Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2019 Domino’s Pizza Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Tim McIntyre, Communications and Investor Relations. Please go ahead, sir.

Thanks, Sonia, and hello, everyone. Thank you for joining us for our conversation today regarding the results of our third quarter 2019. The call will feature commentary from Chief Executive Officer, Ritch Allison; and Chief Financial Officer, Jeff Lawrence. As this call is primarily for our investor audience, I ask all members of the media and others to be in listen-only mode. In the event that any forward looking statements are made, I refer you to the Safe Harbor statement you can find in this morning’s release, the 8-K and the 10-Q. In addition, please refer to the 8-K to find disclosures and reconciliations of non GAAP financial measures that maybe used on today’s call. Our request to our analysts, we want to do our best to accommodate all of you today, so we encourage you to ask only one part question on this call, if you would please. With that, I’d like to turn the call over to Chief Financial Officer, Jeff Lawrence.

Thanks, Tim, and good morning, everyone. In the third quarter, our positive global brand momentum continued as we delivered solid results for our shareholders. We continue to lead the broader restaurant industry with 34 straight quarters of positive U.S. comparable sales and 103 consecutive quarters of positive international comps. We also continue to increase our global store count at a healthy pace as we opened 214 net new stores in Q3. Our diluted EPS was $2.05, an increase of 5.1% over the prior year quarter, primarily resulting from strong operational results offset in part by a higher tax rate. With that, let's take a closer look at the financial results for Q3. Global retail sales grew 5.8% as compared to the prior year quarter, pressured by a stronger dollar. When excluding the negative impact of foreign currency, global retail sales grew by 7.5%. This global retail sales growth was driven by both an increase in the average number of stores opened during the quarter and higher same-store sales. Same-store sales for the U.S. grew 2.4%, lapping a prior year increase of 6.3%, and same-store sales for our international division grew 1.7%, rolling over a prior year increase of 3.3%. Breaking down the U.S. comp, our franchise business was up 2.5%, while our company-owned stores were up 1.7%. The comp this quarter was driven entirely by ticket growth. While we continue to grow our overall delivery business, we continue to experience pressure on the delivery business comp from our successful fortressing strategy as well as from aggressive competitive activity. Our carryout business continues to grow at an impressive rate. On the international front, our comp for the quarter was also driven primarily by ticket growth. On the unit count front, we opened 40 net U.S. stores in the third quarter consisting…

Thanks, Jeff. Good morning, everyone and thank you for joining us on the call today. I’m going to do with -- I’m going to do things a little bit differently -- excuse me, this morning, than we typically do. I will take a few minutes to walk through some highlights from the third quarter. But then I want to turn our attention to the revised outlook that we released to you early this morning, and after that we will take some time for some Q&A. Let's start with the U.S. business and a few highlights there. It is an evolving competitive and operating environment in the U.S. right now. But I continue to feel that our fundamentals are solid and that the priorities that we have around the business are all in the right place. We remain as always steadfastly focused on delivering value to our customers and best-in-class unit economics to our franchisees. The quarter yielded strong growth in our carryout business. This was driven by great value, terrific advertising and also great-looking stores. We continue to build more stores around the U.S. as we work to get closer to our customers. This not only improves our delivery service and economics, but it also brings a significant number of incremental carryout orders into our stores. When we look across the U.S., we now have over 90% of our U.S. system in our modern pizza theater image. This has truly elevated the carryout experience for our customers. Turning to our delivery business, we continue to feel some pressure from the entry of many non-pizza QSR players, who were enabled by the third-party aggregators. September starting with the programs that we shared with many of you last month, all with a focus on driving traffic and order count gains. I will…

[Operator Instructions] And our first question comes from Brian Bittner of Oppenheimer & Company. Your line is now open.

Thank you. Good morning. Question on the guidance. I assume all of us on this call completely understand the philosophy around changing the structure of how you’re communicating your same-store sales guidance. But just a little more color on how you're approaching this 2% to 5% range. It's really not a dramatic change from what you were communicating and as you know people are going to be using that range to evaluate your performance from here quarterly and annually. So just a little more color on what that 100 basis point change on both sides of the equation is directly attributable to?

Sure, Brian. Thanks for the question. Listen, as we take a look at it, it really is -- it really is twofold as I described in my earlier remarks. As we take a look at the U.S. business, first, there is just a level of uncertainty in the near term around some of these competing delivery offers in the marketplace. We know that has an impact on the comp and therefore felt that we needed to adjust that range down a bit. We also -- as we look forward over the next couple of years, we are moving aggressively to continue our fortressing program and this is not just with our franchisees, but also in our corporate store book business, we believe in this so adamantly that we have -- as we look at the seven markets that we still play in with our corporate store business, we intend to fortress those seven markets completely within the next 3-year time horizon. And we know that will also create some drag on -- additional drag on the comp in the near term. So, it really is those two factors that led us to: A, restructure the timeframe around the comp; and then, B, to set the ranges at that 2% to 5%.

Thank you.

Thank you. And the next question comes from Nick Setyan of Wedbush Securities. Your line is now open.

Thank you. We are starting to see some of the QSR [ph] competition receiving deals that are actually very favorable to the restaurants. And so whether or not the third-party providers can sustain subsidies at that level is a theoretical question, but certainly in the near-term, those deals are going to allow -- those QSR burger players, particularly, too to become incrementally more and more competitive. And so, I guess the question is, in the near-term, what's the plan to compete both on value and around menu innovation?

Yes. So, as we highlighted just a few weeks back, we’ve got some opportunities we believe to continue to not only reinforce value in the marketplace, but also to reinforce the Domino's Pizza service and the delivery expertise that we’ve been known for now, almost 60 years. So, in the near-term, it is staying focused on our $5.99 and $7.99 hero price points, aggressively continuing to push on service, working with our franchisees to make sure that we are providing great delivery service to our customers, and really putting our money where our mouth is on that as you see with our delivery insurance campaign that we have on TV now. We know that two of the main frustrations that consumers have around any delivery is the cost of it, and then also getting their food on time every time. And so, we're trying to make sure that we continue to address both of those. As it relates to the menu, we are talking now on air about variety with our crust types, but also we’ve got the team working very hard on menu innovation as well. And just as of last Friday, I tasted some more terrific products. I think we will have some great news coming out in 2020 that I think our customers will find exciting. And then broadly to the opening point of your question around the deals that are out there in the marketplace now, I think the restaurant companies have gotten smart and they’ve realized that aligning with one delivery partner probably doesn't make a lot of sense. If you go out there and get two or three of them, you can get them to beat each other up and give you a better deal, so not surprising to us at all that that’s that's happening in the marketplace. And then long term, we're not sure how sustainable some of those economics are for the third parties, which is part of what drives that near-term uncertainty around to 2- to 3-year outlook. So, we're going to continue obviously to keep a close eye on what's happening in the competitive environment, but to really stay focused on the things that we can do and that we can control to drive value and service for our customers.

Thank you.

Thank you. And our next question comes from Chris O’Cull of Stifel. Your line is now open. Chris O’Cull: Thanks. Good morning. Ritch, my question is about the decision to ramp up fortressing. What gives you confidence that U.S. franchisees will execute this plan, especially if comps are expected to slow. It would seem that slower comp performance would eventually weigh on their willingness to develop units, but maybe I'm wrong.

Yes. So, what really drives unit development is the cash on cash return. For those new units, both the individual unit, but then also the overall cash on cash return for the cluster or the area of stores that impacts. And what we continue to see in the business is that we’ve got very strong cash on cash returns, and I talked a little bit earlier, we're going to put our money where our mouth is on this as well with respect to our corporate store business. We are getting terrific returns in our corporate stores, and therefore we’re going to push aggressively over the next three years to fortress the territories that we operate in there. And we're hearing the same from our franchisees. And the results around this it is not only the near-term financial returns that franchisees get, but it's also how this reinforces their relationships with their customers locally because of the great service that they provide. And I was just looking at some numbers this morning, one of the things that we’d love to do is, is give you over time some examples from around the business. We’ve talked to you about Seattle in the past, and we talked to you about what we were doing in Las Vegas. And we talked to you about Roanoke, Virginia, and some of the things we're doing there. I’m looking at our Dallas-Fort Worth DMA, and if you lived in Lewisville, Texas last week, where we’ve got three stores, the worst-performing store on delivery last week in Lewisville averaged 16.5 minutes average delivery time with zero deliveries over 45 minutes. So, when we go out there and fortress not only do we create great economics for our stores, our franchisees, and for the drivers that are delivering these pizzas, but also this is just an unmatched experience around customer service. So these are the kinds of things when our franchisees see this and when we see it with our corporate store business, it gives us more conviction that the right thing to do while we are playing in a position of great strength here with our unit economics is to go faster and to take advantage of this disruption in the marketplace.

Thank you. And our next question comes from Matthew DiFrisco of Guggenheim. Your line is now open.

Thank you. Ritch or Jeff, your comments imply somewhat of an unchanged outlook for the profit growth. I was wondering if: a, can you help us reconcile that with the lower same-store sales outlook, the model's ability to, I guess, sustain EBITDA growth ahead of retail sales? Are there G&A belt-tightening opportunities on an ongoing basis? And then, b, if you could sort of tie that into from a franchise perspective, the $141,000 per store with a lower same-store sales outlook, are there the net benefit still from seeing better carryout and that higher margin sale opportunity? Is that able to offset maybe the headwinds from a lower same-store sales outlook?

Hey, Matt, it's Jeff. I appreciate the question. The first thing we would say is, on a store by store basis, franchisees are going to make order of magnitude more than anybody else in the QS pizza industry in the United States, we know that for sure. We still got three months ago, so there's a lot of pizza to be sold and lot of money to be made. But there's still going to be from a great position of strength and from an enterprise perspective, as Ritch mentioned, approaching about a $1 million of operating cash flow per independent franchise partners. So great strength, great cash available to reinvest in the brand and we’ve seen that. So, again, whether that comes in ultimately, and we will update you on that exact number early in 2020 once we actually get it. Whether that comes in a $1,000 or $2,000 higher or lower, doesn’t fundamentally change the way their approach in the business as far as running the business and investing in the business. As it relates to G&A on our side, during my prepared remarks, you will note that we brought in our -- both our capital expenditure, 2019 guide as well as our G&A 2019 guide. So as we’ve done in the past, we expect to give you a new view of that for 2020 -- in 2020 once we’ve been able to roll up all the plan. But I think what that shows is we’re always looking to be disciplined and prioritize the investment that we know it's going to take to really take advantage of our number one position and really get to that dominant number one. The last thing I'll say is, I can tell you that even though we brought in the 2019 CapEx and G&A guides slightly down, which we think is a good thing, I can tell you that all of the important projects and investments that we know, we need to make around technology, around image, around product development, all of those things are still getting done and done again from a position of strength. So still investing front footed, but we're doing in a little bit tighter recognizing the current system. But we're not leaving anything on the table. We are going to make sure we invest in everything we need to get to a dominant number one and we feel great about that, our franchisees do as well.

So from a G&A perspective, would we -- would it be correct not to assume then you’re just shifting, maybe some $19 into $20 and that there is an implied ramp up into $20 to make up for the $19 or what your cutting or finding the savings in $19 is something sustainable through $20?

Yes. I mean, we will give you a 2020 guide, when we get into 2020 on G&A and CapEx as we’ve always done. But the $19 guide changes are just a result of running at little bit more disciplined, little bit more prioritized. But the important part there isn't the $19 versus $20 thing. The important part is we're investing in all the things we need to do is to get the dominant number one.

Thank you so much.

Thank you. [Operator Instructions] Our next question comes from Will Slabaugh of Stephens Incorporated. Your line is now open.

Yes. Thanks, guys. Just wanted a quick update on some of the more recent initiatives such as the 20% off late-night, the delivery insurance, which seem to be more directly going after delivery competition. Just curious how that affected your late-night and delivery business as you launch those? Thanks.

Hey, Will, it's Ritch. We just launch those in September, so really in the fourth quarter, so we can't really comment on results from those initiatives yet. Certainly the advertising, we think is terrific. So we're optimistic about the programs, but no comments on the results today.

Thank you. And our next question comes from Andrew Charles of Cowen and Company. Your line is now open.

Yes. Just to piggy -- thank you, guys. Just to piggyback a little bit on the last comment. I’m just curious about the timing of the guidance change following the confidence in the prior Investor meeting of 32 days ago. And I can understand that you don’t want to get into the dynamics of what’s going on in the fourth quarter. But you did mention that the guidance, new guidance range is proactive and not reactive, and so can you just confirm that there is nothing in the performance of the first 30 days of 4Q that did in fact provoked the lower guidance?

You know, Matthew, we don't talk -- Andrew, excuse me, we don’t talk about the current quarter. I will tell you that there's no real magic to the timing that it's not a reactive decision, it's a proactive decision to change the structure of the guidance all in an effort to make it more meaningful and relevant to our investors.

Thanks.

Thank you. And our next question comes from Alton Stump of Longbow Research. Your line is now open.

Thank you and good morning. Just wanted to ask about your comments, Jeff, that it was a very competitive quarter. Is that a sign that we're seeing even more competition coming from third-party providers, or was that level of competition unchanged in your view in 3Q versus the second quarter?

Alton, it's Ritch. No real major change in the level of competition that we see out there. Still a pretty heavy stream of advertising and discounting out there in the marketplace that we see, but no significant ramp up or down from prior.

Okay. Thanks, Ritch.

Thank you. And our next question comes from John Glass from Morgan Stanley. Your line is now open.

Hi. Thanks. Ritch, I appreciate the detail on the carryout business and how large it's gotten relative to the delivery business. Can you dimensionalize how the relative comps are doing in those two businesses, if not absolutely maybe just on a relative basis? Is carryout just growing so much faster that, that’s really the story right now on a comp basis and that’s why you’re legging into fortressing? If you can kind of help us understand where delivery is versus the carryout business? And also advertising spend, I think you noted a couple of quarters ago, aggregators are spending more on advertising. Others have also noted that and that’s sort of elevating them relative to traditional brands? What can you do about that? Is there ways you can shift advertising dollars back to reinforce your message in the marketplace versus what’s going on now?

Thanks, John. On your first question around the carryout business, absolutely we're getting terrific growth in the carryout business overall and then also on a same-store basis. When we look at the delivery business, the delivery business continues to grow overall. We had some pressure on the comps, but overall delivery sales are higher than they were a year-ago when we look at it in total across our system. But certainly a more rapid pace of growth in the carryout business. Then to your next question around the share of voice in the advertising, we are fortunate on two dimensions. One is to have a pretty hefty warchest for advertising. And second is, to have some really smart folks who run the analytics about how we spend that money on behalf of our franchisees on an ongoing basis. So we are constantly running our media mix models and tweaking the mix of spend both across channels, but also with respect to how that spend goes across the various messages that we are communicating, be that carryout or delivery for example. So it is a constant thing that we manage on a very active basis.

Thank you.

Thank you. And our next question comes from Katherine Fogertey of Goldman Sachs. Your line is now open.

Great. Thank you. I was hoping if you could kind of comment on the cadence of the quarter, in particular, help contextualize both on the carryout and on the delivery business, the impact that some of the more promotions that you ran during the quarter had, that would be helpful. Thank you.

Katie, no real comments kind of intra-quarter on the cadence of things. We continue to actively manage the calendar against both of our businesses, the carryout and the delivery business, but no real, I guess highlights to callout based on the cadence within.

Maybe another way to ask it is, when you look at your customer data, are you seeing that these promotions are driving frequency, or a new customer is on to the platform?

So we're constantly running programs to drive both with an all-out effort around traffic. So, we have certain things that will often bring new customers into Domino's. And one of the things that you see is that we run -- periodically we will run a 50% off delivery for a week or we will run a carryout special during the course of a week. Those are great vehicles to bring new customers into the Domino's brand. And then we’re also using this incredible database that we have of 23 million active members of our loyalty program and 85 million active customers in total. So we are constantly looking at ways that we can use the power of that data to help us reach out to customers that we've already acquired and identify ways to drive increased frequency. So the answer for us really is both. Our teams are constantly working on both of those levers to drive sales growth in the business.

Thank you. And our next question comes from Gregory Francfort of Bank of America. Your line is now open.

Hey, thanks for the question. Ritch, I think earlier in the Q&A you talked about why the economics don't work for third parties or brands that are partnering with third parties. Can you talk a little bit about why the economics work for Domino's, but they don't work for the aggregators? Just maybe explain some of the differences and I don't know if it's brand density or product -- product life or anything like that just in terms of what the major differences are in terms of why your delivery orders are profitable and your competitors are not? Thank you.

Well, I -- Greg, I'll leave it to you all as the analyst to figure out the profitability of the third-parties, but I will just focus on our business. We’ve got a -- we got a terrific business model and that we take -- and I will try to describe it a little bit holistically and we will get into to kind of contextualize the delivery component. So we build these boxes. They cost about $350,000 or so on average to build. And then we run two businesses through those boxes that complement each other. We run a carryout business and we run a delivery business. Now the dynamics of those two businesses are different. But they complement each other in that they give us a really profitable pizza production engine that then allows us to offer delivery, and it is in any business, some of those delivery orders are going to be more profitable than others. A large ticket order that is 200 yards from the store is going to have phenomenal profitability. If we take a $15 order nine minutes away from the store where labor is $15 an hour, that's not going to be yet profitable at delivery. But because we're running so much volume through this box, both in the carryout channel and the delivery channel, it gives us an opportunity then to drive great economics for the franchisee in a way that also allows us to offer compelling value to the customer. And we just believe that, that captive system is a much more efficient business model, Then a business model that has a restaurant, which is separate from a third-party service that ultimately does the deliveries.

Helpful perspective. Thank you.

Thank you. And our next question comes from Sara Senatore of Bernstein. Your line is now open. And Sara, your phone is on mute. Please unmute.

Hello. Can you hear me?

Hi, Sara, we can hear you.

Sorry. Just a question on the international markets, please. You said that the competitive set is -- it's different, but there are other issues too, I guess. Could you just talk a little bit to what those are. I know you’ve mentioned value in the past. And also some of your licensees they’re partnering with aggregator. Is that helping them, is there anything to convince you that maybe that’s the right strategy in the U.S. too. Thanks.

Yes. So Sara, on the first part of your question around what we're seeing in some of the international markets? The answer is that the issues are a little bit different depending on what market you happen to be in. I mean, we benefit broadly from having a really diversified portfolio of international markets. But at any given time, we always have some that are blowing the doors off in terms of sales growth and we -- and then we've got something that are a little bit challenged. Oftentimes, more often than not, when we are a little bit challenged, it does tend to come down to the value positioning in the marketplace. And in some of our international markets, we don't have as much capability in place around some of the analytics that we have here in the U.S. that really allow us to sort through the value maximizing price points out there in the market. So we've stood up over the course of the last year, the centers of excellence where we've now got some of our teams here that are working alongside some of our international franchisees. It just takes time for some of that to come through to gather the data, to do the analytics and to effect the change in some of those markets. So I'm optimistic, very optimistic, about the long-term success of that international business. As all of you probably know, it is quite near and dear to my heart having personally spent over seven years leading that business and having personally put my feet on the ground in more than 70 of the countries that we operate in around the globe. But I have a high level of optimism we have terrific master franchisees who are committed to growing their businesses. The…

Thank you.

Thank you. And our next question comes from Dennis Geiger of UBS. Your line is now open.

Thanks for the question. I wanted to ask a bit more about the ticket contribution in the quarter and just generally how much of that contribution is from the higher delivery fees and then from pricing and how much of it is from what you're doing to drive mix through things like smart tickets? And I guess more importantly, just looking ahead, how you are thinking about those components at a high level and what kind of opportunities you still have with that smart ticket as you think about the size of your loyalty program and all your digital capabilities? Thanks.

Hey, Dennis, appreciate the question. This is Jeff. First thing on the ticket for the U.S. business in the quarter, certainly, some franchisees on balance taking some menu price, also some delivery fee there. They use the data that we work with them obviously to try to make a good decision there and as we mentioned it a couple of times today, when you have 85 million active customers in your database, you have a lot to work with when you try to tackle the real thorny issue of pricing in every neighborhood. Always trying to also sell more food, obviously, more mix. I think as Ritch mentioned earlier, with cross variety that we're talking about, we've done the more than pizza television ad mostly during Q3, which really highlights the broad menu for our pizza company, always trying to get additional food in the ticket as well. Having talked about ticket, doesn't change our primary focus, which is the hard stuffed. It is a little bit harder right now, given the dynamism in the industry that especially around the delivery business, traffic is a little harder to get than it was two or three or four years ago, but we remain focused on driving traffic we think we will get back to that spot. But right now, you're seeing a little bit more ticket during the third quarter than traffic, but doesn't change the overall philosophy of what we're trying to chase.

All right. Thanks, Jeff.

Thank you. And our next question comes from David Tarantino of Baird. Your line is now open.

Hi. Good morning, Ritch, I wanted to revisit the targets for the comps in the U.S., and I appreciate that you've been running inside that range year-to-date. But if I look at the six quarters, the comp trend has been in a gradual mode of deceleration. So I wanted to ask, I think if you think about the targets to be achieved, you need to I guess stabilize this trend of deceleration. So wondering how you're thinking about your ability to do that and what's needed, whether you think that's inside the control of what you have planned, or are you assuming that the environment or competitive environment gets better. I guess how are you thinking about your ability to sort of stay above 2% in the near-term relative to your targets?

Yes, David, thanks for the question. And we do take a look at both of those elements, the elements that we can control, and then obviously, there are elements out there in the marketplace that are happening around us. When we take a look at -- if I start with the second part of that, we do still believe that there's a good bit of uncertainty out there. As I mentioned earlier, we didn't see any significant change in the aggregator pressure in the third quarter versus the second quarter. But where we spend the vast majority of our time thinking about is the things that we can control. And so, when we take a look forward, I'm pretty excited about the programs that the team has developed as we go into 2020, which are going to continue to reinforce some of the things that are really important to us. Number one, we are going to stay focused on value as we always do. We've got some technology and some operational initiatives all around service and that is both for our delivery business, but also for this rapidly growing carryout business that we have. And I spoke first about value and about service because as we look at the consumer research out there, the two most things that we hear from customers that either delight them or that cause them not to be so happy about delivery coming from anybody are did they feel like they were charged a fair price; and secondly, did they get great service? So we're going to stay focused on those. Then third is -- and I mentioned this earlier on the call as well, we do have some innovation that I'm excited about on the food front as well. And yes, we haven't brought any new products forward in a while. And so I think some news there is also something that is due and I think will be exciting to our customers. So when I take a look at it all in, we believe that we've got factors under our control that can allow us to continue to grow our business from a same-store sales perspective, continue to get new stores on the map because the economics are great. And when you roll it all together to continue to grow our market share, which is over time as we think about how do we continue to establish this as the dominant pizza brand, but also a long-term taker of share in the marketplace, it really is about all of that rolled together.

Great. Thank you.

Thank you. And our next question comes from Peter Saleh of BTIG. Your line is now open.

Great. Thanks. Ritch, I think you mentioned new menu innovation, new product news coming in 2020. I think it's been several years since we -- you've launched a new product. And historically, you launch them in the second half of the year. So can you give us some color around, did you plan this to be a first half of the year-type launch or do we need to wait again? So are you guys going to follow a similar pattern, launch in the second half of the year? Any color around it, whether it be entree, dessert sides, anything of that nature would be helpful. Thanks.

Pete, really, nothing I can share with you on the call this morning about the timing or the items. Really, from a competitive standpoint, that's information that we would like to keep close to the vest.

All right. Thank you very much.

Thank you. And our next question comes from John Ivankoe of J.P. Morgan. Your line is now open.

Hi, thank you. I wanted to follow-up on the comments about service being a major focus. Even market-by-market, have you seen any difficulty of attracting and retaining drivers? That’s kind of the first point. And secondly, something that at least we've heard and some of this may be anecdotal as to how has been an increase in "late orders," orders that are arriving later than at least what consumers perceive a Domino's order should take. Has there been any decrease at all as you guys look at the empirical evidence, not the anecdotal evidence, service levels that may have slipped over the past couple of years and that actually may be an opportunity going forward for you to improve that?

Hey, John, thanks for the question. First, on the drivers. It's most certainly a tight labor market out there right now. I think the last statistic I saw was 3.5% unemployment in the U.S., which is as low as it's been in I don't know, maybe 50 years. So yes, it is a tight battle for talent out there and for drivers all over the country. And -- but the interesting thing is, when we go around, the franchisees that are really focused on their teams and investing in the growth and development of their teams. They are fully staffed is what I'm hearing out there in the marketplace. They're making it happen, and we're getting terrific delivery service. We're not doing that all over the country right now. We do have open positions for drivers in a lot of markets around the country where, frankly, we just -- we got to get better. We are seeing drivers, and as I travel around, I visited a lot of stores, I am hearing a lot of stories of drivers who are coming back to us from some of the gig economy opportunities that they may have left us to join and realized that maybe the grass isn't always greener there. And part of what we try to work with our teams on is to make sure that these drivers understand that there is an opportunity at Domino's Pizza that doesn't exist in a lot of these other areas. I mean we have 90% of our U.S. franchisees started as drivers, and we have our franchise management school that we run here in Ann Arbor, which is producing a new crop of franchisees that are coming into our system. We see the same story there. We see folks that started as drivers or insiders and worked their way up through. So the battle is ongoing, but our franchisees, I think, are up to the challenge. As it relates to service, we've recently put more of a focus on making sure that we manage any late orders because it's interesting, those are the orders that can really drive a negative perception in the minds of consumers. And so, we put a heightened focus on that here in 2019 and we're going to continue to do that going forward. So while I would not say that we're seeing any significant negative movements in service, it's not moving positive as fast as I would like it. It is where we are running our -- where we feel our fortressing stride, in certain markets we see some significant improvements, but it's not broad enough across the system right now for me to be satisfied.

Thank you.

Thank you. And our next question comes from Stephen Anderson of Maxim Group. Your line is now open.

Yes. Thank you very much. Just wanted to piggyback on some of the comments you discuss on some of the technology initiatives, I know you talked about in the past year new plan sales system and more front burner supply chain automations. Just want to see what you've picked up recently as you’ve learned from some of the newer -- new Edison, new Jersey location, what you brought over to some of the older supply chain facilities and I wanted to get maybe an update on the -- your new point-of-sale test.

Got it. So, yes, Stephen, we’re certainly continuing to invest. As Jeff said earlier, even with little tighter management around CapEx and expense, we are still fully funding all of the key technology initiatives that we have inside the company. Our next-generation point-of-sale system progressing along really nicely. I was in the lab myself where they handed me an order script and I was actually able to enter it in myself with no training. So not only are we building a more robust system, but which one -- but also one that will enable more rapid training of our team members, which I think is critical. We are still tracking toward getting that system in a pilot store by the end of this year. And then as we continue to work through our planning, we will have a -- what will be a multi-year rollout of the system. And when you think about it, this is a system that is present today in over 13,000 of our 16,000 plus stores around the globe. Second, you asked about supply chain technology. We’ve learned a lot in the year since we opened our center in Edison, New Jersey, where we employed really for the first time in the U.S. system some of these new technologies. We've learned a lot, and we are taking the best of that to the next two centers, which we will open in South Carolina and in Houston. So I'm personally excited about where this supply chain team is going in terms of making sure that we've got the capacity that we need to support the terrific growth of our franchisees.

Thank you.

Thank you. And our next question comes from Alex Slagle of Jefferies. Your line is now open.

Hey, thanks for the question. Historically, the mix of digital sales in the U.S. seem to grow at 5% annually year-after-year. And it seems like we have been near the 65% level for a few years now. I know it was about 60% at the end of '16. So I'm wondering, has this digital mix been increasing as you expect, or if it has been a little slow in recent years, why would that be?

Yes. Alex, it does continue to increase, but as you might guess, once you start getting up to more than two-thirds of your orders already on digital, that kind of year-on-year pace, it's hard to add 5 percentage points and 5 percentage points again and again. But we are pushing up close to 70% in the U.S. And it's interesting in some of our international markets as well, we see incredible numbers. China, over 90% of our delivery business is digital today. So continuing to see great movement there in the U.S. and across the globe.

Okay. Thanks.

Thank you. And our next question comes from Jeffrey Bernstein of Barclays. Your line is now open.

Great. Thank you very much. Ritch, just a broader question, I guess, on the industry. One, I'm just wondering whether you think you're seeing slippage across the pizza category, whether all will be feeling kind of these third-party delivery pressures equally or whether maybe you are perhaps feeling it for some reason differently than others. And if you could just clarify your comment on the supply/demand outlook. I know you talked about significant shakeout to come. Just wondering whether you're talking specifically about the pizza category or the broader industry. I don't know if you've seen the evidence of that already, but any color on that front would be great. Thank you.

Sure. Yes. Thanks, Jeff. Well, first off, within the pizza category, we're still gaining significant share inside the pizza category. And if you look in -- and that's in the U.S. and globally. 6% retail sales growth in the U.S. well outpaces the growth of the category. And the 9.1%, when you normalize for currency internationally, also well outpaces the category. And we're continuing to be, as we talked about earlier, aggressive in terms of fortressing the markets that we operate in. And we see so much pizza share out there still left to be taken that we are not going to slow down in that regard. And then in some of my comments, second part of your question was around some of the shakeout, certainly, we do see some pizza competitors that are experiencing more difficulty as evidenced by closures, particularly when we look in some of the higher labor cost markets around the U.S. One of the things that really helps our business model is that we run at a volume that significantly exceeds most of the competition on a per unit level. And as these labor costs rise over time, if you're not running a high-volume business in QSR pizza, it gets more and more difficult to compete. It also gets more and more difficult to compete in a pizza delivery business if you're not shrinking down the radius of your territory for delivery because that is the key -- that wage rate is the key driver. And you really have to improve over time the number of deliveries per driver per hour that you can get. So we look at an industry that's under pressure from labor costs that -- an industry that is transitioning volume from dining in to delivery without any increase that we can see in terms of overall growth in the restaurant industry. So a lot of restaurant companies are trading orders from a more profitable to a less profitable channel, while wage rates are going up. So that is why when we talk about a shakeout to come, this is not an industry that starts with 40% profit margins typically. So there is not a lot of room for some of these players to seed margin to a third-party on one end, while labor costs are going up on the other.

Thank you.

Thank you. And our next question comes from Brett Levy of MKM Partners. Your line is now open.

Great. Thank you. Good morning, everyone. If we could go back to -- very impressive numbers, 23 million active, 85 million overall loyalty and email members. So is there anything that you can see out there, either across these different cohorts that's different? And also, do you think that you need to maybe adjust your approach to how you're talking to either the most loyal piece of the pie members or the other 60 million that are out there, because we've seen other competitors who've really stepped up their depths and breadth of loyal members and we've started to see them reaccelerate. So is there something you can do? Is there something you're seeing under the surface that we're not seeing? Any color would be helpful. Thank you.

I think there are quite a few things that we can do over time to take more advantage of this incredible asset that we have, which is this database of customer information that we have. And we've challenged our teams here to think about how can we get closer and closer to those customers. So how do we -- I guess the ultimate thing that everybody strives for is people use the term one-on-one marketing. Well, we've still got a long way to go between where we are today and that point over time. So it's something we think about quite regularly. And with the data that we have that gives us a chance to really look at how customers' purchasing behavior evolves over their life cycle with Domino's, we've got an asset here that I think can help us in the months and years to come.

Thank you. And our next question comes from Jon Tower of Wells Fargo. Your line is now open.

Great. Thanks. Just hitting on the third-party delivery stuff again. Can you discuss what you've learned about the stickiness of those customers that have tried the third-party delivery services? And I guess I'm trying to go back to your comments about the lower fees or the -- yes, the lower fees or promotional activity driving a lot of the shift in demand in the market right now away from perhaps pizza. But if fees move higher, what are you guys seeing that suggests they're going to come back to the pizza category over time? Thank you.

Hi, Jon. It's tough to really assess. We look at it hard, as you might guess. What we don't know yet, however, is how will the behavior evolve for customers that are now placing some number of orders through the third parties. As the full cost is -- or at least some measure of the cost is borne by the customer over time, what will ultimately happen to their behavior? We don't know the answer to that yet. But what we do know is, we know a whole lot about the elasticity of demand in the pizza category. We've got -- with 6,000 units around the U.S. and with franchisees around the U.S. who have the ability to set their own prices for delivery charges and their own menu prices, we have a pretty darn good idea about what the elasticity curves look like in the pizza category. Now we've -- and we know that pizza and we believe QSR more broadly is a pretty elastic category. So what we expect over time is that there will be some equilibrium. Once the cost to get food delivered to you has to fully support the effort that it takes to get it there, will -- only then will we know ultimately where this thing falls. But I do not expect the same number of customers to use third-party delivery once they have to pay for it as the number as that use it when it's free. If you offer to mow my lawn for free, I'm going to say, yes. When you come and charge me for it, I might just go out there and push the mower around myself.

All right. Thank you.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call over to Ritch Allison for any further remarks.

Well, listen, thank you once again for taking the time to join us this morning. And we look forward to getting back together with you in February and to sharing the results of the fourth quarter. Thanks so much.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.