Domino’s Pizza, Inc. (DPZ) Q2 2022 Earnings Call Transcript

Domino’s Pizza, Inc.  (NYSE: DPZ) Q2 2022 earnings call dated Jul. 21, 2022

Corporate Participants:

Ryan Goers — Vice President of Finance & IR

Russell Weiner — Chief Executive Officer

Sandeep Reddy — Chief Financial Officer

Analysts:

Brian Bittner — Oppenheimer & Company — Analyst

David Palmer — Evercore ISI — Analyst

David Tarantino — Baird — Analyst

Brian Mullan — Deutsche Bank — Analyst

John Glass — Morgan Stanley — Analyst

John Ivankoe — JPMorgan — Analyst

Andrew Charles — Cowen and Company — Analyst

Jared Garber — Goldman Sachs — Analyst

Andrew Strelzik — BMO Capital Markets — Analyst

Dennis Geiger — UBS — Analyst

Lauren Silberman — Credit Suisse — Analyst

Christopher Kalata — RBC Capital Markets — Analyst

Jon Tower — Citi — Analyst

Presentation:

Operator

Good day and thank you for standing by. Welcome to the Domino’s Pizza Q2 2022 earnings conference call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ryan Goers, VP of Finance and Investor Relations. Please go ahead.

Ryan Goers — Vice President of Finance & IR

Thank you, Dylan [Phonetic], and good morning, everyone [Technical Issues]. Thank you for joining us today for our conversation regarding results of the second quarter of 2022. Today’s call will feature commentary from Chief Executive Officer, Russell Weiner; and Chief Financial Officer, Sandeep Reddy.

As this call is primarily for our investor audience, I ask all members of the media and others to be in a listen-only mode. I want to remind everyone that the forward-looking statements in this morning’s earnings release and 10-Q also apply to our comments on the call today. Both of those 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 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.

Our request to our coverage analysts: 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 only one one-part question on this call. 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 Chief Executive Officer, Russell Weiner.

Russell Weiner — Chief Executive Officer

Thank you, Ryan, and thanks to all of you for joining us this morning. As Ritch Allison and I communicated back in April, we expected the second quarter to be challenging. We continue to navigate a difficult labor market in the US, especially for delivery drivers in addition to inflationary pressures combined with COVID and stimulus fuel sales cost in the prior two years. Our results for the quarter were consistent with the challenges we outlined at that time. However, the strength of our franchisees and team members, along with the strategy for putting in place make me feel confident that we’re on the path to overcome these short-term obstacles to make the Domino’s brand and business stronger than ever.

Back in May, my team and I gathered with more than 8,000 of our franchisees and team members from around the globe at our 2022 Worldwide Rally. Due to COVID, we had to cancel our last Rally. That was our first time back together as one global team in four years.

We use this time to share best practices, align our goals [Phonetic], and commit to continued growth that will drive meaningful value creation for all of our stakeholders. The energy, the commitment, the passion for the brand, and confidence displayed at this year’s Rally was truly inspiring and reinforces my belief that our best days lie ahead.

I can assure you that nobody at Domino’s is happy with our recent performance. However, I have tremendous confidence in the team that we have assembled to leverage some of our current successes, address our current pressures, and proactively work to mitigate the negative impact of those external factors that we can’t control.

As always, we will make disciplined decisions and we’ll focus on doing what is right for our customers, our franchisees, and our brand. This approach has served our stakeholders well over many years and I don’t see any reasons to divert from this proven approach.

We have high expectations for what we can achieve and we will hold ourselves accountable for meeting and often exceeding those objectives. I plan to provide you with more specifics on the strategies and plans we have for the business after our CFO Sandeep Reddy walks through the results for the quarter.

Sandeep?

Sandeep Reddy — Chief Financial Officer

Thank you, Russell, and good morning to everyone on the call. Before I get into the details of the quarter, I wanted to share some of my initial observations as my first full quarter as Domino’s CFO. I see some exciting opportunities to improve our long-term profitability. First, while we continue to explore options to further optimize our consumer pricing architecture in the United States, it is important to highlight that the average price increase we realized in the second quarter across our US system was nearly 6%. We have successfully improved many pricing levels, including our standard menu pricing, our national offers, our local offers, and our delivery fees. This has helped us cover some of the cost increases we are incurring in both the food basket and labor market, while also ensuring we continue to deliver terrific value to our consumers. Our work continues on right-pricing our product while keeping a compelling value proposition for our consumers with more opportunities to pursue.

Second, efficiencies exist in our cost structure as we seek to ensure that revenues consistently grow faster than expenses. We saw a sequential improvement in the year-over-year contraction of [Technical Issues] from 270 basis points in Q1 to 180 basis points in Q2. We need to continue this trend.

Third, as a result of the actions we are taking to increase our capacity to meet demand, we realized a sequential improvement in US same-store sales declines from minus 3.6% in Q1 to minus 2.9% in Q2.

Now, our financial results for the quarter in more detail. Global retail sales decreased 3% in Q2 2022 as compared to Q2 2021. When excluding the negative impact of foreign currency, global retail sales grew 1.5% due to sustained positive store growth momentum over the trailing four quarters, lapping 17.1% global retail sales growth excluding FX in Q2 2021. As we have discussed in the past, we believe it remains instructive to look at the cumulative stack of sales across the business anchored back to 2019 as a pre-COVID baseline and we’ll continue to do so for as long as we believe it is useful in understanding our business performance.

Looking at the three-year stack, our Q2 2022 global retail sales excluding foreign currency impact grew nearly 27% versus Q2 2019. Breaking down total global retail sales growth, International’s retail sales excluding the negative impact of foreign currency, grew 3.7% rolling over a prior year increase of 29.5%, and are up almost to 30% on a three-year stack basis relative to 2019. US retail sales declined 0.6% rolling over a prior increase of 7.4% and are up almost 27% on a three-year stack back basis relative to 2019.

Moving to costs. During Q2, same-store sales excluding foreign currency impact for our International business declined 2.2% rolling over a prior year increase of 13.9% and were up 13% on a three-year stack basis relative to 2019. Order growth was slightly positive during the quarter, demonstrating continued global demand. However, this growth was more than offset by declines in ticket, driven by the year-over-year impact of exploration of the 2021 VAT relief in the UK, our largest international market by retail sales. This resulted in a negative comp for the quarter for International versus a slightly positive comp without this unfavorable UK VAT impact.

The year-over-year impact of exploration of the 2021 UK VAT relief was continuing where we left the reduced rates from 2021 through the rest of the year. Same-store sales for our US business declined 2.9%, rolling over a prior year increase of 3.5%, and were up 16.7% on a three-year stack basis relative to 2019, representing a sequential 5.3 percentage point improvement from Q1 on a three-year stack basis.

Breaking down the US comp, our franchise business was down 2.5% in the quarter, while our company-owned stores were down 9.2%. We believe the difference in the top-line performance in our company-owned stores as compared to our franchise stores continues to be driven by more substantial operational challenges in our company-owned stores that Russell will address later on the call.

The estimated impact of fortressing was 0.7 percentage points during the quarter across the US system. This impact will continue to trend lower as our US store base grows. The decline in US same-store sales in Q2 was driven by a decline in order counts, which continued to be pressured by the challenging staffing environment which had certain operational impacts such as shortened store hours and customer service challenges in many stores, both company-owned and franchise, along with tough COVID and stimulus fuel comps from the prior years.

The decline in order counts was partially offset by ticket growth which included nearly 6% in pricing actions I spoke about earlier. We saw a similar trend on a three-year stack basis with the 16.7% growth in same-store sales driven by growth in ticket and partially offset by a defer in audit terms [Phonetic].

As we have previously shared, we believe it is instructive to break our US stores into quintiles based on staffing levels relative to a fully-staffed store to give a sense for the magnitude of the impact of staffing. Looking at Q2 same-store sales, stores in the top 20%, those that are essentially fully staffed on average, outperformed stores in the bottom 20%, those that are facing the most significant labor shortages, by 7 percentage points. This is down sequentially from the 12 percentage point gap we saw in Q1, but with the top and bottom quintiles showing improvement in the lower [Phonetic] quintile store’s ability to meet consumer demand.

Now, I’ll share a few thoughts specifically about the carryout and delivery businesses. The carrying our business was strong in Q2, with US carry out same-store sales 14.6% positive compared to Q2 2021. On a three-year basis, our caryout same-store sales were up 33% versus Q2 2019. The gap between the top and bottom quintiles based on staffing levels remained small during the quarter, highlighting both strong consumer demand and the lower cost to serve relative to delivery orders. We are incredibly pleased with our carryout momentum, especially considering carryout is a much larger segment of QSR, giving us a significant runway for growth in the future.

The delivery business continued to be more pressured. Q2 delivery same-store sales declined by 11.7% relative to Q2 2021. Looking at the business on a three-year stack, Q2 delivery same-store sales remained more than 8% above Q2 2019 levels. When we look at the same quintiles relative to the delivery business, we continue to see a more pronounced difference in performance. We saw an 11 percentage point gap in delivery same-store sales between stores in the top 20% and those in the bottom 20%. While we continue to see a significant gap in performance between the top and bottom quintiles, this does represent a sequential improvement from the 17 percentage point gap we observed in the first quarter.

Shifting to unit count. We and our franchisees added 22 net new stores in the US during Q2, consisting of 24 store openings and two closures, bringing our US system store count to 6,619 stores at the end of the quarter. With our strong four-wall economics, we remain bullish on the long-term unit growth potential in the United States and we maintain our conviction that the US can be an 8,000-plus store market for Domino’s.

The pace of US store growth may decelerate slightly from the current four-quarter run rate of 3% the rest of the year or until the headwinds subside, given some of the continued development, supply chain, staffing, and inflationary headwinds.

Our International business added 211 net new stores in Q2, comprised of 249 store openings and 38 closures. This brought our current four-quarter net store growth rate in International to 9%. When combined with our US store growth, our trading four-quarter global net store growth of nearly 7% continues to fall within our two-year to three-year outlook range of 6% to 8%.

Turning to Revenues and Operating Income. Total revenues for the second quarter increased approximately $32.7 million or 3.2% from the prior-year quarter, driven by higher supply chain revenues resulting from a 15.2% higher market basket pricing to stores.

Our market basket pricing is up approximately 20% on a three-year basis now. The increase in supply chain revenues was partially offset by declines in our company-owned stores revenues. Changes in foreign currency exchange rates negatively impacted International royalty revenues by $5.9 million during Q2.

Our consolidated operating income as a percentage of revenues decreased by 180 basis points to 16.7% in Q2 from the prior year quarter, primarily driven by food basket and labor cost increases. These impacts were partially offset by pricing actions and G&A leverage. Our diluted EPS in Q2 was $2.82 [Technical Issues] $3.06 in Q2 2021, or $3.12 when adjusted for the $0.06 impact of the recapitalization transaction in the prior year. Breaking down that $0.30 decrease in our diluted EPS as compared to our adjusted diluted EPS, our operating results negatively impacted us by $0.14. Changes in foreign currency exchange rates negatively impacted us by $0.12. Our higher effective tax rate negatively impacted us by $0.14, $0.09 of which was driven by changes in tax impact of stock-based compensation. Higher depreciation negatively impacted us by $0.02, higher net interest expense negatively impacted us by $0.02, and a lower diluted share count driven by share repurchases over the trailing 12 months benefited us by $0.14.

Although we faced operating headwinds, we continue to generate sizable free cash flow. During the first two quarters of 2022, we generated net cash provided by operating activities of approximately $153 million. After deducting for capital expenditures of approximately $33 million, which included investments in our technology initiatives such as our next-generation point-of-sale system and investments in our supply chain centers, we generated free cash flow of approximately $121 million. Free cash flow decreased $142 million from the first two quarters of 2021, primarily due to changes in working capital as a result of the timing of payments of accrued liabilities and receipts on accounts receivable and lower net income.

During the quarter, we repurchased and retired approximately 148,000 shares for $50 million at an average price of $337 per share. As of the end of Q2, we had approximately $606 million remaining under our current Board authorization for share repurchases.

Before I close, we would like to update the guidance we provided in April for 2022. Based on the continuously evolving macroeconomic environment, we now expect the increase in the store food basket within our US system to range from 13% to 15% as compared to 2021 levels, an increase from the 10% to 12% we were expecting in April. Changes in foreign currency exchange rates are now expected to have a negative impact of $22 million to $26 million compared to 2021, an increase from the $12 million to $16 million we were expecting to see in April. We anticipate that we will continue to see fluctuations in commodity prices, including wheat and fuel costs, and foreign currency exchange rates resulting from geopolitical risk and the resulting impact on the overall macroeconomic environment.

Thank you all for joining the call today. And now, I’ll turn it back to Russell.

Russell Weiner — Chief Executive Officer

Thank you, Sandeep. I’m going to start my comments with the US business. The performance during the quarter started slow as we were lapping [Technical Issues] fuel comps on a one-year and two-year basis. These dynamics eased throughout the quarter as we moved further away from the government payments distributed in March 2021.

During the quarter, we continued innovative ways to engage with our consumers through our carryout tips promotion, where we rewarded our carryout customers with a $3 tip, good for the purchase of another carryout order within the next week. We also launched our Mind Ordering app which created a fun ordering experience for [Technical Issues] into the new season of Stranger Things, one of the most popular shows on TV and streaming.

In addition, the second quarter marked our first full quarter since we evolved our national offers to include $5.99 Mix & Match for carryout customers and $6.99 delivery Mix & Match.

On the last call, I laid out some of the action plans that we’re taking to meet customer demand, including returning to core hours, utilizing call centers to reduce constraints in the stores, and bringing back to the pre-promotion [Phonetic].

I’d like to take some time to provide additional color on each of these actions. If you recall, out of necessity, many stores have had to flex their hours of operation due to the labor constraints and the staffing challenges and Omicron surge early in the year.

During the first quarter, when we add up all the lost operating hours, we estimate that our US [Technical Issues] totaled the equivalent of almost six days across the entire US. During the second quarter, this number improved to a little over four days. The stores primarily flexing hours to be closed during non-peak times. The impact on orders was less than the number of days closed as a percentage of the total days in the quarter.

We and our franchisees continue to make progress on our full return of all stores to core hours as we start to lap the service disruptions from last year, this metric will become less meaningful as a driver of year-over-year sales volume. Another key action is utilizing call centers to take phone orders. This allows team members to focus on making and delivering pizzas without having to worry about answering phones, especially during the busiest times in the store.

At the end of the quarter, around 40% of our US stores were utilizing call centers in some capacity. As a result, headwinds from unanswered calls were lower than we experienced during the first quarter. Our third action is bringing back boost weeks. We promised we will bring back these important customer acquisition and loyalty enrollment activities this summer, and as you saw, we ran our first boost week in more than two years in early June.

I am extremely proud of our franchisees, team members, and supply chain for executing at a very high level during what was our busiest week of the year. Consumer reaction was strong and we plan to do another boost week by the end of the summer before we evaluate future cadence [Phonetic].

Turning now to corporate store performance. Our corporate stores continued to lag franchisee performance during the second quarter. As I mentioned during the last call, we are committed to restoring our corporate store’s leadership position among the US system of stores. As such, we have put into place an operations recovery plan, with 30-day, 60-day, and 90-day milestones. And last month, we made a leadership change designed to positively impact our focus for business. Frank Garrido, our Executive Vice President of Operations, who also led corporate stores before taking on his current role in February of 2020, will have that team report directly to him, so he can more closely assess and address the needs of this business. We will continue to provide updates on the progress of our corporate stores and look forward to them resuming their leadership role among our US system of stores.

And finally, I’d like to provide an update on our ongoing delivery labor market deep dive. We continue to believe that many of the answers to the labor shortages we are facing are already in our system. We see that our top quintile stores — they can meet the demand and outperform the system. We also saw the gap in performance between our top and bottom quintile stores improve during the second quarter. We know from our work that one of the key issues for delivery drivers is flexibility. And for many, this is even more important than compensation. Flexibility includes the ability to work shorter shifts, fewer hours in a week, and sign for shifts with short lead times. These are the areas where we are continuing to evaluate and evolve our practices. The question remains, can we close the gap in performance and get back to fully meeting demand, utilizing our current delivery model as it is — as it has evolved over many decades. Until we’ve fully answered this question, all options will remain on the table.

Now let’s turn to International. The International business displayed strong fundamental growth, opening over 200 net new stores during the quarter as well as positive order cap growth. During the second quarter, 44 of our international markets opened at least one net new store, demonstrating the strong demand for Domino’s around the world.

As Sandeep mentioned, there were some short-term pressures from the UK VAT relief overlaps that drove the comp to go negative in the quarter, snapping our long-running streak of consecutive quarters with positive same-store sales growth. I remain confident, extremely confident, in the long-term growth potential for our International business. Opening more than 1,000 net stores over the trailing four quarters is an outstanding accomplishment by our team and our International master franchisees.

I’ll now highlight a few International markets of note. I’d like to congratulate DPZ Dash — DPZ’s Dash, our master franchisee in China, for opening their 500th store during the second quarter. Also, as you may have seen Dash brands recently made its A1 filing for a listing on the Hong Kong Stock Exchange. We saw strong sales growth in the Middle East, especially in Saudi Arabia. Also, Alamar Foods, our master franchisees across 11 markets in the Middle East and North Africa, announced its intention to go public through an IPO on the Saudi Stock Exchange.

Other markets of note with strong growth in the quarter included India, Mexico, Spain, Turkey, and Guatemala. We have a long runway for growth in the US and around the world, in both our delivery and our carryout businesses. We will continue to mitigate challenges within our control and take steps to proactively confront external factors we can’t completely control with strategies and plans to minimize their impact.

We’re now happy to take some questions.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions]

And I show [Phonetic] our first question comes from the line of Brian Bittner from Oppenheimer. Please go ahead.

Brian Bittner — Oppenheimer & Company — Analyst

Thank you. Good morning. Question on the same-store sales in the US. Your same-store sales in the second quarter, as you said, accelerated by over 500 basis points versus the first quarter when we look at it on a three-year stack basis. So, clearly a meaningful improvement in the quarter. Can you just unpack the drivers of this improvement in a little bit more detail and help us understand maybe how much of this improvement came from improved staffing levels through the quarter versus maybe some other sources of improvement just so we can understand the underlying health of this improvement in the second quarter? Thanks.

Sandeep Reddy — Chief Financial Officer

Good morning, Brian. Thanks for the question. And I think a lot of it is actually in some of the prepared remarks that we went through, but I’ll just really try to spin it up a little bit for you because the answers are really a sequential acceleration for sure on the carryout business where we went from 11% increase in the first quarter to 14.6% increase in the second quarter. So, definitely, that momentum that we saw, in fact, on a three-year stack basis, it went from 24% to 33%, so significant acceleration and strength in the carryout business that’s very exciting.

I think on the delivery business, if you look at what happened in the quarter, we were up against much more significant overlaps last year, so even though we had 11.7% decline, on a three-year stack basis, we’re up 8% compared to the plus 6% that we had last quarter. And so, sequentially, a lot of the initiatives that we talked about on the last earnings call started playing in and delivery did improve sequentially. We have more work to do, but we definitely had some progress that we saw in the quarter. So, said another way, that the sequential improvement of 5 — 530 basis points was driven by both carryout and delivery, with both making meaningful progress.

Operator

Thank you. And I show our next question comes from the line of David Palmer from Evercore ISI. Please go ahead.

David Palmer — Evercore ISI — Analyst

Yeah. So, thanks. First, just maybe a two-parter here. You mentioned customer service issues and that being a drag. I wonder what does that look like? I mean, was the customer experiencing any numbers that describes what that is and how you measure the impact on the business? And then, relatedly, it sounds like you’re still in the evaluation phase with regard to other options to alleviate pressure to labor — labor in the delivery sense. Could you talk about some of the things that you’re most evaluating at this point, maybe things that are in test right now? Thanks so much.

Russell Weiner — Chief Executive Officer

Sure. I think — good morning. On the customer service side, really at the end of the day, what we like is things have gotten sequentially better in the second quarter for the first quarter. We certainly still have capacity things we’re dealing with, but at the end of the day, demand is strong and our ability to serve that capacity is that it’s getting better.

To your second question on the evaluation, what I would tell you is, we are 100% committed to getting this done ourselves. We think the answers to some of the capacity issues lie within the system. And until we get though [Phonetic] where we need to be, our responsibility is to understand all the options available. And that’s what we’re going to do.

Operator

Thank you. And I show our next question comes from the line of David Tarantino from Baird. Please go ahead.

David Tarantino — Baird — Analyst

Hi, good morning. I had a question on the carryout versus delivery business. I guess, first, if you could maybe give us an update on what the mix of business is today given the big changes you’ve seen in the carryout business? And then, I guess, secondly, on the carryout business, the strength that you saw in the second quarter was very impressive and I’m wondering if you can help at least offer some thoughts on the sustainability of that or whether you think it was just a great promotion with the offer that you’re in there if you think that this is a more durable layer of sales with new customers or new occasions? Thank you.

Sandeep Reddy — Chief Financial Officer

Thanks, David, for the question. It’s a really good one. I think there is — we’ll take it in two parts. Russell will cover the second piece and I’ll just talk about the carryout versus the delivery dynamics that you talked — you asked about. So, I think, overall, when we look at carryout versus delivery from a mix standpoint, clearly with the comps actually — with an acceleration in carryout mix, our carryout comps versus delivery is declining, the mix is shifting towards carryout. We typically update only at the end of each year. And I think we will give you a further update at the end of the year because things are moving around quite a bit. But we’ll will be running through the part of the momentum on the carryout business because, as we said in the prepared remarks, it’s an accelerating trend on a business that is a significantly larger business and in the QSR space. So, there’s a lot of runway for growth for us on that business.

And then, Russell, do you want to talk about the sustainability?

Russell Weiner — Chief Executive Officer

Yeah, I think that we have seen sustainability in the — and continued momentum and continued growth in carryout not just over the last three years, but over the last decade or so since we decided to really focus in on that area. One of the reasons it’s so important for us is it’s very incremental to delivery. We see maybe 15% or so overlap between carryout occasions and delivery occasions.

Interestingly enough, the carryout — so we’re seeing a buy-in we have is less so from pizza on the percentage basis and more so from other QSR, so it enables us to not only grow in the larger carryout pizza segment but the larger carryout QSR segment.

Operator

Thank you. And I show our next question comes from the line of Brian Mullan from Deutsche Bank. Please proceed with your questions.

Brian Mullan — Deutsche Bank — Analyst

Thank you. Just a question related to domestic development. As you think about restoring the pace of growth — domestic unit growth back up to that 4% to 5% rate, one of the most important factors for investors to consider right now, in regards to the pipeline for next year, do you think you can get back to that pace in 2023 or is this going to be a little bit of a longer path to the pre-COVID run rate in your view? And if it’s a little longer, what are kind of the key gating factors right now?

Sandeep Reddy — Chief Financial Officer

So, Brian, thanks for the question. I think when we look at the US potential, I think Russell just touched on something really important with the carryout momentum and the acceleration that we’re seeing there, and the opportunity that we have in terms of the QSR space and how we can actually penetrate into that. So, then we’ll actually go back to what we talked about previously is our goal of the US of 8,000 stores. There’s sort of that — the 6,619 stores already, so the gap is not massive. And as we’ve talked about this year from the beginning, I think on the last call itself, which mentioned that we were probably going to see some headwinds basically in terms of this pace of development because of supply chain problems, just the inflationary environment, etc. This continues to be the factor, and I think even though we are at trailing 12 months of 3%, we see some potential deceleration relative to that in the short term until all of these headwinds subside. It doesn’t change the long-term trajectory of where we can take this, but I think we need these headwinds to subside before we can accelerate.

And I think from our franchisees, they have a really fantastic industry-leading profitability. The returns are very compelling. They average three years in terms of cash on cash payback. And they see the potential path to future growth. So, we’re really confident that the 8,000 unit objective is definitely very achievable, and especially with the momentum that we’re seeing on the carryout business, if we actually had written [Phonetic] works under that fortressing strategy. And it actually — that gives us a lot of upside in one way in terms of unit development.

Operator

Thank you. And I show our next question comes from the line of John Glass from Morgan Stanley. Please go ahead.

John Glass — Morgan Stanley — Analyst

Hi, thanks very much. Why did you run a boost week during a time when you had [Technical Issues] constraints still? I mean I would think that would risk disappointment of customers. Was that a signal that towards the end of quarter you just were getting better, or I mean, maybe what was [Technical Issues] when you still have capacity constraints and already too much demand to deal with?

Russell Weiner — Chief Executive Officer

Thanks, John, for your question. I just also want to reiterate that the success of that boost week, it was the biggest week for us for the year. And on the carryout side, it was our biggest weekend in the history. And so, when you think about our boost week, it’s not just about the delivery business, it’s also about the carryout business, and we did an incredible job just there.

But we have the best franchisees in the business and we gave enough time and our supply chain enough time to prepare for this thing, we were ready. I think you’re also right, it is showing that we’re making some of the things that we’re doing are improving. Sandeep talked about the sequential decline and the difference between our top and bottom staff — quintile. So, we wouldn’t have done this if we didn’t think we could handle it. And I think our system did a great job.

John Glass — Morgan Stanley — Analyst

Thank you.

Operator

Thank you. And I show our next question comes from the line of John Avanco from Morgan Stanley [Phonetic]. Please go ahead.

John Ivankoe — JPMorgan — Analyst

Hi. Thank you. From JPMorgan. I was — I think I heard in your prepared remarks that the US would see I guess a downtick in development for the next 12 months relative to this last 12 months. Can you — could you just clarify that I heard that? And then secondly, if you’re willing to give that, I guess, soft guidance for the US, I mean can you do something similar on International, especially with the negative same-store sales? And the second quarter comps are very often a leading indicator of development, should we expect the next 12 months of International to be same, higher, or less, than what the 1,000 or so stores that you hit in the previous 12 months? Thanks.

Sandeep Reddy — Chief Financial Officer

Thanks. So, thanks, John, for the question.

So I think what you did hear on the prepared remarks was, yes, we expect to see a slowing down of the trailing 12 months unit growth definitely through the balance of the year and as long as we see the headwinds. So, I wouldn’t say 12 months, but we said down as far — until the headwinds subside.

Well, I think in the International business, we are super excited because it’s a plus 9% trailing 12 months growth and that’s very, very solid. And I think if you look at the quarter and you unpack it, it was really driven by this UK VAT impact and the overlaps. And in fact, if you follow [Phonetic], basically, it would’ve [Phonetic] been a slightly positive comp for the International division. And so, what I would say is look at the three-year stacks on International. It’s 13%, very healthy, and we’re pretty confident with that. And so, I think we’re very comfortable with the range that we provided, the 6% to 8% on average across the global footprint of growth. And International at 9%. That sounds — we’ve demonstrated that with all these comps, we’ve been able to deliver a very strong unit development. And we see no reason for that to change.

Russell Weiner — Chief Executive Officer

Yeah, I think, to add to Sandeep’s points, just a little context on the development side.

First, I’m just so proud of our system. If you look back at the last five years, and you look both in the pizza industry and the QSR industry, as far as actual number of net stores and percentage, we — Domino’s is the leader in that. And still with these numbers, we’re going to continue to be a leader. So, just some context there. And also, I think what that tells me is why we continue to lead in development. Our franchisees are doing exactly what they need to do which is balancing the capacity needs between the current stores they have and stores they need to open.

John Ivankoe — JPMorgan — Analyst

Thank you.

Operator

Thank you. And I show our next question comes from the line of Andrew Charles from Cowen and Company. Please go ahead.

Andrew Charles — Cowen and Company — Analyst

Great, thank you. I want to follow up on an earlier question. Your US same-store sales accelerated by an impressive, I think you said, 530 basis points from 1Q to 2Q on a three-year basis. And I know you guys call it 6% price in 2Q, and that was very helpful. Thank you for disclosing that. But we estimate nearly 5% price was taken at the end of 1Q back when the Mix & Match platform for delivery orders was raised from $5.99 to $6.99. We know the 10-Q called out a higher number of items per order, in addition to that higher pricing at the end of 1Q. So I’m curious if you can speak to the sequential change in traffic from 1Q to 2Q on a three-year basis that our math suggests was perhaps flat, perhaps deteriorated, some encouraging updates that you guys shared on staffing and carryout?

Sandeep Reddy — Chief Financial Officer

A lot to unpack in the question itself, so — but I think, overall, let’s start with pricing. And our pricing, we have multiple levers on pricing, and Mix & Match is one of them, and it’s part of the national offers, where I think there’s menu pricing, which I think would have been activated well before any of the changes on national offer that we talked about. Thus the national offers are fixed that we made in the first quarter. And then I think local pricing is actually an option that the franchisees have at their disposal. And delivery fees are something that has been activated all the time with the franchisees.

So, all of those elements have gone into pricing effectively, both in the first quarter as well in the second quarter. And it’s not just national pricing. So, the average of all of that was about 6% in the second quarter. So that’s — that’s one thing I would actually take away from that.

And so, I think when we look at the pricing and ticket versus order count, what we had in the second quarter was order count was definitely down. And I think when you look at the pressure that we actually faced, the pressure was really significantly more on the delivery side. And then when I look at the overall offset, we saw ticket offsetting order count declines to end up with the minus 2.9% that we saw in the quarter. Even though we had these headwinds, I think sequentially, same-store sales did accelerate to the point that we made. And I think, we are very happy because from a sequential standpoint, it’s clear that the actions that we’re taking to address the issues in terms of capacity to serve in the delivery business are helping us and we’re seeing the demand coming through. And that’s why we saw the acceleration because it’s reflected both in the order count as well as the ticket, and the combination of both.

So, happy with what we’re seeing. But I think as we go through the subsequent quarters, we’ll have more information on all of them — on all the drivers that we have been talking about all year.

Andrew Charles — Cowen and Company — Analyst

Thank you.

Operator

Thank you. And I show our next question comes from the line of Jared Garber from Goldman Sachs. Please go ahead.

Jared Garber — Goldman Sachs — Analyst

Good morning. Thanks for the question. I wanted to revisit the US unit growth commentary. I know it’s been asked a couple of times, but if we look back historically, the unit growth annually has certainly continued to decelerate, even if we look back to several years ago into the 2018 or 2019 timeframes. So, can you just help us understand what gives you the confidence that that pace of development can reaccelerate, maybe — after it’s a 2024 kind of timeframe given some of the headwinds you talked about? Maybe there’s a way to frame what the pipeline of demand looks like from franchisees?

And then as a follow-up, just as we think about the carryout opportunity is that changing how the discussions are going with franchisees, maybe in terms of site location, making those a little bit more accessible to consumers versus I think the base delivery business is one that doesn’t necessarily need to be made in Maine [Phonetic] to drive that delivery business, but that may change the carryout as a greater focus going forward? Thanks.

Sandeep Reddy — Chief Financial Officer

So, Jared, thanks for the question. There’s two pretty significant components in that. So, let me start with the second one, then I’m going to go to the first, because from a carryout momentum standpoint, I think Russell talked about it earlier in one of the previous answers as well. The carryout business and the delivery business are two separate businesses. What we’re seeing is very significant acceleration in the carryout business which is very encouraging for us because we basically are able to penetrate a new market. And I think a much — significantly a larger market in addition to the delivery business. The delivery business is one in three pizzas, like Russell told you the last time, is delivered by us. So, we have a very strong position in that. So, the thesis in terms of unit development is based on both businesses being fulfilled from the box. And the potential that we have continues to be very strong. If anything, this actually gives us even more runway in terms of unit development versus what was there before. But in no way is this a trade between carryout and delivery. They’re two separate businesses. The carryout should be incremental to the delivery business, and we’re doing all the work that we’re doing on the delivery business.

So, in terms of US unit growth and the deceleration that’s been happening, there is a few puts and takes that are going on over there. I think it’s a few years ago, we had to reclassify and align [Phonetic] in some other market, that’s basically out of the United States into — out of International into the United States, which helped the United States. That was of one year. It picked up about 5%. But other than that, it’s been in the 4%-ish range pre-pandemic. And I think the trailing 12 months of three is more reflective of some of the headwinds that we’ve been seeing since the pandemic started in terms of supply chain or economic factors, including staffing.

So overall, I think once we get past these headwinds, there is no reason we can’t get to a normalized unit development growth, especially given the drivers that I just talked about, that this carryout business being an incremental opportunity that we seem to be seeing and gathering steam as we go along. And the delivery business being what the baseline thesis was about anyway. So that’s answering both of your questions and I hopefully gave you enough information on that.

Russell Weiner — Chief Executive Officer

Well, Sandeep, I think I would just add that there is every incentive for our franchisees to continue to build up to that. EBITDA per store is still a very strong place. The returns on the new store, still in a very strong place.

When we look at the top quintile stores on delivery, the ones that are really doing well, those are the ones that have fortressed the most. And so, what happens when you fortress is, you get closer to your customers. Getting closer to your customers from a delivery perspective during a capacity-constrained, labor-constrained environment, helps delivery. We also know the majority of the carryout line — the overwhelming majority of the carryout line, when you open up a new store is incremental. So there’s every incentive financially and also in helping us deal with capacity to go ahead and continue to do that.

Jared Garber — Goldman Sachs — Analyst

Thank you.

Operator

Thank you. And I show our next question comes from the line of Andrew Strelzik from BMO Capital Markets. Please go ahead.

Andrew Strelzik — BMO Capital Markets — Analyst

Hey, good morning. Thanks for taking the question. I just wanted to follow up on the comments, Sandeep, that you made in your prepared remarks about — after the first full quarter, excuse me, seeing a lot of efficiency opportunities. Can you elaborate a little bit on what you’re seeing, maybe where the biggest opportunities are and the timeline to which we might see that start to come through the P&L? Thanks.

Sandeep Reddy — Chief Financial Officer

Yeah, Andrew, thanks for the question. And so, I think the opportunities are multifaceted, right? So, I think we talked about three different components. On the first one, we talked about the consumer pricing architecture. And I think, there, it’s really about looking at, given the different cost pressures that we’re dealing with, how do we make sure that we deliver terrific value to the consumer, but at the same time, taking our price where it makes sense, and it still doesn’t void that value to the consumer. So, we’ll keep on looking at that as time goes along.

The second was just making sure that operating revenues are growing faster than — revenues growing faster than expenses. And from an operating margin standpoint, we did see some sequential improvement. We went from a 270 basis points decline in Q1 to 180 basis points decline in Q2. So, that includes some G&A discipline as well that we talked about. And you saw that we lowered our guidance for the year on G&A based on that. And we certainly are [Phonetic] prioritizing our expenses to make sure that we’re making investments in opportunities that are driving near-term growth, and actually continuing to invest in critical areas like technology and supply chain, which we have over the years. We’ll keep doing that. But it’s that proposition that is critical.

But the most important thing, honestly, is the third one that I talked about, which is how do we accelerate our capacity to serve the demand that we see. And then, that’s what Russell talked about earlier in the call. And I think that’s been very encouraging to see the progress that we’ve actually made in the last quarter. We continue to work on similar drivers in the coming quarters as well. So, as much as we can make progress on that, I think we’ll be able to get to a much better place.

Russell Weiner — Chief Executive Officer

Yeah, I would just add too. Sandeep talked about efficiency. It answers your question from a financial standpoint. I would maybe do that also from — to have some color on the operation standpoint. Essentially on the delivery side, efficiency is what we need to drive; simplification is what we need to drive. So, our folks in the stores are focused on the most added value parts of their jobs. And if you think about a couple of the programs we talked about last quarter, we continue to give some input out here. For example, one of those things is taking calls out of the store. We ended last quarter with 29% of our stores on call center. We ended this quarter at 43%. Our operation, simplification projects are — there are many of them. One we spoke about last time which is eliminating multiple box folding times within a store which doesn’t sound like a lot, it actually adds up to 40 hours a store, a week, and that program is now in 90% of our stores around the country.

So, efficiency on the operation standpoint leads to unlock of capacity and then that flows down through the financials.

Andrew Strelzik — BMO Capital Markets — Analyst

Great. Thank you very much.

Operator

Thank you. I show our next question comes from the line of Dennis Geiger from UBS. Please go ahead.

Dennis Geiger — UBS — Analyst

Great. Thanks for the question. Appreciate all of the commentary on your efforts to address the driver staffing challenges and then sort of the lot of the metrics that you provided as a result there. I’m just wondering if you could speak a bit more to sort of where you are on the journey to address the challenges? Is the plan to address the driver situation internally, is that finalized or are you still kind of tinkering with different opportunities internally to address that? And I guess, really the question is, if you could kind of frame up what inning you think you are in with respect to addressing those challenges internally, maybe before you look at other options if there’s a way to frame that up? Thank you.

Russell Weiner — Chief Executive Officer

I don’t know by innings, Dennis. It’s the All-Star break, though. Although, Yankees’ Mr. Stanton won the MVP. So, we’re pretty happy — we’re pretty happy there. We are a work-in-progress Brand. And we are just — we are never going to be satisfied with our ability to fulfill capacity until we can fulfill every single order that is coming our way. So, in that case, we will never be in the final three in inventories on the service [Phonetic]. We can always get better.

We did say that we do think and our first priority is to try to fulfill this stuff internally. We have a lot of stores who are doing that, a lot of franchisees are doing that. We are 100% committed to getting this done ourselves and we’re seeing improvements. But until we get where we need to be, we will continue to explore all options and — but our big focus there is for us to be able to serve our own customers.

Dennis Geiger — UBS — Analyst

Thank you very much. Go, Yankees.

Operator

Thank you. And I show our next question comes from the line of Lauren Silberman from Credit Suisse. Please go ahead.

Lauren Silberman — Credit Suisse — Analyst

Thanks for the question. I’d want to boost the boost week, so one is around early June, and I think you talked about plans to do another one by the end of the summer, which I believe is more frequent than historical. So, can you talk about how you’re thinking about the cadence of boost week promotions from here? And is there any read-through, an underlying demand, or do you see this as more of a catch-up from not running promotions over the last couple of years? Just trying to understand how that plays out.

Russell Weiner — Chief Executive Officer

Yeah, no, I mean if you look historically, we ran, call it, three to four boost weeks a year. Obviously, we are planning one at a time. And so, we want to work with our franchisees. Obviously, everyone thought last one went well. We’re going to see how the next one goes. And we will announce anything further after that happens. So nothing more than just one step at a time, one piece at a time.

Operator

Thank you. And I show our next question comes from the line of Chris Kal from RBC Capital Markets. Please go ahead.

Christopher Kalata — RBC Capital Markets — Analyst

Hi. Good morning. Thanks for the question and thanks for the detailed thoughts on pricing so far. Following up on those earlier comments, so can you tell us how you’re thinking about pricing power today? Do you see greater risk to any potential further pricing actions given that there is more pressure on the consumer today, or do you see yourself as well-positioned should you pull that pricing lever if necessary?

Sandeep Reddy — Chief Financial Officer

So, Chris, it’s a great question. And I think it really ties back to what I talked about in the prepared remarks, which is, in the end, pricing in itself is fine, but it’s about making sure there is a terrific value to the consumer. And that really is the key threshold for us. And so, we continue to do testing. And by the way, the testing has been done for the last decade, not just the last quarter. And that’s a process that is always going on inside the company. And look, when the macroeconomic situation is as volatile as it is, things keep on shifting and we continue to do consumer testing to ensure, based on the shifting sands, what makes sense and what doesn’t make sense. We are pretty clear that there is definitely a decreasing cost environment. So, there’s a balance between making sure that terrific value has been delivered to the consumer and then making sure that from a profitability standpoint, our franchisees are able to make the profits on their stores. And this is what then paybacks the need from a long-term perspective there.

And we and our franchisee partners basically look at it from a long-term perspective because most of them have been with us for decades, or a number of years, and signed long-term commitments with us. And it’s a shared journey. So, we work on it together with them. And I think there is — that’s helpful. And this will continue to go into what we do.

Russell Weiner — Chief Executive Officer

Yeah, I’ll just add to that, so Sandeep’s point on balance — the balance for us, as we go into this quantitative testing and like you said, we’ve done this over decades. And especially the balance, how do we optimize [Technical Issues] it for our [Phonetic] EBITDA. But also, how do we optimize value to the customer. And all of those inputs, it’s helped us get to where we want to be. We know at the end of the day though, order counts are much more correlated to profitability than ticket. So, it’s about driving order count.

When we talk about the macroenvironment, to me, and I started at Domino’s right in the middle of a recession back 14 years ago, this is a category where for folks who want to continue to eat out when times are tough, they will maybe down switch from a sit-down or what have you into a pizza. So, we actually think where our concept, our business is strong, as we move to go through more difficult times.

Christopher Kalata — RBC Capital Markets — Analyst

Great. Thank you.

Operator

Thank you. And our last question will come from the line of Mr. Jon Tower from Citi. Please proceed with your question.

Jon Tower — Citi — Analyst

Hello?

Operator

Mr. Tower, your line is open.

Jon Tower — Citi — Analyst

Here we go, sorry. You cut out for a minute there. Yeah, I appreciate you taking the question. First, a clarification and then a question. I’m curious if you could clarify or at least explain perhaps the check differences in the carryout business versus the delivery business and what that might mean for your same-store sales, just in a normalized environment? And then, I guess, the question is, you did the Stranger Things promotion in this quarter, and I believe it’s the first time since — once like Batman in 2008 that you’ve done anything with really any other brand in at least in the TV or streaming businesses. So, I’m curious to know if this is a one-off or if you believe this is something that could persist with other TV shows or whatever in the future?

Sandeep Reddy — Chief Financial Officer

Yeah. So, Jon, I’ll answer the clarification question, and then Russell will definitely answer the question of the Stranger Things question that you have. So, I think from a check difference standpoint, there always have been between the delivery fee and other components of the cost to debt to serve, the delivery ticket tends to be higher than the carryout ticket. There’s a few other dynamics in terms of some of the natural opportunities that may as well go into it. But that is pretty much what we would say, it is a higher ticket than carryout.

And — but I think it also is pretty obvious when you look at the relative trends of delivery versus carryout. Carryout has a 14.6% same-store sales increase in the quarter. Delivery was down 11.7%, and comps were down minus 2.9%. So you can actually make the conclusion from that too.

Russell Weiner — Chief Executive Officer

Yeah, on Stranger Things, I just — you have an amazing memory. My first day, I remember looking at Batman boxes and stuff. Wow, it’s pretty amazing. You’re right though, interestingly enough, we have not done a tie-in in a big way since then. And that’s because, I believe, we believe, that we really don’t have any interest in getting lost in a laundry list of brand tying. And most of the time, nowadays, whether it’s with sports or with movies, or what have you, that’s what it is at the end of the day. I’m not sure if anyone knows what brand is associated with what. I think you just get lost there.

And I think that was one of the reasons why this promotion was so strong because we don’t do it a lot and Netflix, in particular, the Stranger Things property, they don’t do that a lot. And so when two brands that are are really strong brands in and of itself, without being borrowed equities, come together and do something that’s just so powerful. And so, we have an opportunity like this comes around, again, you could see us do this, but our logo will not be placed at the bottom left with a dozen others in a partnership.

Operator

Thank you. This concludes our Q&A session. At this time, I’d like to turn the call back to Russell Weiner, CEO, for closing remarks.

Russell Weiner — Chief Executive Officer

Hey, thanks so much, everybody, for joining the call this morning. Sandeep and I look forward to speaking with you in October to discuss our third quarter 2022 results — third quarter 2022 results. Have a great — [Technical Issues]

Operator

[Operator Closing Remarks]