Domino's Pizza Inc ($DPZ) Q2 2025 Earnings Call

Thanks, Greg, and good morning, everybody. Our team drove strong results in the second quarter. In the US, both our delivery and carryout businesses were positive and we drove meaningful market share gains. In international, we continue to grow despite a challenging macro environment. It's clear that our hungry for more strategic pillars are working together to deliver more sales, more stores, and more profits. I'd like to highlight some of the initiatives that helped us drive these results. The M in hungry for more stands for most delicious food. An important way to drive deliciousness is through new products. Late in the first quarter, we added one of the biggest new menu items in our history, Parmesan Stuffed Crust Pizza. This launch has gone extremely well and has met the high expectations that we had for it on every level. It's delivering incremental new customers to Domino's and a high mix that has been in line with our projections. Most importantly, our teams are executing this more complex product very well. This is proof that the training investments we made ahead of this launch paid off. In fact, customer praise for this product has been significantly higher than any of our recent product launches. Customers love Parmesan Stuffed Crust. I want to thank our franchisees and our operations team for their continued efforts to achieve operational excellence around this highly complex product. This is a point of differentiation for our brand. The really read shows that the addition of stuffed crust should be a market share catalyst for us over time as this was a big reason why Domino's customers would go elsewhere in the past. The next time we can more pillar I'd like to highlight is renowned value, which has been a key strength for Domino's. We're driving renowned value through national promotions, Domino's rewards, and by growing on aggregator platforms. Domino's rewards was a tailwind to our account in the quarter, particularly in the carryout business. You'll recall that growing carryout users was one of the primary reasons we redesigned the loyalty program. Active users continue to grow, and I expect Domino's Rewards to be a multi-year sales driver. We have a strong slate of initiatives ready to go for the rest of the year, inclusive of our best deal ever promotion, which is currently running through early August. We will continue to give customers what they want, which is more value in an environment where they remain pressured. The other part of our renowned value barbell strategy is tapping into the aggregator marketplace for pizza delivery. We recently completed our national rollout with DoorDash, the largest aggregator in the US. This rollout went extremely well, as we were able to apply learnings from our prior launch with Uber. We will now begin marketing on the platform with investments coming from both sides. The expectation is that our sales on DoorDash will build as awareness and marketing increases. We continue to expect this to be a meaningful driver to our US comps in the back half of the year. Everything we do at Domino's is enhanced by our best-in-class franchisees. You've often heard us talk about how our franchisees are the secret sauce to our success, and this continues to be the case. In the second quarter, we re-franchised 36 company-owned stores in Maryland to a new franchisee that's not so new to Domino's. In fact, he's been a part of the Domino's system for more than two decades. We continuously assess opportunities to strengthen the brand's position for long-term success, whether that means expanding into new markets or transitioning existing ones to franchisees to grow their business. I believe we've never been in a stronger position to drive sustained growth in our US business. We have best-in-class franchisee economics in QSR pizza, the largest advertising budget, the best supply chain, and a rewards program that has never been bigger. We're now fully rolled out on the two largest aggregators and with the addition of stuffed crust have all the major crust types on our menu. We have never had this many tools at our disposal to capture market share. This will be how we drive best in class results and long-term value creation for our franchisees and shareholders well into the future. I'll now hand the call over to Sandeep.

Good morning, David. You talk about the last year, and your words I'll use golden when I talk to my mom after the call, definitely. But to me what would be helpful is just to take a look at the last decade. The last decade essentially a share point a year every year for the last decade. You're right. What we didn't have at that point was aggregators. What we didn't have at that point was stuffed crust or even New York style pizza. What we did have were the strongest economics for our four walls, for franchisees, supply chain pricing that let them keep consumer prices low and value high, and a large ad budget. And the ad budget's important because if you're going to squeeze percent margins, you want to throw a lot of volume kind of through that. And so, essentially, the last decade, that's what we had going for us. And I just think we're adding to it. So, we added last year Uber Eats, this year a DoorDash, last year New York style, this year stuffed crust. We have a brand new loyalty program, a couple of years in, and by the end of the year, we have a new e-commerce program. And none of these things are one-year events, just like the last 10 years were a series of events that build on each other. I said this in my opening remarks, we built this arsenal right now that I don't think we've ever been stronger. So, yeah, these things are new, but they're not going away, and they add to everything, all the pressure we can put on the competition, and all the value we can give to customers.

Yeah, maybe Sandy will I'll start on this one. The initiatives that we can talk about for the second part of the year, one's already going on, which is best deal ever. We're really leaning into value at a time that consumers want that from restaurants. And obviously DoorDash, so we got to 100% of stores participating at the end of Q2, but we expect the majority of the volume push to kind of be in the second half of the year. I'll remind folks that DoorDash is about twice as big as Uber in pizza sales.

Yeah, let me maybe break that into two parts. When you talk about the challenging laps, I think what you're talking about is kind of the amalgamation of some really good programs this year. And I talked about before some really strong programs for the last 10 years. What I think is important to understand as we compete in a category that's grown 1 to 2% essentially over the last as long as I've been working in pizza. So with that category growth and with us being, call it, almost a quarter of pizza, there is a lot more for us to gain. And so I think about this certainly what we need to lap and we're lapping what I think a strong program we had last year. But the strength building on strength building on strength actually makes it a lot more difficult for the competitors to compete over time. And especially when you look at store level economics, I think the longer both sides are trying to deliver this kind of value to customers, the harder it is to sustain. And so I think it's important to look at us certainly what we have to lap. And we've got programs to do that, but we're competing in a category that I think we're a lot stronger than other folks with really not what I'd call a number one market share. I mean, a number one usually in categories in restaurants serve 40 50%. And so I think you got to just look at it holistically when you think about our future growth. I think as far as DoorDash, our plan both for Uber and DoorDash is we think we should have our fair share on these platforms. And so that means we got a lot to go on DoorDash and we've got more to go on Uber. And per my last point, we're going to continue to grow market share over the next few years. So that number is always going to increase. I don't think it's far-fetched to say that we should have the same or similar market share on aggregators as we do outside.

Thanks, Danilo. Yeah, I think the best one that I'll point to is India. I think you can clearly see their success when they report their numbers. And what's driving their success? It's really all the elements of Hungry for More. When you look back at their last results, what did they report? On Most Delicious Food, they had the Volcano Pizza, a couple of other new products. On Operations Excellence, they're really pushing for 20-minute delivery times in many cases, guaranteeing that to customers. So, that's the O. Renowned Value, they took away their delivery fee because they realized they could drive more volume that way. And they are truly, you know, jubilant, the best-in-class franchisees that we've got out there. So, every single piece of Hungry for More they're adopting. And when that becomes successful, that begets other folks continuing to drive Hungry for More.

Yeah, yeah, sure. Obviously, we're in this for the long haul, and 1 to 2% is what the category has done. There are headwinds within all of QSR. I think if you look at burger category growth, it's probably going to be pretty similar. And so for me, Peter, the important thing is to understand these things come in cycle and they will return to kind of traditional growth numbers would be my assumption. But I think the important thing is to see how we grow even during tough times. And when you think about where the category is and you think about what our results were for the quarter and all the upside with all the share that's left to take, if this is our performance during times where there are some category headwinds, then when the category has tailwinds, that's only going to help us. And I'd like you know that we kept our 3% same-store sales. That's our 3% plus for the US. It's this year, it's next year despite what the category does.

The big difference with Domino's is when we provide value, we're going on offense. We're doing it because we think we can grow. And I think other folks are doing it because they're on defense and a little bit treading water. How much longer do we need to do value? We're prepared, we're built to do this. So right now there are headwinds, but actually the headwinds I think are tailwinds for us. It's kind of a long answer to a short question. And then income by core cohort was your other piece, and at least at Domino's we've seen growth among all the cohorts including the low income cohort in Q2.

Yeah, Andrew, obviously we have a pretty diverse menu. We actually had a chicken window in Q1 with loaded chicken. We're always listening to what consumers want and as we said we're in the permanent product game so we sell a lot of chicken today. If there are opportunities to make that significantly better, obviously we're always going to listen. You did bring up a good point that I'll just follow up on, the question of hey, could there be another cooking platform in your future? And if there was obviously we'd be talking about it, but this is more of a kind of what would you need to think? And you'd need to think that there's room in the store for another cooking platform. You brought up friers. Whatever it would be if we chose to go that way, what you would need is you'd need more room in the stores. And the fact is the reinvention of our circle of operations, no more box folding in the back, all that stuff, we got more room in the stores. You need a system like we have it with Domino's to be able to say, 'Hey, if there is a second cooking platform, how do you line that up with things coming out of the regular oven?' So, nothing to talk about right now, but what I'd say is we're prepared to do whatever consumers think that we should be doing, we should be offering them in the long term.

Thanks, John. Yeah, we finished building the platform last year. And so, as we enter this year, what we're doing is simultaneously testing the old platform with the new platform. And then you look at things like conversion and sales and all that. And when the new site performs better than the old site, we increase and we have more customers going through that site. And what I can tell you, we've got more customers this month than we did the prior month than we did the prior month. So, things continue to proceed the way we'd want it to. And these are improvements off what I think is still one of the best e-commerce platforms in the business.

Thanks, John. Yeah, look, franchise system strength is measured by, I think, two things. One is the strength of the relationship, and I don't think it's ever been better between franchisee and franchisor. And then the unit economics. And to your question before, the average franchisee has nine stores. So, you multiply that by the 162 EBITDA, that's pretty nice cash flow for the average franchisee. We have larger franchisees and smaller franchisees. Interesting enough, the person we sold to in Maryland, Suha Unal, who's been with Domino's for two decades. He's worked for a franchisee, he's worked at corporate, he's worked at international. It's just a great Domino's story. He's become a new franchisee. So, it's not someone who had the average of nine stores that moved up to that degree. It's someone who came in new. And each example is really kind of a snowflake. So, in this case, when you looked at where the stores were for each other, the best way to manage it was one franchisee and Suha will do a great job there. But, you're not seeing any big departure in strategy. And what I'd say is, I've liked the way that our franchise system is really diverse. Because it also means there's no particular concentration risk, let's say, on one side or the other. It really lets us continue to do what's best for the overall brand. And I think if you have too many large franchisees, maybe that's a little bit more difficult.

And Sarah, maybe it's just helpful to think about what the principles we have are behind pricing, at least promotional pricing. In no particular order, one of them is consistency. Consumers don't want whiplash. And if you look at our mix and match deal, we launched it at $5.99 in 2009, and we changed it to $6.99. That's pretty consistent. Two is the way we come up with pricing is through quantitative research that maximizes two things. Franchisee's top line and bottom line. It's really important to know that order count growth is much more correlated to profit growth than ticket growth. The third is we try to make sure that when we increase prices, they are at or below consumer income growth. If consumers aren't getting a raise, they don't want you to. They're pretty clear on that. And then I think the fourth for me is really what we changed in 2023 moving from value to renowned value. It's not just about the price. It's about value that drives talk value. And so if you want to know what we're going to do on price, if you think about those four principles, that'll give you a pretty clear map.

Yeah, Christine, I think on deals maybe without giving away too much, our two major deals are mix and match and our carryout deal have been pretty consistent in their percent of mix over time. And then as far as best deal ever, the reason we brought that back was a couple of things. Obviously consumers are looking for value right now. But this is where hungry for more shows you that it's more than just value. The M in hungry for more is about the most delicious food. And we certainly did that last quarter with Parmesan stuffed crust. Here we are with best deal ever. Well, there are two things that make this the best deal ever. The price is fantastic. But this is delicious food. You can put up to seven toppings on these pizzas. And what we know is consumers love to put more toppings on their pizza and they see this not only as a value but as a way to drive deliciousness. And we're a brand that wants to do both. So that was the decision behind the decision to bring it back.

Yeah, Lauren. We had high expectations for the launch, no doubt. Like you said, this is a big pizza type within the category. And I'm pleased to tell you that those high expectations were met. Operationally, all the training we did, our franchisees did an amazing job. And the consumer input we've gotten is better than any product that I can remember since Baby New Year Inspired. And so, that's been really positive. Now, the other nice thing about stuffed crust is what you said is it also drives ticket. So, you're driving deliciousness, but when you add this to your mix and match, you got to pay $4 more. Every penny's worth it. But, $4 more for mix and match. So, it's not only driving deliciousness, the value's really good, but it's also driving profit. You didn't directly ask this question, but I'll give you a little bit of insight as to how we thought about stuffed crust. We came out with a medium. And a lot of questions have come up. Hey, why a medium and not a large? A couple reasons. One is we wanted to have a different dough type than our hand tossed, and so we decided to use our pan dough, and that comes in a medium. Now, we easily could have come out with a large, but we asked ourselves, is it really worth it? And when we looked at the data, and not to say the data won't change or we can change our mind, but a big reason we came out with a medium was because we knew that if the competition wanted to react to us coming up with stuffed crust, the majority of them have larges. And the ability to react with competitive pricing versus a medium when all you have is a large is really, really difficult. And I think this is also a way, over time, with great taste and relative value, that we're going to continue to grow share.

Yeah, you know, I guess I need to first say obviously that we all want the best for our customers. So, we'd love the country and the world to be in a place where there aren't headwinds on consumers because we're a pizza company and we think everyone should be able to get the food they want. With that said, and if you just look at yourself as a restaurant or if we look at ourselves as a QSR, and maybe widen the lens, not just pizza, but overall QSR, Jeff, where we were really built for this. Value requires a few things. It requires strong economics that you can get through tougher times, a supply chain that has the volume and pricing that Sandeep talked about earlier. Folks keep asking about procurement efficiencies. Well, God bless supply chain. And then a large ad budget that pushes volume through a time where margins may be tighter. And so, the pros and cons, to me, value, at least for Domino's, when consumers are looking for value, that's actually a big pro for us because I think we're set up. I don't think, I know, we're set up better than anybody else to get through this. So, when these are headwinds for other brands, they end up being tailwinds for Domino's. Which just means when things turn around, we'll be in a better place as well.

Jeff, I think you answered your question, but let me try just because the question was so well put. Let me try to give you as many answers I can before Sandeep kicks me under the table here. What we do expect, and we've been really clear on, is that the second half of the year is going to be where you see more growth out of DoorDash. And we said over time, what we expect to get out of this $5 pizza category with aggregators. How that actually looks over the short term is something that even if I told you I had the answer to it, I probably wouldn't be 100% correct. And so, what we'll do is, we'll continue to report this delivery category growth that we're seeing. And over time, we'll be able to potentially break that out a little bit further with some more insights. But you're right, Uber is twice the size of DoorDash. So, I think over time we'll see more of that. And then with the rewards program, what I like about it, and actually you made me think of this whole comparison to aggregators. If you think of aggregators, tend to be a higher income customer. These are folks who we hope will eventually come to Domino's, but we're willing to meet them where they are. The economics are set up for them to stay aggregator customers, should they need to. But there are customers out there who want value and want rewards. And the biggest change we did to the Domino's rewards program was made it a better program for light users. You can do 20 or 40 point redemptions now versus 60 in the past. And care-at-home users. So, those tend to be a little bit lower income. So, those two things are working really well together to drive renowned value.