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

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the rescheduled Domino's Pizza, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Gregory Lemenchick. Please go ahead.

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

Thanks, Greg, and good morning, everybody. I wanted to start off by welcoming Joe Jordan, our incoming CEO, who has joined us on the call this morning. I am thrilled that the Board unanimously elected Joe as our next CEO. He's an incredible leader whose experience spans virtually every aspect of our business over his 15 years with the company. Joe has earned the trust of franchisees across our global system, embodies the Domino's culture of developing leaders from within and is uniquely qualified to guide the company through its next phase of growth. Let me turn it over to Joe for a few comments.

Thanks, Russell. I'm honored to have the opportunity to lead Domino's, and I'm excited about the opportunities ahead. I've had the privilege of working alongside Russell for many years, and I want to thank him for his leadership and partnership. He has helped build one of the strongest businesses in our industry, and I'm grateful that we'll continue to benefit from his experience as he transitions to Executive Chairman next year. Having spent the last several years as COO, I've had the opportunity to work closely with our franchisees and our teams across the globe. That experience has only strengthened my belief in what makes Domino's unique. We have an exceptional global franchise system, talented people, a culture of innovation and operational excellence and a brand that continues to earn the trust of customers every day. Those strengths give me tremendous confidence in our future. Our priorities remain clear: serving customers with delicious food, outstanding value and a great experience, supporting our franchisees and executing with discipline to drive long-term growth. I couldn't be more excited to lead this next chapter alongside the incredible people who make this company what it is. I look forward to engaging with you all more closely in my new role once I become CEO in October. Until then, my focus is on partnering with Russell and our leadership team to ensure a seamless transition.

Congrats again, Joe. The most important lesson I have learned in nearly 2 decades with Domino's, it's simple. Order counts drive long-term success. Order counts matter because they fuel growth for both the brand and our franchisees. The winners in QSR over time are the brands that can grow order counts while driving healthy ticket through disciplined pricing. That has been Domino's formula for success. Since I joined the company at the end of 2008, we have more than doubled the number of orders coming through our system in the U.S., resulting in double-digit market share gains. This growth in transactions helped drive approximately $7 billion in additional retail sales, more than 2,100 net new stores and a nearly 240% increase in store level EBITDA for franchisees. Put simply, more orders and disciplined pricing have led to more sales, more stores and more profits. This formula has helped make Domino's the #1 pizza company in the world, and our growth opportunity remains substantial. With roughly 23% share of the pizza category, we still have significant runway ahead of us compared with leading QSR brands in other categories that command a 40% to 50% market share. The QSR industry in the U.S. has been struggling with order counts during a difficult period of macroeconomic uncertainty. We believe this continued in Q2, where QSR order counts were flat. And despite this backdrop, demand for Domino's remained incredibly strong. While we have not shared specific order count numbers in the past, and I won't start sharing them now on my last call, what I will tell you is that our order counts were up meaningfully in total and individually in our delivery and carryout businesses. This means that while other restaurants were fighting for orders, millions of new customers came to Domino's. In the race for long-term dominance, our increase in order count during both the first and second quarters of this year highlights that more people are ordering Domino's than ever before. Order counts are what drive our business. Orders bring people into our loyalty program flywheel, and they power our supply chain business. The order counts of today are consumers with whom we can drive frequency in the future. Now one of the reasons we grew orders in Q2 was tapping into the aggregator marketplace. We continue to grow on both Uber and DoorDash and believe that we are now the #1 pizza player on both platforms. Despite being #1, we have a significant amount of growth ahead of us to achieve our fair share. As we look at what consumers are ordering from Domino's on aggregators and look at where our customers go when they don't buy pizza, we see an opportunity in our portfolio and in the pizza segment for a new offering. We're bringing this product to market later this quarter, and I'll expand on that more in a minute. While I'm energized at our long-term prospects given our ability to drive order counts in this environment, same-store sales in Q2 did not meet our expectations due to the miss on ticket. I don't believe this miss was due to macroeconomic headwinds. Those were assumed in our plan. The miss on ticket was largely within our control, which means we can and will address it moving forward. In Q2, we were lapping our Stuffed Crust Pizza launch, which carried a higher ticket and mix in the prior year. To roll over this, we launched our premium series, inclusive of our new [indiscernible] sauce. This did not resonate with customers the way it needed to. The messaging wasn't compelling enough. The result was a drag on ticket, which impacted our results. We expect this drag to be lower in Q3 as the mix of Stuffed Crust came down in the prior year when we shifted media to our next promotion. We also expect and are already seeing the quality of our messaging back at the high bar we set at Domino's. On our last quarterly earnings call, I told you that we would be making changes in our 2026 marketing calendar for the second half of the year in light of what we were seeing in the competitive and macro environments. And we've done that. To start the third quarter, we changed our best deal ever and made it even better with the addition of Stuffed Crust. Customer reaction has shown that it was the right thing to do. Customers are enjoying getting our most indulgent pizza as part of this promotion that leverages both our most delicious food and renowned value hungry for more strategic pillars. Our revised calendar for the second half brings a pizza innovation in Q3 that is unlike anything we've offered before at Domino's. Similar to the opportunity Stuff Crust created by filling a gap in our menu offerings, we believe this new product will address an unmet consumer need, but this time, with a pizza that is unique to Domino's. This signature product will give customers a delicious new reason to come to Domino's while protecting the core pizza occasions that have been key to our success. I will also tell you, it is my favorite pizza full soup and customers agree. It's one of the best tasting products we have ever tested. More to come later this quarter. As I finish up my last earnings call as CEO, I want to highlight why I remain so bullish on our business. Just like great pizza, the key to a great pizza company is its ingredients. The formula for success at Domino's remains the same. The only difference is our brand has never been stronger and our competition has never been weaker. We have the best ingredients in the business, both literally and figuratively, the scale, the team, the franchisees and an incredible new CEO and Joe Jordan. In the QSR industry, just like orders count, the team counts. The achievements of the Domino's team have been incredible, and we are just getting started. The global team and our best-in-class franchisees in over 90 markets around the world create the Domino's effect every single day. They are what makes us the #1 pizza company on the planet, and they are hungry, hungry for even more. I'll now hand the call over to Sandeep.

Thank you, Russell. And once again, a huge congratulations to both you and Joe. It has been fantastic working and learning from Russell over the past 4 years as we welcome me into Domino's. Joe has been an incredible business partner for me. He has been just as welcoming and I've learned so much from him as well. I'm very much looking forward to continuing to work with Joe to drive our business. Now let's jump into the results. Income from operations increased 2.6% in Q2, excluding the impact of foreign currency and refranchising gains from the sale of certain U.S. company-owned store markets in the second quarters of 2026 and 2025. This increase in operating income, which came in slightly below our expectations, was primarily driven by higher U.S. and international franchise royalties and fees. It also benefited from gross margin dollar growth within supply chain that was fueled by our strong order count growth in the U.S. These increases were partially offset by higher general and administrative expenses. G&A increased due to expenses related to our worldwide rally in the second quarter of 2026. The rally takes place every 2 years. Excluding the impact of foreign currency, Global Retail sales grew 3% in the quarter due to global net store growth of almost 1,000 stores over the past 12 months. In Q2, retail sales grew by 1.9% in the U.S., driven primarily by net store growth, inclusive of 26 net new stores in the quarter. Same-store sales grew 0.1% -- our business continued to be impacted by a challenging macro environment, which is pressuring consumers as well as heightened competition. Our comp was comprised of a strong increase in order counts that drove the strength of our core business as well as continued growth in our aggregator business. This was offset by a lower average ticket. As Russell noted, our ticket was impacted by rolling over our launch of Stuffed Crust in the prior year, which carried a higher ticket and a mix of orders while we were on media with it. Our planned lap with the premium series and Sliced sauce resulted in a mix that was below our expectations. Pricing was up 0.2% in the quarter, and our carryout comp was up 1.1% and delivery was down 0.7%. I wanted to take a moment to share some color on the QSR pizza category through the first half of 2026. The category continues to grow in line with our historical growth rate, and we continue to take share. Category growth this year is being driven by the dine-in channel as some pizza consumers are returning to pre-COVID habits of wanting a dine-in experience. Independent QSR pizza restaurants have been the biggest beneficiary of this shift. Shifting to our international business, where retail sales grew 4.1%, excluding the impact of foreign currency in the quarter. This was primarily driven by net store growth over the last year, inclusive of 183 stores in Q2. Comp sales declined by 0.1% in the quarter as they continue to be impacted by Domino's Pizza Enterprises. They remain focused on turning their business around, and we continue to work closely with them on that. Comps were also impacted by macro and geopolitical uncertainty across the world in the quarter. Moving to capital allocation. Through Q2, we repurchased approximately 632,000 shares for a total of $231 million year-to-date. As of the end of the quarter, we had approximately $1.23 billion remaining on our share repurchase authorization. We continue to expect to deliver meaningful cash to shareholders in 2026 and beyond, in line with our capital allocation priorities, and we look to drive the best possible returns for our shareholders. Now turning to our updated outlook for 2026, which excludes the impact of the 53rd week. First, U.S. same-store sales. We continue to expect our U.S. comp to be up low single digits. This contemplates the continuation of a challenging macro and competitive environment like, we have seen in the first half of the year. We continue to expect our international same-store sales growth to be up low single digits inclusive of the benefit of the World Cup soccer tournament that just concluded. We now expect approximately 175 net stores in the U.S. which is a slight shift from the 175 plus we had previously. We are making this adjustment as we are seeing some pressure on our pipeline due to the macro, coupled with the challenging start to the year, that has impacted franchisee profitability. We continue to expect approximately 800 net stores in our International business. We continue to expect our Global Retail sales growth to be up mid-single digits for the year. Lastly, we continue to expect operating income growth of mid- to high single digits, excluding the impact of foreign currency, re-franchising gains and the gain on the sale of our corporate aircraft. Before I wrap up, I wanted to call your attention to an investor presentation that we've added to our IR website. This deck gives a summary of our business and historical growth over time across our key hungry for MORE metrics. It also includes updated market share information through December 2025 that is broken down by nationals, regionals and independents. Thank you. We will now open the line for questions.

[Operator Instructions] Your first question comes from the line of David Palmer from Evercore ISI.

Great. Thanks for those comments. Russell, if you could maybe take a step back and maybe sort of label the biggest challenges and opportunities maybe by the parts of the business as you see fit. I can think about the innovation front, the value lift front, the channel expansion. You're doing very well with carryout. There's been more like low single digits there. There was a third-party marketing lift. You had the DomOS and new versions of the app. If you had to kind of go through these areas, your own execution versus the environment, where do you think has been the biggest sort of disappointment versus plan? And how much of it is under execution? And how does that inform the biggest near- and medium-term opportunities?

Thanks, David. What I've always been proud of working here at Domino's is we turn our challenges into opportunities. And so one of the things I'm really looking forward to, I mean when you're in these jobs, all you can do is lean forward and give it everything that you can. And then there's the time to look back. And I look forward to doing that with Joe on what our strengths have been, what our opportunities are. And then in my new role helping him as he plans the vision moving forward. So I'm not going to go through detail by detail. I will say, one of my saying throughout my career has been there's no rearview mirror in the 747. We are going forward quickly. We're going to learn. We're going to make those adjustments. And I have all the faith in the world on, with Joe and the team. I will specifically though, talk about this product that we have coming up, David. One of the things that we did here was we looked at some of the challenges within not only Domino's but within pizza. And we looked at what do consumers who are interested in pizza, what do they buy when they don't buy pizza. And that's what this new product does. It's going to hit an occasion. I don't think we, as a pizza category, hit that well today. And so that's an opportunity to really looking forward to hitting market in Q3.

Your next question comes from the line of Brian Bittner from Oppenheimer.

And Russell, as you move into this executive chair role, just a huge congratulations on such an amazing career at Domino's. And Joe, of course, congratulations on the big CEO promotion. And the question is just in light of the meaningful order count growth that you're alluding to, it begs the question, are you still seeing the short-term competitive pressures on the business that you called out specifically on the last quarter's earnings call? On this earnings call, you said that your competition has never been weaker. And I'm assuming that's more of a consistent structural view that you have. So I'm curious if you're starting to see some of those competitive pressures that you called out on the last call, start to dissipate. Or if you could just unpack that dynamic for us?

Yes. Sure, Brian. Thanks so much. It's been a pleasure to work with you as well. The competitive pressure is not only in pizza in QSR, continue through the quarter, we expect them to continue through the rest of the year. I talked about in Q1 what we saw competitively, what we anticipated for the rest of the year. And I said that we would be looking at our calendar and making changes and we have. We looked at our best deal ever, which was a renowned value promotion for us. And we made a change on that. We said, "Hey, how do we make it better. And so we added our -- one of our most delicious indulgent pizzas with Stuff crust into that. And so I think what we did was looked at what was going on in the category. And we said, you know what, everyone is leaning in we need to lean in as well. And so you saw that with Best Deal Ever, and you're going to see that with stuff going on in Q3 and Q4. And when I talk about the competition, I'm also talking about relative to us, I've been here, as you know, 18 years. We weren't always the #1 pizza brand. And now as we are, the distance between us and our competition is greater than it's ever been. And so when I think about -- not I think, I know what wins in this category. right? It's scale because what you can do is through supply chain, offer low market basket cost to your franchisees, then you can drive volume if you have the biggest ad budget in industry, which we do and scale wind and we've never had greater scale. And relative to our competition, they've never had less scale and momentum. And so those two things add up well for us to continue to drive share as we have over the last decade plus.

Your next question comes from the line of Gregory Francfort from Guggenheim .

Thanks for the question. I just wanted to ask me about third party. Russell, I think you made a comment that you were the largest pizza player on third party now. And I guess as you think about trying to drive the business higher or continue to grow it going forward, how do you balance profitability with market share in that channel? And are you trying to hold kind of gross profit dollars similar to your in-store business? And are you willing to maybe discount a little more aggressively? Just any thoughts on continuing to drive that business going forward?

Yes. Thanks, Greg. Yes, on third party, just to be clear, we believe we're now the #1 pizza company on both Uber and DoorDash. Overall, as we've talked about, our pricing on aggregators is premium. And so we try to be kind of profit-neutral for the franchisees. So even though -- and we still think the 50% incrementality number we put out there is still the one to look at really, at the end of the day, the way we priced, the franchisees should be neutral where consumers buy that product. What I did want to talk about that I'm really excited about that actually pertains to a third party -- is something under our operational excellence pillar. We've talked a little bit about our orchestration agent. And just to remind those on the call, what we're doing is we're setting [indiscernible] back of house optimized to make sure [indiscernible] from just-in-time pizza making that we've got the pizza right out of the oven and in the delivery driver's hands or in a consumer's hands as quickly as possible. And so what the orchestration agent does, let's say, for example, a delivery driver is stuck in traffic on his way back, an order comes in, in the past, we would have just made that order. Now the orchestration agent without the store kind of seeing, we'll say, "Hey, you know what, let's not show the store that order yet. So we don't need to make it. We need to make it so it's hot when the delivery driver gets back. Now Greg, those orders, that's orchestration agent, that works not only for orders on Domino's website, but also orders through the aggregator. And so I think when you look at what our advantages are on aggregators, certainly, we've got the same thing that wins in every marketplace. We got brand scale, we've got value. But one of the secret ingredients for us is we deliver our product, no matter where the order comes, and it's part of this ecosystem that we're getting better and better in every day. So I think not only in the front end, are we going to be delivering great value, but that value is going to pay off on the back end because there's no one who's going to be able to deliver a hotter product than we will.

And Greg, I'm just going to add something on the profitability that we're actually seeing on the Aggregator orders. We've been very, very thoughtful about the way we're actually going after the growth opportunity. As Russell mentioned, where -- we're [indiscernible] on our fair share from a growth perspective, there's plenty of runway still for us, even though we're the #1 player. But the reason we are actually being so careful is because we want to protect profitability as we go after this growth. And that's going to be a guiding philosophy that we're going to employ as a management team as we move forward. But the runway is there. The profitable growth is there, and this is one more lever to actually drive franchisee profitability.

Your next question comes from the line of David Tarantino from Baird.

Russell and Joe, congratulations from me as well. My question is maybe on the U.S. comps performance in the second quarter, and you mentioned, I think, meaningful order count growth offset by ticket declines. I was hoping maybe you could give us a sense of the magnitude of the up and down around the order counts and the the ticket growth? I appreciate that you don't want to give the exact number, but perhaps something directionally like was it better in Q2 than Q1 on order count growth or something like that? And then I guess, on the order count, specifically, just wondering your thoughts on what drove that specifically in the second quarter and how sustainable that might be for the second half of the year?

David, thanks for the question. And let me actually give you just a high-level overview of how the quarter worked out. From an order comp perspective, not only was it meaningful order count growth, but it actually met our expectations. -- it did exactly what we were planing do. The challenge we really we had was on ticket, as Russell mentioned in the prepared remarks, and I did too, where I think the premium series that was intended to lap the parmesan stuff crust, from last year didn't give us the results that we needed. And I think that's why we had a bit of a shortfall on ticket and same-store sales fell below our expectations. But from what our plans are, I think this is a very sustainable opportunity from an order count growth perspective because it ties into what we're doing with renowned value, whether it's some of the promotions that we actually have had in the first half of the year or what we're running right now with [indiscernible]. And in addition to that, Aggregators will continue to be a growth driver, and that should be driving more and more occasions. So we're really confident in our ability to drive order count growth as we move into the rest of the year as well.

Yes, maybe just to add some color to that. I was putting Sandeep on the spot. I knew he wasn't going to give you the actual numbers. But it just to shed a little light, the -- when you think about the way we run our business, it's kind of like a barbell on order count and ticket. And not only were orders meaningfully up on the total business, but they also were on delivery and carryout separately. And I think it's really important. So both parts of the business are healthy. Now when that happens, you drive market share. I talked about that. I want to make sure I reiterate this point that we believe the QSR industry was flat on order counts. And so this is significant not only in absolute -- but relative to what's going on in the industry where you see a lot of folks out there trying to drive value, trying to drive orders. And these are profitable orders that go into our loyalty program. So we've got millions of more people now as part of our loyalty program in that flywheel, and that's why our accounts are so important, and that's why they're so correlated with franchisee profitability is once we get them in the flywheel, that's what the future is all about. On the ticket thing, David, what I'd say there is that one was under our control. If we executed the way we intended to and we rarely miss, we would have had that balance. So there's nothing within the business that I think permanently is affecting that. We're going to barbell balance ticket and order count moving forward, and that's going to continue to result in share growth.

Your next question comes from the line of Danilo Gargiulo from Bernstein.

Thank you. And again, Russell huge congratulations on the incredible success at Domino's, the big impact you had, all your career and congratulation and good luck to you Joe, on your new role. I guess my question is, obviously, you tested a new premium series before opening up to the market and it fell short of your expectations. So I'm wondering if you can elaborate on what drove the disconnect between your testing and the actual results? And what learnings are you embedding to make sure that the new pizza that you're going to be launching later this quarter is not going to fall short of your expectations?

Yes. Thanks, Danilo. We've been, as you said, pretty good, at least over the last 18 years that I've been here in what I call is having the answers to the test, before we go into the test -- whether it's pricing or new products, doing a really good job at understanding the impact of what we do. Clearly, we missed on this one. It wasn't compelling enough. I think I said in my opening remarks that I really felt like our messaging is back to where it needs to be. And that is not only for what's on air now, but for what's going on with this new product coming up. So stay tuned. We're very, very excited, and I can't wait for you to try it.

Your next question comes from the line of Dennis Geiger from UBS.

Great. Congrats Russell and Joe. I wanted to ask another one on the order count and mix dynamic. Specific to the order count, Russell, you commented on adding millions of new customers. I'm curious if there's any way to put that into context relative to prior quarters and presumably some of that's a good chunk is coming from the third party channel. Anywhere else where you think those new customers are coming from? And then just as it relates to the mix side of that. Just curious, as you think about Best Deal Ever with stuff there. Is that something that has a notable drag on mix? Or have you kind of engineered or figured it out that it's not notable ticket drag?

So Dennis, I'll start and maybe Russell will tag team on this one as well. I think on the order count front, it's really a consequence of all the great stuff we have talked about during the Investor Day, when you think about the loyalty program that we launched just before Investor Day. We have continued to build significant numbers into the loyalty program. And as of the end of '25, we were up 20% from what we were before launching it. And I think we're really excited about the frequency bills that come behind customers acquired through the loyalty program, and that is a big driver of our order count. And that's on the one hand. On the other hand, the other we talked about on the Investor Day was entering into the Aggregator channel. And the beautiful thing with 50% incrementality is we are acquiring more customers that we wouldn't have been able to acquire otherwise by being on the aggregator channel, and this continues to build, and this also continues to compound over time as we spend more time on platform. We're seeing this in the case of Uber, and we expect to see this in the case of DoorDash over time as well. And that's why we're so bullish on the future with the Aggregator platform as we move forward. And then I think on the mix dynamics, we touched on this a little bit in the prepared remarks as well, where, yes, we did have an impact on -- ticket during the second quarter because the Premium Series didn't give us the mix that we were looking for. But as we also noted, as we moved into the third quarter of last year, a few weeks into it, the messaging changed from Parmesan Stuff Crust to our next promotion, which happened to be Best Deal Ever. And now we're actually lapping best deal ever with Best Deal Ever. And we're super excited about the reinvention that we've done, with the inclusion of Parmesan Stuff Crust in the best deal ever offer. And really excited and confident that this is going to be an important old account driver in addition to the fact that the mix impact from the ticket is much more modest in Q3 because we pretty much have already lapped that.

And I also think about this as almost -- we use this term paid trial by putting parmesan stuff crust in Best Deal Ever, yes, it's a discount for customers, but they're still paying a good fee for it. And that trial will lead to long-term repeat. So putting Stuff Crust in Best Deal Ever was really important because we know when people try it, they'll come back again and again. And so that's happening right now with best deal ever.

Your next question comes from the line of Lauren Silberman from Deutsche Bank.

Congrats Russell and Joe. I guess, first, I just want to clarify my question, the clarifications on same-store sales. Is it fair to assume 2Q comps are the lowest for the year, just given the comments that average check should get better and sounds like momentum in the order count continues? And then my actual question is just on U.S. unit growth. So trimmed it slightly, you called out franchisee profitability. I know a lot of [indiscernible] would have been in place in '26. So I guess what does that mean for '27? And just given pizza industry pressures, is this a little bit of rebalancing across same-store sales and unit growth, anything you'd consider differently to sort of incentivize unit growth?