Dominos Pizza 3Q15 Earnings Call Notes

Levering up to 5.8x Debt/EBITDA

“As communicated in our September 28th press release the company intends to issue approximately $1.5 billion of new fixed rate notes in the fourth quarter. We plan to use the proceeds of the $1.5 billion issuance to call and retire at par $551 million of existing 2012 fixed rate note to pay transaction fees and use the remaining net proceeds for general corporate purposes. The refinancing would bring our total debt to EBITDA leverage ratio from approximately 3.6 times at the end of Q3 to approximately 5.8 times at closing.”

Cheese prices have fallen

“The average cheese block price in the third quarter was $1.69 per pound versus $2.04 in the same period last year, this lead to our overall market basket decreasing 5.7% as compared to the prior year quarter. Based on current forecast, we now expect that commodities we use will be down approximately 5% to 7% in 2015 compared to 2014 levels.”

Technology critical

“Switching to technology, the story continues to be about investing in innovation. Technology is now an absolutely critical part of our brand and an undeniable element of what Domino stands for. We don’t just talk about innovating, it’s generating real results. And for the second time this year we are using national television to promote a technology driven message.”

Our ad dollars are going to digital

“you may have notice we’re not advertising it on television right now. We’re advertising our digital and kind of the core of our business where the add dollars are going. So the Marbled Cookie Brownie is being done online and with prints”

Seeing a little bit of uptick in labor costs

“on labor rates specifically around our company-owned store first, we saw a little bit of an uptake in that line. Some of it wage rate, some of it just higher bonuses as our performance in our corporate operations has been very good. On the franchisees side on balance we only have 375 corporate stores. I think the other 4800 or so are generally seeing kind of the same environment around wages. The other thing I’d say is kind of despite any wage inflation, we haven’t seen a ton of wage inflation”

Have to take into account average tips in different markets

“And at the end of the day, we’ve got to pay at a level that’s going to get us great team members and ultimately that’s also going to include what their tips are going to be as drivers and that also varies market-to-market. And frankly as we look at their overall compensation we’re taking into account kind of the level of average tipping in different markets, because we know that’s going to be part of their decision, they’re going to make whether or not they’re going to work for us and what their total compensation picture is going to look like.”

I don’t think you can take aggressive price right now and not expect it to hit orders

“But in terms of is there significant pricing power for us, no, there is not. I don’t think you can take aggressive price in this economy right now and not expect that’s it’s going to hit your order counts.”

People are learning it’s not so easy to move packages around

“clearly we are kind of the world leaders in real time delivery. We’ve been doing it a long time, we are very efficient at it and we’ve got a lot of system built up around that particularly operationally. And I guess what I would say is there are a lot of people who have gotten into the space. My understanding is that as it relates to moving packages and food, very few if any of them are today making money doing that. There are folks that are doing pretty well out there moving people around, but I think people are learning that you know moving packages around and the scale that you need to do that it’s not easy.”

It’s not as easy to to do this as people think

“And you know there are real operational complexities to it beyond kind of building the software platform to do it. So we are really good at it as people have tried to compete with us around the world in delivery I think they have found out overtime that it’s operationally not as easy to operate as people may think and it has been a great source of advantage for us versus our competition both.”

China has been at the forefront for international delivery

“China I think has done a little bit more at the forefront for those brands in moving the delivery. There’s certainly lots of aggregators out there for kind of digital ordering and most of which are not as significant scale yet and then you’ve – I think from kind of the delivery service side, there are certainly markets where that’s moving faster than others but I don’t know that I would say it’s materially different in international than it is in the U.S”