Domino's Pizza, Inc. (DPZ) Q4 2022 Earnings Call Transcript

Domino's Pizza, Inc. (NYSE:DPZ) Q4 2022 Earnings Conference Call February 23, 2023 10:00 AM ET

Company Representatives

Russell Weiner - Chief Executive Officer

Sandeep Reddy - Chief Financial Officer

Ryan Goers - Vice President, Finance, Investor Relations

Conference Call Participants

Brian Bittner - Oppenheimer

Peter Saleh - BTIG

Sara Senatore - Bank of America

Jeffrey Farmer - Gordon Haskett

Brian Mullan - Deutsche Bank

Dennis Geiger - UBS

Andrew Strelzik - BMO

Gregory Francfort - Guggenheim

Lauren Silberman - Credit Suisse

John Ivankoe - JPMorgan

David Tarantino - Robert W. Baird

Operator

Thank you for opinionated by and invited to Domino's Pizza’s Fourth Quarter 2022 Earnings Conference Call. At this clip each participants are successful a listen-only mode. After nan speakers' presentation, location will beryllium a question-and-answer session. [Operator Instructions]. As a reminder, today's programme is being recorded.

And now I’d for illustration to present your big for today’s program, Mr. Ryan Goers, Vice President, Finance and Investor Relations. Please spell ahead, sir.

Ryan Goers

Thank you and bully morning. Thank you for joining america coming for our speech regarding nan results for nan 4th fourth and afloat twelvemonth 2022. Today's telephone will characteristic commentary from Chief Executive Officer, Russell Weiner; and Chief Financial Officer, Sandeep Reddy. As this telephone is chiefly for our investor audience, I inquire each members of nan media and others to beryllium successful a listen-only mode.

I want to punctual everyone that nan forward-looking statements successful this morning's net merchandise and 10-K besides applied to our comments connected nan telephone today. Both of those documents are disposable connected our website. Actual results aliases trends could disagree materially from our forecast. For much information, please mention to nan consequence factors discussed successful our filings pinch nan SEC.

In addition, please mention to nan 8-K net merchandise to find disclosures and reconciliations of non-GAAP financial measures that whitethorn beryllium referenced connected today's call. I'll petition to our sum analysts, we want to do our champion this greeting to accommodate arsenic galore of your questions arsenic clip permits. As such, we promote you to inquire only 1 one-part mobility connected this call.

Today's convention telephone is being webcast and is besides being recorded for replay via our website.

With that, I'd for illustration to move nan telephone complete to our Chief Executive Officer, Russell Weiner.

Russell Weiner

Thank you, Ryan, and acknowledgment to each of you for joining america this morning. As we extremity 2022 and look backmost to nan opening of nan pandemic, I’m encouraged by nan unthinkable activity done by Domino's squad members and franchisees.

Since nan opening of 2020, we and our franchisees person grown by 2,860 caller stores astir nan world, erstwhile galore edifice brands closed stores aliases struggled to turn done an highly difficult clip for shop development. Domino’s is successful complete 90 markets and should deed 20,000 arsenic a strategy successful 2023.

In nan U.S. nan QSR pizza class grew complete nan past 3 years pinch income up almost 10% versus pre-pandemic levels. Domino's serviced that maturation resulting successful a summation of astir 3 stock points successful nan QSR pizza class since 2019 according to NPD.

We proceed to turn our Carryout business. Carryout now comprises astir half of nan orders and astir 40% of income successful nan U.S. Carryout remains highly incremental to transportation for us, and successful cases wherever it's not incremental, customers are moving to a work method pinch important little costs for our system. Our transportation business knowledgeable some headwinds and tailwinds complete nan past 3 years. Our squad focused efforts connected uncovering solutions astatine each turn.

Now to nan 4th quarter. In nan 4th quarter, our results were mixed, peculiarly pinch nan challenges successful nan U.S. transportation business that we previewed during our Q3 call. During that call, I pointed to a mates of dynamics we were watching successful nan broader edifice class that person since played out.

First, arsenic consumers returned to galore of their pre-COVID eating habits, immoderate of nan sit-down business that was a root of measurement for edifice transportation orders returned to that channel.

Second, ostentation impacted transportation owed to nan added expenses of fees and tips successful that channel. Our investigation shows that a comparatively higher transportation costs during inflationary times leads immoderate customers to hole meals astatine location alternatively of getting them delivered. We judge this move will proceed to unit nan transportation class successful nan short term, arsenic agelong arsenic consumers' disposable income remains pressured by macroeconomic factors. Despite these pressures, nan U.S. transportation income for Domino’s successful 2022 were much than $0.5 cardinal higher than nan pre-COVID baseline successful 2019.

Domino's transportation business was not unsocial successful facing these challenges. According to NPD data, nan full QSR transportation class was down precocious azygous digits for fiscal twelvemonth 2022. Not surprisingly, according to NPD, pizza transportation was down arsenic well. Given these manufacture wide headwinds, we're encouraged that while our transportation business was challenged successful 2022, Domino's saw a mean summation successful QSR pizza transportation share.

On nan taxable of delivery, while there's much activity to do connected staffing that portion of nan business, we consciousness for illustration answers to this situation beryllium wrong nan Domino system. Staffing has improved astatine each positions successful our firm restaurants, including Drive In.

Continuing to leverage soul champion practices astir transportation service, arsenic good arsenic innovations successful this area, for illustration our caller electrical transportation fleet, should thief proceed to amended this captious measure. I americium proud of nan activity that we and our franchisees person done to reside labour constraints successful nan transportation business, and cognize we person much to do.

A accordant affirmative passim 2022 has been nan continued improvement of nan Domino's business. This helped offset immoderate of nan macro challenges connected nan transportation side. In nan U.S. we are a much complete edifice institution than ever, moving 2 businesses retired of our stores. We are Number 1 successful nan U.S. successful some nan transportation and Carryout pizza segments of QSR.

The Carryout business continues to beryllium a strength, pinch tremendous momentum. In fact, U.S. Carryout unit income for afloat twelvemonth 2022 were much than $1 cardinal higher than pre-COVID levels. More importantly, we still person a agelong runway for maturation successful this important conception of nan business. To springiness you a consciousness of nan existent standard of our U.S. Carryout business, if it were a institution of its own, Domino's Carryout would beryllium counted amongst nan apical 20 QSR brands successful America based connected user spending obtained by NPD for nan twelvemonth ending December 2022.

To support nan maturation of nan business, we opened a caller proviso concatenation halfway successful Merrillville, Indiana successful September. As you know, we person invested importantly successful our proviso chain, opening 4 caller centers since 2018. During nan 4th fourth I visited our caller halfway successful Indiana. It has nan latest successful technology, automation and caller operational procedures. Merrillville represents an unthinkable testing crushed for nan early of Domino’s proviso chain, and we look guardant to bringing nan champion parts of what we learned successful Indiana to different centers astir nan state complete time.

2022 was a beardown twelvemonth for world shop growth. We and our franchisees had astir 1,300 gross openings astir nan world successful 2022. For context, that's astir 3.5 caller shop openings per time connected average, while operating successful a difficult situation for development. This is simply a testament to nan spot of nan Domino's marque astir nan world. Our squad members and franchisees person continued to show nan agility and perseverance required to run and turn Domino's footprint successful a volatile macroeconomic environment.

Looking specifically astatine our world business, nan 1,135 gross openings extracurricular of nan U.S. were nan highest integrated openings successful our history. Meaning, they were achieved without immoderate of our maestro franchisees conducting a ample standard conversion of different pizza chain.

One of my individual highlights during nan 4th was nan opportunity to beryllium successful marketplace pinch 1 of our largest maestro franchisees, Jubilant FoodWorks. In December I met pinch their squad successful New Delhi, wherever they reiterated their extremity to turn to complete 3,000 stories successful India complete nan adjacent 5 years, which would further cement Domino's position arsenic nan starring QSR marque successful this captious world market.

Additionally, Jubilant is inspiring our world strategy to raise nan barroom connected work pinch their caller 20 infinitesimal transportation zones. I was capable to spot these successful action erstwhile I was touring stores. Service has ever been a cardinal differentiator for nan Domino's brand, and Jubilant is extending its transportation work advantage successful India. How are they capable to do this? With unthinkable operations enhanced by world fortressing strategy. When we and our franchisees build much stores, we tin get person to customers and amended transportation and Carryout services.

Now, for much item connected our Q4 results, I'd for illustration to move it complete to our CFO, Sandeep Reddy. Sandeep.

Sandeep Reddy

Thank you, Russell, and bully greeting to everyone connected nan call. I'll statesman my remarks pinch updates connected nan actions I've antecedently outlined to amended our agelong word profitability. First, we are continuing to analyse and germinate our pricing architecture. During nan 4th quarter, nan mean year-over-year value summation that was realized crossed our U.S. strategy was 6.3%. The realized pricing for afloat twelvemonth 2022 was 5.4%.

Second, efficiencies successful our costs building arsenic we activity to guarantee that revenues consistently turn faster than expenses. We saw different sequential betterment successful year-over-year operating income separator arsenic a percent of revenues, arsenic margins expanded to 130 ground points successful Q4 versus nan 160 ground points contraction successful Q3.

Even if you exclude nan 150 ground points use to operating income separator from nan $21.2 cardinal refranchising summation recognized successful nan quarter, nan contraction successful year-over-year operating income separator arsenic a percent of revenues successful nan 4th sequentially improved by 140 ground points versus Q3.

Third, we had affirmative aforesaid shop income growth, excluding overseas rate effect successful some our U.S. and world businesses, for nan first clip since Q4 2021, contributing to improving our operating income leverage.

Now, our financial results for nan 4th successful much detail. When excluding nan antagonistic effect of overseas currency, world unit income grew 5.2% owed to affirmative income comps and world shop maturation complete nan trading 4 quarters, lapping 9% world unit income growth, excluding FX and nan 53rd week effect successful 2020 successful Q4, 2021. As we person discussed successful nan past, we judge it has been instructive to look astatine accumulated stack of income crossed nan business, anchored backmost to 2019 arsenic a pre-COVID baseline.

With nan evolving macro-economic conditions, we do not presently judge it will beryllium applicable to anchor backmost to 2019 going forward, and expect returning to evaluating nan business connected a 1 twelvemonth comp ground successful 2023. Looking astatine a 3 twelvemonth stack, our Q4, 2022 world unit sales, excluding overseas rate impact, grew complete 26% versus Q4 2019.

Breaking down, full world unit income growth, U.S. unit income accrued 2.7%, rolling complete our anterior summation of 4.6%, excluding nan effect of nan 53rd week successful 2020, and are up much than 21% connected a 3 twelvemonth stack ground comparative to Q4, 2019. International unit sales, excluding nan antagonistic effect of overseas rate grew 7.5%, rolling complete a anterior summation of 13.2%, excluding nan effect of nan 53rd week successful 2020 and are up much than 30% connected a 3 twelvemonth stack ground comparative to Q4, 2019.

Turning to comps, during Q4 aforesaid shop income for nan U.S. business accrued 0.9%, rolling complete a anterior summation of 1% and were up 13.1% connected a 3 twelvemonth stack ground comparative to Q4 2019. This represented a sequential deceleration of 4.5% from Q3 connected a 3 twelvemonth stack basis, arsenic we saw clear grounds of softening request from transportation customers successful particular, fixed nan challenging macroeconomic situation during nan holidays.

The estimated effect of fortressing was 0.5 percent points during nan 4th crossed nan U.S. system. Going forward, we will only update nan effect of fortressing if nan alteration successful effect is material.

The summation successful U.S. aforesaid shop income successful Q4 was driven by an summation successful ticket, which included a 6.3% successful pricing actions I mentioned earlier, partially offset by a diminution successful bid counts.

As we person antecedently shared, we judge it is instructive to break U.S. stores into quintiles based connected staffing levels, comparative to a afloat staffed store, to springiness a consciousness for nan magnitude of nan effect of staffing.

Looking astatine Q4 aforesaid shop sales, stores successful nan apical 20%, those that are fundamentally adjacent to afloat staffed, connected mean outperformed stores successful nan bottommost 20%, those that are facing nan astir important labour shortages by little than 2 percent point. This is down sequentially from nan approximate 6 percent constituent spread we saw successful Q3.

Now, I'll stock a fewer thoughts specifically astir nan U.S. Carryout and transportation businesses. The Carryout business was beardown successful Q4 pinch U.S. Carryout aforesaid shop income 14.3% affirmative compared to Q4, 2021.

On a 3 twelvemonth basis, Carryout aforesaid shop income were up 31% versus Q4, 2019. The spread for Carryout betwixt nan apical and bottommost quintiles based connected staffing levels, stay mini during nan quarter. The transportation business continued to beryllium much pressured. Q4 transportation aforesaid shop income declined by 6.6% comparative to Q4, 2021. Looking astatine nan business connected a 3 twelvemonth stack, Q4 transportation aforesaid shop income were 3.3% supra Q4 2019 levels. When we look astatine nan aforesaid quintiles comparative to nan transportation business, nan spread betwixt nan apical and bottommost quintile stores closed considerably.

We saw only a 2 percent constituent spread successful transportation aforesaid shop income betwixt stores successful nan apical 20% percent and those successful nan bottommost 20%. This represents a sequential betterment from nan 8 percent constituent spread successful nan 3rd quarter. The 2 percent constituent spread is successful statement pinch nan expected spread extremity capacity successful a normal operating environment, and we judge is nary longer a important driver of income performance. We do not intend to proceed disclosing nan capacity by staffing quintiles successful nan future.

Our U.S. Carryout business is going from strength-to-strength, and our pizza QSR Carryout marketplace stock is up adjacent to 200 ground points successful 2022 and up adjacent to 500 ground points since 2019. Our marketplace stock successful full pizza QSR, which includes Delivery, Carryout and Sit Down continued to clasp dependable complete nan past year, and it's still up adjacent to 300 ground points versus 3 years agone

Before I reason my comments connected marketplace share, I would for illustration to touch connected transmission dynamics for pizza QSR versus non-pizza QSR based connected information we person from NPD. As Russell mentioned earlier, transportation successful 2022 was done successful some pizza QSR and non-pizza QSR while Sit Down was up importantly successful both.

In nan lawsuit of pizza QSR, this was driven much by a displacement from transportation to Sit Down and cooking astatine home. In nan lawsuit of non-pizza QSR maturation successful Sit Down was perchance driven by a displacement from delivery, but besides from Carryout. Domino's business exemplary successful nan U.S. has historically been focused mostly connected nan transportation and Carryout channels, truthful nan displacement to Sit Down hurts america comparative to others successful nan non-pizza QSR who historically person had business models that see Sit Down and Carryout, but person now added transportation to their distribution channels.

We expect this move to proceed to play retired successful 2023, arsenic Sit Down contempt caller maturation is still beneath 2019 levels.

Shifting to nan portion count, we and our franchisees added 43 nett caller stores successful nan U.S. during Q,4 consisting of 50 shop openings and 7 closures, bringing our U.S. strategy shop count to 6,686 stores astatine nan extremity of nan quarter, which brought our 4 4th nett shop maturation complaint successful nan U.S. to 1.9%.

This deceleration successful maturation was expected successful ray of nan permitting and shop building proviso concatenation challenges we person faced each year. While we expect nan first half of nan twelvemonth for U.S. shop openings to proceed to beryllium challenging owed to a continuation of these aforesaid factors, based connected our existent pipeline, we expect a gradual betterment starting towards nan 2nd half of 2023.

Domino's portion economics stay beardown comparative to nan galore pressures faced passim nan year, including staffing challenges and precocious inflationary situation for nutrient and labor. The mean Domino’s shop successful nan U.S. generated much than $1.3 cardinal successful income during 2022

We presently estimate that our 2022 mean U.S. franchise shop EBITDA was adjacent to $137,000, not overmuch beneath nan 2019 estimated EBITDA of $143,000. In fact, estimated mean shop profitability was higher successful Q4, 2022 than Q4 2019. We will update nan last number connected our Q1 call.

With our continued beardown 4 wall economics, we stay bullish connected nan agelong word portion maturation imaginable successful nan U.S. and we support our condemnation that nan U.S. tin beryllium an 8,000-plus shop marketplace for Domino’s. New shop openings paybacks remained beardown pinch stores opened successful 2019, averaging astir 3 twelvemonth paybacks akin to nan 2018 vintage.

Same shop income excluding overseas rate effect for our world business accrued 2.6%, rolling complete a anterior summation of 1.8% and were up astir 12% connected a 3 twelvemonth stack ground comparative to Q4, 2019.

We proceed to look nan headwind of nan antagonistic year-over-year effect of nan expiration of nan 2021 VAT alleviation successful nan UK, our largest world marketplace by unit sales. The 4th fourth effect was astir half nan magnitude of nan 2nd and 3rd quarter, arsenic nan UK VAT alleviation was reduced from 15% to 7.5% successful 2021 connected October 1. The year-over-year effect of exploration of nan UK VAT alleviation will proceed while we thigh nan reduced rates that were successful spot done March 31, 2022.

Our world business added 318 nett caller stores successful Q4, comprised of 406 shop opening and 88 closures. Our closures were driven by different information of closures successful Brazil arsenic our maestro franchisee location continues its activity to optimize nan shop guidelines successful nan market, arsenic good arsenic immoderate closures successful Russia, wherever our maestro franchisee arsenic antecedently announced by them, continues to research opportunities to exit nan business successful that market.

This brought our existent 4th fourth nett shop maturation complaint successful world to 7.4%. When mixed pinch our U.S. shop growth, our trailing 4th fourth world nett shop maturation complaint was 5.5%. The 5.5% is impacted by a important summation successful world closures this year, arsenic compared to our humanities tally rate, including successful Brazil, Italy and Russia.

Turning to EPS, our dilutive EPS successful Q4 was $4.43 versus $4.25 successful Q4, 2021. Breaking down that $0.18 summation successful our delivered EPS, our operating results benefited america by $0.27, changes successful overseas rate speech rates negatively impacted america by $0.22. Our little effective taxation complaint positively impacted america by $0.20, driven by nan discrete effect from nan reversal of our taxation reserve, based connected caller taxation rule change, related to 1 of our overseas subsidiaries during 2022.

Lower nett liking disbursal benefited america by $0.04. The refranchising summation recognized to our 4th fourth shop transaction, benefited america by $0.46. The unrealized summation recognized connected our re-measurement related to our finance successful Dash successful 2021, negatively impacted america by $0.68 and a little diluted stock count driven by stock repurchases complete nan trading 12 months benefited america by $0.11.

Transitioning to nan afloat year, I would for illustration to deed connected a fewer financial highlights for 2022. Global unit income grew 3.9% for nan year, excluding nan effect of overseas currency. Same shop income successful nan U.S. declined $0.08 and international, excluding FX grew $0.01.

We and our franchisees opened 1,032 nett caller stores during, contempt importantly higher closures this twelvemonth successful our world markets arsenic antecedently discuss. Our nutrient handbasket for nan twelvemonth was up 13.2%,, reflecting nan beardown effect of inflation. Our G&A for nan twelvemonth was $417 million, down 2.8% versus $428 cardinal successful 2021.

Operating income was down $12 cardinal versus 2021, including nan $21 cardinal effect of nan refranchising gain. Operating income separator was positively impacted by 50 ground points owed to nan refranchising gain, but this was afloat offset by nan antagonistic effect from overseas currency. If overseas rate remains astatine existent levels aliases increases arsenic a headwind going forward, we expect that this will beryllium a obstruction to recovering to our pre-pandemic operating income margins.

Although we faced operating headwinds successful 2022, we proceed to make sizable free rate flow. During 2022 we generated nett rate provided by operating activities of astir $475 million. After deducting for superior expenditures of astir $87 million, which consisted of investments successful our exertion initiatives and proviso concatenation centers, we generated free rate travel of astir $388 million.

Free rate travel decreased $172 cardinal from 2021, owed chiefly to changes successful moving capital, including accrued liabilities and income taxes, arsenic good arsenic higher advertizing costs walk and little nett income.

During nan year, we returned complete $450 cardinal to shareholders done stock repurchases of $294 cardinal and dividends of $158 million. As to nan extremity of nan twelvemonth we had astir $410 cardinal remaining nether our existent committee authorization for stock repurchases. Our committee has besides approved a 10% summation from our anterior quarterly dividend to $1.21 that is payable connected March 30 of this year.

Looking guardant to 2023, we would for illustration to supply our yearly guidance measures for nan year. We presently task that nan shop nutrient handbasket wrong our U.S. strategy will beryllium up 3% to 5% arsenic compared to 2022 levels. We expect nan first 4th nutrient handbasket summation to beryllium higher than nan remainder of nan year.

We estimate that changes successful overseas rate speech rates could person a $2 cardinal to $6 cardinal antagonistic effect connected world royalty revenues successful 2023 arsenic compared to 2022 if overseas speech rates stay astatine existent level. The antagonistic effect of rate is expected to beryllium higher successful nan first half of nan twelvemonth based connected existent rates.

We expect our CapEx investments will beryllium betwixt $90 cardinal and $100 cardinal arsenic we proceed to strategically put successful our business and prioritize our spend. We expect our G&A disbursal to beryllium successful nan scope of $425 cardinal to $435 million. Our taxation complaint excluding nan effect of equity based compensation is expected to scope from 22% to 24%.

Finally, fixed nan existent macroeconomic headwinds that are impacting our U.S. transportation business successful particular, we are updating our 2 to 3 twelvemonth outlook from 6% to 10% world unit income maturation to 4% to 8% world unit sales, and portion maturation from 6% to 8% world nett portion maturation to 5% to 7% world nett portion growth.

We expect 2023 to travel successful towards nan debased extremity of nan ranges for some metrics. We look guardant to providing much specifications astatine our Investor Day we will clasp earlier nan extremity of almanac 2023.

Thank you each for joining nan telephone today, and now I will move it backmost to Russell.

Russell Weiner

Thank you, Sandeep. The Domino’s strategy has a batch to beryllium proud of, and we besides person opportunities to address. We pridefulness ourselves connected being a work-in-progress brand, and location is nary amended measurement to picture this play successful our history.

As we saw successful nan past recession, transportation moves pinch nan economy, particularly for customers pinch little disposable income, who correspond a important information of our business. As it was successful Q4 of 2022, we expect nan system to beryllium a headwind for our transportation business successful 2023. While we expect to proceed to turn QSR pizza transportation share, we besides expect nan transportation income will beryllium challenged. Every time transportation customers will beryllium deciding wherever to walk their difficult earned dollars. So we request to support worth and proceed to amended our service.

On nan taxable of value, moving nan $5.99 operation and lucifer connection we launched successful December of 2009 to $6.99 successful 2022 was nan correct determination for our brand. That said, we and our franchisees must beryllium vigilant to make judge worth exists crossed our full venue, not conscionable successful promotional offers.

We besides request to thrust much innovation. When I look backmost astatine my 14 years astatine Domino’s, we were astatine our champion erstwhile we brought large ideas to market. These ideas helped america show awesome marque stories. Coming retired of COVID, we became much transactional pinch our customers than I would person liked. This was understandable arsenic our squad needed to pivot and respond to immoderate of nan labour constraints we discussed earlier successful nan year.

I'm encouraged astatine nan measurement we ended ‘22 and person begun 2023. We and our franchisees reinforced our position arsenic nan transportation leader by introducing a fleet of 800 electrical transportation vehicles. Domino’s now has nan biggest electrical fleet of pizza transportation vehicles successful nan country. In Carryout, we brought backmost our innovative Carryout tips promotion, which continues to thrust worth and news successful that segment.

We've launched Loaded Tots successful early 2023. Adding a murphy broadside to our paper has been a extremity for galore years, but it was difficult to find a merchandise that delivered good and didn't extremity up successful customers' homes acold and soggy. Loaded Tots delivers, virtually and figuratively, and continues our invention strategy of adding platforms that are incremental to our menu.

In 2023 we will besides refresh and amended our Piece of nan Pie loyalty program. We vanished past twelvemonth pinch astir 30 cardinal progressive members successful nan programme and complete 77 cardinal full members successful our loyalty database. We launched Piece of nan Pie successful nan autumn of 2015. There is an opportunity to innovate and turn this programme further by unlocking worth to an moreover wider guidelines of customers.

Dominos has been called galore things complete nan years; a pizza company, a transportation company, a trading company, a exertion company, each of those are true, but erstwhile we are astatine our best, we're besides an invention company. Product, work and exertion invention pinch a very circumstantial purpose; to springiness our customers and shop squad members nan champion imaginable pizza experience; to show 1 of a benignant marque stories and to over-deliver connected expectations. This is what you person travel to expect and should proceed to expect from domino's pizza.

With that, we'll unfastened nan telephone to questions.

Question-and-Answer Session

Operator

Certainly. [Operator Instructions] And our first mobility comes from nan statement of Brian Bittner from Oppenheimer. Your question, please.

Brian Bittner

Thank you. Good morning. My mobility is connected portion growth. Just first, connected nan 2 to 3 twelvemonth algorithm change, moving to 5% to 7% from 6% to 8%. Can you conscionable thief america understand nan drivers that forced this change? Is it chiefly because of nan decelerating U.S. outlook aliases is location different factors that possibly you'd for illustration to return this infinitesimal to unpack for us.

And 2nd to that, Sandeep you said successful 2023 our portion maturation should beryllium astatine nan debased extremity of this caller range, benignant of adjacent nan 5% area. Can you conscionable overgarment nan script for america wherever you accelerate from nan bottommost of this range? Is location a catalyst that you spot emerging, pursuing 2023 that we should beryllium reasoning about, that makes nan midpoint of this scope much of a guidelines lawsuit for portion maturation moving forward? Thanks.

Sandeep Reddy

Good morning, Brian. Thank you for nan question, and truthful fto maine commencement first pinch nan rationale for nan portion maturation update from 6% to 8% to 5% to 7%. As we said successful nan prepared remarks arsenic well, I deliberation nan U.S. transportation business and nan constraints that we spot successful beforehand of america connected nan U.S. transportation business are a large driver of this determination to really slow down nan expectations from a portion maturation standpoint.

And arsenic you besides noted from my prepared remarks, nan headwinds that we saw passim 2022 are expected to proceed into nan first half of 2023 and that is going to put unit connected nan portion maturation that we expect to spot arsenic we spell guardant successful 2023.

And I deliberation successful position of what nan catalyst would be, nan reply is simply a small spot successful position of what I talked astir connected nan U.S. maturation itself and nan cadence. So nan first half of nan twelvemonth is going to proceed to beryllium pressured for nan aforesaid reasons that it was pressured successful 2022. But arsenic we move into nan 2nd half of nan year, nan pipeline that we person for 2023 looks really encouraging, and I deliberation this is astatine nan backmost of economics that proceed to beryllium very compelling.

We’re delivering $137,000 successful EBITDA pinch each nan pressures that were faced from an inflationary standpoint connected nutrient costs, labour and conscionable wide costs successful nan P&L and that's virtually wrong $6,000 of 2019 levels. And astir encouragingly, nan exit complaint from Q4 had nan EBITDA levels that we are estimating supra 2019 levels. This is really a manifestation of nan value increases that we took connected nan earthy connection for Mix of Match successful nan 4th quarter, successful peculiar for Carryout opening to travel through.

The travel done benefits for nan franchisee P&L are very compelling, and we consciousness that if this continues, this cadence arsenic we move guardant successful ’23, notwithstanding nan 3% to 5% nutrient handbasket summation that they're looking at. Franchisee is successful a very bully spot to proceed improving their profitability, and that's why we consciousness truthful assured pinch nan pipeline that we’re seeing successful 2023, economics backmost it up, paybacks proceed to beryllium very beardown astatine astir 3 years.

Brian Bittner

Thank you.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement of Peter Saleh from BTIG. Your question, please.

Peter Saleh

Great! Thanks. Russell, you alluded to immoderate changes to nan rewards programme successful 2023. I was hoping you could adhd a small spot much colour to that. That feels for illustration it could beryllium a meaningful driver, arsenic it’s been a driver for you guys for respective years successful nan past. So conscionable immoderate update connected that would beryllium beneficial. Thanks.

Russell Weiner

Sure. Good greeting and acknowledgment Peter. As I said during my remarks, we've been pleased pinch this program. We launched successful 2017. We've sewage complete 30 cardinal progressive members, 77 cardinal full members, and really astatine this constituent arsenic we deliberation astir nan improvement of nan rewards program, it is astir taking nan champion and keeping nan champion of what we person and past continuing to dial up connected wherever nan opportunities are, and truthful – and we're not going to talk to nan specifics of it now.

But I deliberation erstwhile you spot america motorboat it later connected this year, you'll spot those who are joining nan programme proceed to – are going to proceed to bask nan positives of it, and astir apt immoderate of our little predominant customers are going to beryllium incented to do more. And I should show you, I'm sorry I misspoke. The launched cardinal loyalty programme was 2015, not 2017.

Peter Saleh

Thanks. And past conscionable 1 travel up for Sandy. Is it imaginable to get edifice level margins for nan franchisees backmost to you cognize 2020, 2021 levels pinch this operation of carryout transportation aliases do you really request transportation to resurge present to get backmost to those types of margins? Thanks.

A - Sandeep Reddy

Thanks. Thanks Peter for that question. Now, successful position of wherever we were, successful position of edifice level margins connected nan franchise's side, what you did spot from a cadence standpoint was nan profitability. It really went up beautiful importantly betwixt 2019 and 2021 from 143 to 174 I judge successful 2021.

But I deliberation nan costs increases that person really travel done person been really significant, and I deliberation until that benignant of beds successful and nan value increases that we've taken fundamentally commencement normalizing, it's going to return them immoderate time. Over clip of course, I deliberation we’ll get backmost to those levels of profitability and absolute dollars.

But I deliberation successful nan short word we're looking astatine mini steps and I talked astir Q4 specifically, because we're now inflicting, we're now inflicting nan trend, and I deliberation pinch nan adjustments that we made connected nan pricing architecture, we're successful a bully spot pinch nan franchisees, and we dream that arsenic we move into 2023 this continues to accelerate and helps them really spot moreover amended profitability successful ‘23.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement – 1 moment, from Sara Senatore from Bank of America. Your question, please.

Sara Senatore

Yes, tin you perceive me? Thank you. I wanted to inquire astir benignant of nan comments connected nan comp and nan macro environment. You cognize we're really not seeing very overmuch softness aliases grounds of value sensitivity crossed nan remainder of nan industry, and I understand transportation mightiness beryllium different, but I conjecture nan mobility is two-fold.

One is, is location immoderate logic to deliberation that possibly your pricing could beryllium higher? You look to beryllium lagging nan manufacture by 2 to 4 points, and that's astir wherever your comp spread is I would say. So you cognize arsenic you deliberation astir pricing, is location room to possibly return much connected nan paper and possibly little connected transportation fees.

And past separately, does this summation nan likelihood aliases nan attractiveness of partnering pinch aggregators, not transportation arsenic a service, but arsenic a trading platform. You cognize virtually everybody who has done that has suggested that nan income cohort is higher connected aggregator platforms and that it's incremental to nan – you cognize to retrieve possibly ordering done nan proprietary ordering.

So I'm conscionable trying to portion together everything that's happening successful nan discourse of pizza being a very bully worth successful absolute, but nan lag versus nan wide manufacture and possibly immoderate drivers. Thanks.

Russell Weiner

Yes, acknowledgment Sarah, it's a awesome question. I deliberation what I'll do is return a small measurement backmost and conscionable springiness position connected our business. As you said, it's a unsocial one.

60% of our income are delivering. When we talked successful our comments astir nan QSR transportation class down, nan pizza transportation class was down, Dominos really gained shared. So it's not nan prettiest measurement to summation share, but successful a macroeconomic clip wherever nan full transportation QSR class is pressured, we grew sharing successful nan pizza category. That's 60% of our business, and erstwhile that’s 60% of your business, you're going to spot nan numbers autumn retired nan measurement they did.

Now, what I'd for illustration to deliberation astir erstwhile I talk astir nan Sara Senatore from Bank of America and early Dominos is really overmuch much divers we are than we were years ago. So deliberation astir our Carryout business that's not encumbered by immoderate of those headwinds was up 14% to 15% successful Q4, complete 30% complete nan past 3 years, $1 cardinal dollars complete nan past 3 years, you cognize that's really a business that's connected fire, and past internationally we unfastened much integrated stores than we ever had successful our history.

And truthful I deliberation you conscionable request to person that position of looking astatine our full business, really we're performing successful delivery, really that capacity is really making america better, truthful erstwhile we travel retired of this we're going to beryllium a amended transportation company, but really nan much complete dominoes is successful a amended spot arsenic we caput done these tougher times.

So if I were to return that arsenic a backdrop to your 2nd mobility connected you cognize aggregated for delivery, again for illustration I said, we're continuing to turn stock of transportation pizza here. We do activity pinch aggregators globally. We've sewage $1 cardinal successful income extracurricular of nan U.S. wherever we're learning each day, and while we do that we're doing things for illustration continuing to amended our ordering acquisition and improving nan loyalty programme arsenic I said about, to make judge our transportation ordering acquisition is amended than everybody else's.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement of Jeffrey Farmer from Gordon Haskett. Your question, please.

Jeffrey Farmer

Good morning. You guys stated that you're proud of nan activity that you've done pinch franchisees to reside labour constraints and transportation business. Can you conscionable elaborate connected what you've done location to benignant of statement up immoderate of nan driver need? And do you judge that staffing shortfalls are nary longer having a worldly effect connected your comparative aforesaid shop income performance?

Russell Weiner

Yes, acknowledgment for nan question. Look, we're satisfied pinch nan improvement. We're ne'er going to beryllium satisfied until each transportation is location arsenic expeditiously arsenic we tin get it. So we're satisfied, but what I'd opportunity is we person much activity to do, truthful our work times are better. They are not amended than they were successful 2019 and that's nan spot we request to go.

When you look astatine our firm stores, it’s trying to deliberation astir that arsenic a proxy for what's going connected successful nan remainder of nan business. Corporate stores, our hires are astatine pre pandemic levels now, turnover is down, occupation applications are up and we're getting group done nan strategy faster connected applications.

We talked astir telephone centers. I wouldn't really mention it connected this call, but astir half our stores are connected telephone centers correct now. Not each azygous telephone goes done nan telephone centers, but they are location to thief and that makes nan occupation easier for our squad members. We person a batch of cognition simplification processes that we put into spot that we're really excited to stock pinch you guys erstwhile you travel successful for Investor Day.

And past thing that I'd constituent to that we conscionable launched was this EV fleet. So we person an EV fleet of 800 vehicles, but that really is portion of a larger benignant of strategical displacement you're starting to spot pinch our franchisees and firm stores and purchasing vehicles. And what that enables america to do is pull folks who've sewage driver's licenses, but possibly don't person entree to vehicles.

So erstwhile you put each that worldly together, you're seeing a much businesslike inflow of people, much businesslike operations, caller pools of driver, that's why you're seeing nan sequential betterment successful nan first and 5th quintile. And that's why you cognize we sewage different boost week coming up, backmost to nan regular cadence arsenic we said we would do successful Q3.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes successful nan statement of Brian Mullan from Deutsche Bank. Your question, please.

Brian Mullan

Hey! convey you. conscionable a mobility connected nan Carryout business successful nan U.S. In nan 4th aforesaid shop income were up 31% versus ’19. It's very, very beardown connected an absolute basis. It sounds for illustration that inclination versus ’19 did decelerate a small bit, a fewer 100 ground points versus nan 35% you saw successful nan 3rd quarter. Just wondering if you could speak to nan dynamics you deliberation were astatine playing successful nan 4th successful Carryout and what mightiness person been down that deceleration, if thing worthy noting.

A - Russell Weiner

Brian, bully morning. I think, look – connected nan Carryout business, erstwhile we look astatine it, erstwhile we look astatine 3 years taxation of 31% connected a business that has really grown complete $1 cardinal complete nan past 3 years, you get to a constituent wherever nan sequential alteration is sometimes going to beryllium disconnected a small bit, but I don't deliberation it really reflects connected nan underlying business. The underlying business is highly strong. We are really pleased astir what we are seeing successful nan Carryout business, some arsenic we look backmost connected 2022 and arsenic we look guardant into 2023. So, ace happy pinch what we've seen.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement of Dennis Geiger from UBS. Your question, please.

Dennis Geiger

Great, convey you. I wanted to person different 1 connected nan U.S. transportation challenges and really you reside those, nan biggest issues there. Russell, you conscionable mentioned a attraction connected making nan bid acquisition amended than everyone else’s, and I deliberation astatine nan extremity of your prepared remarks you gave a bunch of points of attraction for income going forward. But tin you talk a spot much astir nan biggest opportunities to reside nan transportation pressures correct now? Just you know, really difficult it is to flooded this benignant of macro pressure, but again yet really you tin do that wrong your brand. Thank you.

Russell Weiner

Yes, sure. Look. I mean, I deliberation portion of nan reply your mobility was successful our question. The transportation pressures are a macroeconomic thing, and truthful for illustration I said it, while it's not a beautiful measurement to turn share, erstwhile you're increasing stock successful a class that has sewage headwinds, that intends you're benignant of outperforming nan remainder of nan category.

Now that's not what we for illustration to spot successful our wide numbers, but you're really talking astir macro pressures. And truthful nan measurement I look astatine is each nan things that we're doing now to get amended successful transportation pinch hiring folks, pinch having a tighter circle of operations, pinch innovating, pinch technology, each of these things, truthful that what is now a stock summation successful a class that’s sewage headwinds, erstwhile those headwinds will subside – and look, I joined during nan clip during, during nan past recession. We boomed retired of that recession, because I deliberation arsenic we said past time, we knew this, transportation because of transportation interest and because of tips, if they're going to person other headwinds during these economical times.

So I for illustration to look astatine really are we performing during these times? Are we getting amended during these times, truthful erstwhile that unit is gone you should spot america to accelerate.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement of Andrew Strelzik from BMO. Your question, please.

Andrew Strelzik

Hey! Good morning. Thanks for taking nan question. Mine is really a travel up to your anterior answer, and I conjecture my mobility is astir balancing, benignant of possibly being much fierce and benignant of creating a span done nan macro challenges alternatively of possibly what sounds for illustration a much incremental attack is benignant of really I'm knowing what you're talking about, it. Kind of incremental steps and past a existent acceleration arsenic nan macro improves.

So really do you deliberation astir imaginable opportunities to beryllium much fierce to soft retired that cadence alternatively than benignant of nan dip and nan boom? Thanks.

Russell Weiner

Yeah Andrew, awesome question, and that's benignant of what I was talking to, you cognize really astatine nan end,

Look, during COVID we were clear during nan pandemic that we had capacity issues. And truthful nan type of transportation innovation, location you are seeing much connected things for illustration car broadside transportation aliases contactless delivery, and truthful I'm not going to talk to innovations moving forward, but that's an important portion for us.

If we want to break retired of nan category, past we request to break retired of nan class from an invention standpoint, and that's – you cognize we'll talk merchandise later, I could talk each day. But location are innovations that are going to thief america successful summation to EV fleet connected nan exertion side. That should thief america break distant from nan crowd.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement of Gregory Francfort from Guggenheim. Your question, please.

Gregory Francfort

Hey! Thanks for nan question. Russell, you talked a small spot astir broadening worth from nan nationalist coupon offers to possibly nan remainder of nan menu. Can you grow connected what that looks for illustration and possibly what customer feedback you're getting that's driving you to aliases franchisees to reassess that? Thanks.

Russell Weiner

Yeah sure, thanks. Well, I conscionable want to reiterate our affirmative look to nan alteration we made successful our operation and match, moving to $6.99 some delivering Carryout. It was perfectly nan correct thing.

You know, arsenic you cognize our franchisees and section stores power their ain paper pricing and transportation fees and things for illustration that and each nan models successful nan world, each nan acquisition successful nan world pinch nan headwinds and changes successful nutrient costs and labour and things for illustration that [inaudible]pretty quick. And I deliberation if we were to look astatine immoderate of our stores, things that are not connected promotion.

So, menus and possibly immoderate lawsuit transportation interest our value whitethorn person sewage a small spot of a head. We request to beryllium of value, not conscionable world offer. Sometimes group want mean 2 type pizzas, a batch of times they want mean 2 types pizzas, but sometimes they want different things too. And it's conscionable making judge that we person nan correct worth crossed nan different pieces of our menu. We'll beryllium moving pinch our franchisees connected that.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement of Lauren Silberman from Credit Suisse. Your question, please.

Lauren Silberman

Thank you for nan question. I admit each nan commentary connected franchise EBITDA and payback. Can you conscionable level group wherever improvement costs are moving today? I deliberation they were astir 3,500 successful – those were successful 2019. Just to fig retired what that is now. And then, Sandeep, I deliberation you mightiness person said franchise EBITDA could really turn successful ’23, versus ‘22. Did I understand that correctly?

Sandeep Reddy

Yes, acknowledgment Lauren for nan question. And I'll commencement pinch nan past part, past we'll spell backmost to nan first part.

So I deliberation successful position of franchise EBITDA, we expect ’23 to beryllium improved versus 2022 for sure, fixed nan pricing changes that we made towards nan backmost half of nan twelvemonth and nan lowering unit from nutrient handbasket and costs that we expect successful ’23.

But I deliberation successful position of nan improvement cost, nan reply is, it benignant of varies. It depends connected wherever precisely they are building stores, and there's a large scope successful position of improvement costs astir nan country. And truthful arsenic we're coming retired of this constrained environment, wherever we had permitting and shop building issues, we are fundamentally saying that location is immoderate costs unit for sure, but I deliberation getting into circumstantial from what that number is, is astir apt not correct until we spot this play retired complete nan people of ’23. And I deliberation astatine nan correct clip will beryllium successful a position to springiness you a amended update successful position of nan wherever things are at.

But fundamentally from a payback standpoint, nan 3 twelvemonth scope of payback is still very overmuch what franchisees are looking at, and that's why they are making nan investments they are making.

Operator

Thank you. One infinitesimal for our adjacent question. And our adjacent mobility comes from nan statement of John Ivankoe from JPMorgan. Your question, please.

John Ivankoe

Hi, convey you. A portion from me, first, U.S. portion improvement 1.9%. You’ve talked astir splits of astir 50 ground points, So that would propose thing for illustration 25% connected mean of a divided shop comes from existing stores. And I wonderment arsenic you benignant of deliberation astir nan footprint going guardant to 8,000 stores, if location beryllium a measurement to trim nan income effect from those splits, because evidently to nan astir adjacent stores, it would beryllium overmuch greater than 25%, truthful that's nan first portion of nan question.

And past secondly, I deliberation it's been immoderate clip since we talked astir nan trial aliases immoderate initiatives that you were specifically doing successful nan Houston market, if I retrieve correctly. Is location thing to stock that you're seeing there, that I conjecture successful mentation we could spot publically if we went and recovered that action of stores, that possibly has immoderate exertion to nan Domino’s strategy from a ratio effectiveness successful shop delivery, immoderate we tin possibly get a small preview of immoderate of those initiatives connected this call. Thank you truthful much.

Sandeep Reddy

Sure I'll commencement disconnected connected nan effect connected nan portion maturation and a divided effect of fortressing fundamentally that you're referring to John. As you – we started already get updating again during nan people of ’22 and if you saw we went from I deliberation 0.7% of fortressing effect successful nan 2nd 4th to 0.5% now. So nan effect connected fortressing is becoming little and little successful position of what effects it's sewage connected nan aforesaid shop sales.

We don't spot it being a very, very important effect arsenic we move forward. But arsenic we said again, we going to update it if it really deviates from that. There is plentifulness of maturation still that we really seen successful our runway. We person nan opportunity mapped retired by our soul teams, and we cognize that we tin decidedly spell aft that successful nan pipeline that we person from franchisees is connected nan backmost half. Knowing what that opportunity looks like, nan economics that they spot coming retired of it, and truthful I deliberation we consciousness beautiful bully that we had nan correct equilibrium connected that.

Russell Weiner

Yes, I would conscionable adhd John. We are transforming this institution correct now. Obviously, nan transportation business is simply a basking taxable today, but you cognize Carryout pizza, Carryout QSR is importantly bigger than transportation QSR and truthful what we spot is each clip we unfastened up a caller store, not only do our transportation times get tighter. And basking pizza is really basking nutrient successful wide by nan way, which is why we're launching our Tots, because group want basking potatoes pun intended.

The transportation times get tighter, but besides nan Carryout measurement is very incremental. Consumers don't want to – customer’s don't want to – customers don’t want to locomotion that far, thrust that acold to get their pizza. So portion of nan translator of this marque into a much complete institution is perfectly – you cognize continuing to thrust these shop growth.

As acold arsenic immoderate things that we were doing astatine Houston, I deliberation alternatively than maine trying to picture things complete a call, I would really induce you to travel to our gathering later this year, wherever we're going to show that worldly live. It's ace difficult to describe, but I would opportunity astatine nan extremity of nan time these are processes that alteration america to get a basking pizza to customers, evidently successful a safe but faster way. But besides amended nan acquisition successful nan shop for our squad members and nan resulting value of that product.

So hopefully, that's capable to bedewed your whistle to travel to Ann Arbor.

Operator

Thank you. One infinitesimal for our last question. And our last mobility for coming comes from nan statement of David Tarantino from Robert W. Baird. Your mobility please.

David Tarantino

Hi! bully morning. My questions is connected nan separator outlook and Sandeep, I was wondering if you could thief to framework retired really you deliberation nan EBIT separator will advancement if you deed nan debased extremity of your targeted scope successful 2023.

Sandeep Reddy

Yeah, truthful that's a awesome question, David. So look, I mean arsenic acold arsenic we're concerned, nan guiding principles that we've really outlined is gross should beryllium increasing faster than expenses. So erstwhile you look astatine nan guidance scope connected world unit income and you look astatine our guidance scope connected G&A, tin spot that essentially, moreover astatine nan debased extremity our G&A is fundamentally beneath that successful position of maturation astatine nan midpoint. And truthful I deliberation consecutive distant that gets you into a spot wherever you tin beryllium separator accretive, truthful that's constituent number one.

Point number 2 is, we really knowledgeable a batch of headwinds this past twelvemonth from overseas exchange, and I deliberation that really had a 50 ground constituent antagonistic effect connected our operating separator successful ’22. Unfortunately, fixed wherever we are, we still spot a small spot much headwind, but not successful nan aforesaid magnitude fixed wherever existent rates are. And truthful that would beryllium an offset to immoderate of that operating improvement. But from a operation standpoint, pinch nan firm shop income that person really happened, we’ll now get 3 aliases much afloat quarters from that, that helps our margins.

So I deliberation wide erstwhile we look astatine nan margins, my expectations for margins is that margins will improve. But I deliberation erstwhile we talked astir pre-pandemic margins aliases 2019 margins pinch nan rate headwinds that we knowledgeable successful ’22, that's astir apt further distant than ’23, but it's not thing that we're saying its unattainable. It's much a mobility of clip and immoderate of nan different factors that deed nan P&L.

Operator

Thank you. This does reason nan question-and-answer convention of today's program. I'd for illustration to manus nan programme backmost to Russell Weiner for immoderate further remarks.

Russell Weiner

Well, convey you, and convey you everybody for joining nan telephone this morning. Sandeep and I look guardant to speaking pinch you successful April to talk our first 4th results. Until then, we'll talk soon.

Operator

Thank you ladies and gentlemen for your information successful today's conference. This does reason nan program. You whitethorn now disconnect today. Good day!