Good day, and thank you for standing by. Welcome to the Domino's Pizza Fourth Quarter Year-end 2021 Earnings Conference Call. [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, Jenny Fouracre, Investor Relations. Please go ahead.

Good morning, and thank you for joining us today for our conversation regarding the results for the fourth quarter and fiscal 2021. Today's call will feature commentary from Chief Executive Officer, Ritch Allison; from the office of CFO, Jessica Parrish; and a few words from our incoming CEO, Russell Weiner. As this call is primarily for our investor audience, I ask that all members of the media and others be in listen-only mode. I want to remind everyone that the forward-looking statements in this morning's earnings release and 10-K also apply to our comments on the call today. Both of these documents are available on our website. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors outlined 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. Our request from our coverage analysts, as always, we would like to accommodate as many of you as time permits. [Operator Instructions] Today's conference call is being webcast and is also being recorded for replay via our website. With that, I'd like to turn the call over to our CEO, Ritch Allison.

Thank you, Jenny, and thanks to all of you for joining us this morning. Before getting into the details of the fourth quarter and full year 2021 results, I'd like to begin by addressing our leadership succession news announced this morning. After almost 11 years at Domino's, including the last 4 years as CEO, I've announced my plans to retire from the company. With the outstanding leadership team we have in place, I believe now is the right time for me to pass the baton to the next generation of leadership. That's why I'm delighted to share that our Board of Directors has unanimously chosen our very own Russell Weiner, Chief Operating Officer and President of Domino's U.S., to become our next CEO effective May 1 of this year. I look forward to working with Russell for a smooth transition and will continue to serve as an adviser to him until I retire on July 15. There is simply no one more qualified than Russell to oversee Domino's next chapter. Russell has been a member of the Domino's family since 2008 and has been instrumental in defining and executing the strategies that have led to our success. Russell has played a pivotal leadership role driving innovation across all aspects of the Domino's brand during his tenure, including reinventing Domino's menu and advertising. As we enter a new phase of growth for the company, the Board and I believe Russell's vision, incredible passion for the brand and earned respect of our team members and franchisees, make him the right choice to take Domino's forward. This morning, we also announced that after a thorough search with the assistance of an outside search firm, we have named Sandeep Reddy as the company's next CFO. We are excited to welcome Sandeep to the Domino's family, and we are confident that he will be an incredible addition to our talented leadership team. As for my next chapter, my wife and I look forward to returning home to North Carolina to spend more time with our family and focus on community and philanthropic efforts that are close to our hearts. Looking ahead, I remain as confident as ever in Domino's growth prospects, and I know the company will only build on its momentum with Russell at the helm. With that, I will now turn it over to Russell for some brief remarks. Russell?

Thank you, Ritch, and good morning, everybody. I am honored and humbled to take on the role of CEO. This for me is the opportunity of a lifetime to represent a brand that I love and team members and franchisees all over the world that I respect and admire so much. I'm excited to begin the next chapter of an incredible Domino's journey that started for me back in 2008, and I'm eager to build on that strong foundation we have and continue to deliver value for all of our stakeholders. Domino's became the #1 pizza company in the world through a relentless focus on our customers in every aspect of their pizza experience. I'm here to tell you that, that focus is as strong as ever, and I'm excited to work with our talented leaders, our team members and franchisees to deliver the next phase of Domino's growth. On behalf of Domino's colleagues around the globe, I want to thank Ritch for his leadership and incredible contributions to Domino's over the years and really on a more personal note, for the collaboration that we've had and for the friendship that we will have for a long time. I look forward to continuing to work closely with Ritch over the coming months to ensure a seamless transition. I'm also really looking forward to working closely with Sandeep, who I was personally involved in hiring along with Ritch and our Board. Sandeep brings nearly 3 decades of global leadership experience in consumer-facing businesses, and I know he will be an incredible fit from both a business perspective and culture perspective. With that, I'll now hand it back to Ritch to take you through the quarter and the year. Ritch?

Thanks, Russell. Overall, I'm very pleased with our 2021 results, which once again demonstrated the strength of the Domino's brand around the world. Throughout the year, we and our franchisees continue to battle through ongoing COVID-related challenges. Through the Delta wave, through the onset of Omicron near the end of the year, our franchisees, store operators and supply chain teams fought on in service of their customers, their team members and their communities across the country and around the globe. As I look back on 2021, there are a few key highlights that demonstrate the continued strength and resilience of the Domino's business model. Global retail sales reached $17.8 billion in 2021, up 11.7%, excluding the impacts of foreign currency and the 53rd week compared to 2020. And that was lapping a 10.4% growth rate in 2020. When we compare back to pre-pandemic 2019, the Domino's brand grew by approximately $3.5 billion in retail sales on a global basis over the last 2 years. Now for perspective, $3.5 billion was about the size of our entire U.S. business just a decade ago in 2011, 51 years after Domino's was founded. We and our franchisees opened 1,204 net new stores in 2021, more than 3 stores per day, reaching a global store count of 18,848 at the end of the year. When combined with our 2020 store growth, we opened more than 1,800 net new stores over the last 2 years. That's in the shadow of the COVID-19 pandemic and the development difficulties and delays witnessed worldwide. This demonstrates the incredible commitment and resilience of our franchisees. Our unit economics remain very strong, even in the face of rising labor and food costs. In the U.S., the average Domino's store generated more than $1.3 million in sales during 2021, while the…

Thank you, Ritch. Congratulations to both you and Russell, and good morning to everyone on the call. We are pleased to share our fourth quarter and full year 2021 results with you today. Overall, Domino's team members and franchisees around the world continue to generate healthy operating results, leading to a diluted EPS of $4.25 for Q4, which represents a 22.8% increase over our diluted EPS as adjusted in Q4 2020. As a reminder, our fourth quarter results in 2020 included an extra or a 53rd week, which is outlined in more detail as an item affecting comparability in our earnings release filed this morning. Global retail sales were down 0.2% in Q4 2021 as compared to Q4 2020. However, when excluding the extra week in Q4 2020 and the negative impact of foreign currency, global retail sales grew 9%, demonstrating sustained positive momentum in both our U.S. and international businesses. Breaking down total global retail sales growth, when excluding the extra week in Q4 2020, U.S. retail sales grew 4.6%, rolling over a prior year increase of 14.3%. International retail sales, excluding the extra week in Q4 2020 and the negative impact of foreign currency, grew 13.2%, rolling over a prior year increase of 9.9%. Turning to comps. During Q4, we continued our streak of 112 consecutive quarters of positive international comps. Same-store sales for our international business grew 1.8%, rolling over a prior year increase of 7.3%. The international comp was driven by order growth and was partially offset by a slightly lower average ticket. Same-store sales for our U.S. business grew 1%, rolling over a prior year increase of 11.2%. Breaking down the U.S. comp, our franchise business was up 1.5% in the quarter, while our company-owned stores were down 7.3%. We believe the difference in the…

Thanks, Jessica. I'll begin my comments with a look at our U.S. business. Domino's 2021 U.S. retail sales, excluding the impact of the 53rd week of 2020, were up 6.7%, rolling over 15% retail sales growth in 2020, representing a 21.7% 2-year increase. Fourth quarter U.S. retail sales grew 4.6%, excluding the impact of the 53rd week, lapping a 14.3% increase from Q4 2020. Our fourth quarter same-store sales growth of 1% was enhanced by the positive impact of 205 net new stores that we opened throughout the year. There were also headwinds in the quarter driven by ongoing staffing challenges, particularly in our delivery business. These challenges were more pronounced at the end of the quarter due to the Omicron surge. Let's take a few minutes to further break down the U.S. retail sales growth into its 2 components, store growth and same-store sales. 89 net new U.S. stores in Q4 brought us our franchisees to 205 net new stores for the full year. U.S. store growth in 2021 was softer than we would like to see, particularly given the continuing strong franchisee store-level EBITDA. While cash-on-cash returns remain very strong, and we continue to see a robust pipeline of future openings, we and our franchisees had a number of store openings delayed in 2021 due to a variety of factors. We experienced slowdowns in permitting inspections and equipment deliveries as well as delays in construction and utility hookups. The aforementioned staffing challenges also impacted some store openings. We remain bullish on the unit growth potential in the U.S. but believe that we may continue to see some of these challenges persist in the quarters ahead. Let's turn now to same-store sales. As we continue to experience COVID overlaps, we believe it remains instructive to look at the cumulative…

[Operator Instructions] Our first question will come from the line of Brian Bittner from Oppenheimer.

Ritch, congratulations on all your success at Domino's the last 11 years. And Russell, obviously, congratulations as you step into the new role here. Ritch, I'd like to ask you about the staffing trends and the ongoing impact. You suggested about a 13% difference in comp trend between fully staffed stores and your lower staff stores so that quantification is very appreciated as we try to understand the impact here. As Omicron has peaked and arguably passed, are you seeing any improvement recently in staffing? Or did COVID maybe drive a more structural staffing issue that could remain meaningful as the year progresses regardless of the COVID environment? And I just have a quick clarification question. Just as it relates to the price point change to $6.99 on the delivery Mix & Match, is there any way you can help us understand how that impacts effective pricing for the U.S. business on a year-over-year basis as that is implemented?

Thanks, Brian. I appreciate your thoughts. And as it relates to the staffing trends of the business, certainly, as I highlighted earlier, during the last couple of weeks in December and during the month of January, we saw a significant shock from Omicron resulting in lots of call-outs, team members at home and more impact in terms of reduced operating hours in our stores. Over the course of February, we've certainly seen some stabilization. We've seen some improvement in applications, and we've seen some improvement in our delivery times and ability to serve our customers, but a big shock in late December and during the month of January. The second part of your question there around staffing related to, more broadly, the COVID impact or the shifts in the labor market. Certainly, we still saw during the fourth quarter and still feel today that underlying impact of some of the structural shifts in the labor market. And that's a big part of what we and our franchisees are focused on going forward. And as I mentioned earlier, we're doing a broader assessment of that labor market today to understand beyond the things that we're doing today, what additional actions might we be able to take to further alleviate some of those staffing challenges for the long term. And Brian, to your question on $6.99, and I want to make sure I heard it correctly, but the basic construct of what we are going with going forward will be to change the price on our Mix & Match for delivery orders only. So we'll be dividing that coupon into 2 parts, $6.99 for delivery and $5.99 for our carryout customers. So the increase in price there will, to your question on effective pricing, it will effectively apply just to the delivery orders that come through the national coupon.

Our next question will come from the line of Peter Saleh from BTIG.

Great. And congrats to both of you, Ritch and Russell. I just wanted to ask, Ritch, on multiple occasions, you said potential additional actions on labor. Can you just elaborate a little bit on what you're planning or thinking about there if this situation continues to be more challenging?

Yes, Pete, thanks for the question. So as I highlighted earlier, there are a number of actions that we've taken and that we are continuing to take. Certainly, we've done a lot with respect to team member wages and benefits, and we'll be bringing more around wages in 2022 relative to 2021. We're also taking a look as we look forward at what are the other ways that we can make these delivery driver jobs more appealing and more lucrative to our drivers. So we've taken some action to take other tasks away from delivery drivers to enable them to stay in their cars as much as possible during their shifts, and therefore, to get more deliveries per hour at more tips. In our best-run stores today, during the rush, you won't see a delivery driver come into the store. We are running pizzas out to cars, to load them up, so drivers can stay on the road. So that's a key action that we are taking, and we are expanding more broadly across our system. And then beyond that, as we think about future things that we could do, we're taking a look at what are the options that we have to make these jobs more flexible for our drivers relative to our -- the more historic approaches of how we've scheduled a staff delivery drivers. So we're looking at a range of options across the board and as we work really hard to make sure that we can continue to have the capacity to serve our customers and also make these great jobs because, ultimately, these are the jobs that lead to franchisees. 95% of our U.S. franchisees started off delivering pizza. So we got to make sure we're still attracting a great labor force to be the franchisees of the future.

Our next question will come from the line of Chris O'Cull from Stifel.

Ritch, can you provide some color on how you expect the value menu changes will impact transactions and maybe franchisee profitability? Maybe describe what you saw in the test markets.

Sure, Chris. So every time we look at pricing and think about changes that we may or may not make to pricing, we are always looking at it through the lenses of transactions, sales and profitability at the store level. And as we took a look at the $5.99 Mix & Match offer, which we've done every year since we launched it more than 12 years ago, we take a look at what those impacts may be. We don't run test markets. We have research and analytic tools that are very predictive, have been predictive in the past of the outcomes that we ultimately get. And so as we made the decision alongside our franchisees to shift the delivery Mix & Match offer to $6.99, it is absolutely with the goal of continuing to drive balanced growth of transactions, of sales and of profitability. Because we know -- we've seen it in the U.S. We've seen it around the world. The only long-term way to continue driving profitability in the business is to make sure that we're continuing to be more relevant to customers and driving more transactions.

Wish you well in retirement.

Thank you.

Our next question will come from the line now of Sara Senatore from Bank of America.

Great. Just I wanted to ask about the U.S. and the idea of perhaps looking at retail sales versus just same-store sales or stacks. I noticed that the retail sales growth ex the 53rd week was actually better, it looked like to mean 4Q than 3Q even if your 2-year comp trend perhaps slowed. So is there any evidence that we should be thinking about it from the perspective of new units, either transferring sales from existing restaurants or even competition for drivers? I guess anything that maybe can balance how we think about overall sales growth for the system versus perhaps same-store sales? And then just a clarification, you saw the opposite dynamic in international markets in terms of traffic versus ticket. Is there something specific that might have weighed on ticket in international markets, either mix or less pricing? Just trying to understand since that dynamic seems the opposite of the U.S.

Sure, Sara. To your question on retail sales versus same-store sales, I can tell you that inside the business here and across the management team, retail sales is what we pay the most attention to because it really does drive the economics in our business. It drives royalties. It drives the transaction fees. It drives sales through our supply chain centers. And ultimately, at the franchisee level, it drives profitability for the -- for our franchisees' enterprises. So that's how we look at it. And we look at it -- we look at same-store sales and store growth as the components that ultimately drive that. And that's why when we've talked over the years about our strategies around fortressing the markets that we operate in, it really is about driving retail sales because we're willing to give up some same-store sales in cases where we feel like building new stores and getting closer to the customer can ultimately drive better economics for the franchisees. And then taking a look at international same-store sales, it was more driven this time around by transactions. And what I can tell you is the dynamics vary quite considerably when you look across each of the 94 markets that we operate in outside the U.S. So there's not really one answer for you there, Sara, just simply that when we roll it all up, there was a preponderance of the markets that were driving more of their growth through transactions. And in most of those cases, it centers a lot around the fact that they're doing a really good job of making sure that they're bringing value to our customers and holding the line there, which ultimately enables us to drive more transaction growth.

Our next question will come from the line of Brian Mullan from Deutsche Bank.

Just echo the congrats to Ritch on a great career at Domino's. Russell, congrats on the new role. One thing you talked about last quarter in reference to staffing challenges was that it prohibited you from being more aggressive on certain promotional activities. So I guess, one, is it safe to assume this remained the case in the fourth quarter? And then two, with your comments on February stabilizing a bit perhaps, I'm curious if staffing is starting to get back to a place or will soon where you anticipate being able to run some more promotional activity going forward? If you could just describe the relationship between staffing and your promotional activities.

Sure, Brian. Thanks for the question. It's absolutely related because one of the things that we don't want to do is, if we're in a constrained staffing environment, we don't want to drive bad customer experiences. And so we have been more conservative about aggressive promotions in the face of some of the staffing challenges that we've had. We've seen some stabilization in February, as I mentioned earlier, and we are optimistic that through the current and future efforts of ourselves and our franchisees, that we'll get staffing back to a level where we can return to some of our more aggressive promotional activities because they are important as we think about how we continue to attract new customers into the Domino's brand.

Our next question will come from the line of John Glass from Morgan Stanley.

Congrats both to you and Russell as well. Ritch, you mentioned a couple of times that demand remains strong. I'm just wondering how you understand or you know that just based on the comps, and you gave some tiers around staffing levels. But I suspect there's other elements in those lower staff stores that maybe they're urban, for example. So just how do you tease out the impact of staffing versus maybe some other contributing factors that may have impacted demand or if it's not a demand issue? Can you also just talk about the other levers of pricing besides the $6.99 offer? I think you said there was just some underlying menu price. Maybe what the underlying menu price on the regular menu is or delivery fees, other ways that you might be able to improve pricing besides just changing that promotional offer?

Sure, John. Thanks very much for the question. Yes. So we do feel very good about the underlying demand for Domino's Pizza. I shared with you some of those quintiles earlier where we tried to break down the stores from those that are well staffed to those that aren't. And when we take a look at it across each of those quintiles, we're able to gain visibility into where we have limited hours in stores, which is driven by staffing. We can get visibility into where we've not answered the phones or where we have potentially not taken online orders, shut off online orders coming into the stores. So we can take a look at that data across each of these buckets of stores, and it gives us a good sense for where we may be failing to serve some of that incoming demand. So that gives us a sense kind of across those stores when we bucket it out. And those stores that have been well staffed, as I mentioned earlier, have continued to drive very strong same-store sales growth on both a 1- and a 2-year basis. Also, John, when we take a look across the 2 businesses that we run out of each box, the carryout and the delivery businesses, the labor challenges we've had have not put as many constraints on our ability to serve carryout, and we continue to see very strong growth in that carryout segment. While it really is that delivery business that has been more constrained by driver labor. So that's another lens that we look at it through. And then to your question on pricing, in addition to the national offers that we often talk about, each of our franchisees and stores has the ability to manage their own menu pricing and also to manage delivery fees at their stores. So we've seen -- in addition to seeing ticket go up through more items per basket, which is a smart ticket and we love to see that, we've also most certainly, as franchisees and stores have dealt with some of the cost pressures on the business, we have had some increases in menu and delivery fees also. And that comes into play as we think about how we evolve the national offers as well because it really is a balance across customers who want to order off the menu, order off local coupons and order off the national coupons combined with the delivery fee for those delivery customers that we're trying to balance in an effort to drive great value for the customer while also making sure that we've got a fantastic business model for our franchisees.

Our next question will come from the line of Jared Garber from Goldman Sachs.

Certainly would echo the same congratulations to you, Ritch and to Russell. I wanted to switch topics a bit and just think about the supply chain margins. Obviously, that margin impact in the fourth quarter pretty materially versus either prior year or several prior quarters. Just wanted to get a sense of how we should be thinking about the progression of margin recovery there. Is it related to kind of continued commodity inflation but also maybe some structural labor wage inflation at those supply chain centers?

Jared, thanks for the question. And certainly, supply chain margins were under pressure in the fourth quarter. And 2022 also sets up for a challenging margin backdrop for supply chain also. We've got a couple of dynamics that are going on there and you've highlighted them. One is the commodity cost increases that we're seeing, which we estimated 8% to 10% over the course of this year. As we've talked about in the past, the way we manage margins to our franchisees is basically a fixed dollar amount. So we are not -- when the underlying cost of the commodities goes up, we get natural compression there in the margins. And then second, we do have costs going up on the labor side of the business as well. I talked a lot on the call earlier about some of the increased investments that we've made in our corporate stores. We've also made significant labor investments in our supply chain centers as well. And then when you combine that with the rising cost of fuel, we are seeing a fair bit of pressure on supply chain margins. Now when we think about how we manage through that, we do that once again with balance in mind because we want to make sure that our supply chain continues to bring a terrific value to our franchisees, supporting the unit-level economics that we've been so proud of for so long. And the good news is we've got the scale and the wherewithal in that supply chain business to absorb some of these cost increases while still making sure that we create great unit-level economics for the franchisees.

Our next question will come from the line of John Ivankoe from JPMorgan.

I was surprised to not hear labor shortages with drivers internationally, especially in developed cities internationally, as maybe a constraint to fourth quarter sales. So I just wanted to make sure that, that wasn't perhaps influencing some of the fourth quarter slowdown in same-store sales. And related to that, same-store sales are often a leading indicator of development even when underlying cash and cash returns are good. Does that, I guess, optical slowdown in same-store sales in the fourth quarter and perhaps labor conditions as well, give some franchisees in some markets a little bit of pause in terms of a rate of development in fiscal '22 that they otherwise would have pursued.

John, thanks for the question. Certainly, in some of our international markets, and in particular, in some of the urban centers, certainly, we've seen some labor shortage pressures there as well. But when you step back and look at the international business in its totality across the 94 markets that we're in, the labor challenges we're seeing in international are not as pronounced as what we're seeing here in the U.S. business, different labor markets around the world have felt the strains of COVID and some of the shifts differently, governments in different markets have reacted differently with how they handle things through the course of COVID-19. But when you take a look at it in total, the challenges are more pronounced here in the U.S. than they are in the international business. And then to the second part of your question around development. Certainly, same-store sales do factor in, obviously, to as they evolve over time into unit-level sales and profitability. So we're always keeping an eye on the quarterly trends, while we also keep the vast majority of our attention on the long term. But what I can tell you is that when we look across the business, both in the U.S. and in international, we still see a very robust pipeline of growth. And in fact, in the U.S. business, we did not get the store growth that we would have liked to have seen in 2021, but it wasn't because of sales, and it wasn't because of unit-level profitability. It really was around the factors that I mentioned earlier, just supply chain issues around getting equipment to the stores or getting permitting, getting inspections and things like that. And then on the international side of the businesses, as I think you've seen, we've seen a dramatic ramp-up in the pace of store growth over the course of 2021. And we still feel very bullish about our opportunity to continue to grow in that 6% to 8% unit -- net unit growth range that we've communicated.

Our last question will come from the line of Gregory Francfort from Guggenheim.

Ritch, can you maybe just in terms of the Mix & Match as we think about the portion of that, that could be delivery, is that going to be similar to the 2/3 of the overall business that's delivered? Or is it maybe something higher than that? And then as you guys look at the margin profile of the $5.99, I'm assuming the reason to move it on the delivery orders to $6.99 was because the margins were somewhat lower. Does it put them closer to parity on those orders?

Greg, thanks for the question. I'm actually going to turn this one over to Russell, who's been at the center of the evolution of our offer here.

Thanks, Ritch, and thanks, Greg. I think overall, when you look at our approach to pricing, hopefully, what you'll see is a really surgical approach. There was not a one size fits all here. So last call, Ritch talked about the evolution of $7.99 to online, right? When you bring that to online, we know our online carryout ticket is 25% higher than phone. So there was attention to that. We get customers' names, works with our loyalty program, the $5.99, which we've had since December of 2009, we think we can really keep that value for our carryout customers. There is a lower cost to serve there, and we're going to maintain that value. The carryout business opportunity is 2x that business in pizza than delivery. And so we want to be aggressive there. Moving delivery to $6.99, again, is that surgical approach and allows us to keep the carryout offer where we need to do competitively helps us with some of the headwinds. Actually, overall, we think the $7.99, $5.99 going to $6.99, some of the menu pricing and delivery in our corporate stores, obviously, we don't have as much insight to our franchise stores, will really cover the majority of food and labor headwinds. We still need to ratchet up the efficiency a little bit. So I just want to make sure, as you think about this, it's not just $5.99. It's really this surgical holistic approach.

Great. Well, listen, I want to thank all of you for joining us on the call this morning. We look forward to speaking with you in April, where we'll have the opportunity to discuss our first quarter 2022 results.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.