Domino's Pizza, Inc. (DPZ) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Third Quarter 2026 Domino's Pizza Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Greg Lemenchick, sir. Please go ahead.

Good morning, everyone. Thank you for joining us today for our third quarter conference call. Today's call will begin with remarks from our Executive Chairman Designate, Russell Weiner, followed by our Chief Executive Officer, Joe Jordan; and our Chief Financial Officer, Sandeep Reddy. We will then open the line for Q&A. Please note that Russell will be joining only for the prepared remarks. Joe and Sandeep will take your questions. The notices regarding forward-looking statements in this morning's earnings release and 10-Q both of which are available on our IR website also apply to our comments on the call today. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our filings with the SEC. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This conference call is being webcast and recorded for replay via our website. We want to do our best this morning to accommodate as many of your questions as time permits. As such, we encourage you to ask one question only. With that, I'd like to turn the call over to Russell.

Thanks, Greg, and good morning, everybody. Before we get started, I want to take a moment to say what an incredible privilege it has been to lead this company. I'm so deeply grateful to our franchisees, team members, Board and shareholders for the trust and support you've given me over the years. Serving as CEO has been the honor of a lifetime and I'm excited to become Executive Chairman at our Annual Shareholder Meeting in April. I also want to thank Dave Brandon, who hired me in 2008 and has been an incredible mentor throughout my career at Domino's. When I joined Domino's, we were a very different company. Since then, we've reinvented the brand, become a technology leader, open thousands of stores around the world and built Domino's into the #1 pizza company on the planet. What I'm most proud of, though, isn't what we've accomplished. It's how we've accomplished it. Time and again, when others said Domino's couldn't, our franchisees and team members proved we could. That's the Domino's effect, always Hungry for MORE, always getting better and never satisfied with where we are today. It's also why I'm so optimistic about our future. Our franchisees and team members, they are our competitive moat. Competitors can try and copy aspects of our products, promotions and technology, they can't copy the people who make Domino's so special. That's why I have so much confidence in Joe Jordan. I've worked alongside Joe for more than 15 years at Domino's, and there is nobody I trust more to lead the company forward. Joe loves this brand and our franchisees knows the business inside and out and firmly believes that our people are our greatest competitive advantage. Domino's has never been stronger, and I couldn't be more excited about what comes next and the person who's going to lead us there. With that, let me turn it over to our CEO, Joe Jordan.

Thank you for the kind words, Russell, and good morning, everyone. It is an honor to speak with you today for the first time as CEO of Domino's. After 15 years with the brand, one thing has become clear to me. When we're firing on all cylinders, we cannot be beat. We have enormous strengths to build on, including a best-in-class franchise system, an iconic brand, an outstanding global business with significant scale and operating capabilities that set us apart. We also have an opportunity to operate as an even more connected global system, moving winning ideas faster across markets and ensuring the entire system benefits from our best thinking. My job isn't to reinvent what makes Domino's great. It's to accelerate it with clarity, prioritization, faster decisions and relentless execution. The fundamentals of our category will mature, remain strong. As consumer expectations evolve, growth will come from understanding those changes, meeting customers where they are and earning more of their occasions more often. As I begin this role, my philosophy is simple. We will build trust through action, earn credibility through results and stay focused on helping our customers, franchisees and stores succeed. That starts with 2 priorities. Getting closer to the customer and continuing to drive strong 4-wall profitability for our franchisees. Together, they provide a simple lens for how we will prioritize the business. My focus will be on turning our best performance into our everyday performance through stronger execution, continued value leadership and a franchisee-first mindset. Domino's has always been at its best when we are a step ahead. Our newest innovation, The Domino is a great example of that mindset in action. It is an ownable product and name that are uniquely Domino's built around an emerging customer need we call the me-we occasion, the desire to enjoy pizza together without giving up individual choice. That is how we will continue to lead by anticipating where customers are going and using the unique strengths of our brand to meet them there. Staying a step ahead has helped us set the pace for the industry before and it's how we'll push ourselves to do it again. I have tremendous confidence in our people, our franchisees and the foundation we have built. And I believe our next chapter will be our strongest yet. Let me now turn to our third quarter performance. Underlying demand for Domino's remained incredibly strong. We continue to drive order count growth with orders increasing in both our delivery and carryout businesses. We also continue to gain share within the QSR Pizza category. I believe growing orders is the most important thing a brand can do in the current environment. Consumers remain under pressure, but they continue to choose Domino's, more orders bring more customers into our system, support our franchisees and create opportunities to drive greater frequency over time. This has been a consistent focus for Domino's and it will remain one under my leadership. Looking ahead to the remainder of 2026, we expect the macro environment to remain an overhang on the consumer through the balance of the year. However, we have a strong calendar for the fourth quarter and believe we are well positioned to compete. One of the things I'm most excited about is The Domino. The primary insight was that customers wanted to enjoy pizza together without having to compromise. As previously mentioned, we call this the me-we occasion. People ordering as a group, while still having the ability to choose something for themselves. Across QSR, consumers increasingly expect individual options, even when eating as part of a group. The Domino allows us to meet that need with a product design for individual choice while still preserving the shared occasion that makes pizza so special. We also believe this innovation creates an opportunity to compete for more occasions than ever before. that is particularly relevant on aggregator platforms where customers are often looking for a meal of their own. This product gives them another compelling reason to choose our brand. If you haven't had one yet, I highly recommend that you do. As I close, having just stepped into the CEO role, I look forward to sharing more of my perspective on Domino's and our long-term opportunities when we report our fourth quarter results early next year. What I can tell you today is that my confidence in the long-term potential of this business is very high. We have an iconic brand, a world-class franchise system, proven operating capabilities and talented people across the globe. My focus is simple: build on those strengths, help our franchisees grow their profits and ensure we're consistently performing at our very best. We have tremendous opportunities ahead of us, and I believe the future aminos is incredibly bright. With that, I'll turn the call over to Sandeep.

Thank you, Joe. And once again, a huge congratulations to both you and Russell as you step into your new roles. Let's review the results. Income from operations increased 8.5% in Q3, excluding the impact of foreign currency and minor refranchising true-up impacts related to the sale of certain U.S. company-owned store markets. This increase in operating income, which came in slightly above expectations was primarily driven by higher U.S. and international franchise royalties and fees. It also benefited from gross margin dollar growth within supply chain that was fueled by strong U.S. order count growth and procurement productivity. Excluding impact of foreign currency, global retail sales grew 3.2% in the quarter. This was due to global net store growth of more than 950 stores over the past 12 months. In Q3, retail sales grew 2.1% in the U.S., driven primarily by net store growth, inclusive of 26 net new stores in the quarter. Same-store sales grew 0.3%. Our business continued to be impacted by a challenging macro environment, which is pressuring consumers. The comp reflected order count growth in our core business along with continued growth in our aggregator business. This was partially offset by a lower average ticket. While our ticket trend improved from the second quarter, it was impacted by a sequential decline in items per order in both our carrier and first-party delivery business. We believe this was due to the challenging consumer environment. Pricing was up 1.2% in the quarter. Our carryout comp was up 1% and delivery was down 0.3%. Shifting to our international business. Retail sales grew 4.3%, excluding the impact of foreign currency in the quarter. This was primarily driven by net store growth over the last year, inclusive of 149 stores in Q3. Comps increased 0.2% and they continue to be impacted by Domino's Pizza Enterprises. Our sales were also pressured by macro and geopolitical uncertainty across the world. Moving to capital allocation. Through the first 3 quarters of the year, we have repurchased approximately 849,000 shares for a total of $305 million year-to-date. As of the end of the quarter, we had approximately $1.15 billion remaining on our share repurchase authorization. We continue to expect to return meaningful cash to shareholders in 2026 and beyond, in line with our capital allocation priorities. Given the current interest rate environment, we will evaluate the appropriate leverage level for the business. which is currently 4.2x EBITDA. Based on current market conditions, that could mean operating below the low end of our targeted leverage range of 4x. Now turning to our updated outlook for 2026, which excludes the impact of 53rd week. First, U.S. same-store sales. We continue to expect our U.S. comp to be up low single digits, but with 3 quarters of the year complete, we believe it will be towards the low end of that range. This assumes that the challenging macroeconomic and competitive environment we have experienced year-to-date, continues through the remainder of the year. We now expect our international same-store sales growth to be approximately flat for the year due to the continued pressures at DPE, which they have previously announced we do not expect to meaningfully improve until 2027. We now expect 125 to 150 net new stores in the U.S. reflecting increased pressure on our development pipeline from the macroeconomic environment and year-to-date pressure on franchisee profitability, which we are working to stabilize and return to growth. Despite this, we continue to have best-in-class franchisee profitability and cash-on-cash returns for our new stores. With that, we see no change in our full long-term potential of 8,500-plus stores in the U.S. We continue to expect approximately 800 net new stores in our international business. We now expect global retail sales growth in the low to mid-single digits for the year reflecting our current year same-store sales outlook. Based on our performance through the third quarter, we currently anticipate finishing towards the midpoint of that range, although our ultimate results will depend heavily on same-store sales over the balance of the year. Lastly, reflecting these sales updates, we are now expecting operating income growth in the mid-single digits, excluding the impact of foreign currency, refranchising gains and the gain on the sale of our corporate aircraft. Thank you. We will now open the line for questions.

[Operator Instructions] Our first question is going to come from the line of Chris O'Cull with Baird.

Yes. Joe, as you kind of lap last year's best deal ever promotion, how do you think about balancing between keeping value compelling with avoiding the need for increasingly aggressive offers. And are you seeing these promotions bring back lapsed customers who then return without a deal?

Yes. Thanks for the question, Chris, and good morning, everyone. It is a balance. We need to get -- we've driven the order counts throughout the year. We need to balance that with improved ticket growth. Sequentially, we did that in Q3 over Q2. We need to do more of that in Q4, and that's by getting the right offers to the right consumers at the right time. So Best Deal Ever continued to work hard for us in the third quarter. We continue to evolve that promotion by introducing Stuffed Crust to it, getting consumers to try one of our most delicious products. And then getting them, we do see they then come back and purchase that product again. which can help on that ticket side. So it's that balance of getting trial of those products, driving some incremental occasions but then seeing customers come back again at higher tickets. That's our goal.

And our next question is going to come from the line of David Palmer with Evercore ISI.

Great. And thanks for those opening comments, Joe. I'm wondering how you see Domino's U.S. delivery channel playing out now that third-party delivery has been fully rolled out and might be fully in the base, so to speak? Do you see delivery growing as a channel going forward? And how do you see the trends perhaps evolving between your own on-site ordering versus what's ordered in third-party sites? I think there was a dream at one point that this bigger consumer connectivity funnel might ultimately lead to more 1P delivery and growth in that channel over time, even though it doesn't look like that's happening yet, maybe you think that could happen soon.

Yes, David, thanks for the question. I do believe there is continued growth in the delivery channel across both 1P and 3P. So starting with 3P. As we shared in the last call, we believe we're now the #1 player on both DoorDash and Uber within pizza, but we are not anywhere near our fair share yet when you compare that to the broader QSR Pizza category. So we're still seeing growth there. We believe we still have growth to go. Very importantly, we continue to measure that incrementality very closely to make sure that we're growing our overall delivery business and not cannibalizing 1P. As we've stated in the past, we believe that to be around 50%. That continues to come in at those levels. So we'll continue to measure that. Then what we're looking at is as customers go to 3P and order us on 3P, what is their overall behavior on 3P and 1P, what is -- what's their overall pizza usage through Domino's and can we grow that? So it's about those incremental sales. We believe we can continue to do that. We've done that as we've rolled 3P. The intent is to continue to do so.

And Dave, I'll add one more thing that we said on previous calls as well. We've been very disciplined about our rollout of 3P and making sure we're focusing on incremental profitable orders. And I think that is really critical. We could have grown a lot faster, sacrificing profitability. We did not want to do that. We are not doing that. And that's our commitment going forward to protect franchisee profitability.

And our next question is going to come from the line of Gregory Francfort with Guggenheim.

I don't know if this is for Joe or Sandeep, but you guys mentioned just a tougher consumer backdrop. And I guess I'm wondering how that's impacting your business. Do you see that in customers choosing smaller items, small orders? Is that a drag on the check? And are there things you can do to specifically target fixing that?

Yes. I'll take that to start, and then Sandeep can jump in. In the third quarter, in particular, we saw that -- well, let me start with we're very pleased to continue to see order count growth particularly among low-income consumers. So the brand is still relevant even when the pressure is on their pocketbooks. But in Q3, we believe that manifested mostly in items per order. So we had pressure on items for orders. So customers were still coming to us, but managing their ticket by managing items per order. So our job is to continue to make sure we're offering great value to them, how can we drive additional items per order will still driving value with things like the Lava cake that we launched in the quarter.

And what I'll do is I'll just add a little bit more texture as we think through the entire year. And after the first quarter call, we talked about the sequential dip in the macro and consumer environment, and that has persisted and is expected to persist for the rest of the year. What we did not see in the first half was as much pressure from items for auto. And so as we got into the third quarter, that's manifesting a lot more on 1P as well as carryout businesses. But I think the sequential improvement that we saw in the ticket pressure is because of the actions we started taking in the third quarter. We expect that to continue as we go through the balance of the year. but the environment being what it is, is going to put that offsetting pressure on items per order.

And our next question is going to come from the line of Brian Bittner with Oppenheimer.

Congratulations again, Joe, on your new role. I'm just following up on the string of questions because the traffic trends appear to be strongly positive, they've been solidly positive. So I think we're all trying to figure out what the unlock is for this to translate in the better headline same-store sales growth. We realized the tickets pressured. I think we're struggling to understand, do you need to get the traffic without the promotions to drive to drive better comp growth? Or is it more of a macro dynamic that's causing the ticket pressure that's more out of your hands? Just trying to understand maybe what is in your control because you have the traffic, what's in your control to kind of help improve check into 2027.

Yes. Thanks for the question, Brian, and thank you. We do believe part of it is obviously the macro and the pressure that consumers are under, and that's why we've been out there with a lot of value our competitors have been out there with a lot of value. We're not sure how long that increased activity will continue to last. But regardless, if it goes on, we're in a position where we have the profit power, the 4-wall profitability to continue to offer great value to the customers. We're continuing to drive those orders. Those orders are, yes, as we said, at slightly lower ticket and the items per order pressure, they're still profitable orders for our stores so that they're still working for us. But as those pressures subside, we can potentially lessen some of that value. And through things like our new website, we're working on more targeted promotions to customers to drive that item per order up over time.

And the thing I would say is this Autocam acquisition is critical for long-term frequency, which is the lifeblood of our business, and we must continue to do that. So I'll go back to what Joe said on the first question, it's a balance between order count and ticket. The ticket needs to be complementary, but the continued acquisition of customers through order count is absolutely critical to sustainable same-store sales growth.

And our next question is going to come from the line of Lauren Silberman with Deutsche Bank.

I want to ask on the U.S. unit growth cut this year to the 125 to 150. Is this more a function of reduced net unit -- or do we anticipate incremental closure. And I know last quarter was alluded to slow U.S. unit growth in '27. So I guess [indiscernible] is a good near-term run rate? Or do you think you could moderate further just given the pressures in the environment?

So Lauren, for some reason, the question was very muffled. Can you repeat the question again, so we can hear it?

Sure. Is this any better?

Yes.

Yes.

Okay. Sorry. So just on the U.S. unit growth, so the cut, the 125 to 150 U.S. units. Is this more a function of reduced net unit opens? Or should we anticipate incremental closures. And then I know last quarter, you alluded to a slowdown in U.S. unit growth, it seemed like in '27. So is this a good near-term run rate? Or do you think it can moderate further into next year?

Yes. So Lauren, I'll take this one. I think -- look, I think on the unit growth, and I addressed in the prepared remarks as well, what we are seeing is some pressure that we started to see in the second quarter itself, and we talked about the pipeline being a bit pressured, continue to build with the pressure and franchisee profitability through the third quarter. And with so much of our store openings being very back-end loaded in the fourth quarter, that visibility continued to improve as we came into this call. And that's why given where we are, I think we're updating to 125 to 150 stores for the year. And I'll say, again, like the economics are best in class. The returns are very compelling. The long-term potential has not changed. And that's a big reason why we haven't closed too many stores over the years. I mean it's single-digit stores the last couple of years. So this is not all about closures. This is really about the franchisees are looking at a bit of pressure on franchisee profitability, and that's why we're focusing on stabilizing and then growing franchisee profits again. And over time, we see that when that actually inflect and gets into the right direction, the store growth comes back. And so we feel very good about the long-term potential of the brand and the store outlook of 8,500-plus stores. This is not about closures. This is about future openings being very much in play.

Our next question is going to come from the line of John Ivankoe with JPMorgan Chase.

A direct follow-up on Lauren's question and then a separate one, if I may. So we've done 2 tweaks down to unit development in fiscal '26. That might be started trend, at least from my seat. So I'll ask this question directly, Sandeep. Would fiscal '27 for what you know today see a lower number of units opened in fiscal '26. I understand if you don't want to commit to a hard number, but directionally, that is something that's important to know at this point.

Yes. So John, I'll go back to the answer I just gave Lauren, right? And I think when you have franchisee profits under pressure short term, that does have an impact on sentiment and the leading-end process to open up the stores. The returns are still compelling. Franchisee demand continues to be strong over time. What I will say is until we get franchisee profits to move in the right direction, there will be incremental pressure going forward. We're doing our budgets right now. We'll come back and update after Q4, but that's what I would have to say on this.

Okay. That's fair. And then secondly, we've been seeing some renewals or lack thereof, I suppose, from DPE, one of what's having to do with France, which I think was just renewed, I think, through the end of October. So can you kind of tell us kind of what the early read is on DPE. Obviously, there's a lot of master franchise agreements across a lot of disparate markets. I understand if we're not ready to kind of give a firm answer there. But just structurally, what maybe your corporation can kind of do to help stabilize and maybe reaccelerate some of the growth in that region, including what's, I guess, renewed from a market perspective and just importantly, what's not renewed from a market perspective.

John, it's Joe. Thanks for the question. Just a quick reinforcement on the unit question that you asked. If you go back and you look at the trends over time, you go back to '21 to '23. And you saw the pressure on profit for a couple of those years, and then you saw that profitability come back in '23. You saw the units react pretty quickly. So we are very focused on inflecting that franchisee profitability because units can turn pretty quickly when we do that. So completely aligned with what Sandeep said and just wanted to add that additional color. On DPE, Sandeep and I were actually just over about a month ago with Andrew Gregory, the new CEO of DPE in France. I am more encouraged on the DPE business than I have been in quite some time in the conversations with Andrew. They're focused on the right things. For the last couple of years, they've really been trying to cut back the promotions. They maybe have been leaning in a little bit too much on value. That ended up impacting order counts pretty significantly. Their focus now is getting on back to driving profitability through high volume. That's the right model. That's the model that has worked in our 90-plus countries around the world, and Andrew understands that bringing a lot of experience with McDonald's internationally as well. So I'll start with the overall -- my overall outlook is positive that they're going to be doing the right things. We'll continue to work with Andrew as we see the progress in the markets on the overall portfolio in which markets they are running. I'm confident that every market in their portfolio can be successful. If DPE can be the owner of those markets, been great. We'll work with them. And if they can get the results, I'm happy for them to keep those markets. If it's not right for them, then we'll work with them to make sure that those kids can be successful in someone else's hands.

And our next question is going to come from the line of Dennis Geiger with UBS.

Joe, I wanted to ask how you think about the key sales drivers for the U.S. business from here. In particular, as you look at sort of maybe just the evolution of those key comp drivers for '27 or even more broadly as you move forward. As you guys talk about the macro backdrop specifically, any of the levers that you pull change in importance or emphasis as you think about promos loyalty, menu innovation, et cetera, going into '27? .