Domino’s Pizza - Earnings Call - Q2 2014

Transcript

Speaker 0

Good morning. My name is Janeshia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Financial Results Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

You. Liddell, you may begin your call.

Speaker 1

Thank you, Janeshia, and good morning, everybody. Thanks for joining us on this lovely Michigan summer day. We are going to follow our usual protocol. We should be just about an

Speaker 2

hour or a little

Speaker 1

bit under an hour this morning. We have some prepared remarks and we'll follow-up with an opportunity for Q and A. This is designed to be an investor call, so I will ask members of the media on the call to be in a listen only mode. I'll also call all of your attention to our Safe Harbor statement that you will find in our eight ks in the event any forward looking statements are made. So beginning today, we will have Mr.

Mike Lawton, our Chief Financial Officer open up with comments.

Speaker 2

Thank you, Lynn, good morning, everyone. This quarter momentum continued as we posted strong same store sales in both our domestic and international businesses. We opened a significant number of new stores and our EPS grew 17.5% over the prior year quarter. Global retail sales, which are the total retail sales at franchise and company owned stores worldwide grew 11.5%. Foreign currency only had a minimal impact this quarter and when we exclude the adverse impact of foreign currency, global retail sales grew by 11.7%.

The drivers of this growth included domestic same store sales, which rose 5.4 in the quarter, lapping a positive 6.7% from last year. This was comprised franchisee same store sales, which were up 5.5% and company owned stores, which were up 3.5%. We are pleased to report that we opened 11 net domestic stores in the second quarter, consisting of 18 store openings and seven closures. And during the trailing four quarters, we opened 70 net domestic stores. Our international division had another very strong quarter as same store sales grew 7.7% lapping a prior year quarter increase of 5.8.

In the second quarter, our international division grew by 122 stores made up of 130 store openings and eight closures. For the trailing four quarters, we opened six eleven net international stores. Turning to revenues. Total revenues were up 36,500,000 or 8.8% from the prior year. This increase was primarily a result of three factors.

First, higher supply chain revenues from increased commodity prices and supply chain revenues from increased same store sales and store count growth and third, higher domestic franchise royalty revenues again from same store sales and store count growth. Moving on to operating margin. As a percentage of revenues, consolidated operating margin for the quarter decreased to 29.9% from 30.4% in the prior year quarter. Some of the drivers of this decrease included the following: company owned store operating margins decreased as a percentage of revenues due primarily to higher food cost. Also our supply chain margin percentage decreased from 1110.4% due primarily to an increase in commodity cost.

The average cheese block price in the second quarter was $2.2 per pound versus $1.77 in the same period last year. Pork also increased in the quarter, which led to our overall market basket increasing 5.8% as compared to the prior year quarter. As a reminder, commodities are generally priced on a constant dollar markup to our franchisees. Therefore, higher commodity prices do not impact our supply chain dollar profit. They do however negatively impact our supply chain margin as a percentage of revenues.

Year to date commodity prices have run about 6.5% higher than last year. We expect this comparison to slightly improve over the remainder of the year and for the year will average 4% to 6% higher than over last year. We believe that this increase is manageable in the overall context of our business. Turning to G and A expenses. G and A increased by $1,100,000 or 2.1% quarter over quarter.

The increase was primarily due to e commerce and technology support as well as investments to expand our international team. Through Q2, our G and A spend, which includes a $1,700,000 gain on the sale of stores that we had in the first quarter is roughly flat with last year. We had previously indicated that we projected our full year G and A would increase $4,000,000 to $8,000,000 over our 2013 level. Based on the timing of some of our expenses, we do expect G and A will the G and A run rate will increase in the second half of the year and we now project our G and A spend for the full year to be $3,000,000 to $6,000,000 over 2013. Regarding income taxes, our reported effective tax rate was 37.5% for the quarter.

We continue to expect that 37% to 38% will be our effective tax rate for the foreseeable future. Our second quarter net income was up $5,200,000 or 15.6%. This increase was primarily driven by higher domestic and international same international store growth. Our second quarter diluted EPS was $0.67 There were no significant items affecting comparability during the quarter. The $0.67 is a $0.10 or 17.5% increase zero from the $0.57 in the second quarter of last year.

Here's how that $0.10 difference breaks down. Our improved operating results benefited us by $08 Our lower diluted share count primarily due to our share repurchases benefited us by $01 and lower interest expense benefited us by $01 Now turning to our use of cash. During the quarter, we repurchased and retired approximately 688,000 shares for $49,900,000 or an average share price of $72.52 per share. We also returned over $14,000,000 to our shareholders in the form of a quarterly dividend. We made our required $5,900,000 principal amortization payment in the second quarter as we indicated to you in our first quarter earnings call.

We have now met the ratio specified in our debt agreement and will cease making these required amortization payments beginning in the third quarter. Ceasing these payments will leave us with about an additional $28,000,000 of available cash over the next year, which can be used to repurchase shares, pay dividends or invest in our business. In closing, we're pleased with the quarter and the results and our consistent positive performance so far this year. Thank you for your time today. And now I'll turn it over to Patrick.

Thanks, Mike. As you heard, we delivered yet another strong quarter with excellent sales and store growth as well as a very strong 17.5% increase in our EPS over last year. Our dependable franchise model, robust global business and leading digital strategy work together to drive great consistent results. Here in The U. S, we drove both traffic and ticket in the quarter.

We were primarily marketing our new specialty chicken, which is boneless chicken covered with pizza toppings. This product was embraced by our customers and drove good margins for our franchisees. So overall, we're very pleased with our latest addition to the menu. We also had good adoption of our store reimaging campaign this this quarter. Between reimages, new builds and relocations of existing stores, we now have almost 10% of our U.

S. Stores and just over 20% of our international stores already in our new image. Our goal is to substantially complete remodeling all corporate stores by the end of twenty fifteen. Our franchisees will generally have until the end of twenty seventeen to remodel. We're pleased to see that our franchisees are adopting and embracing the store remodels despite a cost environment that remains uncertain for small businesses across The U.

S. They're holding the line and remaining disciplined on prices despite rising wages and the potential for further increases in many places as well as higher food costs among other cost pressures. As the system, we've been very successful, which is a credit to our franchisees and their buy in of our vision and brand strategies. They are working hard to run stores that are part of their local economy serving millions of hot pizzas a day, employing tens of thousands of great people, all of which is a testament to the strength of our system. Our international business thrived in the second quarter with accelerating same store sales over last year's results and plenty of momentum in markets across the globe.

We had one of our largest net store openings for any second quarter period, which means that in the first half of this year hundreds of new Image stores have been going up all around the world. In May, we opened our eleven thousandth store in Brantford, Ontario in Canada, the country where our international business began thirty years ago. It continues to be an important market for Domino's and their recent focus on value promotion drove double digit year over year order count increases for the fourth consecutive quarter. Our international success this quarter was based on promotions that resonated, expanding the brand through new stores and executing well on service and quality. Some notable performances include South Korea, where promotions focused on digital ordering and new product news helped drive strong results.

Robust order count growth in Spain was largely the result of product innovation and value driven carryout promotions. They've also had a strong start to the year on store growth. And finally in Brazil, double digit sales in the second quarter were driven by strong value promotions as our brand continues to expand through excellent store growth. The market is nearly at the 100 store mark. Many of you probably still have World Cup on your mind and I'd like to point out that only four days of World Cup overlapped with Q2 results.

But as with most events like this, we would not expect that this event would have a material impact on full quarter results. Both our domestic and international markets continue to keep their attention focused on digital access. Our goal is always to be able to take an order whenever and however a customer wants, whether they need a pizza in The U. K. Through their cell phone, whether they want to order from their laptop in Australia or from their Ford SYNC system here in The U.

S, we want to be everywhere our customers want us to be with hot delicious food. In The U. S, we announced a number of new digital initiatives, including the iPad app that I talked about in May. We logged over $1,000,000 in sales through this app in its first four weeks alone. Since then, we also became the first company to launch voice ordering through our iPhone and Android apps.

The voice ordering is similar to Siri on your iPhone, only our computer generated voice is called DOM. We feel this was a trailblazing move in the direction that technology is headed. Around 45% of our overall sales now come through digital channels and we're fast approaching half of that coming through mobile in particular. It reinforces for us that convenience is key for our customers. Even the simple customer convenience issues can be solved with a technological fix.

For example, during the quarter, we launched our group ordering tool online, helping customers determine how many pizzas they need for a large group order, along with recommendations for the most popular pizzas. We're always looking for ways to make ordering easier for customers and the digital experience a richer one. We recently moved our website to responsive design, which automatically rearranges page layouts to fit any screen size and results in a great experience for our customers, whether they are ordering from a desktop, laptop, tablet or mobile phone. At a roughly $3,000,000,000 run rate on worldwide digital sales, we believe we are the global digital leader in our industry with an innovation oriented mindset in everything we do. For us, technology is not an add on or a nice to have.

It's a core part of our global strategy and central to the great experience our customers have with Domino's. Let me just use my final few minutes to highlight our use of cash this quarter, which largely went towards dividend payments and very active share repurchases. With around $2,000,000 a week in free cash generated, we remain focused on deploying our cash to benefit shareholders. In conclusion, it was just another boring great quarter here at Domino's. Our team remains focused on driving consistent strong results, which come from leading innovation, delivering a great experience to each and every one of our customers, building new stores and executing our reimage campaign.

Thank you for your time today. Operator, I'm ready for questions.

Speaker 0

Your first question comes from the line of Alex Segal at Jefferies.

Speaker 3

Hey, thanks. I had a question on the Specialty Chicken. If you could just give a little more perspective on that launch and any evidence you have, the dynamics of the sales that is driving new customers, increased occasions for existing customers and any color on mix of delivery versus carryout if you have that kind of detail?

Speaker 2

Yes. It did very well for us. As you heard, we had nice traffic and ticket growth in the second quarter. As with any product as we've kind of described in the past, this is not as much kind of center of the plate as pizza. So a little bit more of it is an add on, which was a great way for us to get some growth in ticket through mix in the second quarter and that was part of that ticket growth.

But overall, the response was very strong. I think it played into maybe a little bit of the order growth. But I think most of the order growth in the second quarter really came from continued momentum in the brand, continued digital growth, all of those things that have been driving results for us for quite a few years.

Speaker 3

Great. Thank you.

Speaker 0

Your next question comes from the line of Alton Stump of Longbow Research.

Speaker 4

Yes. Thank you. It's always a great job once again on the quarter. Just had a quick question. Obviously, you guys saw I think across all three segments comp growth accelerate in 2Q versus the first quarter even though obviously it didn't have the weather benefit at least I would think not had the weather benefit this quarter versus the first quarter.

As kind of look at the key drivers of that obviously specialty chicken launch in The U. S, is there anything else in your view that drove that acceleration?

Speaker 2

No. I think honestly the answer is we've got the offering right with our customers. We've got the brand right, the food right, the digital side of this right and that's really the momentum growth. So we're very happy with Specialty Chicken and how it performed. It was good for store level margins at a time when there was a lot of cost pressure from food cost as Mike had referenced earlier.

But honestly, think it is really about the continued momentum we've got in the brand giving customers an experience that's relevant to them today. And that's really been the continuation of the strength that you saw both domestically and internationally.

Speaker 4

Makes sense. And then just one quick follow-up. I think you mentioned Patrick that as a percent of overall sales that you're seeing mobile approach half or so of 45% total digital sales. A, is that correct? And so if that implies a 20 plus percent percentage of sales, any color as to how fast that piece is growing on the sales line?

Speaker 2

Yes. So you did get that right. So the way to think about it is we are about 45% digital overall. So we're kind of approaching 50% digital and we're approaching 50% of that digital being from mobile. So kind of 20% to 25% from mobile, 20% to 25% from desktops or laptops is kind of the overall mix on that today.

Every part of the digital mix has been growing, but mobile has been growing clearly much faster than laptops and desktops. But we're still continuing to see growth out of the computers as well, which is interesting. It hasn't been about cannibalization. It's really been about just faster growth coming from mobile than from computers.

Speaker 4

Got you. Makes sense. Thanks, Patrick.

Speaker 2

Yes. Thanks, Paul.

Speaker 0

Your next question comes from the line of Jeffrey Bernstein of Barclays.

Speaker 5

Great. Good morning. Thank you. Two questions. Just first on the international growth and obviously the comps are impressive and have accelerated.

And I know your long term guidance well,

Speaker 2

term guidance of 3%

Speaker 5

to 6% comps now you're doing in the 7% to eight Wondering whether there's a correlation between that and the pace of unit growth. I mean, if international comps continue to far outpace the high end of that guidance, Should we assume a further acceleration in the pace of openings? Or perhaps are there gating factors whether it's franchisees happy at the pace today or are you meeting your commitments? Or is there a lack of people or real estate? Or if the comps continue to run this should we just assume that these business people overseas are going to accelerate further and there's upside in the near term to that international unit growth?

Speaker 2

Yes. I think what I'd say is, what you saw in the second quarter was just continued broad strength from the international business. And I think your theory is largely correct, which is as we've always said strong unit economics are what drive people to build stores. And this is never been you talked about commitments from different markets. I think we've said this many times, but I just don't believe that stores get built because of what's in a contract.

Stores get built because they're going to generate a good return for the people investing in them. And if they don't see that return then there's going to be a problem in that market. And so the continued strength of the markets of same store sales, which is flowing through in the unit economics, it certainly correlates to the continued strength in store growth. And so you're seeing on kind of a trailing twelve month basis on a net basis right now, we're just higher than the high end of our store growth range, which we've given 4% to 6%. And I think we're in the range of kind of 6.5% on a trailing twelve month basis right now.

And part of that is clearly continued strong comps both domestically and internationally.

Speaker 5

Got it. And then just kind of related to that on the G and A front, I know Mike you mentioned that the range for this year now we're talking about I guess $9,000,000 higher than last year that's tweaked downward which less about the $1,000,000 tweaking downward more about just a question on the G and A spend in general with the comps as strong as they are and the unit growth accelerating. Do you know whether there are opportunities elsewhere to invest

Speaker 2

that would support that faster growth?

Speaker 5

Or are you really doing everything you possibly can think of from a technology and infrastructure standpoint and there's just no additional G and A to

Speaker 6

be spent?

Speaker 2

Well, interesting way to put that question. The fact is the last half of the year will be we will be spending more on the technology side. One of our challenges both in international and in the IT area has for the last two or three years is actually getting the right people on board as fast as we'd like. We're willing to spend the money to support the growth areas, but you don't want to do that just by throwing it around loosely. And right now we're staffed up better in IT than we were at the beginning of the year.

So we're spending at a faster rate. You saw that in the second quarter as the numbers creep up a little. We want to be investing where it's appropriate. Sometimes you get it it takes a little more time than you'd like.

Speaker 5

Totally understood. Thank you.

Speaker 0

Your next question comes from the line of John Glass of Morgan Stanley.

Speaker 7

Thanks. First, Mike, can you just talk about the financing environment? If you were to choose to go out to the market and borrow more money, would you be able to borrow at your current leverage or adding a turn at current at the rates you're currently paying? Or would that do you think drive the weighted average up?

Speaker 2

I think you could we could probably add a turn at or below the current the rate that we currently have borrowed at the 5.25.

Speaker 7

Okay. Thank you. And then Patrick, you just talked about the holding the line on pricing, is important in the competitive market with rising prices. How much rising commodity prices? How much of a debate is that with the franchisees right now?

I mean, that really you're having? Or are they just doing this on their own volition because they understand they're going to drive better volumes?

Speaker 2

I mean, it's a conversation that we're having with them, but I think they're also really pleased with the results they've been seeing in their stores for a number of years now. And so with food costs where they were in the first half, you're seeing that the volume growth has offset kind of those increases in food costs. They've taken a little bit of price, which we think was appropriate, but not a lot. And so that's keeping the order count growth going. We've got a pretty good meeting of the minds with our system right now around kind of the approach that we're going to take.

They're seeing it work. We'd clearly be happier if cheese costs and pork costs were a little lower than they are right now. We'd be flowing a little bit through more at the store level. But I think we give them guidance. We tell them this year is where we think you should take increase if you're going to take increases.

But overall, I'm really proud of the system. I think they've done a great job of being very judicious about how we're going to take price in this environment.

Speaker 7

Great. Thank you very much.

Speaker 0

Your next question comes from the line of Ryan Bittner of Oppenheimer and Company.

Speaker 6

Thank you. Congratulations on another good quarter here. Thanks, Ryan. I think you said that 10% of stores are reimaged in The U. S.

Is that correct? And if so, that's a pretty good sample size here. And I'd love to get some color on what you're seeing from those reimage units. Are they outperforming the base on a same store sales basis? If so where at carryout or what have you?

I'd love to hear some color on that.

Speaker 2

Yes. So I think the answer Brian is, it's performing very much in line with kind of what we've expected, which you were correct. I said, we're kind of approaching domestically and we're probably just a little bit over 20% on the international side. And on a straight reimage on a single store basis, we see a modest increase in same store sales versus kind of control groups. What we continue to believe is that the real play here is the overall strength of the brand, relevance of the brand over the long term.

And so it helps a little bit at the margin as we're doing these, but we think the bigger play is what it means for the brand overall over the long term. And that's kind of been very consistent with what we were expecting. Remember as a business that still does more delivery than carryout, It takes some time for customers to even see the fact that you reimage the store if they're primarily a delivery customer. So we're seeing it. We're seeing some increase as we do them, but it's pretty modest.

And we really believe in what it means long term for the brand.

Speaker 6

That makes sense. And on the international side,

Speaker 2

I'd

Speaker 6

love to hear an update on how this know it's very small right now, but I'd love to hear an update on how the stores in China are doing under DASH Brands management. And kind of following up on that, as you continue to grow international business, is there anywhere around the world where a joint venture and having more equity in the game would make sense, whether it be China or somewhere else?

Speaker 2

Yes. So we're continuing to progress nicely in China. It's still very small. I think we ended the quarter at about 44 stores something like that. And so it's growing.

It's doing better. We like the base, but we've clearly got a long way to go in China before it's going to be a big part of our business overall. So we like the start. We like Dash a lot. We think they've got a terrific management team there, but it's still pretty early.

Speaker 6

Okay. And as far as maybe looking at possible JVs around the world, is there anywhere that just maybe interests you a little bit?

Speaker 2

I think the answer Brian is as you've seen to date, we are 100% master franchise outside of The U. S. When we think that there is a situation where our capital going into a market will cause that market to grow faster and be more successful, we're kind of we reserve the right to do that. But as you've seen to date, we haven't made that decision.

Speaker 8

Okay. Thanks guys.

Speaker 2

Thanks Brian.

Speaker 0

Your next question comes from the line of John Ivankoe of JPMorgan.

Speaker 9

Hi. Thank you. Just a couple of follow ups if I may. I'll just do them one by one. Does the current cost environment allow you to keep that $5.99 medium two topping?

I mean is that something that you foresee as maybe in the next couple of years is something that's permanent on the menu?

Speaker 2

Well, two medium two tops for $5.99 has been our primary promotion for four plus almost five years now. And clearly, it's done very, very well for us. We like the fact that we've been able to be consistent with that because frankly it means that the price isn't the news. What we're doing with the brand really becomes the news. It's resonated with customers.

You've seen what it's done for not only comps, but for profitability of the stores. So we feel good about it. I'm not going to project forward on that. And I'm sure competition would love to know what our plans are on pricing. But clearly over the course of the last four or five years, it's been a winner for us.

Speaker 9

Yes. Understand and I think I understand the color as well. Secondly, with The U. S. Being 45% digital, can you compare that to other international markets maybe that have a higher mix?

And whether when assuming that that mix is higher when it grew from 45% to whatever it is today whether that growth in digital sales mix was proven to be incremental to traffic in your opinion?

Speaker 2

Yes. It is. It is. And we've seen that consistently around the world that some minority of that growth in digital has been incremental to the business. And we've got different ways to kind of cut in those numbers, but clearly some of it has been incremental.

In terms of progress around the world, we continue to I think the overall average mix is probably in international is probably a little bit lower than it is domestically, but not a lot, probably more in the 40% range on a blended average somewhere in there. But you still have markets that are significantly higher. So Australia, Japan, Korea, U. K, you've got markets that are kind of 50% plus. And those are all markets that have performed very, very well over the course of the past five years and continue to grow on their digital business.

So we think it continues to be a great driver of convenience for our customers, which has driven some incrementality in our sales both domestically and internationally.

Speaker 9

Thank you. And just one final quick one, Patrick and Mike. I mean with the debt where it needs to be to no longer amortize, mean what is the thought of not adding that additional turn of leverage at or below 5.25%? In other words, if not now then when and why hasn't it been done to date, if I can

Speaker 5

ask in that directive fashion?

Speaker 2

Well, certainly, the ability to borrow is there. As an answer to a prior question from Brian about do we ever participate in other JVs or anything? Mean, we are borrowed up to the maximum that does give us a little bit more limitation on what we could do. We also have to have a use of cash that we feel is appropriate because of who our investor base is. We do take that into account and it's a little bit different than the past where there was always a very strong view that special dividends were great, not everybody shares that view.

So we're weighing all both the sources at a very our ability to borrow at a very attractive interest rate versus what those potential uses of cash are if we were to do so. We do have the ability a year from now to call up to a third of our existing debt and refinance. That's not something that's available to us today.

Speaker 9

Okay. Thank you.

Speaker 0

Your next question comes from the line of David Carlson of KeyBanc.

Speaker 10

Hey, guys. Hope everyone is well. I had a question related to the cost of your company owned stores specifically actually the occupancy line. This is with the strong comps you guys have had historically, this is traditionally been a source of leverage when you've had the strong positive comps. There's been a headwind in the last couple of quarters.

I noticed in the Q this morning you called out, I think it was higher depreciation. Telephone cost is the reason for the I think it was about 40 basis point increase year over year. So that said, is there new equipment that's causing this increased depreciation? Or is it more from remodel activity? And then on the telephone cost, I would think that increasing digital ordering would essentially lower your telephone costs.

Are the higher costs related to a new phone system or a new telecom contract? Any color you could provide would be appreciated.

Speaker 2

Okay. The depreciation is a combination of the reimaging as well as some equipment. So we'll see you're going to see the reimage as we reimage the corporate stores and we're not at the 10% level on corporate stores, we're actually closer to onefour of our corporate stores having been reimaged already. So you're seeing a little bit coming through there. We're also there's some computer equipment that's coming through, which has a fairly short life on it the way we do things.

On the telephone side, we've actually changed some contracts out. And as we've done that, there's a little bit of extra cost to get out of one contract and get into the new one. Over time, we'll be at the old rate or similar. So it's not a big number even for this quarter, but it was just enough that against the total corporates the scale of the corporate stores, it bump times up just a little bit.

Speaker 10

Fair enough. So I guess that kind of leads me to as you accelerate the remodel program with the company owned stores over the next one years, point think you're trying to finish it by 2015. Should we continue to see deleverage on this line or?

Speaker 2

Yes. You're going to see a little bit of depreciation cost in there. It's got to flow through. Mean, the average reimage cost on a store for us is running $110,000 So you can see it's not a huge number for us, but it will have a bit of an impact.

Speaker 10

My last question is on the I think on the last call you guys said that your unique profiles were I think you've grown 2,000,000 in the quarter to about 9,000,000 individuals. Where does that number stand today?

Speaker 2

We'll get back to you on that one. We can't I honestly don't remember the exact number on it. What I'd tell you is it has continued to grow very nicely.

Speaker 10

Fair enough. Thank you.

Speaker 0

Your next question comes from the line of Paul Westra of Stifel.

Speaker 8

Great. Thanks and good morning. Just a question on The U. S. Business.

Can you talk a little bit about where you believe your market share gains are coming from when you compare yourselves maybe versus your largest competitors, your regional competitors and your independents? Are you gaining in markets more or less when there's more or less regional exposure?

Speaker 2

Yes. I think the answer is that the overall story has continued to be the same, which is the larger players have generally been taking share from the smaller players and the regional players. Clearly, we've had one of our national competitors that has struggled a bit recently. And so they've been a bit more of a share donor for a few quarters here. But overall, I think the strength of the nationals has been playing out against smaller and regional players.

Speaker 8

Okay. So even with the large share donor competitor, you're still seeing as good or better share gains in markets where there's maybe a less of a big two competitors versus the regional players?

Speaker 2

Yes. I mean, as you look nationally, there are some places where smaller and regional chains are relatively stronger. But overall, share donor is national. So that's kind of an effect everywhere. And but you're still looking at the four largest players in The U.

S. Only do about 40% of pizza in The U. S. So the majority player in almost every market in the country is those smaller and regional chains. So that's where most of it has been coming from.

Speaker 8

Okay. And then a related question, I'm just trying to dig back. I know this question has been asked before, but as you look at the deal rates or percentages however you want to calculate with mobile in particular and digital in general being a larger and larger percentage. I know you mentioned in the past that the coupon needs to be there for consumers who order online digitally don't always take them. I guess are you seeing a change in that deal rate?

And just any color you can give us on the directionality of I guess the coupon rate in orders overall as digital becomes a larger percentage?

Speaker 2

I guess what I'd say is, what continues to be true is the economics of digital orders are better for us than phone orders and walk in orders. And it continues to be better experience for our customers. Their loyalty is better. Their customer satisfaction is higher. And so that all continues to be the same.

In terms of the specifics around coupons and coupon usage, I don't think I'm going to get into all of that.

Speaker 11

Okay. Thank you.

Speaker 0

Your next question comes from the line of Joseph Buckley of Bank of America.

Speaker 12

Thank you. Just a couple of clarification questions. I think you gave two different percentages on The U. S. Stores and maybe one percentage was for The U.

S. System and the other percentage was for The U. S. Company operated that are in the reimage mode. So can I just ask you to clarify those stats?

One was 10%, one was 25% I believe?

Speaker 2

So yes. So our total domestic system is just a little bit under 10% reimaged. Our corporate stores are around 25% reimaged within that overall kind of 10 ish percent.

Speaker 12

Okay. I got it. And then you commented on the same store sales lift for a reimaged store. How are the new stores that you're putting up? How do they perform from a sales perspective?

Speaker 2

Yes. New stores are opening very, very nicely and stronger over the course of the last year or eighteen months than I think they've done historically. So we're very pleased with how new units are opening.

Speaker 12

Okay. And then one last one. Patrick, you've talked before about kind of like maybe a seasonal change in digital orders where you kind of move to a new plateau. The mix this quarter sounds pretty similar to the mix last quarter. When does that typically occur during the year?

Is there a regular kind of seasonal pattern to when you pick up more ground on the digital front?

Speaker 2

Yes, there is. And it's interesting. It's kind of fall into winter, we see our digital mix grow. And late spring into summer, it seems to kind of flatten out every year. And that pattern is held for five, six, seven years now.

It's been very, very, very consistent.

Speaker 12

Okay. Okay. That's helpful. Thank you.

Speaker 0

Your next question comes from the line of Peter Saleh of Telsey Advisory Group.

Speaker 13

Great. Thanks. I just wanted to ask about the strategy to relocate some of the stores. Can you give us an update on how many stores you plan within the system to relocate? And what kind of benefit you expect to see from those relocated restaurants?

Speaker 2

Yes. I think the expectation is we will see a bit more of a lift from relocated stores than we do from reimaged stores. I think as we go through this process, it's going to be a relatively small minority of stores that wind up getting relocated, but not completely inconsequential. I mean, could be 10% of the system something like that, that we see maybe a little bit more. The answer is, yes, you will tend to see a better lift from relocated stores, but it's going to be a relatively small percentage of the stores that will get relocated.

Speaker 13

Great. And then just any thoughts on unit growth domestically? It seems like you're adding a little bit more here and there. But what's the I guess gating factor to maybe accelerating it a little bit faster on The U. S.

Development side?

Speaker 2

Yes. I mean, it's continued to get better. I think our trailing twelve month net number now is 70. So that's moved up nicely from where we were a year or two ago. Our goal is to continue to grow that and to continue to accelerate that.

And I don't think you're market increase in that, but our goal is certainly to continue to grow faster as we move forward. And unit economics are a driver on that.

Speaker 13

Great. Thank you very much.

Speaker 0

Your next question comes from the line of Mark Smith of FELPL. Yes. This is Shannon Richter on for Mark Smith. Just one quick question here. Can you talk about the competitive environment, especially concerning pricing in both your domestic and international markets?

Speaker 2

Yes. You know what, I think the answer is it's really been pretty consistent for a number of years now. And that's certainly more a domestic answer than necessarily an international answer. Internationally, on average, the answer is probably the same. There are certainly some markets where you're seeing a little bit more pricing activity.

There's been fairly aggressive pricing activity in Australia recently. But overall, it's been pretty consistent. I think you're seeing ticket up a little bit. Our best sense is that you're seeing ticket up a little bit from our major competitors in The U. S.

As well, but not materially out of line with what we've done.

Speaker 0

Thank you so much. Your final question comes from the line of Steven Anderson of MillerTebec.

Speaker 11

Good morning. Just taking a look at the international breakdown looking at comps of international comp of 7.7%. Do you have some of the major country I know like talking about Northern Europe and India specifically?

Speaker 2

Yes. I guess what I'd say is continued broad strength. And we're a little bit of an unusual situation this quarter in that our publicly traded master franchisees only one of them has released so far and it happens to be the one that released which is Alseia released yesterday and they released a kind of aggregated number with their other brands. I think their overall number was like 5.5%, something like that for all their brands. But I guess what I'd say is, it's been a continuation of kind of the strong trends that we've seen.

Speaker 11

All right. Thank you.

Speaker 2

So I believe that is the last question. So I'd like to thank all of you for your time today. And I look forward to reporting our third quarter results in October. Thank you.

Speaker 0

This concludes today's call. You may now disconnect.