Mitch Hall - Director of Financial Planning and Analysis, Domino's Pizza, Inc. Michael T. Lawton - Chief Financial Officer & Executive Vice President J. Patrick Doyle - President, Chief Executive Officer & Director.

John Glass - Morgan Stanley & Co. LLC Karen Holthouse - Goldman Sachs & Co. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker) Jeffrey Andrew Bernstein - Barclays Capital, Inc. Chris O'Cull - KeyBanc Capital Markets Alexander Slagle - Jefferies LLC Mark E. Smith - Feltl and Company John William Ivankoe - JPMorgan Securities LLC Peter M.

Saleh - Telsey Advisory Group LLC Joseph Terrence Buckley - Bank of America Merrill Lynch.

Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter Year-End 2014 Earnings Conference 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. Thank you. Mr.

Hall, you may begin your conference..

Thanks, Kelly. On behalf of Lynn Liddle and Investor Relations, I'd like to welcome everyone to Domino's Pizza's fourth quarter earnings call. As usual, we have on the call, Patrick Doyle, our President and CEO; and Mike Lawton, our Chief Financial Officer. After their prepared remarks, we'll open the call up for Q&A.

We are asking, since this is an investor call, that members of the media remain in listen-only mode. Also regarding any forward-looking statements that may be made today, I will direct everybody to the Safe Harbor statement on page seven of today's earnings release. And now, I'll turn it over to Mike Lawton..

our supply chain margin percentage decreased from 10.9% to 10.1%, primarily from an increase in commodity prices. As a reminder, commodities are generally priced on a constant-dollar mark-up 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. The average cheese block price in the fourth quarter was $2.11 per pound versus $1.83 in the same period last year, which led to our overall market basket increasing 4.8% as compared to the prior-year quarter.

Also contributing to the decrease in supply chain margin was an increase in self-insured medical insurance cost. Company-owned store margins also contributed to the lower consolidated operating margin. Higher food costs led to this margin decreasing as a percentage of revenues from 24.3% to 23.2%.

Currency exchange rates also negatively impacted our operating margin this quarter, with a hit of $2.5 million versus the prior year quarter due to the dollar strengthening against most currencies in which we conduct business. Now, let's discuss our G&A expenses. G&A increased by $11.8 million in the fourth quarter versus the prior year quarter.

The increase was partly due to a charge of $5.8 million to replace our corporate airplane, which we mentioned to you last quarter and has been adjusted out as an item affecting comparability.

The remaining $6 million of increase in G&A came primarily from increases in e-commerce and technology support as well as investments to expand our international team. Regarding income taxes, our reported effective tax rate was 37.0% for the quarter. We continue to expect that 37% to 38% will be our effective tax rate for the foreseeable future.

Our fourth quarter net income was up $3.4 million or up $7 million when excluding the items affecting comparability. This as adjusted 15.6% increase was primarily driven by higher domestic and international same-store sales, global store growth and higher supply chain volumes.

Our fourth quarter diluted EPS as reported on a GAAP basis was $0.85 or $0.91 when adjusting for items affecting comparability. The $0.91 is a $0.13 or 16.7% increase from the $0.78 EPS in the fourth quarter of last year. Here's how that $0.13 difference breaks down. Our foreign currency exchange rates negatively impacted us by $0.03.

Our lower diluted share count primarily due to our share repurchases benefited us by $0.01. And importantly, our improved operating results benefited us by $0.15. Now before turning to our use of cash during the year, I'd like to remind you of some information we shared at our Investor Day in January.

First, I want to remind you that we have an extra or a 53rd week in our 2015 fiscal year. As we have in the past, we will be adjusting the impact of this extra week out of our 2015 results as an item affecting comparability.

Regarding commodities, we currently project that the commodities we use in our system will be down 2% to 4% in 2015 versus 2014 levels as cheese and pork prices have recently moderated. For perspective, we estimate that a 10% decrease in the price of cheese has roughly a $0.015 impact on our full-year EPS. Now on to currency.

In January, we estimated that foreign currency would have an $8 million to $12 million negative impact on pre-tax earnings in 2015. The dollar continues to strengthen and it is possible that even the high end of that range could be exceeded.

Again, for perspective, we estimate that a 1% strengthening of the dollar against our basket of currencies has roughly a $0.015 to $0.02 negative impact on our full-year EPS. As it relates to G&A in 2015, we expect to have increases for e-commerce and technology support, which are partially offset by transaction fees that we receive.

We also plan to have increases for our international support team and other strategic initiatives. The result is an expected increase of between $16 million and $20 million for the 53-week 2015 year over our 2014 reported levels. We estimate that our 53rd week will drive approximately $4 million of this increase.

Keep in mind too that G&A expense can vary up or down by, among other things, our performance versus our plan as that affects variable performance-based compensation expense. Now, turning to our use of cash. Over the course of the year, we repurchased and retired approximately 1.2 million shares for $82.4 million at an average price of $71.54 a share.

We also made nearly $12 million in required principal repayments on our long-term debt, and returned over $52 million to our shareholders through our regular quarterly dividends. Looking forward, we believe that we will continue to generate cash over and above what we need to reinvest in our business.

We will – had primarily used this excess free cash flow to pay dividends and buy back stock during 2014. And as always, we plan to continue to use – to deploy cash opportunistically to benefit shareholders.

Regarding our capital expenditures, in 2014, we invested over $70 million in capital expenditures primarily in our stores, supply chain centers, technology initiatives, and our corporate plane.

We will continue to have low capital expenditures relative to our earnings, but have increased our spending as we see continuing opportunities to invest in our industry-leading digital platform, to make enhancements to our point-of-sale system, and to invest in the growth of our domestic stores, and pursue other initiatives that will grow our brand.

Going forward, we have raised our long-range outlook on capital spending to approximately $50 million to $60 million annually, as we will invest capital into our domestic business and in our technology platforms. Overall, our fourth quarter capped off a fantastic year for us. Thank you for your time today. And now, I'll turn it over to Patrick..

Thanks, Mike. As I think about 2014 and try to find the best way to sum up the results Mike just reported to you, I find myself repeating what we told you at our recent Investor Day. I think you just have to attribute our success to the fundamental strength of the business and arguably to the Domino's brand name simply being embraced around the world.

There's often a question on the part of the investment community as to whether or not these kind of domestic positive same-store sales are sustainable. Looking back at the last 20 quarters, we've only had one negative comp, which was rolling over a 14.3% in the prior-year quarter.

We're also the only quick-serve restaurant of any comparable scale that has posted six consecutive years of average unit volume growth. So I guess we proved our domestic sales have been pretty sustainable.

And certainly, it's hard to argue with our international same-store sales track record and our run of 84 straight positive quarters, that's 21 years of positive comps in our international business, also, the longest period of growth by any comparably-sized international restaurant business.

Our store growth internationally has also been a standout in the industry and our U.S. store growth has been gaining traction too. So all-in-all, my team and I feel pretty good about the state of Domino's brand. Looking specifically at our 2014 domestic business, I'm proud of both our strong full-year sales comp and our even bigger quarterly comp.

Our reimages are going well, with over 1,000 domestic reimages completed at year end and another 1,000 or so planned for 2015. I believe we're building better brand equity with each of these are our physical locations are now better reflecting who we really are as a brand today.

And even with franchisees investing in reimaging, they're also building new stores as their profits have continued to grow and their returns on new stores are good. Back in 2008, average self-reported franchisee EBITDA was around $50,000 per store. In 2014, it was over $85,000.

So, our system has made real progress and our franchisees are really in the game. Technology has played a big role in our U.S. success, and 2014 was no exception. We reached a key metric at the end of the year with 50% of sales coming from digital channels, half of that from mobile devices. And we've had digital growth across all the platforms we offer.

Since we've spruced up our mobile web platform with responsive design features that make it simple to use on any mobile device, this channel is now being used just as much as the apps we offer. We really think our new voice-ordering app has resonated with customers too. We've had lots of positive feedback about Dom and the Dom commercials.

And people are really engaging with him or it. We've had about a half – we've had already had about a half a million orders come from Dom since its launch. We also introduced another new channel in conjunction with Super Bowl, a way to track your pizza on your Samsung Smart TV.

We're definitely thinking and acting like an e-commerce company, but with the all-important emphasis of feeding your family a great dinner. In many ways, I think we're actually forging a new tech-to-table sector of the larger restaurant industry. On the international front, we simply posted yet another fabulous year.

Our strong master franchisees, breadth of countries all around the globe and a good mix of established and emerging economies have made for a really winning combination again and again.

Despite foreign exchange headwinds, our international division accounted for 35.5% of our total operating income in 2014 on robust same-store sales and record store growth. We made it up to 80 markets around the world last year. We opened four new markets, Paraguay, Norway, South Africa and Kenya.

Success stories were many with great performances in Australia, Brazil, Canada, Japan, Turkey and the UK, among others. Our entry into sub-Saharan Africa got off to a very strong start, and our business in China has begun to take hold. We have a very strong master franchise partner there and pizza delivery is becoming more mainstream.

We have over 60 stores in China now. So reimages are moving into fast cliff. We've reimaged over 2,200 stores already and plan another 1,000 more in 2015 on the domestic business. Like in the U.S., technology played a key role for us around the globe in 2014.

At year-end, 70% of our international stores were either installed with Domino's PULSE or in the pipeline for installation. This common POS platform provides great management and online ordering tools to our franchisees as it has in U.S. for years.

Despite the fact that some markets still don't have online ordering, which we consider a real opportunity, average online ordering sales among all of our international markets were over 40% at year-end and four markets had digital sales over 50%.

Globally, we estimate we're at a run rate of approximately $4 billion in digital sales annually, which definitely reinforces this tech-to-table notion and indicates to us that continued investment around technology is the right strategic move for us.

Wrapping up my commentary on the year, I have to say I'm incredibly pleased and energized about the possibilities for our brand. Our store growth has been accelerating around the world, our same-store sales have been consistently robust. Our franchisee profits and store investment returns are strong.

Our technology is enabling better business outcomes all around the world. Our substantial recognizable global system now has retail sales of nearly $9 billion. And we're selling pizza that has taste appeal literally everywhere, it feeds a family affordably, it's highly customizable and nutritious and it's fun.

So beyond all the metrics, we have a global team at Domino's with pizza sauce in their veins and we love what we do. That attitude ultimately delivers for both our customers and shareholders. And we plan to jump into 2015 with that same enthusiasm. Thanks for your time. And now, we'll open it up for questions..

Your first question will come from the line of John Glass with Morgan Stanley..

Thanks very much. First, Mike, just a question on the G&A. I want to make sure I understand it. For the year for 2014, it seemed like it came in higher than we had expected. I think you talked about an increase of $3 million to $6 million, and ex the point (19:01), I think it was like $8 million.

So was there an overrun in G&A relative to our expectations? Or do I have maybe that wrong somehow?.

Yeah. We came out a little bit higher. We've been both – the variable comp that's certainly compared for the year is higher than we would have originally expected because we had a really strong year..

Okay.

So that's where – if there's a source from it, that is what it is, it was the bonus accrual, it's not technology or other spending in the business, is that correct?.

Most of it was pretty much in line. I mean, certainly as you've seen, I mean over the last two years, we've continually said that we were going to be increasing G&A and sometimes it's a function of when you can get the hiring done as you're trying to add people.

And we're a lot closer to where we wanted to be staffed at the end of the year than where we were in the first part of the year..

Okay..

If you look at the whole year, the overage from what we had said at our Investor Day, at the beginning of 2014, the overage was entirely around kind of variable comp and incentives out to franchisees based on performance..

Yeah. That makes sense.

And then, just the reorg of the distribution businesses, is that just an accounting exercise or are there actually efficiencies you think you're going to gain now in the distribution business? Is there more of a business reason for that combination?.

Well, it's certainly partly a business reason of getting the Canadian subsidiaries underneath. But it isn't something that you're necessarily going to see a big number on because some of our efficiencies also affect the whole – the system and how that affects franchisee pricing. So, I wouldn't count on a lot out of that.

But I think it's the right thing to do for the business..

Got you. Thank you..

Your next question will come from the line of Karen Holthouse with Goldman Sachs. Karen, your line is open..

Sorry. I was on mute. Congratulations on a great quarter. So, there's been press even in the U.S. about a promotion that's been running in Australia, Pizza Mogul, and I'm curious just the thought process around sharing that particular promotion in other markets, and any reasons why it wouldn't work in the U.S. the way that it has in Australia? Thanks..

Yeah. Karen, I think what I'd say is, we've got fabulous kind of innovation coming with technology around the world. We're trying things out in lots of different places. And we all kind of learn from the other markets as they do things. And so, we've certainly been watching the success of that in Australia.

It's something that they've certainly been very excited about. And we'll look at it and make the determination of whether it makes sense in other markets based on kind of the results that we see from it. But overall, what it shows, I think, once again is that innovation does not only have to be about products.

It can be about ways that we're taking technology to consumer. And clearly, they've been very happy with it in Australia..

Okay. Thank you..

Thanks, Karen..

Your next question will come from the line of Brian Bittner with Oppenheimer..

Thanks. Good morning, guys. Two questions. The first is on the same-store sales.

As you saw your comps really accelerate here into the double-digit range from the third quarter levels, was the majority of that traffic or did you also see a lot of people checking out at a higher average?.

No, majority of that is traffic..

Okay. And the second question, in the U.S., you saw almost 100 net new stores opened in 2014, and looking back at my model, that's the most since 2004. I guess it makes sense, obviously, with the improving economics. But you're around 5,000-ish stores today in the U.S.

Can you remind us where you think that can go? And on top of where you think that can go, where is it that you're most under-penetrated, where will these stores be built?.

Yeah. I mean, I think we've still got 1,000-plus stores that we can build in the U.S. There are some geographies that have a little bit more room for penetration than others, but it's largely everywhere. There is fill-in opportunities in a lot of markets.

And so, while there are some areas in the Midwest and there was some opportunities in Northern California and some other places, really, it's filling in new areas or existing areas around the country.

So, I don't know that it's going to be particularly geographically concentrated, but we definitely think there's kind of 1,000-plus that we can build over time..

And I mean, are you seeing new potential franchisees come in and negotiate with you that have kind of been on the outside looking in or is the majority of these coming from existing franchisees?.

They are all coming from existing franchisees. So, go back to kind of our model, over 90% of our franchisees started as hourly folks in our stores. They worked their way up through the system to become successful managers and then they applied to become a franchisee.

And so, last year, we had new franchisees come into the system, but they were all people who were managers or supervisors from within the system that became first-time franchisees. So, 100% of the store growth is coming from existing franchisees, and that's the best possible scenario because they know the business. The unit economics are strong.

The cash flow is strong in the system. And what we're seeing is kind of what we've been talking about, I think, for a number of years, which is that as unit economics get better, stores are going to get built because they should be built, because the ROI on them is going to be strong.

And as we've now had yet another year of increasing profits for our franchisees despite what were record-high cheese costs last year, they're getting more and more energized about the opportunities, and so we're seeing the builds happening..

Okay. Congrats. Thank you..

Thanks, Brian..

Your next question will come from the line of Jeffrey Bernstein with Barclays..

Great. Thank you very much. Two questions. Just one from a comp perspective. With the double – with the ramp-up to, I guess, double-digit type comps at least in the U.S., I'm just wondering if there's any maybe underlying trends in terms of what type of store were seeing the outsized growth.

We often hear that some of the higher-volume stores are actually seeing the greatest lifts.

So, I'm just wondering, as you look at the system, where is the greatest strength coming from? And then maybe is the reimaging providing an outside lift, or is it more delivery versus take-out shift going or pizza is (26:54)?.

Yeah. Jeff, it really is fundamental across-the-board growth. Is it not geographically-based, it is not about higher-volume versus lower-volume stores. It is – and as you know, we were out with kind of the same price point we've run before.

And the advertising for the quarter was mostly around Dom and new ways that people could access the brand through voice ordering. So, it is really about fundamental strength. It was – the vast majority of the growth was order count versus tickets. And it is just the broad strength of the brand and where we are with consumers now.

We clearly feel very, very good about where we are and about the results that we put up..

Got it. And then just from a menu pricing perspective, one, I'm just wondering as you assess it, where it currently sits and maybe what you're suggesting to franchisees.

I mean, with the commodity basket now going to be down in 2015, I'm just wondering whether there's maybe an uptick in discounting with the inflation easing, whether it's by yourself or by peers of yours that might do something along those lines?.

Yeah. I think our system has been remarkably disciplined. And last year, in the face of record high cheese costs, they held the line and their profits continued to increase despite being pretty modest about kind of price increases through the system last year.

So – and now as cheese costs come down, obviously, that's good news for store-level profitability, but I don't think you're going to see material pricing changes from the system. They've just been very, very disciplined about doing what is best for the customer, and that's clearly played into very, very strong results..

Would you think the industry might get more aggressive or you think everyone kind of has that same discipline as the prices ease?.

Yeah, I can't predict what our competition is going to do. I guess what I'd say is everybody has to address margins in their own way. While food costs are off, there are probably some labor pressures out there. So I don't know – I don't know that you're going to see a dramatic change, really, from the industry.

But obviously, those are decisions they're going to make..

Understood. Thanks..

Thanks, Jeff..

Your next question will come from the line of Chris O'Cull with KeyBanc..

Thanks. Good morning, guys..

Morning, Chris..

Patrick, independents appear to be have had net closures for two consecutive years.

What do you think are the primary factors driving the wedge in performance between you guys and independents?.

There have been three factors over time that I've always looked at in kind of the scale advantage that somebody like a Domino's has versus the independents. It's the efficiency of our food cost, it's the know-how around the brand and how to efficiently run a unit. And it's the advertising and kind of the brand strength that you have.

And for many, many years, those three did not drive consolidation in the category. And you started to see now the last few years, some real consolidation. And I think the different has been technology.

Our technological advantage, the ability for customers to access the brand that way, the ability for us to build a platform that we think is absolutely second to none in terms of giving the consumer a great experience with Domino's is just something that the smaller players are either not able to do or not able to do anywhere near as well and as efficiently as we do it.

And I think that alone, we're doing a lot of other things right. I mean, our advertising and branding and the efficiency of our market spend and all of those things are clearly working. We think that getting the stores reimaged is going to be a positive. And we've got fabulous franchisees who are excited and motivated about where we are.

They're driving the brand. It's a lot of things playing into it, but I think the big new factor has really been technology and our ability to drive business through that. And it's just something they haven't been able to match, and so it's put real pressure on their sales and ultimately their profitability.

And that's why we've been taking pretty consistent share..

Very helpful. And then, one other question, Mike, since the Analyst Day, we've seen a large refinancing by Dunkin in the ABS market, and another company looks to be entering that market.

Are there any reasons you would not refi the callable portion of that debt in October this year?.

Well, we'll have to assess at that point in time based on market conditions and also recognizing that the whole thing becomes callable, not too many years down the road and it'll just be part of what it looks like at that point in time..

Does refiing the callable portion cause you any difficulties in refiing the remaining portion in July 2017?.

It depends on the duration of the debt and what you decide to – kind of what your plans could be going forward. So, not necessarily. It's just as we get to that point in time, we will certainly look hard at it..

Okay. Great. Thanks, guys..

Your next question will come from the line of Alex Slagle with Jefferies..

Hey. Thanks.

Just wanted to follow up on Jeff's question and get your perspective on historically, when you look back, I mean, what were the biggest drivers behind the price point battles in the industry? And like, what are the things we should really watch out for as red flags?.

Well, we're obviously pretty happy with where we are in the profits that we're generating at the store level for the franchisees. Our pricing has been working. It's interesting. I've always had a very different perspective about pricing in the category than even some of comments I've heard from the investor community and some of my competitors.

I think it's always been viewed as this highly promotional category. And my view is if it were that aggressive on pricing, you'd have seen more consolidation in the category over time than you've seen. This has been the least consolidated category within the restaurant industry for a very long time.

And so, you're now starting to see some consolidation. And it's been pretty consistent over the last few years. So, I go back to the pricing overall, it's generating good growth for us. It's generating good growth and profits for our franchisees. Overall, I'm happy with where it is. I'm obviously very happy with the overall performance of the business.

And we can generate good sales growth and good profit growth with kind of the approach that we brought to pricing, then I'm very happy with where we are. And as you know, our national price point has been the same now for a number of years. And it's clearly been working..

Okay. Thank you..

Your next question will come from the line of Mark Smith with Feltl & Company..

Hi, guys. I just want to look at the traffic or order count a little bit deeper.

Can you talk at all about frequency from current customers versus kind of new customers to Domino's?.

Yeah. It's been a pretty good mix of both of those from order count. And I guess what I'd say is the customer base, certainly new customers coming in, but I think what's maybe even more important is retention of existing customers as we're giving them a better experience. And within that retention is also improved frequency.

So, I think it's – those are really the three factors that will drive higher order counts, and it's been a pretty good combination of those. But I think the retention and the experience and the customer satisfaction that our existing customers have has been really the primary driver of it..

Okay. Second, at the Investor Day, you talked a bit about expanding company-operated restaurants.

Any more insight on kind of your thoughts behind that and when maybe we see more of a ramp in build-out from here?.

Yeah. I mean, I don't think you're going to see a big ramp. We just feel like we should be doing our part. The unit economics are good. You're certainly going to see us building some, but you're not going to see a notable increase in the mix of corporate stores. We feel pretty good about where we are in terms of the number of corporate stores.

We think we definitely need to be doing our fair share of the building, but you're not going to see a material increase in the mix of corporate stores. You're probably going to see more it staying kind of line with where it is and basically are doing our part of the growth of the overall system..

Okay. Great. Thank you..

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

Hi. Great. You mentioned in your prepared comments, and I think you've mentioned it before about your point-of-sale enhancements.

Could you talk about maybe what kind of functionality that you would like that you don't have and how they may influence the sales and profitability of your business overall?.

Yeah. I mean, the point-of-sale system, obviously, it gives us something that's having one system and I think this is maybe most important, there are lots of great functionality around it and kind of what we have there. But I think what's most important is that we have one.

And it gives us efficiency as we tie online ordering to it and all the rest of it. But it is just a point-of-sale system at the end of the day. There is reporting behind it and some analytics that the franchisees can look at and kind of analyze their business and how it's doing and we think that's important for them.

But I think the most important thing – I think it's a great system. I think it's the best out there for managing our business. But I think what's even more important is that we've got this one system that gives us consistency. It allows us to tie these online ordering platforms to it more efficiently. And you're now at not only 100% of the U.S.

But as we mentioned, about 70% of our international stores are now either on it or have signed up and will be moving on to it. And we think it just brings great efficiencies. At the end of the day, it's a tool that the franchise use in different ways – the franchisees use in different ways to manage their business.

But we think having that one platform has been a really powerful tool for us as we've been driving e-commerce..

And that is, I guess, the question.

So, 100% of the system is currently on PULSE, correct?.

In the U.S..

In the U.S. Is there any kind of major enhancement that you can do or would like to do to the existing U.S.

PULSE system?.

No. I don't know that there are kind of big specific things that we're working on. We were always coming up with new ways to make it a little bit better and a little bit easier. And can you speed up the order-taking process or the accuracy or all of that? But at the end of the day, it's working well.

Where we're spending a lot of our time and effort are on kind of the e-commerce platforms that are tying to it. And we think that's ultimately the big win..

Thank you..

Your next question will come from the line of Peter Saleh with Telsey Advisory..

Hey. Thanks. Congrats on a great year.

I know we always talk about the 50% of the orders that are digital, but what about the other, call it, 50% of the orders that are coming in? What's the biggest hurdle to converting those orders to digital and maybe accelerating that beyond that, call it, 5% or 6% growth rate every year?.

Yes. So, I think there are a couple things. So, first of all, a little under 10% of our overall orders are people walking into the store and placing the order right there. So, roughly, today, if you talk about 50% digital, what you're really looking at is 50% digital, a little over 40% over the phone and about 10% walk-in.

And so, the walk-in customers, there may be some things we can do that they're using a kiosk or whatever. But the bigger opportunity is kind of around the 40% that are still calling in. And the answer is, we want our customers to be able to access the brands however they want to access the brands.

And there are still people who would rather call in and place that order and do it over the phone, using their voice as opposed to one of our apps or digitally ordering, and we want to make sure that's a great experience for them as well.

And so, what we're seeing is I think we're doing things to make our digital platforms better and better, and more and more efficient. But some of this is just about people kind of adopting technology, and when do they decide that they want to shift from ordering over the phone to ordering digitally.

I think the one area that I would say that there is going to continue to be opportunity is today, a higher percentage of delivery orders are placed digitally than carryout orders are placed digitally. And I think there is some opportunity there.

Some of that I think is just kind of habit of the customers that the same customer who wants to go into a store, see the store, see the people who are making the pizzas has also been a little more likely to be the same person who wants to do it over the phone and kind of feel like they're controlling that process a little bit more.

And so, we think there are some things we'll be able to do to enhance things for that carryout customer and maybe that will push it along as well. But overall, as we've got markets now outside of the U.S.

that are well over 50%, some of them push into 60% of total digital, we think there's going to continue to be upside for us domestically and certainly in a lot of international markets that are still relatively early in the ramp-up on digital.

We know they've got a long runway as they get better and better at providing a good digital experience for the customers and as the customer base there gets more comfortable with placing orders digitally..

Great.

And then just on labor turnover, anything to talk about there, as the labor market's tightening, ability to hold on to your labor and hire new drivers?.

It's interesting. I've said often that the number one thing that correlates to strength in our sales is people who are employed. Employed people buy more pizza than unemployed people. And the labor market strengthening is clearly one of the contributing factors to the strength of our business overall. We think it's a good thing.

So, the first thing I'd say is, I love the fact that the labor market is strengthening. I love the fact that more people are employed. And to the extent to which that means the labor market tightens up a little bit, that's a great thing. I mean, that's an overall positive for the economy and for our business.

And there are some areas where we are certainly feeling it, and it gets a little bit tougher. I don't know that our turnover has gone up. In fact, it has not gone up. But certainly, there are franchisees who are more focused on staffing their stores and making sure that we're giving great service.

And if that puts a little bit of pressure on wages as well, that's an okay thing because there's a big offset in terms of a healthier economy and top line as well. So, certainly, something we look at.

We got to make sure that the franchisees are treating people right, that they're training them correctly, that they're doing everything they can to make it a good experience for them. And they do that in a variety of ways and is part of why having an entrepreneurial system is great because they address those needs market by market..

Great. Thank you very much..

Your next question will come from the line of Joseph Buckley with Bank of America..

Thank you. Just a couple of questions. The same-store sales in the U.S. were phenomenal, but looked like the company store margins were actually down year-over-year. I know you mentioned food cost inflation.

Is there anything else behind that? I guess, I would have thought the comp might have overcome the food costs?.

Yeah. Well, their absolute profits were up. But the percentage margin was off a little bit because of – food was still high in the fourth quarter. Food's now down. And so, clearly, that's going to help. But the traffic growth and the sales growth more than offset kind of the food cost pressure that we had. And so, ultimately, it drove more dollar profits.

But that was mostly a result of food cost in the fourth quarter..

Okay. And then the CapEx number for the full year and for the fourth quarter came in a little higher than I thought even with the airplane shift.

So, was some of that just spending against the things that you've talked about as the overall CapEx numbers moved higher or was there anything unusual in that?.

The key thing is when you look at our software and what we're doing on the e-commerce and the point-of-sale and everything else that we do, we're pretty – we're really good at estimating how much cash is going to go out the door for the year.

It's a little bit tougher to get exactly which piece is going to get capitalized as internally-developed software versus what part is going to hit the expense lines and then what people are working on, and that's really about the only difference that's in there..

Okay. And then just last one – yeah, so the increase in the dividend obviously – but didn't look back there's any share buyback in the quarter and just curious why that was the case..

We've spent over $80 million in the first three quarters. And you saw a pretty rapid runoff in the price. And the fact is since I had a good chunk of the money spent, I was kind of watching to see what happened. That's all..

Okay. Okay. Thank you..

And we have no further questions in queue at this time.

Presenters, are there any closing remarks?.

No. Just like to thank everybody for being on the call and I look forward to talking to you again as we report our first quarter earnings on April 23. Thanks, everybody..

This does conclude today's conference call. You may now disconnect..