FINAL TRANSCRIPT
DPZ - Dominos Pizza Inc Investor Day
Event Date/Time: Jan. 13. 2010 / 3:00PM GMT
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
CORPORATE PARTICIPANTS
Dave Brandon
Domino's Pizza - Chairman, CEO
Patrick Doyle
Domino's Pizza - President - Domino's USA
Russell Weiner
Domino's Pizza - Chief Marketing Officer
Wendy Beck
Domino's Pizza - EVP, CFO
PRESENTATION
Dave Brandon - Domino's Pizza - Chairman, CEO
Good morning, everyone, and thanks for joining us. Thanks for taking the time today. I'll take you through our agenda here in
a minute, but first I have to do my duty in terms of bringing your attention to our forward-looking statements, Surgeon General's
warning that we have both in your deck and we have on the screen right now.
And my name is Dave Brandon. I'm currently the Chairman and CEO of Domino's Pizza for a few more weeks. I'll lose one of
those titles in a few more weeks. And what I'd like to do first is walk you through how we're going to approach the management
of our time today. It's really important that we stay on time, we have a lot to do and a lot of variety in the schedule.
In addition to me welcoming you, I'm going to talk a little bit about our management transition that was announced last week.
Patrick Doyle, our incoming CEO, is going to give you an overview of the domestic business. I'll come back and talk a little bit
about some of the other business units that I've been managing, as well as our view and how we approach 2010 from the
standpoint of our budget preparation.
It was a few months ago that we sat down and started to use whatever assumptions we could find to construct a budget plan
for our company that we thought was responsible and prudent and that ultimately we'll be held accountable for. And we'll walk
you through some of those assumptions.
Then Patrick's going to get up and introduce our Chief Marketing Officer, who many of you have heard from, but many of you
may have not, and it will be great for Russell to get up and talk about something that I think has been, thankfully, in everybody's
minds and thoughts today, with all of the publicity and buzz around our new and inspired pizza product.
And then we're going to give you a chance to taste our new product and as part of that, we're going to even allow you to do a
little bit of comparative taste testing, so you get a real good sense for the step change that we've made in the quality of our
product.
So that's the agenda for today and we're looking forward to getting through all that.
I just want to talk a little bit about the transition. I've been a CEO for the last 22 consecutive years of my life and I've enjoyed
every minute of it. We've been in a situation where for the last several years, we identified an individual at our company that
we felt would be just a terrific succession candidate. Truthfully, this is a process that we manage very carefully and take very
seriously at Domino's. At the Board level, throughout the company, succession planning is something that we really believe in.
When I came into Domino's 11 years ago, I had had CEO experience. I had taken a company public when I was brand new to
this industry. Didn't know a soul at the company. Knew, on an incoming basis, that I was inheriting a team that I didn't know
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
and would require significant change. And at that particular time, we had a capital structure that was far more onerous and
challenging than the one we have today.
So my job was, make sure the business stays on track to generate a lot of cash flow, because we were pretty leveraged up in
those days. Furthermore, change out the team and make sure it was my team as opposed to somebody else's team. And, oh,
while you're doing that, you've got to learn a whole new industry and business. It was interesting, 11 years ago, I was Patrick's
age, going into that job and I had all those challenges ahead.
Today, 11 years later, Patrick is coming into that job and he has virtually run every business unit of this company with great
success. And he's actually been at the company a year longer than I have. He knows this industry and this company backwards
and forwards. He has the trust and the relationships built with our team. And he's really so well positioned. So much more
positively positioned to be successful than I was 11 years ago. I couldn't feel more confident or better about this transition and
this succession of leadership.
And so this will all occur on March 8th. Patrick will be taking over as the CEO of the company. And it will be seamless. And it's
been seamless in terms of the market's reaction. I can tell you it's been just as seamless in terms of the internal reaction to this.
I think this is something that was very effective and well planned.
So with that, in terms of at least my point of view on the transition, and I'm going to stay on as the non-executive Chair of the
Board. I'll chair the Board meetings and be involved in a governance way. I have a significant investment in this company and
I, more importantly than that, care about it a lot and I'll be a resource when Patrick is interested and I'm not worried about
football records. I'll be a resource that's available to the company to try to help do everything I can to keep it successful.
So with that, I want to introduce to you, not that many of you need an introduction, but I want to bring out Patrick Doyle, our
soon-to-be CEO of Domino's Pizza and I'll let him walk you through some of the things that are happening in the business.
Patrick?
Patrick Doyle - Domino's Pizza - President - Domino's USA
Thanks, Dave. I'm excited to be taking this on and Dave has done an absolutely terrific job of getting me exposure to different
areas of the company over the past 11 years and I just -- I couldn't be happier that I get this opportunity and that Dave is going
to continue to be involved with the company. His guidance and his mentorship have been absolutely fabulous over the last 11
years. And I'm honored that the Board is going to give me this opportunity. And I think I'm ready in every way other than, for
those of you who watched the Tonight Show last night, apparently I will be the leprechaun CEO when it happens.
I only see a couple of smiles. I mean, most of you didn't see it last night. That's good. So I'll try not to do this in my Irish brogue.
I'm going to take you real quickly through our domestic business units and then hand this back to Dave to talk you through
international and supply chain and some of the rest of the business.
The first and most important part of our business is our franchisees. And specifically, I'm talking about our US franchisees. Our
franchisee base is very strong. We've done a lot of work on that front in the last couple of years. We've got terrific franchisees.
They had a very rough 2008, when sales were weak and the category was weak and commodities were at record highs. They
really went through a tough, tough year. And a lot of them struggled.
We took the opportunity, over the course of the past couple of years, to strengthen that franchisee base and to strengthen the
relationship with those franchisees and we feel very, very good about it. You're going to hear, in a couple of minutes, about our
change in our national advertising and our approach on that and the funding of that. It was a huge vote of confidence from
our franchisees and I think really talks to the strength of that relationship.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
We had absolutely overwhelming support from our franchisees to roll out this new and inspired pizza, which if you've been a
franchisee for Domino's for 20 or 30 years, when we went out in November to show them this new pizza that you're going to
see today and talked to them about and say I know you've been selling this pizza for the first 20 or 30 years you've been at
Domino's. We want to make this change. To get there, really, universal support for this change is important. And it speaks to
the strength of the relationship we have with our franchisee partners.
A part of that also, as we went through 2008, and we saw the hit that a lot of them took on their P&Ls, we have been very focused
for the past year and this is going to continue in this year, to work on their bottom lines. And 2009 was a much better year for
the cash flow of our franchisees. And as much as the most important thing we can do to help their P&L is to grow their top line,
to get more customers to call Domino's, we think there are opportunities also to work with them on the expense side of the
equation, to help their economics.
We have great economics and you're all familiar with the story, the cash-on-cash returns are terrific. But we still think there are
opportunities to make those better and clearly making that a corporate priority also continues to strengthen that relationship
with the franchisees, gives them the ability to reinvest more in the business and we think that's very, very important.
And one of the things that we did this year, that honestly we had not done, I think, ever, at Domino's Pizza is at the beginning
of the year we said, you know what? There are a lot of things that have changed in this business. From all of these new product
platforms we rolled out to the technology that we've rolled out at Domino's Pizza, as well as a lot of the basics of this business
that are important. And we want to bring all of you into Ann Arbor for a few sessions out in the field and we want to retrain all
of our franchisees.
And we have almost 1,200 franchisees and we made it mandatory. And we brought every franchisee in, spent three days with
them in groups of about 20 at a time and retrained every franchisee in the system. Making sure we had the basics right on how
we make the pizza and how we manage the dough and all of those sorts of things, as well as talking to them about all the things
that have changed. So making sure that they were really confident with our new point-of-sale system and the opportunities it
gives them for fraud prevention and all of those sorts of things.
We think it made our system better, and again, was another great way to build the trust and the relationship with those franchisees
as we've been driving through a lot of change with our system over the course of the past 18 months.
At the same time as we're doing that, we really strengthened the standards for our franchisees. As you know, we went through
a process, over the past couple of years, of weeding out some folks that were not running their stores as well as we wanted
them to and we kind of looked at that process and said, you know what? If we had folks in the system that became franchisees,
that weren't as excited about it as they needed to be, weren't executing at as high a level as they should be, what can we improve
in our recruiting and selection of franchisees going forward?
And we put a number of processes in place, from an interview process, bringing them all into Ann Arbor for a day, really to
interview them and make sure at the most senior level, and I meet personally all of them, and Dave does as well, when they
come in to make sure that the people we're bringing into our system are franchisees that we're excited about having in our
system for the next 10, 20, 30, 40 years. It's important and we feel good about the strength of the franchisees that we're bringing
into the system.
What that means is we've all been asked a number of times about what is the ideal number of franchisees? How many stores
do you think a franchisee should have? And my answer on that is always the same, which is I want great franchisees and I want
those great franchisees to grow. There is room for that terrific single-store franchisee who wants to own and operate his or her
store and we also have franchisees, I think six that are north of 50 stores. What you will probably see is some continued
consolidation. Not dramatic, but I think you'll continue to see our stronger franchisees building new stores, buying stores from
people that aren't performing as well. We think that's a healthy process as we go forward, to continue to strengthen the system.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
So that's really the update on our domestic franchisees. I want to turn for a moment to Team USA, to our corporate store unit.
And kind of how we view that unit and what we expect from them.
First, it's a proving ground for us. Owning and operating stores is very important to us., to have credibility with our franchise
system as well as giving us an opportunity, everything we're doing, we wind up rolling out and testing first in stores that we
own to make sure that it's going to work.
So for instance, our new and improved, new and inspired, pizza that we rolled out, we actually quietly put into a dozen or 15
stores that we own in Queens for three or four months before we launched it nationally. We'd already done lots of consumer
testing. We know where we were with consumer. We wanted to make sure that operationally we weren't putting anything into
our stores that wasn't going to work well.
So a great example of kind of how we use them, how we think about them, we went to our stores, some of our best operators
in Queens, and said, do the shake-down cruise on this new pizza. See if there are any complications that we haven't thought
about. And frankly, let's see what kind of reaction we get from consumers that we haven't talked about this new pizza to. So
we rolled it out there and consumers just started getting it and we learned a few things along the way from the consumers as
well.
We are the largest operator of stores in the Domino's system. We expect to keep that position. We think it's, again, that it's
important from a credibility standpoint. We have to generate good returns on this business. And while we think it's important
that we are the biggest, you'll see us from time to time opportunistically selling or even occasionally buying. We feel pretty
good about the number of stores that we have, but in terms of a magic number, there really isn't a magic number. We want to
own stores that we can run well, that we can generate a good return on, but we do like being the largest operator in our system.
The other thing that it does is it is -- provides leadership for the company. Many of the leaders within the company and out in
the field working with franchisees came up through our corporate system. And it has also been a source for many of our best
and largest franchisees. Many of our franchisees, hundreds of our franchisees in fact, came out of our corporate store unit and
we're going to continue to use it as a way to foster talent, both for the company as well as moving them into the franchise
system over time.
We've also used it pretty aggressively to develop some talent that we move out into international. Either because we had
somebody there who had an inclination to move into international or we've done some hiring of folks that we knew would -we'd move into international, brought them into our corporate store unit, had them operate stores there for awhile and then
moved them back to the international side of the business.
On the marketing front, and you're going to be hearing a lot about this from Russell in a little bit, but he's been busy. We've
been really busy over the course of the last couple of years. In fact, if you go back to the launch of our sandwich line in August,
September of 2008, and now fast forward to our launching of our new pizza, over 80% of our sales today at Domino's Pizza are
of products that are either completely new to Domino's or completely different than we were selling at Domino's just 18 months
ago.
All of it with a strong emphasis on the quality of that food and of that pizza. We have dramatically overhauled our product line
at Domino's over the course of just the last 18 months.
From a marketing perspective, the other exciting news for us is we did go out to our system, this year, and asked for a contractual
change with our franchisees. And the change is that we, as of January 1st of this year, now have in place a 5.5% national
advertising fund, which I think is as high as it gets in the industry.
We had a 100% approval, 100% of our 1,200 franchisees, chose to sign an amendment to their contract to move to a 5.5%
national advertising fund. We have five years automatically and then based on some performance of the business, it would
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
automatically renew into the future, or if we didn't hit the thresholds, they'd have an opportunity at five years from now to
approve that again. But 100% of franchisees chose to make this change.
It's a win on a lot of fronts. One of them is what our old contractual requirement was, was 4% at the national level, 2% spent at
a co-op level, the local market level, for our franchisees. And what we did is we went to them and we said, look, the efficiencies
of spending at a national level are overwhelming. The dollars go much further and you know what our pipeline looks like. You
know the new products that we've got. You know where we are going with these brands and we think we're getting very, very
positive feedback from you. And we'd like to be efficient with your dollars and focus on these products that we have going
forward. And 100% of our franchisees said we agree. We're willing to move these dollars to national in a long-term commitment.
Now the win for the franchisees, as -- in addition to what it gives us in advertising strength as a brand, is that for most of them
it means then they have an option to spend more locally if they choose, at a local co-op level. But for most of them, it means
that they go from a 6% commitment in total advertising at 4% plus 2%, down to a 5.5% commitment nationally.
So it helps their bottom line. It gives them a little bit more margin in their business. They're excited about that. We're excited
because it means we will have a record number of weeks on air in 2010. So you will see more Domino's Pizza advertising, more
weeks on air, than you have ever seen before from us, this coming year. And we think that's very important. In addition to that,
it has also allowed us to increase our funding of alternative media.
And primarily that's about online, which has been a very fast growing part of our business. Something we're very excited about.
We're excited about the marketing opportunities that online has provided to us and so, again, having this larger national fund
allows us to do some exciting things.
All of this marketing and all of these changes has already started to get us some real votes of confidence from consumers out
there. One of the most important was the ACSI that came out about a year ago, now, ranking us as the number one brand in
terms of customer satisfaction, not only in the pizza category, but it's across all national QSR chains. Terrific. We're excited about
it. It's something that we hope we'll be able to repeat on a regular basis going forward.
The other thing is, this online business that I was talking about, has boomed. And NPD came out recently and said we are now
the largest pizza chain online in terms of number of transactions and sales. It has been a very, very important shift in our business.
It continues to shift. We continue to see people moving from the phones across to ordering online and that's a wonderful thing
for us and our business for many reasons.
One of the reasons, I just spoke about. which is the efficiencies in marketing to consumers online are terrific. There are just so
many ways you can get to them and frankly they produce an ROI on your marketing dollar that is very compelling.
But in addition to that, customer satisfaction is higher across the board. Not just with the ordering experience, but people who
order online, they're so happy about the experience they've had online that they also then rate us higher in terms of pizza taste,
in terms of the convenience of the transaction, of doing business with Domino's. They like the brand and the experience overall
better when they order online from us as opposed to over the phone. And as I think we've shared with you before, it enhances
our ticket. It is better and it's a more profitable transaction than the transaction we do over the phone.
First of all, because the consumer has the menu in front of them. So they are automatically reminded that we sell chicken wings
and Coke and all the other things, and chocolate lava cakes, that they could add on. And so we see a higher incidence rate of
those things and it just overall is a more profitable transaction. We don't have the labor in the store to take the order. And so
you see a little bit of a cost efficiency on it as well. So we're excited about that change. We're excited about that shifting of the
consumer base across to ordering online.
And with that, I'd like to bring Dave back up, who is going to speak to you about some of the other segments of the business.
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Dave Brandon - Domino's Pizza - Chairman, CEO
Thanks, Patrick. I want to talk a little bit about supply chain, which is a business that I've been managing specifically, but I want
to comment, this is the only operating division of the company that Patrick hasn't run, but during his tenure in leading international
for several years, we actually built supply chain centers and taught our master franchise partners how to be in this business, so
this will be an easy transition for Patrick.
What we've been doing in supply chain is managing commodities very, very carefully. Markets go up and markets go down and
that's the way it works and we're used to that. We have 50 years experience, but what we've really been trying to be diligent in
doing is maximizing the leverage that we have when we aggregate the purchasing power of these 5,000 stores to really manage
those commodities, by as cheaply and as carefully as we can and take as much volatility out of the business model, not so much
for us, because our business model absorbs that volatility pretty easily, but for the sake of our operators at the retail level.
We've done a lot of vertical integration that has afforded us some benefits and a couple that I will highlight for you is because
we used to buy an enormous amount of vegetables that were already pre-cut and pre-processed, ready to be shipped to our
store, the processors that were doing that were making a significant margin, providing that benefit.
We've gotten into the veggie processing business and found that there's a very healthy return as a result of us taking that
process and folding it into our existing facilities and some of our existing labor. And that's been a real good initiative for our
supply chain business.
Another significant capital expenditure for us is between $4.5 million, $5 million total investment, we've taken our thin crust,
which was always an outsource product that we were being provided that supply from a vendor, we've now built a plant, actually
didn't have to build a plant. We did some moving around and took one of our existing supply chain centers and converted it
into a thin crust manufacturing plant in Illinois and we've taken over the production of that product.
The pay-back on that capital investment was very short, very aggressive and it was just an easy way for us to make more money
at the supply chain center as a result of that vertical integration.
Those are two examples of the kinds of things that we have been doing and will continue to do in our supply chain business
to streamline, create efficiencies and generate more profit from that business.
We've worked really hard to improve our margins. We've done a tremendous amount of work in maximizing our transportation,
taking advantage of some of the opportunities that we had, in terms of making sure trucks were full and efficient, lowering the
number of deliveries per week.
Some of the things that we've done have really made a significant difference in the margins of this business. And because it's
a profit-sharing partnership with our franchisees, as we generate more benefit at the corporate level, our franchisees share
equally in that benefit through their profit-sharing checks. So one of the reasons, as Patrick talked about, the relationship
continuing to improve with our franchisees, one piece of that is when they get larger and larger profit sharing checks at the
end of each period and it makes them feel better about the overall returns that they're getting in their business.
We're going to continue to explore new areas of growth. We have interesting tests underway with things like some frozen
dough capabilities. We've got other opportunities that we're pursuing through this business unit. None of them are folded into
our budget forecasting plans because they're all pretty much in test phase or early start-up phase. Hopefully we'll be talking to
you about more of them later.
The one thing I want to highlight is we did a test with the folks at Dunkin' Donuts over a period of about 18 months to really
see if we could take the same supply chain efficiencies and the same levels of service and translate that to another retailer
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
besides just Domino's Pizza. In other words, could we effectively be a competitive, efficient supply chain operation to retail
outlets besides those owned and operated by Domino's Pizza.
And the answer is a resounding yes. It was a very successful test for us. We were very competitive. Our service levels were virtually
100%. We did a great job and from our standpoint, it worked very well.
Dunkin' Donuts has some internal issues in terms of who and how decisions are made relative to their supply chain. And we're
not going to go forward right now with an expansion of that or with a continuation of that. But what's more important to us,
not getting into -- involved in the Dunkin' Donuts situation, what's important to us is that we really proved that we can effectively
do that and we can certainly be open for business if we found the right partners that needed the kinds of efficiencies and service
levels we could provide.
I'll shift over and talk about international. We're now in 62 markets worldwide. We just recently opened up Singapore. We
continue to expand this business in every way that you can expand it. We anticipate that we'll be opening up more new markets
in 2010. Because things are just working so well and our master franchisees meet and talk to people and we're starting to see
a -- almost a bull rush mentality in identifying some of the markets that we haven't yet penetrated, where there are entrepreneurs
who want to take this brand and this business model and roll it out in some of the territories that we haven't previously been.
We've already had master franchisees approved in two or three different new markets that we'll be announcing later. And we've
also got some in the queue that we're negotiating with. So we believe that number of 62 markets is going to continue to grow.
So as we've told you time and time again, we've shown an ability to consistently open new units in our international markets.
We've shown an amazing ability to consistently grow same store sales in our international markets. And I think now what you
should expect from us is we're going to continue to open up new markets, which is just a third way for us to keep this growth
engine moving in a direction that's good for everybody.
Europe is performing very, very well. One of the ways that you can check that is simply by looking at our UK franchise partner
who's a public company. And you can see that their sales continue to be very robust. They continue to do a terrific job.
Our Australian partner, who became very much an international player when they moved to New Zealand and ultimately to
the Netherlands and France, has recently announced that they're acquiring the business in Belgium, which will give them more
expansion, and they're very proven operators who've done a great job everywhere they've gone. And we believe that that's a
real important development that will continue to stimulate growth in Europe.
And last but not least, we want to remind you that we did a literal overnight conversion last year in Spain, where we went from
really having no presence at all in Spain, to having -- from a Friday night close to a Monday night opening, we had a conversion
of 90 stores that became Domino's Pizza stores. That's going very well.
I was over there touring that market and touring the stores and I think that conversion was incredibly well managed. We had
people working round the clock to get that done. And now we're poised for growth in that country.
We didn't do this for the sake of getting 90 stores in Spain. We did this because we see significant upside growth in Spain. That's
certainly the point of view of our master franchise partner. So we're very excited about what the future holds for sprain.
We'll be celebrating our 4,000th international store opening in 2010. So this business continues to grow and move and be
positive, and thank god pizza is accepted and loved all over the world. And we're going to continue to leverage that in every
way we can.
I want to talk a little bit about 2010 and our view as we were sitting down thinking about how we construct a budget plan for
this year that was both challenging and achievable, and some of the assumptions that we made. And I want to point out that
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
these were all derived from third-party research. We don't attribute a lot of that in the slides that you're seeing today, but we
utilized third-party research very heavily to help us understand where some of these fundamentals are going to go.
First of all, we're assuming going into the year that oil prices will be higher in 2010 than they were in 2009. So we see up pressure
there. That's not a big issue for us at the corporate level, but it's something that we think about at the retail level. When you
drive ten million miles a week, you care about oil prices.
Furthermore, we care about it in terms of the impact that has on the consumer. And the consumers' ability to go out and
discretionary spend. And particularly that band of consumer that's very, very cost conscious right now and has more limited
discretionary spending, we watch oil prices because we think that's probably a greater impact on the business than just what
the gas prices are at the pump.
Unemployment we continue to believe is going to be a significant issue. We celebrate when it comes down one tenth of 1%,
but we still go into the year knowing that we're at double digit national unemployment.
We hope that it has peaked this year and it will start to decline. But we're clearly going to be in an environment in 2010 where
unemployment is still going to be at very, very high levels and will certainly have an impact on retail business.
Personal consumption based on the data that we've seen is going to continue to be pretty flat, a low growth a little better than
2009, but certainly not robust growth. We've still got consumers who are deleveraging and who are concerned about their jobs,
and concerned about healthcare costs, and concerned about all the things that are causing them to be more careful in what
they spend and when they spend it. And so, we don't believe that we're going to be anywhere's near a robust environment in
terms of personal consumption in 2010.
So when you bottom line some of those key factors, we continue to believe that we're operating in a pretty fragile consumer
environment. And we think that's going to continue throughout most of the year. We hope there'll be some recovery. But our
philosophy has always been to prepare for the worst and hope for the best. And that's really how we thought about 2010.
We also look at how other smart people around us plan and look at their years. And not that they have necessarily better
information than we have, but we respect their ability to look out into the future and at least come to their conclusions.
And you can see our friends at Yum Brands came through a year in 2009 where all brands resulted in a negative 4% comp. And
what they're saying about 2010 publicly is that they believe coming off of that negative 4%, the expectation should be an up
2%, not a real robust perspective in terms of how they view the calendar year.
Papa John's completed 2009 with same store sales currently indicated at a range of anywhere from down a small amount to
up a small amount. And again coming off of that base, their guidance if you will is we'll be somewhere between negative 1%
and plus 1%. So at least as it relates to those close competitors, it would appear as though they're looking at an environment
in 2010 that's anything but robust.
As we think about putting our plan together, the thing that we are probably the most proud of in 2009 coming off a horrifically
challenging 2008 was, we said from the first time that we began communicating to you about the 2009 plan, and what we've
reported on every quarter as we've talked to you about results, our focus has been to get traffic positive again; because in the
retail world if you've got more customers coming in your door, good things can happen and likely will happen. If you're constantly
managing a business that's shrinking in terms of customer count, that's a hard way to build long term success.
We have not announced our fourth quarter and won't until the first week in March. But we certainly have told you in the first
three quarters of the year, we were successful at building traffic and staying positive on traffic. And we think that leads the
league. We don't see other people out there who have effectively been able to accomplish that.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
As we think about 2010, we want to continue that trend. Our job is to continue to keep traffic growing. If in the environment
we're operating in we can grow traffic, we're doing a lot of things right.
And what we're hoping to do this year is manage some incremental traffic growth and continue that trend. What we hope to
do is manage that in an environment where we can keep ticket as flat as possible. And certainly our plan going into it is to try
to hold ticket.
And so if we can effectively accomplish that, obviously we have the opportunity and it would be our hope that we would be
able to be a positive sales producer during the year. But the assumption that's important is that we get that traffic to continue
to be positive. And that's what we're setting out to do.
Internationally we'll shift over -- our traditional, what we call long range outlook for international is same store sales growth of
between the 3% to 5% range. That's what we said right from the beginning. And we believe in today's environment that's still
very good range for us to talk about and for us to plan around.
From a store growth standpoint, we've gone through a couple of years where there's been, and you've all -- those of you who
have followed us, you've known that we put terrific pressure on our weaker operators. We've been driving a lot of transactions
that's been hampered a bit by the credit markets and the ability of our franchisees in many cases to get the financing they need
to do transactions. But we've waded through those choppy waters to the point where we believe that going into 2010 a
reasonable assumption is that on the domestic side of the business, our store growth will be net flat.
And so our plan and the way that we want to approach the years to go in and try to open up as many stores as we would close
in this environment. And we think we're poised to do that. So that's the stake we're putting in the ground.
Obviously as the business gets more robust, there's upside in that. If the economy were to take another dip and things were to
get tougher, it could be worse than that. But truthfully as we go into the year, we think this is a good place for us to think about
what we can accomplish.
Our international store growth projection is very much in line with our traditional long range outlook and that is that we will
open on a net basis between 200 and 250 stores. And if we accomplish that as we believe we can and will, in combination with
a net flat assumption on our domestic business, we'll be right there where we always want to be in terms of our annual net
store growth assumption.
Foreign exchange we believe will work in our favor this year if the currency stays where it was to start out the year that would
run out to be a $3 million positive impact in terms of our royalty income versus 2009. Again we use third-party research, and
we see how often times it's right and sometimes it's wrong.
So that's far from a guarantee, but certainly as it stands today, we think this is going to be a pick-up opportunity for us in 2010
versus 2009. The greatest impact and that is we forecasted out will be in the first two quarters.
This will give you a little bit of an indication as to how we see that fitting together in terms of the various key currencies. Obviously
we participate in other currencies, but these are the more major currencies that we deal with. And this gives you a sense of how
we really see a remarkable turnaround in 2010 in terms of the values of those various currencies as they flow into our company
via those royalty streams.
The investment G&A side of our business in 2010, when you prepare for the worst and hope for the best, you bolt down your
spending pretty carefully. And we are going to continue to do that. We don't see this as the year where we're going to go out
and appreciably grow our G&A. We've always been proud of the way that we've managed it carefully. And in the environment
that we're in, that we're describing as fragile, we think we need to be exceedingly careful.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
A couple of one timers if you will, or special initiatives that we have as part of our plan in 2010, we have an additional just over
$3 million that will hit our G&A mostly in the first half. And this is related to technology investments and some sales initiatives
that we have underway that we see significant paybacks, or are absolutely necessary to support some of the marketing initiatives
that you're going to be hearing about.
As this online business and all the related technologies and communication, promotional and marketing opportunities that
result from it evolve, this is becoming a huge part of how we manage our business. And in some cases we've just got to make
sure we invest in an infrastructure that keeps up with the volume and the growth that we're experiencing in that area.
It's going to have an incredibly important part of how we drive this business. The way that technology is now becoming a part
of the strategic evolution and growth of this business is something we could spend the rest of the day talking about. And some
of it is already out there for you to see. But some of it is in a laboratory somewhere being developed that will really have enormous
impact on the way this business works. And we're going to continue to be a leader in this area. We're going to do it responsibly
as I think we have in the past.
We're going to be in-sourcing a call center that's becoming larger and larger. And at some point if you get to a scope and scale
where the numbers work in your favor, you're far better in-sourcing, not only can you control the quality of that and use it in a
way that's very customized to you and your business purpose, but also frankly it's more efficient.
So this is one that you need to kind of have a heads up on because it's going to increase our G&A spending by just under $2
million, but there will be an offset because in essence we will be collecting revenue from our operators for providing that service
in lieu of the outsourcing that we've done prior. So this is one where there's going to be a shift where more dollars will appear
in G&A to the tune of $2 million, but there will be a compensating revenue.
So from a profitability impact, there won't be any difference. We'll just have better service, more customized service. And frankly,
more confidence that we've built the infrastructure we need to support the business.
Commodities, we listen to what people say in terms of what our expectations should be and the assumptions that we've made
is that we'll see an uptick in cheese prices this year. We are hopeful that we're wrong. It certainly hasn't happened yet. In fact
we've seen some down pressure on cheese prices.
But at the end of the day, we believe that cheese prices will be higher in 2010 by a bit than they were in 2009. Thankfully no
where's near the kinds of levels that we saw in 2008. But as you know, this is a commodity that goes up and it goes down, and
it has for 50 years. And we deal with it the way we always deal with it both at the retail level and at the corporate level. And
whether cheese prices are $1.70 or $0.15 more than that or $0.15 less than that is really not a big deal as it relates how we
operate this business.
Pork prices and meat prices we see as being pretty flat. We don't see any big volatility there. Pulp prices, we're a huge purchaser.
Everything we sell goes into a corrugated box. Pulp prices we believe are going to work in our favor a bit this year so maybe
we can get some benefit from that.
Wheat prices will probably go up based on what we've been told. And so we've planned that accordingly in our budget
assumption. Chicken prices, which is a huge segment for us not only with our wing and boneless products, but also its toppings
that we use on some of our pizzas. We see that as being a very flat and reasonable market for us during the year.
And again, oil prices going up, we watched that one a little bit more carefully. Not so much in terms of its impact on our business
model, as much as it's the impact on the psyche of the consumer. So that's one that we'll continue to watch throughout the
year.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Shifting to our balance sheet, we've spoken a lot and we're not going to spend a lot of time on that today other than to say that
we're very, very comfortable with where we are right now. We're generating a significant amount of cash. We've been very
successful at buying back debt at a discount.
And the models work in the way the model has always worked. And the last refinancing we did has gone equally as well, or
even better than the previous two refinancings that we did under my leadership. And we're very, very comfortable with the
situation that we're in.
We believe that buying back debt continues to be the most responsible way to deploy the free cash flow. And that's obviously
been evidenced by our behavior over the last year. As we look at it, not too many companies right now are doing share
repurchases or increasing dividends, deleveraging and dressing up balance sheets, and strengthening balance sheets seems
to be the order of the day.
We actually went out and looked and what are people doing out there. And we were still doing some share repurchases going
back to the fourth quarter of 2008. And you can see we did a relatively small amount of our cash flow over that period of a year
that we're showing you here. And that's pretty much what the rest of the world was doing.
At the same time, if you look at our debt repurchases, you can see that 86% of our free cash flow has gone towards debt
repurchases. And that's pretty typical with what other people are doing in our sector.
And so we think we're pretty main stream in the way we're thinking about this and our plan going forward would be to continue
to take the free cash and opportunistically go out there and repurchase this debt. And so there's an open invitation out there
for anybody who's a holder of our debt if they're interested in selling any of it, we're interested in talking to them.
A lot of the people ask us, when do we pull the ripcord on moving away from the current capital structure with this full business
securitization we did in 2007 and move into more of a conventional capital structure? And my answer is, whenever we think
the time is right.
We could actually do that tomorrow I believe based on the way the business is performing and the markets are more open. But
why in the world would we want to walk away from a 6% fixed debt capital structure? We have plenty of room to make that
decision in terms of timelines. And we'll continue to watch the market, and we'll be opportunistic.
And we will at some stage between now and likely the year 2014 when this particular piece of financing ends, sometime between
now and then when we feel it's best, in the best interest of our shareholders and we feel that the markets are right, we will likely
look at going out and doing a more conventional financing. But we sure aren't in any hurry to rid ourselves of the fixed 6% debt
where in fact we're meeting our obligations easily as it relates to that particular financing.
So we're going to keep it as long as it makes sense. And we're always the assessing the market, and when we have more to say
about that, we will. But in the meantime I think your plan and expectation should be we're going to take free cash. We're going
to continue to opportunistically buy back the debt. We're going to continue to take advantage of the 6% fixed financing that
we have in place and we'll continue to watch the market.
The investment thesis behind Domino's is the same today as it has always been. It's an incredibly productive cash flow producer.
We believe that that will continue to be the case.
We think we are incredibly well positioned as the economy improves, whenever you think that might happen, to take even
more advantage of that than we were able to in the past, because now we're a player at the lunch day part. We're a player in
different segments besides just pizza. We've got a lot of momentum with a new and improved product that's being embraced,
and the buzz around that is pretty spectacular.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
And we're well-positioned in terms of having cleaned up our franchise system. And have a much stronger franchise system to
go to war with and take advantage of market opportunities. I think from an investment perspective, we're just as well-positioned
as we could possibly be.
And with that, I'm going to turn things over to Patrick who's going to intro now a whole segment where we're going to talk a
lot about marketing and specifically this new initiative that you're hearing about. So I'll pass the baton over to Patrick. Thank
you.
Patrick Doyle - Domino's Pizza - President - Domino's USA
Thanks, Dave. As Dave said, I'm now going to shift over and talk about what has been getting an awful lot of news and buzz
recently which is our new and improved, our new and inspired pizza that we have rolled out. We are incredibly excited to do
this. And we think there's a real opportunity for us.
And the thinking behind this is really pretty straight forward. If you think about Domino's and where we have stood with
consumers, we have always been beloved for our service. We've always been given terrific credit for our fast delivery of pizza
and known for value. And it's been a great way to build this business. And both of those are always going to continue to be
very, very important and key to us.
We are the pizza delivery experts and we'll continue to be. And at the end of the day, it's given us a great positioning with
consumers. We get high marks overall. And tie this back to the ACSI study, this is the Brand Keys public study that came out,
Customer Loyalty Engagement Index. Overall, we were number one in the pizza category.
What's amazing is we were number one despite the fact that we were at the bottom in terms of being credit for taste. And we
know that with consumers in this category, taste is still absolutely the most important attribute for consumers when they're
buying pizza. We are in the food business.
And really this started about two years ago. When we rolled out You Got 30, we were going back to our delivery roots. We were
talking to people about the service and the convenience that we give them. And we will always continue to reinforce that. We
don't want to give that up with consumers. But frankly, we went out, we talked to them about You Got 30. And the consumers
said, you know what, that's great. We give you credit for that, but there's no news in that.
And so we stepped back two years ago and said, you know what, we need to do something dramatic to improve this business.
And we spent almost two years now working on new product, new product platforms, and now ultimately our core pizza.
The result of that work is lasting new product platforms. Platforms that we are very, very excited about, started with our Oven
Baked Sandwiches. And what you will see as I talk through all of these, in very single case, we made the food as good as we
possibly could.
And the recurring theme in this and you're going to continue to see it, Oven Baked Sandwiches. So we go out and we say, you
know what, we're going to launch a line of sandwiches. We think it's important. It's an opportunity to deal with the veto vote
from some people, larger families, something doesn't want pizza. They can grab a great sandwich. This needs to be a great
sandwich.
We also like the idea of people wandering over and grabbing lunch out of the Domino's. And so when we did, we go out and
we win a taste test. And important that we're driving this taste message that you know what, Domino's can not only deliver
fast, but they can give you terrific taste.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Next up American Legends, so we launch a premium pizza line. And we continue to be very happy with this. I believe these are
absolutely the highest quality, best tasting pizzas on the market. And we've continued to show an ability to sell pizzas for $12.99
at a national level. We love this line. We love the opportunity that it gives us to sell to people who are willing to pay a little bit
more if it's a little more premium and has a terrific taste profile.
Breadbowl Pasta, unique, another new introduction, another new platform; we come out with Lava Cakes. And I think absolutely
the best dessert out there. Nice add on for people that are looking for something sweet and a little bit more dietetic at the end
of the pizza meal. We just think it's a terrific, terrific product. And again, through all of these you see great food.
But the last piece, and the part that took the longest on purpose, was to change our core pizza. And while a lot of these we
move very, very quickly on to get this new sandwich line out, and all the rest. We knew that making a change with our core
pizza was incredibly important. We needed to get it right. We took our time to make sure that we had it right.
And with that, I would like to invite up our Chief Marketing Officer, Russell Weiner, who will talk with you about the process of
that introduction.
Russell Weiner - Domino's Pizza - Chief Marketing Officer
Hello, I'm very happy to be here today to talk to you about the story of our new and inspired pizza. You know when Lynn told
me we'd be coming down and I'd be talking about our new pizza in front of the investment community down in Wall Street, I
figured okay, I need a bunch of charts and numbers and graphs and stuff to show you how great this new product was.
But you know, I'm the marketing guy, so when I look out in this audience and when I hear all the people who are calling in for
this call, I don't really see you all as potential investors, I see you as potential consumers. So what I thought would be interesting
is to unveil to you the story of Domino's new and inspired pizza in the way it has been to all of America.
So you can put down your pens and calculators and all the finance stuff that you normally bring to a meeting like this, and
pretend that you're in front of your computer at home on December 28th of last year. And you're going to YouTube like hundreds
of thousands of Americans do every day. And if you did, what you'd see is a takeover of the homepage.
And you're wondering what this is? There's a little small brand logo there but in first view you see this and it says, okay, well
maybe there's a new movie out there. I'm not sure what it is, but heck it's on the homepage of YouTube. I might as well click
and see what it's all about. And if you did, here's what you would have seen.
(VIDEO PLAYING)
Russell Weiner - Domino's Pizza - Chief Marketing Officer
(technical difficulty) -- one of those logos, so I realize, my god, this is a brand saying some pretty serious things about themselves.
What's going on? I'm really interested to see more. I see go to www.Pizzaturnaround.com, so I immediately do that, and I come
to this website.
And I see, okay, well that was a trailer for what is a longer documentary. I've got to see what this is all about. Quickly hit the play
button and see the following documentary.
(VIDEO PLAYING)
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Russell Weiner - Domino's Pizza - Chief Marketing Officer
We actually hired Academy Award Nominee, nominated director, Henry Alex Rubin to actually to film that. But it is important
it was a real story, it was a story America is a part of and as we reveal that story to them we wanted to make sure it done in the
most kind of honest way possible. By the way, the reason we bleeped out the secret piece in the sauce is it would've been a
forward-looking statement so you know if you saw the thing in the beginning.
All right, when the video's over, because the story you just saw was a pretty transparent one and obviously a company wouldn't
a take that story under if we weren't very confident about our pizza. You'll see later the advertising we put out and we have a
guarantee because we're so confident in the product. But to me, more than a guarantee is what we did here.
As you can see we have a live Twitter feed on our home page. So anyone who says anything, sends any kind of dirty words, gets
posted here whether it's good or bad. And in today's world when we sat around and talked about what this campaign should
be I Googled the word new and improved. And if you Google the word new and improved, you get about 160 million hits.
And so just saying something is new and improved probably was not the way to get the message out here. We were very
confident about that, the taste of our product, and that's how we market it. You can see that's how we marketed it. Certainly
we wouldn't say this -- be dishonest if we had ever planned to go back to the old pizza. And certainly if we weren't completely
confident with what consumers were going say about this pizza would we have a live Twitter feed with up to the minute
comments?
So your day as a consumer is over, we're back here and let's talk about the new pizza. People ask me all the time, "So what's
changed with the pizza" and the easier thing to explain is what's actually stayed the same. So the pizza's still round all right?
That's about it.
We looked at everything. We looked at the crust and the sauce and the cheese, every single component that makes up this
pizza. And we did so, as Patrick said, over two years and I've been in marketing 15, 20 years. I challenge anyone to have done
more testing -- I certainly haven't in my life -- than we've done here. And I'm going take you through that process a little bit.
We started off looking at the three basic components right? The dough, and the sauce and the cheese and as you heard from
Meredith in our video there were scores of doughs and sauce and cheeses that we looked at. So we kind of narrowed it down
from that to probably the top three to five testing it both with our heavy users and obviously the total US population.
What we then also realized through was, hey, we've got this great new cheese and sauce potentially now to put on this dough.
But the majority of the dough is covered. The thing on the outside, the crust is really the key component that consumers are
going judge, did they make a difference in this new pizza. And so our challenge to folks down in the kitchen was we want to
make a pizza with the crust so good that people end up eating it backwards. And I think when you try the stuff later you will
absolutely feel that way.
So we've got a better dough, a better sauce, a better cheese, a better crust, probably three to five of each, right? Three to five
cheeses, three to five sauces and all that and we go into something called an experimental design. People ask me what an
experimental design is.
It gets rid of the danger factor. Meaning, have you ever seen kind of -- this happens a lot in maybe the celebrity world -- two
really good looking people can have an ugly baby. We don't want any ugly babies. We've got a really couple good looking
doughs and sauces and cheeses but we want to make sure when we bring them together even thought they test well -- no
offence on the baby sorry -- when that even though they test well separately, that when you bring them together they continue
ah scoring well.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
So you go into something where you have dough one with sauce three and cheese two and crust five, another style that may
have dough two and sauce one. You kind of get my drift. So it's not just about getting the ultimate sauce. It's about to get the
ultimate combination of these four really, really, really important ingredients.
Not only though with the broader population but there's no way we would do this unless we also could improve the score with
our heavy users. It wasn't about our heavy users liking it the same or liking it a bit more. They had to like it a lot more and you'll
see some scores later for the general populations which blew me away. I think they'll do the same our heavy users like this
product even more than that.
When you try it later it definitely is a more bold, adult taste and we wanted to make sure that kids like our pizza just as much as
they always have to make sure parents keep ordering it. And again, our new one was much more preferred over the old one.
And lastly we tested something called satiation. Satiation, if you have a bold product, you want to make sure that it's not a one
and done. "Oh great slice but you know what? I've had enough. It's kind of, my taste buds are satiated."
And so we looked at slice one and slice two and for some of us maybe even a slice three and the comparison versus the old
pizza and again with each successive one, the new pizza did better. So we're talking the best sauce, cheese, dough combination
possible that tested better with our current heavy users, the general population, kids, didn't satiate people, we had our winning
product. And when you look at those three components I talked about earlier, each of those components increased double
digits in purchasing intent versus the prior sauce, crust and cheese.
But the thing that blows you away is when you bring them all together and you look at the baby, the pizza itself, our new pizza
on purchase intent is the top two box purchase intent, people who said they'd definitely or probably would buy the pizza, the
new pizza preferred 25 percentage points more than the old pizza. I mean this is night and day. This is not something I have to
go in to Dave and Patrick and say, I promise you the numbers look close but the statistics are right. This is 25 points.
So how are we going market the new and inspired pizza? I already showed you how we launched it on the 28th; social media
has been extraordinarily important for us. Our agency Crispin Porter Bogusky has been so great at creating what we call the, or
they call the Third Media Plan, which is a way to create an idea that is so big that it goes beyond the media that you actually
buy and the fact that Mr. O'Brien commented on my boss last night was pretty cool and evidence of that.
But in addition to that, you've got a new box in front of you and for those of you online I'd ask you to read it. This is a pretty
different Domino's Pizza box. It's not a box that talks about how fast something is going to get there. It's not a big logo. It talks
about our story and it romances our product.
When we gave the brief to the team we talked about how you know when you go to see a play and the curtains kind of close
in the beginning and everyone is in anticipation because when the curtain opens there's going to be something magical behind
that curtain and that's what this pizza box for us was.
It was the curtain so that when you open it up it would be a pretty amazing reveal. So it not only celebrates our product, it
celebrates the fact that we've been around for 50 years. Continuing from a marketing perspective, this is a very different kind
of print ad than you've seen from Domino's before.
It's not being about -- it's not about being the FedEx of pizza and showing how quick we can make things. It's about actually
bringing people into our kitchen. That was a theme that you saw in the advertising as well is we're in the kitchen so you can
see the gray tones are -- I'm talking color tones on Wall Street. This is kind of funny but the tones are the tones from our kitchen
because we want to remind people that every pizza, and it says that on your box, is hand made to order.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
We also came out with a great price point, two for $5.99, two tops for $5.99, which is great at getting trial while still keeping
ticket in the place we need it to be and you can see the sauce is boss, upper crust, things like that. We really are romancing the
food. We've brought consumers into our kitchen. (technical difficulty). That you've hopefully seen on television.
(VIDEO PLAYING)
Russell Weiner - Domino's Pizza - Chief Marketing Officer
(technical difficulty) -- money back guarantee I was talking about how no one says that if they aren't confident in their product,
no one puts twitter feed if they are not confident on their product and no one puts -- I know a lot of you are probably saying
oh, my God, those comments in this ad.
No on puts comments about their old pizza in an ad unless they're confident about their product. I'm giving you some minor
forward-looking information in that next week we're going to be launching a second round of advertising.
And all the negative quotes that you saw in those spots and some of which you didn't see, we went live to the homes of the
people who said those things about us. Unbeknownst to them we kind of knocked on their door, surprised them with our new
pizza. They said, "Oh, no, I didn't say that about you," but we had the tape and said, "Oh, no, no, you did say this about us. Why
don't you try our new pizza?" And embarrassed as they were each and every one of them tried it.
You have to tune in next week to see the results but I promise you all of the videos, not one of them we will hide. They all will
be shown online and you can infer from what you want on that and what you think people thought of our new pizza. So the
story is going to continue and I think it's important folks know that we knew this from the outset how the story would graduate.
But don't take it from me. I'm a marketing guy, we lie. Try it for yourself. We have a taste test setup and for those of you at home
I apologize. We're going to do a tasting and then we're going to do lunch and we're going to come back for some Q&A, so
hopefully you can join us again online.
Here's how the tasting works. We got the crackers. We've got everything here. So we're not telling you what's what, side A over
there, side B on the other side of the room. We'd like you to start with product A. Try it. Try the front and try the back. It's important
that you try both because you want to eat the crust.
27 right now, do we know when we're getting back again? I guess we'll -- okay, well, we'll make an announcement for those of
you calling in.
Unidentified Company Representative
(inaudible - microphone inaccessible)
Unidentified Company Representative
And for those of you calling in Domino's is open for lunch.
(BREAK)
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
PRESENTATION
Dave Brandon - Domino's Pizza - Chairman, CEO
Okay, while everybody is enjoying their lunch, Jimmy follow-up on the taste test here.
Unidentified Company Representative
Usually you had the questions come this way, but I figured the Q&A we should start the other way.
So we're going to do a little voting now. It's unofficial and you can't trade based on the results of what you see here right now.
Who liked pizza A better? Show of hands, oh, that's the new one. Pizza B? All right, good choice, good choice, great.
Dave Brandon - Domino's Pizza - Chairman, CEO
Thanks for participated in our taste test. You know, one of the driving principals around this was that we needed and wanted
it to be a step change and one of the reasons it took so long and Russell covered this well in terms of the complexity of getting
us where we are today is that there were a couple of times we came up with what we thought was a solution, but we didn't
want people to kind of stare in the sky and try to imagine whether there is a difference between the old and the new.
We wanted something that was a measurable dynamic change and the results that we got from our taste test here is exactly
what we got from our consumers and exactly what we saw on our test markets and so we are very, very pleased.
We've been joined by Wendy Beck are Chief Financial Officer and the whole purpose of our session now is to open it up and
have you ask questions of anything you'd like to hear us talk more about.
So who wants to ask the first question? We've got a microphone here for the benefit of our folks who are listening in over the
web. We'll go here first.
QUESTIONS AND ANSWERS
Unidentified Audience Member
Great, thank you. Sir I wanted to talk a little about the pizza category and the challenges around the dinner day part. I think
you've had a lot of innovation, the oven baked sandwiches at lunch, can you give us a sense of what things are like today as far
as untraditional, strong days like the Wednesday before Thanksgiving or Monday Night Football and if there is a big difference
in States with high rates of unemployment versus those that are lower on a relative basis.
Generally speaking if you're only seeing strength on the back of promotions like the $5.00 carry-out when you launched the
legends, so basically just thoughts of a dinner day part.
Dave Brandon - Domino's Pizza - Chairman, CEO
That's sounds like a semester long course there. We're going to be very careful because you'll hear about the fourth quarter in
the first week of March and you'll hear about the first quarter obviously later in the year.
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
We're not going to change our position as it relates to how and when we release our sales data. I will tell you and then I'm going
to pass the ball up here, but as it relates to correlation to real estate markets I think we've said repeatedly on our calls that there
clearly is a correlation both with troubled real estate markets.
We've called out and specifically talked about Phoenix, Las Vegas, Southern Florida these areas that have been hit the hardest
by deflation in real estate. That clearly had an impact on the economies in those regions and we felt it more severely in terms
of pressure on traffic.
We've tried to react to that and we've done some things promotionally in those areas to try to respond to that. We also believe
that unemployment is a great indicator, so when the unemployment got to be 25% in Detroit, the world got a lot tougher for
everybody at retail and particularly those at the dinner date part, which requires the highest investment.
We follow and we look at those correlations, but the great benefit of being in all 50 states and participating in virtually all the
major markets of the country is that we're well diversified in terms of those issues and overall, when you look at the economy
we're well deployed, we're feeling good and we're feeling energy.
It certainly wasn't there a year ago and as it relates to our sales the day before Thanksgiving and those kinds of things, that's a
tricky way of trying to get us talk about what's been happening more currently that we haven't reported and so you'll hear more
about that later.
Unidentified Audience Member
With respect to, if you go back a year and you think about the oven baked sandwiches and the lava cakes that you were going
to roll out in 2009 and how impactful you thought that would be versus, let's take it back to before you launched the pizza
turnaround and how impactful you think that will be.
Which one would you say do you think has the biggest impact and the greatest sales lift? Not looking at your current sales guide
now but kind of going back in thinking about forward looking.
Dave Brandon - Domino's Pizza - Chairman, CEO
When you go after you're core product, you're going after you core customer and you've heard us talk about how proud we
are of what sandwiches have done for our traffic and our quality lift and our day part. We're really proud of the whole menu
and we can talk exhaustively about it and probably have.
When you go after your core customer and you do something positive with your core product you're expectation would be,
you're going to get the biggest benefit. More to come later, but just be aware of the fact that we felt, day one, this was a big
idea as long as we could effectively execute it.
Unidentified Audience Member
Just looking at taste test back when you looked at the oven baked sandwiches versus your pizza now, where did you have the
more dramatic impact in terms of just the taste test that you talked about earlier.
Dave Brandon - Domino's Pizza - Chairman, CEO
I'll let Russell handle that one.
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Russell Weiner - Domino's Pizza - Chief Marketing Officer
I don't know I'm going to publish the taste test we just saw here. Well, here you know our point of comparison is our old pizza
and obviously sandwiches was a new foray for us, but we have internal benchmarks based on historical data that we would not
launch a product unless they meet those hurdles and in each case we have exceeded that. I don't know if that answers your
question, but.
Unidentified Company Representative
And in general people like pizza better than sandwiches. In terms of just kind of absolute scoring and you know, there is a reason
that pizza category is big, I like pizza.
Unidentified Audience Member
Thank you, couple of questions on the shift in the advertising contributions. You say no collect regional contribution now
required in franchise --
Unidentified Company Representative
Voluntary, so if the local market decides they want to do something they can do something locally, but there is no requirement.
Unidentified Audience Member
Okay, and is there a third layer of really local marketing at franchises that you typically --
Unidentified Company Representative
Store level prints and coupons and all of that.
Unidentified Audience Member
And presumably they'll continue to do that.
Unidentified Company Representative
Yes. That's all voluntary, but yes they've always done that.
Unidentified Audience Member
Okay and then just a question on check, year 2010 you sound like you're hoping check can be relatively flat. The consumer
discounting environment in general has gotten worse and pizza seems pretty aggressive to me. I mean this is just by observation
in the past month or so, can you talk a little bit about check and your ability to keep check flat in 2010. What gives you the
confidence you can do that?
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Unidentified Company Representative
Well, first of all I think when you look at how we approach check the design of these offers is to shout value, but try to pump
up the check. When you look at our current offer it's $5.99 each and we're really out there trying to build that check and the
fact that we have lava cakes and so many other things that we can sell, sandwiches, up-selling is as important today as it's ever
been and thank God for the Internet because that easy, visible menu that really displays for the consumer as they're making
purchasing choices about all there is to choose from, has been a big benefit.
We more normalised our take-out, or I should say we've brought our take it down obviously as we got into the sandwich category
and pasta and some of these lower ticket items. When you look at what we're doing with our pizza right now, we'll be aggressively
promoting at the same time, we really believe that with legends and without more cycling on more normalised menu variety
with sandwiches and things that have already been out there that that flat ticket expectation is something that we think we
can achieve.
Unidentified Company Representative
The only thing I would add to it is when we look at over the course of the year, what percentage of the orders for our system
come in on the national deal during the time of the national deal. You're still looking at something in the range of 10% of the
business. Our owner/operators our franchisees still are choosing the price points in their business with coupons that they
distribute and with the menu price that they set.
That still, while 80% or 85% of this category is traditionally been done on deal, it's usually not on national deal, its other coupons
that are out there. Other promotions that are running and that winds up being a far more important measure of price and then
simply what the national price points are being picked by us and our competitors.
Unidentified Audience Member
Just going back to advertising, spending a little bit, you're going to 5.5% from 6%. What gives you the confidence that you
won't lose any sales given that overall spend is down.
Unidentified Company Representative
Well, the overall spend is down, but the mix of where it's being spent is different and so where Patrick said we were at four
national and two kind of at the co-op level, when you roll that up you get a lot of media efficiencies. It's just frankly cheaper to
buy the whole country than to buy 50 individual states and so we looked at that efficiency and that's why we were able to give
back some to the franchisees so it became a win-win situation.
Unidentified Audience Member
So you've got it today to flat ticket and traffic up, which necessarily translates to positive same source sale comps and could
you help us and put in a little more -- a little finer point on that noting that some of the competitors that you have, have put a
finder point on it.
Unidentified Company Representative
We don't put a finer point on it simply because I think the track record in this category, particularly in the economic environment
were in is people go out there and they say I know what's going to happen in third and fourth quarter of 2010, I guess they're
just smarter than us.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
As we go back and as we look at their track record in predicting quarters ahead, what's going to happen particularly in this
environment, we just give a lot of credibility. What I shared with you is our plot process putting our plan together for this year
was if we can keep traffic moving at all positive, and we're not talking about leaps we're talking about at all positive.
If we can balance that by holding our ticket we believe that would be a terrific year for Domino's and keep in mind we put this
plan together in the Fall, so you know, to the extend the economy feels a little better now, to the extend we have more visibility
about what's going on with some of my more recent activity. That's all well and good, but those are the assumptions we went
into the planning process with.
Unidentified Audience Member
This is partly from a personal level, but also just in general, you've noted, I think Patrick you noted that the sandwich item has
actually opened up your pizza audience as well for those folks who didn't want pizza necessarily. When are you going to put
out this salad and that nationwide? I'm I correct that it's in a few markets already.
Patrick Doyle - Domino's Pizza - President - Domino's USA
First of all, the day that we would ever announce when we're going to roll something out nationally is the day we all deserve
to be drug tested okay, because competitors can react very quickly to those kinds of things so we would never tell you that,
even if there was a plan. We've, as you know, we have salads in a lot of our stores and we believe that there is opportunity there.
It seems to be far more regionalized and store specific than we once thought it would be.
Some of our stores have a very robust line and varieties of salads that they provide because they have that kind of call for them
and other stores were throwing away more salads than they were selling and so we really look at that a little bit more market
to market and regionally in the way we that we manage that. At least for the time being, who knows what the future will hold.
Unidentified Audience Member
Great, it was just interested in hearing a little bit more about the supply chain test. Maybe some top down look at where the
white space is out there in supply chain. What you learn from it and any color I guess you could give.
Unidentified Company Representative
We have 5,000 outlets out there that are scattered all over the place and a lot of kind of C&D county areas and they're not real
efficient places to get too, particularly for smaller retailers who don't have as many units as we do so you're shipping a lot of
half full trucks into areas that are very expensive to deliver too.
In some cases they're doing crazy stuff like literally, UPS is making food deliveries because it's the most efficient way to get food
to those stores. We've identified that there's an opportunity and it was really the one that we explored with Dunkin' Donuts as
part of that task.
For our selfish purposes we wanted to see how easy or hard would it be for us to put more SKUs in our distribution centers to
add a layer of complexity on that says we're going to start services somebody else besides our own stores.
Can we do it both efficiently and can we do it effectively and we passed our side of that test with flying colors which means to
a degree we're open for business in a set of circumstances in a non-competitive category were there's retailers out there who
could utilize those services and allow us the ability to take some of our capacity and some of what we know, leverage it and
create some new revenue streams.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
So it relates specifically to Dunkin' Donuts, they had a whole other set of issues in terms of who owns and who operates and
who makes decisions on their supply chain partners and that's more their internal issue that they should talk about, but there
was not deal breaker as it relates to what we did or how we did it.
Selfishly we learned what we need to know so we're out there having conversations with appropriate potential partners to see
what might work. The way I like to manage these things that are kind of in the test pipeline is we don't put a number in our
plan we don't want you to think about those things until we tell you, you should think about them.
We'll then size them for you and give you a sense of what we're up too. Right now they are still very much on the test mode,
but there's up-side potential there.
Unidentified Audience Member
Thanks. A couple of questions on International, I guess one just related to comps. It seems like you're not alone in seeing comps
decelerate over the past year or so as perhaps US weakness spreads oversees and it kind of maintain the 3% to 5% comp target
for fiscal '10.
I'm just wondering whether you can give some color in terms of whether there are stronger or weaker markets or what gives
you that comfort in that you're not seeing further deceleration, not necessarily around the fourth quarter, but just in general it
seems like weakness is spreading and that might seem aggressive.
Secondly, just on units. It seems like International is now going to carry the full 200 to 250 in terms of new units. Just wondering
how that in a couple of markets that are doing fairly well, just wondering whether that particular markets that are struggling a
little more or whether there are franchisee groups that perhaps are pulling back on growth or whether everyone just seems to
be pushing the button on growth as fast as they can?
Unidentified Company Representative
I think the best response is to tell you that the three to five range is the same one that we offered at the time of the IPO in 2004.
We haven't varied off of that and we haven't missed.
The only advantage we have right now is visibility in the fourth quarter that you don't have the added, but we continue to
believe that that three to five range is very appropriate and very achievable.
We do see patterns of tougher market circumstances in some countries but truthfully when you're in over 60 countries and
then they are in various stages of development in terms of the product life cycle, when we put all that together we can withstand
a few markets going through a tougher economic cycle because we still have markets and I pointed to the UK as a great example
where the economic circumstance in the UK is not all that robust, but that business is screaming.
That's not atypical for us. We can perform very well in some of those markets that are largely thought of as markets that are
going through down cycles in terms of the economy. The three to five is something that we believe we can budget plan for
and set our sights on and it's one of the numbers that we've shared with you all along.
In terms of store openings the 200 to 250 is the range that we've said every year ever since we started talking about this and as
you saw today we've constructed a plan that gets us there this year. I do think the access to capital and a little bit of the fear
factor that's out there in terms of the overall economy does affect that area of our business probably more than any other.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Let's face it, if an entrepreneur is in a position where they are trying to decide whether to build those next five stores or maybe
wait a little longer to get a little bit more visibility as to how stable the economy is and the business in general, they're going
to in this environment hold off and delay that decision a little bit.
In a world where the economy is booming and there's less fear factor out there we would see more growth in our International
business in terms of net new stores. Not a lot, but some.
We're in a steady as she goes mode and I don't know how much better the business would be if the economics cycle is stronger
in a lot of these global markets, but we feel very comfortable at even in today's environment we can continue to chug along at
the rate and pace that we've always said we could.
Unidentified Audience Member
If I could just add one thing, I know that this focus has been primarily on new products and what not, but product equity in
terms of the broader company, it gets talked about periodically and you're private equity owners are on the Board so obviously
you get pretty regular contact with them.
It seems like this investment is lasting a lot longer for them than any other one in their initial investment. I'm just wondering,
obviously you talk to on a regular basis what's the full out process in terms the goals? Is it ultimately to reduce the position or
potentially increase the position or is it just steady as it goes and they'll just own it for another 10 years, any kind of color on
that.
Dave Brandon - Domino's Pizza - Chairman, CEO
You know what's really funny about that is that I am very close to them. They've now been fundamentally business partners of
mine for 11 years and they hired me and we've worked together closely and it's kind of fun to bring up those topics and hear
them argue among themselves. There in not a specific plan or strategy around when the sell stock, when they distribute stock,
if they buy stock.
That's not something that there's an overriding, driving strategy around, I think they react. They know the business as well as
anybody in the world knows the business, they have two board seats. This is now an 11-year-old fund. I believe we are the only
investment left in that fund.
My recollection is we are in fund six and they are out there actively investing fund 10, but two of them sit on our Board and are
active participants. They love the business we love them they've been terrific partners.
If and when they do sell their stock we're going to miss them because it's been that strong and that positive of a partnership.
Obviously at some point they will because private equity companies don't typically take 20-year positions in publicly traded
companies. I don't think they are in any hurry because they have great visibility as to what the upside of the business looks like.
That's all I know and I think that's all anybody knows.
Unidentified Audience Member
Can you talk about the taste guarantee, what behavior you expect from people. What you may have budgeted for and financially
how you might account for that.
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Unidentified Company Representative
Sure, if you read the guarantee on there it says if you're not happy we'll make it right or refund you're money and that's the
guarantee.
Just as truthful and open as we were with the process we went through now we're the same with the guarantee. The guarantees
are handled on a store by store basis and all I can tell you is if we were giving out a lot of them I would hear about them and I
haven't, but the guarantee is plain and true just like it's printed on the box.
Unidentified Company Representative
What I would like to add is you should never forget the fact that as important as marketing is and as proud as we are on what's
going on right now with our marketing, these are still businesses that are being driven by operations.
These are people who have to get up every day, they have to make these products properly, they have to deliver them with
great service and one of the real spin off benefits of this whole campaign and this whole initiative is that it's really a call to action
for our operators.
We went to them and said we're going to print on the box that if you screw up or if that customer is not happy you've got to
give back that money to them. Not just the profit you made on, you're going to give back a total refund and we had to get their
support for that.
The fact that they said put it on there is a huge benefit to this system and this brand because it's a level of commitment that
these entrepreneurs make to running their business at a level that minimizes any risk associated with that guarantee.
When we go out and tell the world that we're going to be a better pizza, a better tasting pizza, that's not only a big marketing
idea, that's a huge call to action for our operators and the pride that they have in their product at the store level, which is huge.
I've been touring a lot of stores, when I'm doing the goodbye tour and I've been touring a lot of stores and it's amazing to me
the pride that I'm seeing. Our franchisees and our general managers who see these ads, they're not going oh God, cardboard
I've been working over 20 years, who said that?
What they are saying is, isn't it cool that we have made our product better and that we're out there shouting from the rooftops
that we're a better taste experience for our customers, that's huge. It's huge for our operators and that's what drives the energy
in this business.
Unidentified Company Representative
One thing on to that which is when we rolled this out, we started by bringing about 100 trainers into Ann Arbor and spent three
days training those 100 people on how to perfectly make this new pizza and how to train people to make a perfect pizza.
We then sent them out into the field and held 600 training sessions around the country so, call it eight stores at a time on
average would come into one store, one or two people from each of those stores and spent four or five hours until all of those
people could make this pizza perfectly and then made them responsible for going straight back to their stores and retraining
every pizza maker in every store the same, on how to make this new pizza perfectly.
The total investment in man hours of doing that was over 200,000 man hours in retraining the entire system on how to make
this new and inspired pizza. It was over 25 years of man hours over a two week period to retrain the entire system on how to
make the pizza.
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Unidentified Audience Member
Yes, circling back to the national marketing at 5.5%. First off, do you think the franchisees might, do you think they're going to
pocket that extra 50 bits or will they do their own thing and keep up the local marketing. I know over the years when companies
go more to national then a year or two later their like well maybe we should swing back to local because you've got to focus
on the local markets.
What's your thought on that and then secondly that 50% basis points of savings, how would that flow through your PNL in
terms of corporate stores. Would that be a benefit to the US companies store line or the G&A line.
Dave Brandon - Domino's Pizza - Chairman, CEO
I'll talk about the whole concept of the mentality of the typical franchisee is as follows. They are going to make marketing and
cost management decisions based on what makes them the most money. The beautiful thing about the franchise model is
does that all fall to the margin line if they're really happy with the way top line sales are growing, sure. They'll happily take it in
margin and hopefully they'll squirrel it away for a rainy day because there will be other times when if they're not as happy with
what's going on at the top line there going to want to make incremental marketing investments to drive their business.
The great thing about this model is there is kind of a self correcting aspect to how they spend their advertising dollars. It's very
driven with how they are feeling about how things are going today and we know that they'll reach into their pockets because
if they need to get their traffic and order counts up to make more money that's what they are going to do.
As it relates to the corporate stores I'll let Wendy because she's been very quiet, I'll let Wendy answer that question.
Wendy Beck - Domino's Pizza - EVP, CFO
On the corporate stores I do not see a departure there. We are a believer in our firm and local store marketing and the goal
would not be to necessarily try and pocket that. We want to continue -- there's a lot of print and advertising that goes on at the
local level so I don't see a departure there.
Unidentified Company Representative
And I would just let on that we've been saying all along that some of our beach heads in terms of corporate store presidents
are in markets like Las Vegas and markets like Phoenix and markets in Southern Florida.
Those are markets where right now investing some incremental dollars in marketing is a real smart thing to do because it really
helps drive some of the traffic that we need to drive in some pretty tough areas.
Unidentified Audience Member
Hi, you mentioned during the presentation your confidence in the ability to refinance the debt. Is there a certain leverage ratio,
if that's the right metric that you think you need to achieve to be able to refinance the debt and what factors might cause issues
for the refinancing.
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Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Unidentified Company Representative
No there's not a magical leverage ratio because we've seen all kinds of leverage ratios over my 11-year journey and more of it
depends on the interest rate and interest coverage.
As I said at the outset, the capital structure that was in place when I came on board 11 years ago was by far and away the most
challenging because there was no 6% fixed debt in 1999 and so we had 11.5% coupon out there on a portion of the debt. A lot
of it was at 9%, I mean it was just a different world.
Leverage ratios being what they are right now, I'm incredibly comfortable with our leverage ratio or we wouldn't have put it
there. The idea of refinancing, they were talking to bankers all the time and bankers are telling us, hey if we wanted to go out
right now and refinance us we could just based on the stability of the business model, how well it's performed.
We've already stress tested in 2008, everybody saw how well it performed even in the toughest of circumstances and so we're
in a position where if we went to market with positive trends and with a 50 year track record and certainly an 11 year track
record that's pretty impressive in terms of paying back debt we could refinance this tomorrow.
I have no interest in doing that simply because the rate that we would pay tomorrow would not be anywhere near where I
would want it to be to justify walking away from a 6% fixed debt capital structure.
We don't have a mythical leverage ratio. We're already well within the band of what we think is appropriate for this company
and we're just going to watch the debt markets as we always have. When they got really attractive in 2003 we recapitalized the
company, we refinanced the company.
When they got really attractive again in 2007 we did it again. When they get attractive and when we feel like it's a good time
we'll do it again and I think that's going to be the future of this company. We will continue to generate a lot of cash, come up
with creative ways of returning that cash to our shareholders and taking advantage of debt markets when that advantage
presents itself.
Unidentified Audience Member
And do you have an estimate of what your free cash flow is going to be for 2010 and 2011.
Unidentified Company Representative
You bet.
Unidentified Audience Member
That you could share?
Unidentified Company Representative
No. Good try though.
Unidentified Audience Member
Thank you.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Unidentified Audience Member
Given the crass news on the frozen pizza category. There's been a lot of focus on that category and double digit growth rates
for that category in recent years can you talk about how whether you think frozen pizza factors in to the general weakness
we've seen in the QSR pizza category.
Unidentified Company Representative
Russ you've been doing a lot of work on this.
Russell Weiner - Domino's Pizza - Chief Marketing Officer
You're right about double digits. It's interesting though if you dig a little bit deeper into the numbers the double-digit growth
is actually on the dollar side. On the unit side versus last year we're talking relatively flat. I want to say it's maybe up 0.5% or
something like that.
What we're seeing happening is folks going from kind of the mid-ground pizzas to the more expensive believe it or not as
evidence by that kind of dollar versus unit number because they're looking for taste. When you go out there and you ask
consumers why they shop frozen versus fresh, frozen usually wins on a value and convenience and fresh delivers on taste.
We know we're in the unique position at Domino's as in you saw by the data that Patrick showed earlier that we already have
a great position on value and on service and so we think this new and improved pizza really not only will help us versus kind
of the more historical competitors that you would think, but also against frozen.
Unidentified Audience Member
Given the domestic pizza category as quite mature, I'm curious how you think about increasing market share and growing over
the next let's say three to five years.
Unidentified Company Representative
There's a Patrick question.
Patrick Doyle - Domino's Pizza - President - Domino's USA
First of all, relatively mature. In this economy you've seen obviously some weakness for the last 24 months in the category.
There is still some population growth in the US, there are still many areas of the country where can't get a Domino's pizza and
I think over time you're going to see the category return to some level of growth.
The big question is to me as you look at the way this category lays out, you've still got a situation where the three or four largest
chains are still a little bit under 50% of the total pizza consumption in the US. There are something like 71,000 pizza restaurants
in the United States.
I can tell you about those fabled local mom and pop places that do just a terrific job with an owner-operator who's in there and
makes a great pizza. And where there is somebody like that, there's probably always a place for that person. And they have
relationships with their customers and they do a terrific job.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
To me what'll be interesting to watch over time is the middle which is the regional chains. And there are an awful lot, dozens
of chains with between 50 and 1,000 units in the US.
And they keep springing up and it's remarkable because it's a lot harder to look at those regional chains and say, with the cost
efficiencies that we have by being big, with the advertising dollars we have, with the technology infrastructure investments
we're making, as we upgrade the quality of our pizza, in fact our entire line, you have to believe you start to put some real
pressure on those people in the middle. And I think that's going to be the interesting part of this to watch, and conceivably
where you start to see some share shift over the next few years.
That said, I would have expected to see more issues with them over the course of the last 24 months. You look at 2008 and how
tough that environment was, I'd tell you, I was surprised that we didn't see a little bit more shake out from that group.
Dave Brandon - Domino's Pizza - Chairman, CEO
Melissa?
Unidentified Audience Member
Yes, just within your commodity guidance you noted that cheese, you said, you expect to be at $1.70. I think in 2008 you
announced that you had a supply agreement whereby you limit the volatility. So in terms of what stores will actually be paying,
what kind of number would that be?
Dave Brandon - Domino's Pizza - Chairman, CEO
$1.70 is the number you should use. That's our best guess, and it's a swag. But we have to put a plan together. That's our best
guess of the average price that we'll pay for the year. And that's the price that will be realized if you will at the retail level.
Unidentified Audience Member
Okay, so that would assume that the market price is actually above $1.70?
Dave Brandon - Domino's Pizza - Chairman, CEO
That there would be times that it could be. Yes.
Unidentified Audience Member
Okay.
Dave Brandon - Domino's Pizza - Chairman, CEO
But again, that's back last fall, we would have thought cheese prices would be higher right now than they are because they felt
like they were ramping up during the fall in the latter part of the year. And now they've bottomed out a little bit again.
We want to make sure there's nobody in this room that leaves that feels like we've got an accurate crystal ball as it relates to
cheese prices. But we have to put a number in our model. And the best third-party information we got is that we should probably
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
put a slightly higher number that we had in 2009 and that's what we did. And there's upside if we're wrong, and we typically
try to budget on the high side because we want to make sure that we're responsible in our forecasting of the business.
Unidentified Audience Member
Thank you.
Unidentified Audience Member
Thanks, first I just want to congratulate you Patrick, and forget I wouldn't want to miss the opportunity to ask you an easy one.
Patrick Doyle - Domino's Pizza - President - Domino's USA
Thanks.
Unidentified Audience Member
I know March 8th is the day of transition. And David has been here for the past 11 and it sounds like you beat him on that front
and was there a little longer. And perhaps you're there for the next ten or more. Just wondering what's been done over the past
five or ten years if anything that you'd say, you know what I think of things a little differently than perhaps David did, for better
or for worse, just thoughts that you have. I know you've mentioned in the past, don't expect any change from Domino's. But I
would --.
Patrick Doyle - Domino's Pizza - President - Domino's USA
That's the easy question --?
Unidentified Audience Member
Yes.
Patrick Doyle - Domino's Pizza - President - Domino's USA
You want me to get into an argument with my (inaudible - multiple speakers).
Unidentified Audience Member
In a couple of months he won't be your boss any longer, so I figure, no argument, but (inaudible) process how you'd move it
differently, if at all?
Patrick Doyle - Domino's Pizza - President - Domino's USA
Bless you for that softball question. No look, the real answer is I've been reporting to Dave directly in one job or another for 11
years now. And most every decision that this Company has made over the course of those 11 years are things that we've
collaborated on and talked about. And so I'm absolutely on board with where we are as a company and the decisions we're
making.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
And we've made a pretty big dramatic change in our business in the last two weeks. I think you can count on the fact that that
will be the single largest change we're making in 2010. And I'm clearly on board, otherwise my mug wouldn't be smiling out at
you from the commercial.
So we are absolutely aligned and you're going to have a hard time getting me to have a public argument with Dave. But thanks
for the opportunity.
Unidentified Audience Member
Hopefully a few years from now you can follow his path and perhaps be running Michigan Athletics, so it's a good track to be
on.
Patrick Doyle - Domino's Pizza - President - Domino's USA
Well, I've still got some eligibility left, so I'm actually angling for a position on the team.
Dave Brandon - Domino's Pizza - Chairman, CEO
Any other questions for us?
Unidentified Audience Member
Thank you, and yes congratulations Patrick and to you Dave. You're going to the best place on earth, so congratulations.
I'm curious, Patrick, as you think about the years to come, I personally [know of you on inflation] either way, but there's a lot of
arguments that there'll be significant inflation in the United States and particularly in a lot of the commodities that you face.
At the same time, we have very high unemployment.
So although many of your employees are subject to minimum wage, a lot of your customers aren't. And you could potentially
see a lot of pressure on wages, while at the same time seeing a lot of pressure on costs. And I'm curious how you think about
managing that issue going forward.
Patrick Doyle - Domino's Pizza - President - Domino's USA
Yes, I think -- look, margins on the business, prices on the business adjust over time to inflation. So you wind up with some
short-term issues potentially as you see things happen.
What I love about our business model right now is clearly inflation isn't going to get lower than it is right now. So you've probably
only got upside in [inflation]. I was educated at the same fine educational institution that you were and in economics undergrad,
and what they taught me was when you spend a couple of trillion more than you've got coming in, eventually you may get
some inflation out of that.
Who knows? What I do know is when you've got a business model where nearly half of your business is outside of the United
States, that's not a bad thing if you see inflation clouds on the horizon. And it's also a pretty wonderful thing to have a leveraged
balance sheet if inflation comes your way. So that's not necessarily a bad thing.
Could you see short-term pressure on margins if it flows through on wages faster than it comes through on pricing? That's
conceivable, but those are short-term issues.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Longer term I love the fact that we're a global business. We've got this big booming international business. And leverage in an
inflationary environment, it's a pretty darn good thing also. So I'm comfortable with both.
Unidentified Audience Member
On your G&A comments, and just putting aside the in-sourcing of the call center that seems like it's a wash from a sales and
G&A perspective, there is an additional $3.2 million in 2010. You did do some investments this year 2009 -- or last year I should
say, with training and a couple of other initiatives. Will those continue? And I guess my direct question, are there any offsets to
that incremental $3.2 million stuff you spent on in 2009 that you won't be spending in 2010?
Dave Brandon - Domino's Pizza - Chairman, CEO
Our budget approach to the year is to just basically have a fairly controlled economic increase in our G&A spending. We will
have a salary program, but it'll be modest. We'll continue to fund our TAD bonus program. And I mentioned to you the most
significant, if you will, one time or that we need to put in there for strategic purposes.
As it relates to some of the initiatives of last year, Patrick will be looking at some of the heavy up-training that we did and some
of those things. And we may be able to back off from some of that, because some of that was front-end heavy. But we're not
going to back off of all of it.
Some of the investments we made in auditing our stores and putting more quality control measures in place will continue
because they've worked extremely well. When you see us being ranked number one in the industry, we think some of those
things flow from the fact that we really made an investment and made a commitment to really doing a better job of auditing
our stores and forcing a stronger, more consistent execution at the store level.
So again, we don't give guidance and we're not -- I think there are a number of puts and takes in our G&A. But we've highlighted
for you the one that we think is the most significant. We've highlighted another one for you that's really going to be just an in
and out issue. It's going to show up as a bigger number in G&A and it's going to go away as it relates to revenue offset. And
general speaking, probably the best way for you to think about it is just an economic increase on where we were last year. Any
other questions?
Unidentified Audience Member
You just talked about the -- Patrick talked about those kind of midsize change, do you have a sense on comps how that category
ended up -- generally been trending in through the third quarter?
Dave Brandon - Domino's Pizza - Chairman, CEO
You know that's the hardest group to put some kind of a national number on because there's hundreds and hundreds of them.
It's not like the big three. There's hundreds of them and they're very market specific. So we can almost tour around the country
and I can talk to you about some that we think have done a good job, and then probably had some pretty good results.
And then there's a lot of others that we know have been closing stores and are more crippled and everywhere in between. And
most of them, or a lot of them, are private. And so a lot of it is what we get on the street as we talk to -- our drivers talk to their
drivers and as we come up with ways to try to monitor their traffic, it's a real hard number to get at.
And nationally, I would doubt that overall that platform is pretty much experiencing what everybody else is in the category.
But there's great variations from market to market.
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
Unidentified Audience Member
Can you just comment on how your franchisees have felt as you've transitioned the new pizza, and the feedback that you've
received out of the gates from them?
Dave Brandon - Domino's Pizza - Chairman, CEO
Well, Patrick's definitely been leading the charge on that. Patrick took the team and went on a road show tour of the country
and introduced this whole concept. And showed the advertising and got the buy-in. So I'll turn to him and he can tell you better
than anybody how our franchisees are feeling.
Patrick Doyle - Domino's Pizza - President - Domino's USA
Yes, it's the same answer I gave before. There was overwhelming support for making this change. Our franchisees believe this
is a stronger, better pizza than we had before, and they're excited about selling that.
And I'm not going to get into talking about results, sales results anyway and frankly we're two weeks into it. So time will tell.
But they strongly supported this change and continue to.
Unidentified Audience Member
Have you done any more challenging taste tests against Papa John's and others and seen how the new product stacks up against
them?
Patrick Doyle - Domino's Pizza - President - Domino's USA
Yes, we did benchmarking as we did this development. And we're not going to talk about that specifically, but we rolled this
new pizza out because we are confident that we've got a terrific pizza.
And we'll let them pay for their own research to find out how things stack up now. But we absolutely did benchmarking against
them.
Dave Brandon - Domino's Pizza - Chairman, CEO
Any other questions? Well let me just ask your indulgence for a quick minute to let you know that to put on a taste test of
delivered pizza at the New York Stock Exchange is not an easy thing to logistically manage.
And Lynn Liddle, where are you Lynn, has been uncharacteristically quiet because we haven't let her have a microphone. But
Lynn and her team, Jenny and Melissa and Stacy, and where's Sherry? Sherry's been running around.
We've had a team of people working on this for a long time to pull together some gifts for you and give you a chance to really
do a live taste test and put on a good feed. And hopefully put on a presentation that's beneficial and productive for you all. And
so I want to thank all of them for their usual terrific job of executing a very complex plan today. We appreciate the talented
people we have in our Investor Relations area.
I want to thank you all for giving us the time you've given us today. This will probably be the last one of these sessions that
you'll see me at. I'm pretty sure of that. And consequently, there are many familiar faces around the table that we've had a lot
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FINAL TRANSCRIPT
Jan. 13. 2010 / 3:00PM, DPZ - Dominos Pizza Inc Investor Day
of conversations and done a lot of business together over the last decade plus, and I just want you to know how much I've
enjoyed working with all of you, and how much I will continue my association with this company with great enthusiasm.
I told our internal group back in Ann Arbor when we met and made this announcement that I absolutely believe to the bottom
of my soul that the best days of this company lie ahead. We're celebrating our 50th anniversary this year. It's a great time to
pause and celebrate the past.
But without question, the greatest days lie ahead. And I appreciate all your interest and I've been very proud to be associated
with this company for the last 11 years. So thank you all very much, appreciate your attention.
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