Thank you, operator. Good morning, everybody. Thank you again for joining us for the Evercore ISI's consumer and retail conference. We're happy to have Domino's joining us today. Sandeep Reddy was appointed CFO on April first of this year. Prior to joining Domino's, Sandeep had CFO roles at Six Flags and Guess. As many of you know, Domino's has once been one of the best performing stocks in consumer over the long term. But today, its valuation is well below its recent averages due to slowing sales and concerns about its long-term delivery share and other topics. So it makes it particularly interesting to talk to Sandeep, who's got some fresh eyes on the business. As a company, they're trying to think about what changes they may be making to address the opportunities and challenges ahead. Sandeep, welcome. Thank you, David, and good morning, everybody. You're part of a new team at the top of Domino's. It's not just you, but obviously Russell. You're taking over a business with enviable market share and long-term growth, but also with some challenges that I'm sure we'll be talking about today. You're coming into Domino's from the outside, which in a way, in a certain way, makes you very interesting to us. You know, what are your perspectives coming in, and what observations and priorities do you have? Yeah. No, I think it's a great time to be coming into Domino's. Well, the world's going through, and the United States included, a lot of change in the more recent past. A lot of disruption to traditional models has been happening. I think what I think is very cool about Domino's when I actually see what's going on is, yeah, there has been a disruption. There has been a slowing of sales. When I actually kind of, like, sift through it's really different from what Domino's probably went through back at the end of the Great Recession, back in 2008, 2009, 2010. I think the business really had more of a demand problem. I think it really was about the product and how it resonated with the consumer. Russell, our new CEO, who started pretty much particularly a month after I started, but has been in the company since then, really was the architect of that pizza phenomenon story back in 2008, 2009. I think he's done an amazing job when I just look at what's happened over the past decade plus of really going and figuring out how to understand what the consumer wanted and actually building with the analytics to make sure that we're delivering what the consumer wants on a consistent basis month after month, quarter after quarter, year after year. That's what's caused the enviable position of Domino's to build over the years since then. I think where we really find ourselves now, especially as we've gone through the pandemic, is you've seen a big disruption happening in the marketplace, because of the trends of the pandemic and choices consumers made and how they consume food, which caused some shifts in channels. I mean, I pretty much have gone through a bit, and then you probably went through a phase where delivery was the most choice program. Carryout becomes very interesting. We're seeing a lot of shifting in the channels that are going on. Through this disruption, aggregators coming in as part of it because of delivery being so attractive. You have a situation where capacity to serve has been constrained for Domino's, and it's. The demand's really not changed. I think we have enough information to tell us that the demand's still really strong. It's more that the capacity to serve that is being worked on. Which is why after taking a look at it for the last few months, the last couple of months that I've been with the company, I was already pretty confident after the earnings call that I'd seen enough to be sure that there wasn't a big problem. I'm even more convinced as time has passed that that's probably the case, and we'll talk more about it as we go through this conversation. Sure. I'm definitely curious about what insights you have. I know that Russell, as you said before, he's an insights driven guy, you know, and that's his background. I'm sure you're collecting information right now. I wonder what insights can you share with us about the factors that have limited your sales, either through consumer demand, competition, labor constraints. I think people are curious about the portions of each and what your insights are. I think one of the things that I really dug into a little bit after getting into was the whole notion of capacity constraints and available time account. There is a piece which is labor driven, but I think as time has passed, especially as we've gotten into 2022, the labor constraints have really gone from being a broader part of the employee base at the store level to really more of the drivers themselves. I think that's a good sign because it's now a much more contained issue and it's really understanding what we should be doing on that front. I think specifically when we look at what's happening on the driver side, we've done and looked at more generic and broader information on the market. The total number of cars available for those intending to drive or wanting to drive hasn't really gone down. It's still there. What essentially shifted is the manner in which those who would like to drive, drivers who would like to drive, are interested in being engaged. They're looking for shorter shifts, much more flexibility, the ability to sign up at the last minute and actually have a much more flexible employment owner model that's available to them to engage with. From a Domino's standpoint, this is a shift in the marketplace in terms of how labor wants to engage with us. I think to the extent that we weren't quoting the model that maybe some of the aggregators have on engaging drivers in that fashion, we obviously got a bit disrupted. Now that we have the knowledge, we've proved from a consumer technology standpoint that we can actually come up with technology that helps consumers engage with the brand. Why can't we do that with drivers? It's work that we're continuing to do. We're very conscious of it. Technology is one piece of it. The other piece of it is direct. Good store managers, even without the technology, have figured out that this is how drivers want to be engaged. They've figured out how to go and engage with the drivers in the slices of time that they wanna be engaged with and figured out how to actually staff themselves. That goes back to the quintiles discussion that we had in the last earnings call. Our top quintiles, the problem isn't really there. It's more the bottom quintiles. It's really more a function of operational excellence that we basically wanna translate from the bottom quintiles all the way up to the top quintiles, where in the carryout business this hasn't been a factor. You don't really have much of a spread in the quintiles in terms of performance and areas of performance. That's why I feel pretty comfortable that especially with the rich strength that we have in terms of talent in the company, it's just a matter of time before we actually fix a lot of this stuff. From a labor standpoint, I think that this is pretty clear that we'll get there. I think the other piece of it is when I look at evidence of what actually happened and proved that there was demand, the cancellation rates have gone up. Let's prove that there was demand. A lot of folks actually canceled their orders because it was not coming in time. That also is evidenced in the delivery times in many cases that slipped past the typical trends in terms of delivery time. We've seen the proportion of those longer delivery times also building up and service levels deteriorating. All of this is evidence that there is demand and there is interest in actually acquiring the product, but our ability to serve and the quality that we serve has been constrained. That manifested in, you know, operating hours where in certain cases, public capacity to serve wasn't there. That was reduced. Then further demand actually was lost as the operating hours reduced. All of that is kind of a snowball effect. I think as we improve our staffing levels, as we improve the operating effectiveness, this demand should get recaptured as before. It does, it does sound from that answer like you're feeling more and more confident you can do this within the Domino's end-to-end experience rather than turning that over to a third party to create an auxiliary type capacity. Is that fair that you're thinking, getting more confident that you can do this yourself? I think we're definitely getting more confident that we'll be able to reduce the gap based on what we're seeing. Is it gonna go all the way to where we can fulfill all the demand ourselves? We hope that that's going to be the case. We don't really have a clear line of sight yet to that, which is why we said if we don't really have that full capacity return to our system, we are open to other options. We're still looking at other options, and the options can range from more of a white label option to something which is much more full service. We're looking at everything. Nothing's off the table. That's kind of where the mindset is. Russell talked about it beautifully on his call. If the choice is between delivering a pizza or not delivering a pizza, in the end, we wanna deliver the pizza. That's pretty much our view. Yeah. One of the things that I think was new is Domino's not gaining share of delivery, and that was the case in 2021. I think you went through those numbers. That was true within pizza, probably because the independents had access to third party delivery and also the overall market. The consumer can now get more stuff delivered across a variety of categories, whereas pizza was the king before. I do think that people are wondering, you know, if this is a new norm and to what degree can you become a serial share gainer again within delivery. Could you talk about that, you know, after there's been more diversification of delivery experiences, what is going to be the way that Domino's perhaps comes ahead in a larger pool? Yeah. I think the answers to that are probably the answer I gave to Sylvia, right? As we improve our capacity to serve, I think some of that share that we left on the table because we weren't able to serve the demand comes back. I think we expect that as we move along, we will be able to get that because the demand is there. I think when you look at the broader brand picture, how we can look at it as delivery only, which is a separate business effectively, but also delivery and carryout. Our carryout business actually has been doing extremely well, and that's also a representation of the brand demand being very strong. The beautiful thing about carryout is there, as opposed to delivery, where our share is already pretty strong in the cities. The net share in carryout is much lower. It's in the teens. The teens have a much bigger pie because carryout is a bigger business. With the momentum that we actually have seen on that, it's reinforcement that the brand strength is very strong. The other is there's a tremendous amount of growth, as you can see in the total business, when you combine both sides of carryout and delivery. I think we wanna get to that to keep coming, carryout to keep growing at a very rapid pace and get back the demand that we believe we should be commanding on the delivery side. Super bullish about where this can go. I view 2022 as more of a transition as we actually figure out all this stuff. But the demand piece is very strong about it. Just when you think about the major areas that the consumer cares about, but also the employee cares about, your advantages there is sort of where I was going when I think about speed of service, the value to the consumer, the value of working as a driver at Domino's in some. I guess one could think that the convenience advantages have been narrowed, and perhaps even the driver pay advantage may have narrowed. I don't know. In what ways do you feel like you're still left with a sizable advantage and maybe you might have a communication that you can make to make the employee or the consumer realize that? In what ways do you need to bolster or usher your advantages versus other delivery? Yeah, I think, David, this, with most studies we've done, we can see that our pay advantage was substantial and still is pretty good. I don't think pay is as much the issue. It's more about the flexibility I talked about earlier from a driver perspective, in terms of shifts, in terms of ability to sign up for very short-term peak times. That's the kind of stuff where we need to evolve our practices to make sure that we're meeting drivers where they are. I think if we do that successfully, we'll be able to get a greater share of drivers that are out there because driving for Domino's is very attractive. I think our pay piece is very good. The flexibility comes along with that. We actually have access to the pool and we can do very well. Again, it's. This is an emotional construct where we see a path. We haven't gotten there yet, obviously. We still have to keep working. A lot has been made about the delivery driver availability and the impact of sales growth. Do you feel like the delivery drivers have left, you know, you and the industry? Have they gone over to third party? I mean, when you do an audit of the situation and the reasons for it and where they're going, what details are you finding out? I don't really have enough information to say definitively I know where they've gone. I just know what the total pool is, and the total pool looks pretty robust. It's more that we know we're not getting enough of the pool to drive for Domino's, and that's what we need to go and figure out a bit better because we've had surveys out of them, so we know what their behaviors or what their preferences are through those surveys. As time is going along, in fact, if you compare to the January versus March, we saw improvements even in that. That's why we saw the quintile spreads kind of widen, but the top one actually performing better than the other two. Yeah. I don't know if I was the only one that got an email, but I did get a half price specialty pizza email. Maybe we're doing the Boost Week. I don't know if that's that Boost Week started here, but you talked about doing one right around now anyway. It is an interesting thing to have this talk about these constraints, and you're leaning in, and you're gonna do a Boost Week. What gives you the confidence to do a Boost Week this summer despite, you know, that headwind? Yeah. Well, I think, as we talked about in the April call, our franchisees were the ones who came to us and said, like, "It's been so long since we did a Boost Week pre-pandemic," so it's time. We needed to keep doing it. The Boost Week is less about promotional activity. Yeah, it is promotional, but it's more about customer acquisition. It really pays off in multiple quarters over multiple customer cycles in the customer lifetime value. Because we haven't done it for a couple of years, the impact would have started showing if it hadn't already. This is more about starting to protect the long term for ourselves by actually going out and doing this again. Obviously we got to the point where we feel confident enough that we're gonna be able to service the demand, and that's why we're doing it. Again, I mean, that's what we believe. Let's see what happens after the end of the Boost Week, what the response is from the franchisees, as well as the consumers. The answers will be when we report the quarter, late in July. We look forward to actually updating you on what we saw. Yeah. One of the things that it sort of reminds me of a food company that doesn't have the capacity not doing promotions, not doing marketing. You haven't really been accessing the new consumers that you typically get from those Boost Weeks for a couple years now. I mean, do you see that as a big source of atrophy in your customer base? I think potentially, yes. It may not have manifested yet because of the pandemic. Because in the pandemic, you may have actually seen customers who may not have traditionally come into the Domino's fold come in just because of the convenience and the access. We may have been able to kind of duck that because of the pandemic impact. Now that we're actually coming out of the pandemic, to not continue to sustain that flow was very risky to the brand's long-term acquisition prospects. This was really important for us to try to do. We believe that we could do this effectively. This is how we're doing it. Yeah, let's see. Let's see what the results are, and then I think we'll be able to talk about that more in July. I think investors see that your pizza competitors have been working with the third party delivery aggregators, and they wonder what barriers there would be for you to consider doing that, particularly with a somewhat, you know, doing something a lot more white label where you're just using their labor. Is there any barriers that we wouldn't be considering for you doing something like that you would inform us about? Well, I think, again, the preference, at least over here, is in the United States to do everything ourselves because we control the entire experience. There's something to be said for a Domino's driver in a Domino's uniform coming in a Domino's car to deliver you a Domino's pizza in a Domino's heat-activated box. That experience is unique. It's Domino's. Even if you do go to a white label option, how much of that experience is maintained that the consumer values? I think that's the part where we're being really careful about how much to actually move the needle. As Russell said, if it's a choice between delivering that pizza at the end or basically fulfilling the demand, you know, we're gonna deliver the pizza. We're willing to go there and candidly say it's not that we don't use third-party aggregators in other markets in which we operate. In India, which is where I come from, I saw this happening a little. It's not white label. It's just full service. Third-party aggregator is actually working with the master franchisee in India, and they do a really good job. It's not that it doesn't work. It's more the U.S. consumer. It's a market-by-market experience where we have the U.S. consumer very used to have Domino's driver in a Domino's uniform delivering that pizza. It's a big deal if you're gonna make that shift. We'll make it if it makes sense, but we have to be very careful about the steps we take. We sometimes forget you even though your prices are still low, that you took pricing too. I'd love to hear your thoughts about that. You know, you recently announced that your delivery national mix amount price is going from $5.99 to $6.99. Looking ahead, let's say the second half of the year, do you expect this price increase to be additive to your same-store sales growth? I think it still remains to be seen, and because I think what happens with pricing, and this is what Russell's taught me really well as I've come in, is it's not that first transaction. It's the second and third and fourth transactions where you really know what the impact of that pricing is gonna be. Because we haven't gotten through those cycles, it's too early to make a call on is it working, not working and the like. Perhaps in July we'll have a little bit more information, but may not be enough information to conclude. I think we'll have to see. We'll have to see and keep studying it. That's been the great thing about the approach the company's taken, and Russell's been front and center in that, which is really based on analytics and insights and understanding really over a longer term period of time what has been the trend and what is driving it. Because there's a trade-off between order counts and ticket obviously when you adjust pricing and is what is it accretive in the end from a ticket standpoint and total value standpoint. I wonder the same thing. Is it too early also on the digital-only carryout at $7.99? Any learnings from, you know, keeping that, limiting that to digital? Yeah. I think it's a little bit early because there's a lot of other things that are moving around as well in the environment in which we are. What happens is, because of our pricing architecture, we've talked about it. I mean, there's national pricing. That's great. We're talking about national pricing right now. There are many other levels that franchises can operate. There's local promotions, there's menu pricing itself, in the case of delivery, there's delivery fee, and there's all these other levels that impact these specific national offers as well. It's a mix of all of that. I think because it's not really what I would call a centrally established, the only thing that's changing is national pricing, but everything's changing at the same time, it's hard to kind of see it. That's why you need to wait for a more long-term settling down effect to actually come to conclusions. I really think it's not just for Domino's. I think in the total industry, there probably needs to be a settling down over the course of at least 2022 and then maybe getting into 2023 before we all know what the true impact of all the changes that have happened are. There's somebody just emailed a question, just, and I think I know the answer, but they're asking if you did use a third-party aggregator for some help. Would you give the consumer still the rewards benefits, you know? I think that ties into just exactly how the consumer experience would go. But what thoughts there? Yeah. Again, to be explored in terms of how we can actually get to that point in terms of sharing technology and access to information and the like. Obviously we would love to have everybody in our program and therefore getting access to the benefits. It's just a question of like, how do we work if we do go down the path of the technology aggregator to share that information, get access to the data and provide those benefits to the consumer. You mentioned the carryout, to some degree, people forget, that you have a much lower share of carryout and that is an opportunity. Yet it's still a pretty substantial portion of your business. Could you discuss the strategy to sustain there and perhaps even accelerate that as a source of your growth? Yeah, I think it is. The pandemic actually just gave us a number of launching pads on the carryout business. The curbside delivery was, like, amazing. Our performance ranges from in the seconds to under two minutes in terms of a contactless curbside delivery, which has been enormous. I mean, I was just looking at this. This happens to be Blue Sky. Even now when I go on and look at it, yesterday I was looking at it. It's. We're basically advertising 13 minutes or less for curbside delivery, which is a phenomenal service level if you think about it. I really think that carryout is a huge opportunity. I know delivery opportunity. In terms of total brand health, in terms of total consumer demand, this is an area where I think, it's a piece that we will continue to talk about. I feel that there's a lot of runway for growth. Yeah, I think a lot of companies out there had some company operated store margin pain, you know, lately. Dealing with such outrageous levels of inflation and to some degree, you wanna smooth out the pricing to consumer. You know, store margin was down 800 basis points in that first quarter. I guess, how should we think about the margin recovery path going forward? How are you thinking about your decisions, how to take pricing from here? Yeah. I think there was a few things going on in the store performance. I think with company-operated stores, initially, I think if you go back and look at the narrative before I joined the company, a lot of the commentary was rural versus urban because most of our company-operated stores were in urban centers. As we kind of dug into it and got into the last couple of quarters, we realized that there was a bit more to it and there was obviously some operational misses that were going on as well. That's when we got into the detailed discussions and the kind of separation that I've been seeing. A big chunk of the deterioration that we're seeing is coming from that opportunity to improve the operation. I think by just improving the operation, we could reduce the deleveraged price tag. Let's start there. I think in terms of responsiveness to what was going on in the marketplace and readjusting pricing, we were slower to get there on the company-owned stores. The franchisees used their leverage much quicker. The reason we did that was not because we didn't like recent prices. I think the whole point was the belief was we'd be able to service the demand and get the volume to offset some of that pricing. Unfortunately, we weren't able to service the demand, so the volume didn't come and the pricing didn't come, and therefore you saw more deleverage. As we improve the operation, some of that will probably go away. Over time, I think with the franchisee or company-operated stores, the models should basically evolve to get into the same place from an economic standpoint. Just by nature of the way the P&L is structured, we get more leverage in both directions. When things are good, it goes up really fast, and things are bad, it goes down really fast. That's what manifested in Q1. One of the questions we had was about the same store sales difference between company stores and the franchise stores. There was like 7-8 point gap where the franchisees outpaced. I think you might have touched on one reason in the previous answer, which was that urban exposure. I wonder how much is also due to the franchisees being a little bit more aggressive on pricing. Could you talk about that? Yeah. I think if I parse the elements of it, I would attribute most of the difference now to operational effectiveness. I think we definitely had gaps that were there and they, if anything, have accelerated as we've gone through the last few quarters. I would start there as opposed to looking at pricing as the lever. Pricing was definitely something where the store and the company-operated stores, the whole idea was we're gonna drive enough volume to offset the increase. That didn't come. Therefore, you saw the comp actually deteriorating further. I think overall, I think that the headline is the operating effectiveness in this case. Okay. How fast do you think you can do that? I think we're gonna be working through it over the course of 2022. As Russell said, we already have pretty 60-90 plans that we're working on. I think by the time we come and talk to you about in July, we'll at least talk about some of the plans and where things are at. The numbers may or may not evolve depending on how things materialize in the short term. In the medium to long term, I think we'll get there. Yeah, because it's the company's done it many times before. I'm pretty sure we'll be able to figure it out. I've seen the plans. They make sense. Historically, some of the numbers have been impressive. I wonder, by the way, we probably have time for just a couple more coming down the stretch here, but about innovation and the frequency of promotions and just the overall pace of new. You know, you seem, it feels like we've seen more new stuff from the competition than Domino's, and it might a lot of it be tied to the capacity constraints that you talked about. Is that gonna be part of the plan going forward? Just step up the pace of new? No, I think it's gonna. Innovation, I keep coming back to it. There's menu innovation, and there's innovation with consumer experience. The kind of stuff that the company has done from what I've seen historically is from a technology standpoint, it was unbelievable innovation that actually came in. Even from a business model standpoint, contactless delivery, what an amazing innovation to actually do that contactlessly during the pandemic. That's why we actually just really exploded in terms of sales that we actually did, because we were able to quickly adjust our operating SOPs basically, dramatically in the space of weeks to deliver experience that the consumer wanted in the circumstances in which we were at the time. That's innovation. Not many companies can do that turning on a dime. I think innovation has to be looked at in a much more broad sense. I think Domino's does that holistically. A lot about what Domino's does very well is apart from being an outstanding marketing organization, it is an operationally very effective organization. I've talked about a microcosm of the company on stores within that construct. If you look at it more broadly, if I look at $5.99 as a national price offer over a decade, how do you do that if you basically aren't very sophisticated as an operator? Domino's did that. My perspective on innovation is broader than just menu. I think that's probably continually the case, I think, for Domino's. I wanna ask you actually on a price increase and two more here. Unit growth has averaged over a long period of time in that 4.5% range. Do you see potentially the U.S. unit growth accelerating or as purchasing increases with that plan of over 8,000? I also wonder about, you know, the dilution from that fortressing. You know, is it still 1.5% negative impact to comps? Yeah. I think this is an interesting one. I think number one, we talked about the pandemic and the delays in just construction and so on. We're very expecting to see good growth on units taper off as much as the end of 2022 to the next year or so. I think overall, when I look at what the growth was pre-pandemic, it was still about 250 units a year. So not significantly higher than what we did in the last twelve months. It was about 205. So the delta we're talking about is not that significant. I think to get back probably to it once all these supply chain constraints, et cetera, ease. I think overall when we look at the 6,600 stores at the end of Q1. Compared to 6,600 stores, 8,000 is not a million miles away. I think whether you have it growing at 3.5% or 4% or 4.5%, just a question of when, not if you get there. I think as time goes along and the base is bigger, the impact from fortressing becomes smaller and smaller, right? Because you now have open stores. Whether it's one, less than one, something more than one, it's a smaller number. It's a downward trend in terms of what that impact is gonna be going forward. Thanks for that. Your prior algorithm, 6%-8% unit growth, 6%-10% system sales growth. Is there any reason why you can't achieve this growth longer term once you get past this labor availability issue? I don't really see a good reason not to, because I see some tremendous growth opportunity. We just talked about the U.S. and potentially where we can go with unit growth and actually servicing demand. International piece is something we've not really touched on. That's an incomparable story if you look at it, from a unit growth potential. I mean, we opened 1,000 stores in the last 12 months, or 400 stores, and that's on a base of 2,000 stores. It's still a really good percentage growth impact which is gonna help us drive global retail sales as we go along. I think that's the piece to really keep an eye on. I think there's a good line between. That's why I feel that there's gonna be a bit of a mix shift maybe, where more growth comes from international than the U.S. Overall, the algorithm works, especially as we shift to a higher base on international. Thank you, Sandeep. That was great conversation. All the best with your business assessments and look forward to chatting with you after the next quarter. Thanks so much. Sounds good.