing store on delivery last week in Lewisville averaged 16.5 minutes average delivery time with 0 deliveries over 45 minutes. So when we go out there and fortress, not only do we create great economics for our stores, our franchisees and for the drivers that are delivering these pizzas, but also this is just an unmatched experience around customer service.

So these are the kinds of things -- when our franchisees see this and when we see it with our corporate store business, it gives us more conviction that the right thing to do while we are playing in a position of great strength here with our unit economics is to go faster and to take advantage of this disruption in the marketplace.

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Operator [10]

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And our next question comes from Matthew DiFrisco of Guggenheim.

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Matthew James DiFrisco, Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst [11]

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Richard, Jeff, your comments imply somewhat of an unchanged outlook for the profit growth. I was wondering if, a, can you help us reconcile that with the lower same-store sales outlook, the model's ability to, I guess, sustain EBITDA growth ahead of retail sales? Are there G&A belt-tightening opportunities on an ongoing basis? And then b, if you could sort of tie that into, from a franchise perspective, the $141,000 per store. With a lower same-store sales outlook, are there -- the net benefits still from seeing better carryout in that higher-margin sale opportunity? Is that able to offset maybe the headwinds from the lower same-store sales outlook?

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Jeffrey D. Lawrence, Domino's Pizza, Inc. - Executive VP & CFO [12]

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It's Jeff. Appreciate the question. The first thing we would say is on a store-by-store basis, franchisees are going to make order of magnitude more than anybody else in the QS pizza industry in the United States. We know that for sure. We still got 3 months to go, so there's a lot of pizza to be sold and a lot of money to be made. But they're still going to be from a great position of strength. And from an enterprise perspective, as Ritch mentioned, approaching about $1 million of operating cash flow per independent franchise partner. So great strength, great cash available to reinvest in the brand, and we've seen that. So again, whether that comes in ultimately, and we'll update you on that exact number early in 2020 once we actually get it, whether that comes in $1,000 or $2,000 higher or lower doesn't fundamentally change the way they're approaching the business as far as running the business and investing in the business.

As it relates to G&A in our side, during my prepared remarks, you'll note that we brought in our -- both our capital expenditure 2019 guide as well as our G&A 2019 guide. So as we've done in the past, we expect to give you a new view of that for 2020 in 2020 once we've been able to roll up all the plans. But I think what that shows is we're always looking to be disciplined and prioritize the investment that we know is going to take -- to really take advantage of our #1 position and really get to that dominant #1.

The last thing I'll say is I can tell you that even though we brought in the 2019 CapEx and G&A guide slightly down, which we think is a good thing, I can tell you that all of the important projects and investments that we know we need to make around technology, around the image, around product development, all of those things are still getting done and done, again, from a position of strength. So still investing front footed, but we're doing it a little bit tighter recognizing the current system. But we're not leaving anything on the table. We're going to make sure we invest in everything we need to, to get to a dominant #1, and we feel great about that and our franchisees do as well.

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Matthew James DiFrisco, Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst [13]

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So from a G&A perspective, would we -- would it be correct not to assume then that you're just shifting maybe some '19 dollars into '20 and that there's an implied ramp-up into '20 to make up for the '19? Or what you're cutting or finding the savings in '19 is something sustainable through '20?

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Jeffrey D. Lawrence, Domino's Pizza, Inc. - Executive VP & CFO [14]

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Yes. I mean we'll give you a 2020 guide when we get into 2020 on G&A and CapEx, as we've always done. But the '19 guide changes are just a result of running a little bit more disciplined, a little bit more prioritized. But the important part there isn't the '19 versus '20 thing. The important part is we're investing in all the things we need to do to get to dominant #1.

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Operator [15]

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(Operator Instructions) Our next question comes from Will Slabaugh of Stephens, Inc.

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William Everett Slabaugh, Stephens Inc., Research Division - MD [16]

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Just wanted a quick update on some of the more recent initiatives such as the 20% off late-night, the delivery insurance, which seem to be more directly going after delivery competition. Just curious how that affected your late-night and delivery business as you launched this.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [17]

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It's Ritch. We just launched those in September, so really in the fourth quarter, so we can't really comment on results from those initiatives yet. Certainly, the advertising, we think, is terrific. So we're optimistic about the programs, but no comments on the results today.

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Operator [18]

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And our next question comes from Andrew Charles of Cowen and Company.

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Andrew Michael Charles, Cowen and Company, LLC, Research Division - Director [19]

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Just to piggyback a little bit on the last comment. I'm just curious about the timing of the guidance change following the confidence in the prior investor meeting 32 days ago. And I can understand that you don't want to get into the dynamics of what's going on in the fourth quarter, but you did mention that the guidance -- new guidance range is proactive and not reactive. And so can you just confirm that there's nothing in the performance of the first 30 days of 4Q that did, in fact, provoke the lower guidance?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [20]

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Matthew, we don't talk -- Andrew, excuse me, we don't talk about the current quarter. I will tell you that there's no real magic to the timing of it. It's not a reactive decision. It's a proactive decision to change the structure of the guidance, all in an effort to make it more meaningful and relevant to our investors.

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Operator [21]

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And our next question comes from Alton Stump of Longbow Research.

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Alton Kemp Stump, Longbow Research LLC - Senior Research Analyst [22]

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Just wanted to ask about your comment, Jeff, that it was a very competitive quarter. Is that a sign that we're seeing even more competition coming from third-party providers? Or was that level of competition unchanged in your view in 3Q versus the second quarter?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [23]

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Alton, it's Ritch. No real major change in the level of competition that we see out there. Still a pretty heavy stream of advertising and discounting out there in the marketplace that we see, but no significant ramp-up or down from prior.

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Operator [24]

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And the next question comes from John Glass from Morgan Stanley.

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John Stephenson Glass, Morgan Stanley, Research Division - MD [25]

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Ritch, I appreciate the detail on the carryout business and how large it's gotten relative to the delivery business. Can you dimensionalize how the relative comps are doing in those 2 businesses, if not absolutely, maybe just on a relative basis? Is carryout just growing so much faster that, that's really the story right now on a comp basis and that's why you're legging into fortressing? If you can kind of help us understand where delivery is versus the carryout business.

And also advertising spend, I think you noted a couple of quarters ago, aggregators are spending more on advertising. Others have also noted that, and that's sort of elevating them relative to traditional brands. What can you do about that? Is there a way you can shift advertising dollars back to reinforce your message in the marketplace versus what's going on now?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [26]

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Thanks, John. On your first question around the carryout business, absolutely, we're getting terrific growth in the carryout business overall and then also on a same-store basis. When we look at the delivery business, the delivery business continues to grow overall. We've had some pressure on the comps, but overall, delivery sales are higher than they were a year ago when we look at it in total across our system. But certainly, a more rapid pace of growth in the carryout business.

Then to your next question around the share of voice and the advertising, we are fortunate on 2 dimensions. One is to have a pretty hefty warchest for advertising. And second is to have some really smart folks who run the analytics about how we spend that money on behalf of our franchisees on an ongoing basis. So we are constantly running our media mix models and tweaking the mix of spend both across channels but also with respect to how that spend goes across the various messages that we are communicating, be that carryout or delivery, for example. So it's a constant thing that we manage on a very active basis.

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Operator [27]

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And our next question comes from Katherine Fogertey of Goldman Sachs.

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Katherine Irene Fogertey, Goldman Sachs Group Inc., Research Division - VP & Derivatives Research Strategist [28]

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I was hoping you could kind of comment on the cadence of the quarter. In particular, help contextualize both on the carryout and on the delivery business the impacts that some of the more promotions that you ran during the quarter had, that would be helpful.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [29]

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Katie, no real comments kind of intra-quarter on the cadence of things. We continue to actively manage the calendar against both of our businesses, the carryout and the delivery business. But no real, I guess, highlights to call out based on the cadence within.

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Katherine Irene Fogertey, Goldman Sachs Group Inc., Research Division - VP & Derivatives Research Strategist [30]

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Maybe another way to ask it is when you look at your customer data, are you seeing that these promotions are driving frequency or new customers onto the platform?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [31]

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So we're constantly running programs to drive both. It was an all-out effort around traffic. So we have certain things that will often bring new customers into Domino's. And one of the things that you see is that we run -- periodically, we will run a 50% off delivery for a week or we will run a carryout special during the course of the week. Those are great vehicles to bring new customers into the Domino's brand.

And then we're also using this incredible database that we have of 23 million active members of our loyalty program and 85 million active customers in total. So we are constantly looking at ways that we can use the power of that data to help us reach out to customers that we've already acquired and identified ways to drive increased frequency. So the answer for us really is both. Our teams are constantly working on both of those levers to drive sales growth in the business.

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Operator [32]

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And our next question comes from Gregory Francfort of Bank of America.

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Gregory Ryan Francfort, BofA Merrill Lynch, Research Division - Associate [33]

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Ritch, I think earlier in the Q&A, you talked about why the economics don't work for third parties or brands that are partnering with third parties. Can you talk a little bit about why the economics work for Domino's but they don't work for the aggregators? Just maybe explain some of the differences. And I don't know if it's brand density or product life, but anything like that just in terms of what the major differences are in terms of why your delivery orders are profitable and your competitors' are not.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [34]

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Well, I -- Greg, I'll leave it to you all as the analysts to figure out the profitability of the third parties. But I'll just focus on our business. We've got a terrific business model in that we take -- and I'll try to describe it a little bit holistically, and we'll get into kind of contextualize the delivery component. So we build these boxes. They cost about $350,000 or so on average to build. And then we run 2 businesses through those boxes that complement each other. We run a carryout business, and we run a delivery business. Now the dynamics of those 2 businesses are different, but they complement each other in that they give us a really profitable pizza production engine that then allows us to offer delivery. And as it is in any business, some of those delivery orders are going to be more profitable than others. A large ticket order that is 200 yards from the store is going to have phenomenal profitability. If we take a $15 order 9 minutes away from a store where labor is $15 an hour, that's not going to be as profitable a delivery. But because we're running so much volume through this box, both in the carryout channel and the delivery channel, it gives us an opportunity then to drive great economics for the franchisee in a way that also allows us to offer compelling value to the customer. And we just believe that, that captive system is a much more efficient business model than a business model that has a restaurant which is separate from a third-party service that ultimately does the deliveries.

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Operator [35]

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And our next question comes from Sara Senatore of Bernstein.

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Sara Harkavy Senatore, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [36]

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Just a question on the international markets, please. You said that the competitive set there is different, but there are other issues, too. I guess could you just talk a little bit to what those are? I know you've mentioned value in the past. And also, some of your licensees there are partnering with aggregators. Is that helping them? Is there anything to convince you that maybe that's the right strategy in the U.S., too?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [37]

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Yes. So Sara, on the first part of your question around what we're seeing in some of the international markets, yes, the answer is that the issues are a little bit different depending on what market you happen to be in. I mean we benefit broadly from having a really diversified portfolio of international markets. But at any given time, we always have some that are blowing the doors off in terms of sales growth, and we -- and then we've got some that are a little bit challenged. And oftentimes, more often than not, when we are a little bit challenged, it does tend to come down to the value positioning in the marketplace. And in some of our international markets, we don't have as much capability in place around some of the analytics that we have here in the U.S. that really allow us to sort through the value-maximizing price points out there in the market. So we've stood up over the course of the last year the Centers of Excellence where we've now got some of our teams here that are working alongside some of our international franchisees. It just takes time for some of that to come through to gather the data, to do the analytics and to effect the change in some of those markets.

So I'm optimistic, very optimistic, about the long-term success of that international business. As all of you probably know, it is quite near and dear to my heart having personally spent over 7 years leading that business and having personally put my feet on the ground in more than 70 of the countries that we operate in around the globe. But I have a high level of optimism we have terrific master franchisees who are committed to growing their businesses.

The second part of your question was around the third parties. Now in none of our international markets do we allow third parties to deliver our food. That's kind of first and foremost, and that is an unbending and unyielding position that we take because we feel so strongly, so strongly about the customer relationship and our ability to show up at the door with the Domino's uniform Delivery Expert. We also feel so strongly about the quality and the safety of that product as it goes from point A to point B.

But on the front end, we do have some international markets that are working with third parties to generate orders. Now in some cases, there are structural differences in the market that lead us to that place. China is probably the best example of that where the third parties are quite dominant. And while our business is growing really rapidly right now, on a relative basis, we're still a pretty small player in China with -- approaching -- tracking toward 250 units. So that's still a pretty -- on a relative basis, we're still relatively small. So those third parties are an important source of order of growth. There are some other markets around the world where I think our master franchisees have done an effective job of partnering with the third parties. But we've also got some markets where, to be honest with you, we've been on those platforms for a little while, and we really don't see any meaningful growth in the business. So it is a constant thing that we are working with our master franchisees on.

The benefit of having that diversified portfolio of markets is that we can look for lessons learned that we think might come back and be applicable to the U.S. And I can tell you that if I saw any lessons learned out there that I -- that would lead me to believe that we should be doing this in the U.S., then we would more actively consider it. But when I take the context of the fact that we've got a database of 85 million active users, a loyalty program of 23 million-plus active users, terrific technology that we've spent many millions of dollars building over time, I feel like we are in a place where we are far better served to protect that data, to not share that with third parties; and secondly, to protect the economics of our franchisees because while, as was discussed on the call earlier, certainly some of the more recent deals with the aggregators that they have got with restaurant companies, certainly some of those deals have been more favorable. Let's talk about the deal that a Domino's Pizza franchisee gets when they pay $0.25 per order that we send to them, which is just north of a 1 percentage point of ticket. I think we'd be hard-pressed to go out there and find third parties that were willing to send orders for just over 1%. But that's our perspective there.

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Operator [38]

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And our next question comes from Dennis Geiger of UBS.

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Dennis Geiger, UBS Investment Bank, Research Division - Director and Equity Research Analyst of Restaurants [39]

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I wanted to ask a bit more about the ticket contribution in the quarter. Just generally, how much of that contribution is from the higher delivery fees and then from pricing? And how much of it is from what you're doing to drive mix through things like smart tickets? And I guess more importantly, just looking ahead, how are you thinking about those components at a high level and what kind of opportunities you still have with that smart ticket as you think about the size of your loyalty program and all your digital capabilities?

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Jeffrey D. Lawrence, Domino's Pizza, Inc. - Executive VP & CFO [40]

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I appreciate the question. This is Jeff. First thing on the ticket for the U.S. business in the quarter, certainly, some franchisees on balance taking some menu price, also some delivery fee there, they use the data that we work with them obviously to try to make a good decision there. And as -- we mentioned it a couple of times today, when you have 85 million active customers in your database, you have a lot to work with when you try to tackle the real thorny issue of pricing in every neighborhood. Always trying to also sell more food. Obviously, more mix. I think as Ritch mentioned earlier, with cross variety that we're talking about, we've done the more than pizza television ads mostly during Q3, which really highlights the broad menu for our pizza company, always trying to get additional food in the ticket as well.

Having talked about ticket doesn't change our primary focus, which is the hard stuff. And it is a little bit harder right now given the dynamism in the industry that especially around the delivery business, traffic is a little harder to get than it was 2 or 3 or 4 years ago. But we remain focused on driving traffic. We think we'll get back to that spot. But right now, you're seeing a little bit more ticket during the third quarter than traffic but doesn't change the overall philosophy of what we're trying to chase.

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Operator [41]

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And our next question comes from David Tarantino of Baird.

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David E. Tarantino, Robert W. Baird & Co. Incorporated, Research Division - Co-Director of Research and Senior Research Analyst [42]

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Ritch, I wanted to revisit the targets for the comps in the U.S. And I appreciate that you've been running inside that range year-to-date. But if I look at the last 6 quarters, the comp trend has been in a gradual mode of deceleration. So I wanted to ask -- I think if you think about the targets to be achieved, you need to, I guess, stabilize this trend of deceleration. So wondering how you're thinking about your ability to do that and what's needed, whether you think that's inside the control of what you had planned or are you assuming that the environment or competitive environment gets better. I guess how are you thinking about your ability to sort of stay above 2% in the near term relative to your targets?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [43]

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Yes. David, thanks for the question. And we do take a look at both of those elements, the elements that we can control and then obviously there are elements out there in the marketplace that are happening around us. When we take a look at -- if I start with the second part of that, we do still believe that there's a good bit of uncertainty out there. As I mentioned earlier, we didn't see any significant change in the aggregator pressure in the third quarter versus the second quarter.

But where we spend the vast majority of our time thinking about is the things that we can control. And so when we take a look forward, I'm pretty excited about the programs that the team has developed as we go into 2020, which are going to continue to reinforce some of the things that are really important to us. Number one, we are going to stay focused on value as we always do. We've got some technology and some operational initiatives all around service, and that is both for our delivery business but also for this rapidly growing carryout business that we have. And I spoke first about value and about service because as we look at the consumer research out there, the 2 most important things that we hear from customers that either delight them or that cause them not to be so happy about delivery coming from anybody are do they feel like they were charged a fair price? And secondly, did they get great service? So we're going to stay focused on those.

Then third is, and I mentioned this earlier on the call as well, we do have some innovation that I'm excited about on the food front as well. And we haven't brought any new products forward in a while. And so I think some news there is also something that is due and I think will be exciting to our customers.

So when I take a look at it all in, we believe that we've got factors under our control that can allow us to continue to grow our business from a same-store sales perspective, continue to get new stores on the map because the economics are great, and when you roll it all together, to continue to grow our market share, which is, over time, as we think about how do we continue to establish this as a dominant pizza brand but also a long-term taker of share in the marketplace, it really is about all of that rolled together.

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Operator [44]

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And our next question comes from Peter Saleh of BTIG.

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Peter Mokhlis Saleh, BTIG, LLC, Research Division - MD and Senior Restaurant Analyst [45]

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Great. Ritch, I think you mentioned new menu innovation, new product is coming in 2020. I think it's been several years since we -- you've launched a new product. And historically, you launched them in the second half of the year. So can you give us some color around did you plan this to be a first half of the year-type launch? Or do we need to wait again until -- are you guys going to follow a similar pattern, launch in the second half of the year? Any color around will that be entrée, dessert sides, anything of that nature would be helpful.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [46]

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Pete, really, nothing I can share with you on the call this morning about the timing or the items. Really, from a competitive standpoint, that's information that we like to keep close to the vest.

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Operator [47]

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And our next question comes from John Ivankoe of JPMorgan.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [48]

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I wanted to follow up on the comments of service being a major focus. Even market-by-market, have you seen any difficulty of attracting and retaining drivers? That's kind of the first point. And secondly, something at least that we've heard and some of this may be anecdotal is there has been an increase in "late orders," orders that are arriving later than at least what consumers perceive a Domino's order should take. Has there been any decrease at all as you guys look at the empirical evidence, not the anecdotal evidence, service levels that may have slipped over the past couple of years and there actually might be an opportunity going forward for you to improve that?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [49]

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Thanks for the question. First, on the drivers. Yes, it's most certainly a tight labor market out there right now. I think the last statistic I saw was 3.5% unemployment in the U.S., which is as low as it's been in, I don't know, maybe 50 years. So yes, it is a tight battle for talent out there and for drivers all over the country. And -- but the interesting thing is when we go around, the franchisees that are really focused on their teams and investing in the growth and development of their teams, they are fully staffed is what I'm hearing out there in the marketplace. They're making it happen, and we're getting terrific delivery service. We're not doing that all over the country right now. We do have open positions for drivers in a lot of markets around the country where frankly we just -- we got to get better. We are seeing drivers, and as I travel around, I visit a lot of stores, I am hearing a lot of stories of drivers who are coming back to us from some of the gig economy opportunities that they may have left us to join and realize that maybe the grass isn't always greener there. And part of what we try to work with our teams on is to make sure that these drivers understand that there is an opportunity at Domino's Pizza that doesn't exist in a lot of these other areas. I mean we have 90% of our U.S. franchisees started as drivers, and we have our franchise management school that we run here in Ann Arbor, which is producing a new crop of franchisees that are coming into our system. We see the same story there. We see folks that started as drivers or insiders and worked their way up through. So the battle is ongoing, but our franchisees, I think, are up to the challenge.

As it relates to service, we've recently put more of a focus on making sure that we manage any late orders because it's interesting, those are the orders that can really drive a negative perception in the minds of consumers. And so we put a heightened focus on that here in 2019, and we're going to continue to do that going forward. So while I would not say that we're seeing any significant negative movements in service, it's not moving positive as fast as I would like it. It is where we are running our -- where we did our fortressing stride in certain markets, we see some significant improvements, but it's not broad enough across the system right now for me to be satisfied.

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Operator [50]

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And our next question comes from Steve Anderson with Maxim Group.

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Stephen Anderson, Maxim Group LLC, Research Division - Senior VP & Senior Equity Research Analyst [51]

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Just wanted to piggyback on some of the comments you discussed on some of the technology initiatives. I know you talked about in the past year new point-of-sale system and more front burner supply chain automations. Just want to see what you've picked up recently as you've learned from some of the newer -- new Edison, New Jersey location, what you bought over to some of the older supply chain facilities. And I wanted to get maybe an update on your new point-of-sale test.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [52]

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Got it. So Stephen, we've certainly continued to invest. And as Jeff said earlier, even with a little tighter management around CapEx and expense, we are still fully funding all of the key technology initiatives that we have inside the company. Our next-generation point-of-sale system progressing along really nicely. I was in the lab myself where they handed me an order script, and I was actually able to enter it in myself with no training. So not only are we building a more robust system, which one -- but also one that will enable more rapid training of our team members, which I think is critical. We are still tracking toward getting that system in a pilot store by the end of this year. And then as we continue to work through our planning, we'll have a -- what will be a multiyear rollout of the system. And when you think about it, this is a system that is present today in over 13,000 of our 16,000-plus stores around the globe.

Second, you asked about supply chain technology. We've learned a lot in the year since we opened our center in Edison, New Jersey, where we employed really for the first time in the U.S. system some of these new technologies. We've learned a lot, and we are taking the best of that to the next 2 centers, which we'll open in South Carolina and in Houston. So I'm personally excited about where this supply chain team is going in terms of making sure that we've got the capacity that we need to support the terrific growth of our franchisees.

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Operator [53]

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And our next question comes from Alex Slagle of Jefferies.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [54]

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Historically, the mix of digital sales in the U.S. seemed to grow at 5% annually year-after-year. And it seems like we have been near the 65% level for a few years now. I know it was about 60% at the end of '16. So I'm wondering, has this digital mix been increasing as you expect? Or if it has been a little slow in recent years, why would that be?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [55]

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Yes. Alex, it does continue to increase, but as you might guess, once you start getting up to more than 2/3 of your orders already on digital, that kind of year-on-year pace, it's hard to add 5 percentage points and 5 percentage points again and again. But we're pushing up close to 70% in the U.S. And it's interesting in some of our international markets as well, we see incredible numbers. China, over 90% of our delivery business is digital today. So continuing to see great movement there in the U.S. and across the globe.

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Operator [56]

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And our next question comes from Jeffrey Bernstein of Barclays.

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Jeffrey Andrew Bernstein, Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst [57]

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Ritch, just a broader question, I guess, on the industry. One, I'm just wondering whether you think you're seeing slippage across the pizza category, whether all will be feeling some of these third-party delivery pressures equally or whether maybe you are perhaps feeling it for some reason differently than others. And if you could just clarify your comment on the supply/demand outlook. I know you talked about significant shakeout to come. Just wondering whether you're talking specifically about the pizza category or the broader industry. I don't know if you've seen the evidence of that already, but any color on that front would be great.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [58]

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Sure. Yes, thanks, Jeff. Well, first off, within the pizza category, we're still gaining significant share inside the pizza category. And if you look in -- and that's in the U.S. and globally. 6% retail sales growth in the U.S. well outpaces the growth of the category. And the 9.1%, when you normalize for currency internationally, also well outpaces the category. And we're continuing to be, as we talked about earlier, aggressive in terms of fortressing the markets that we operate in. And we see so much pizza share out there still left to be taken that we're not going to slow down in that regard.

And then in some of my comments, second part of your question was around some of the shakeout. Certainly, we do see some pizza competitors that are experiencing more difficulty as evidenced by closures, particularly when we look in some of the higher labor cost markets around the U.S. One of the things that really helps our business model is that we run at a volume that significantly exceeds most of the competition on a per-unit level. And as these labor costs rise over time, if you're not running a high-volume business in QSR pizza, it gets more and more difficult to compete. It also gets more and more difficult to compete in a pizza delivery business if you're not shrinking down the radius of your territory for delivery because that is the key -- that wage rate is the key driver. And you really have to improve over time the number of deliveries per driver per hour that you can get. So we look at an industry that's under pressure from labor costs that -- an industry that is transitioning volume from dining in to delivery without any increase that we can see in terms of overall growth in the restaurant industry. So a lot of restaurant companies are trading orders from a more profitable to a less profitable channel while wage rates are going up. So that is why when we talk about a shakeout to come, this is not an industry that starts with 40% profit margins typically. So there is not a lot of room for some of these players to seed margin to a third party on one end while labor costs are going up on the other.

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Operator [59]

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And our next question comes from Brett Levy of MKM Partners.

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Brett Saul Levy, MKM Partners LLC, Research Division - Executive Director [60]

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If we could go back to -- very impressive numbers, 23 million active, 85 million overall loyalty and e-mail members. So is there anything that you can see out there, either across these different cohorts that's different? And also, do you think that you need to maybe adjust your approach to how you're talking to either the most loyal piece of the pie members or the other 60 million that are out there? Because we've seen other competitors who've really stepped up their depth and breadth of loyal members, and we've started to see them reaccelerate. So is there something you can do? Is there something you're seeing under the surface that we're not seeing? Any color would be helpful.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [61]

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I think there are quite a few things that we can do over time to take more advantage of this incredible asset that we have, which is this database of customer information that we have. And we've challenged our teams here to think about how can we get closer and closer to those customers. So how do we -- I guess the ultimate thing that everybody strives for is people use the term one-on-one marketing. Well, we've still got a long way to go between where we are today and that point over time. So it's something we think about quite regularly. And with the data that we have that gives us a chance to really look at how customers' purchasing behavior evolves over their life cycle with Domino's, we've got an asset here that I think can help us in the months and years to come.

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Operator [62]

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And our next question comes from Jon Tower of Wells Fargo.

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Jon Michael Tower, Wells Fargo Securities, LLC, Research Division - Senior Analyst [63]

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Great. Just hitting on the third-party delivery stuff again. Can you discuss what you've learned about the stickiness of those customers that have tried the third-party delivery services? And I guess I'm trying to go back to your comments about the lower fees or promotional activity driving a lot of the shift in demand in the market right now away from perhaps pizza. But if fees move higher, what are you guys seeing that suggests they're going to come back to the pizza category over time?

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [64]

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It's tough to really assess. We look at it hard, as you might guess. What we don't know yet, however, is how will the behavior evolve for customers that are now placing some number of orders through the third parties. As the full cost is -- or at least some measure of the cost is borne by the customer over time, what will ultimately happen to their behavior? We don't know the answer to that yet. But what we do know is we know a whole lot about the elasticity of demand in the pizza category. We've got -- with 6,000 units around the U.S. and with franchisees around the U.S. who have the ability to set their own prices for delivery charges and their own menu prices, we have a pretty darn good idea about what the elasticity curves look like in the pizza category.

Now we -- and we know that pizza and we believe QSR more broadly is a pretty elastic category. So what we expect over time is there will be some equilibrium. Once the cost to get food delivered to you has to fully support the effort that it takes to get it there, only then will we know ultimately where this thing falls. But I do not expect the same number of customers to use third-party delivery once they have to pay for it as the number that use it when it's free. If you offer to mow my lawn for free, I'm going to say yes. When you come and charge me for it, I might just go out there and push the mower around myself.

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Operator [65]

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And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call over to Ritch Allison for any further remarks.

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Richard E. Allison, Domino's Pizza, Inc. - President, CEO & Director [66]

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Well, listen, thank you once again for taking the time to join us this morning. And we look forward to getting back together with you in February and to sharing the results of the fourth quarter. Thanks so much.

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Operator [67]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.