Domino’s Pizza, Inc. (NYSE:DPZ) Q1 2024 Earnings Call Transcript

Domino’s Pizza, Inc. (NYSE:DPZ) Q1 2024 Earnings Call Transcript April 29, 2024

Domino’s Pizza, Inc. beats earnings expectations. Reported EPS is $3.58, expectations were $3.39. Domino’s Pizza, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by, and welcome to Domino’s Pizza’s First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded. And now, I’d like to introduce your host for today’s program, Mr. Greg Lemenchick, Vice President of Investor Relations. Please go ahead, sir.

Greg Lemenchick: Good morning, everyone. Thank you for joining us today for our first quarter conference call. Today’s call will begin with our Chief Executive Officer, Russell Weiner, followed by our Chief Financial Officer, Sandeep Reddy. The call will conclude with a Q&A session. The forward-looking statements in this morning’s earnings release and 10-Q, both of which are available on our IR website, also apply to our comments on the call today. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our filings with the SEC. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today’s call.

This morning’s conference call is being webcast and is also being recorded for replay via our website. We want to do our best this morning to accommodate as many of your questions as time permits. As such, we encourage you to ask one question only. With that, I’d like to turn the call over to Russell.

Russell Weiner: Thanks, Greg, and good morning, everybody. Our Q1 results demonstrated that our Hungry for MORE strategy is delivering on its promise, driving more sales, more stores and more profit. We drove strong comp performance in the U.S. that flowed through to the bottom-line with double-digit profit growth. And our growth in the U.S. came through positive order counts across all income cohorts in both our carryout and delivery segments. We saw the largest growth in our lower-income cohorts that are undoubtedly benefiting from the renowned value that we’re offering. I’d like to highlight our first quarter results through the lens of our M-O-R-E, Hungry for MORE, pillars. As you know, M stands for most delicious food. We know we have the most delicious food in the industry and are focused on showcasing that with more mouthwatering food photography in all of our marketing and sales channels.

We also ran a campaign that highlighted our pan pizza, a premium product that brought news to this crust type for the first time since 2014. And I’m excited to announce that our first product innovation of the year, New York Style pizza launches on air today. The idea for New York Style came from customers who prefer a thinner more foldable crust than our traditional hand tossed. And we believe that this new crust style will drive incremental occasions. It will also drive deliciousness as the foldable crust lets us focus more on our incredible toppings, including a really unique blend of provolone cheese that comes on every New York Style pizza. Additionally, this crust option will be available as part of our Mix & Match offer, and Domino’s Rewards members can redeem 60 points for free medium two-topping New York Style pizza as well.

This is another example of how innovation is designed to drive value and more customers into our loyalty platform. The O in Hungry for MORE stands for operational excellence. This is how we’ll deliver on our promise to have the most delicious food by consistently driving a great experience with our products. As I shared on our last earnings call, in 2024, we’re rolling out a new service program we’re calling MORE Delicious Operations, a series of three product training sprints that focused on our dough, how we build and make our products, and how we cook them. In Q1, we embarked on our first sprint, which focused on our dough, and rolled this out across all 6,800-plus stores in the U.S. We continue to see benefits from our service initiatives.

And in Q1, we actually delivered more pizzas than we did in Q1 of last year at improved delivery times. I’m just so proud of our operators. Our third Hungry for MORE pillar is R for renowned value. I want to expand on what renowned value means to us at Domino’s. It’s not about just having the lowest price in the market, it’s about providing value that’s innovative and that’s memorable. Renowned value breaks through the sea of standard discounts that you see in the marketplace. Value is a Buy One, Get One Free. Renowned value reinvents this mechanic and creates Emergency Pizza. Emergency Pizza performed better than any Buy One, Get One Free I’ve done in my career, with a meaningful driver to our comps in both Q4 of ’23 and in Q1. And it not only drove increased orders, but also the acquisitions of members into our loyalty program.

Domino’s Rewards continues to perform extremely well and was the key driver of our strong U.S. comp performance. The program is delivering on our objectives. Active member growth rates are up significantly since the launch of our new program. From a percentage standpoint, our biggest increases are coming from new, lapsed and light customers. So, we’re bringing these new customers into the fold. I’m particularly pleased with the increase in carryout customers made possible in part by our reduced $5 minimum spend for earning point. Once customers become members, they’re redeeming more than ever before and increases are being seen across all of our channels, delivery and carryout. Our new 20 point and 40 point redemption tiers are doing exactly what we hoped.

They’re engaging more customers. These two tiers now combine for the majority of the redemptions in Domino’s Rewards. And the program has driven incremental profit dollars for franchisees. So, customers are getting more and our franchisees have earned more profits, truly a win-win. We believe Domino’s Rewards will continue to be a meaningful sales driver for us in 2024 and beyond. National promotions are another way we’re driving renowned value. In Q1, we brought back our Carryout Special Boost Week for the first time since January 2020, and this performance exceeded our expectations. Clearly, customers want value and we are driving it profitably for our franchisees. Now, as it relates to our promotional cadence in 2024, you can expect it to be consistent with what we did in 2019.

As part of that, you can expect around six boost weeks. As a reminder, these boost weeks are a proven customer acquisition tool that drives both short- and long-term benefits for our brand. And we’re seeing the same commitment to providing renowned value internationally. Some of our best-performing markets are getting this right. As an example, our master franchisee in Mexico has run very successful boost week campaigns that have driven outstanding order and sales growth. While providing renowned value through our own channels is one part of our barbell strategy, tapping into the aggregator marketplace is the other. Our launch into the aggregator space remains on track to exit the year at 3% or more of sales coming through Uber Eats. Now that we’re a quarter into our full launch, I want to share a few insights on what we’re seeing.

Incrementality has been in-line with our expectations. In addition, we’re seeing a higher percentage of single user transactions on Uber than we’ve seen on our own channels. Further, this channel is becoming more promotional. Customer responses to deals are stronger than to everyday low prices. As a result, we are continuing to work to finetune our marketing spend and our offers to ensure that we are effectively driving this channel. We remain focused on driving profitable transactions through Uber Eats while ensuring that the best values for our customers remain on our own channels. Everything we do at Domino’s is enhanced by our best-in-class franchisees, the E in our Hungry for MORE strategy. We’ll be hosting thousands of franchisees for our worldwide rally in May, where we plan to bring our Hungry for MORE strategy to life across our global system.

I can’t wait for that gathering as our franchisees are what makes Domino’s so special. They were the inspiration behind Hungry for MORE. So to close, I couldn’t be more excited about 2024 and beyond for Domino’s Pizza. Our first quarter results clearly show that our strategy is resonating with customers. This gives me great confidence that, we can deliver against our short- and long-term Hungry for MORE goals and drive significant value creation for our shareholders. With that, I’ll turn things over to Sandeep.

Sandeep Reddy: Thank you, Russell, and good morning, everyone. Our first quarter financial results demonstrate how powerful our model can be when we drive profitable transaction growth. The smart pricing we took in 2022 and 2023, has kept us at a great value to our customers in 2024, while being profitable for our franchisees. This has resulted in profit dollar growth versus 2023 for our U.S. franchisees so far this year. We remain on track to achieve our target of $170,000 average U.S. franchise store profit for 2024. Excluding the impact of foreign currency, global retail sales grew 7.3% due to positive U.S. and international comps and global net store growth. U.S. retail sales increased 7.8% and international retail sales, excluding the impact of foreign currency, grew 6.8%.

During Q1, same store sales for the U.S. saw a meaningful increase of 5.6%. Our strong comps in the quarter for carryout of 9.5% and delivery of 2.9% were driven primarily by transaction growth. As Russell mentioned in his remarks, the increase in U.S. same store sales was driven by transaction growth from our new loyalty program. This was inclusive of a continued benefit from Emergency Pizza and results that exceeded our expectations from the Carryout Special Boost Week that we ran. We also benefited from 0.9% of pricing and a 1.4% sales mix from Uber. These tailwinds were partially offset by a higher carryout mix, which carries a lower ticket than delivery. We are still evaluating how much of the 1.4% sales mix coming from Uber is incremental, but everything we have seen so far would indicate that it’s in-line with our approximately two-thirds estimate.

Shifting to unit count, we added 20 net new stores in the U.S., in-line with our expectations, bringing our U.S. system store count to 6,874. Shifting to international, where results were generally in-line with our expectations, same store sales, excluding foreign currency impact increased 0.9% in the first quarter. Store counts increased by 144 net stores, which is an increase over the 106 we opened in Q1 of 2023. Income from operations increased 19.4% in Q1, excluding the negative impact of foreign currency of $1.4 million. This increase was primarily due to higher global franchise royalty revenues resulting from global retail sales growth of 7.3%, as well as higher supply chain gross margins due to procurement productivity, a decrease in the cost of our food basket and slightly lower delivery cost.

I also wanted to call out that our margin rate benefited by about 0.3% in Q1 from the tech fee being at $39.5 and the lower ad fund contribution rate of 5.75%. Now turning to our outlook, which remains in-line with what we previously shared. 7% or more global retail sales growth, excluding the impact of foreign currency, and we continue to expect the following: First, 2024 U.S. comps to be above the 3%-plus long-term guide as a result of our expected catalyst in Uber and loyalty for the full year, and we expect comps to be 3% or more in each quarter for the remainder of the year. Specific to Q2, we expect them to be slightly below Q1 on a one-year basis, as the Emergency Pizza promotion rolls off, partially offset by a ramp in Uber. You can expect a similar national promotions cadence to what we ran in Q1 in terms of our activity, inclusive of the April Carryout Special Boost Week that is now behind us.

Second, sales for Uber to increase throughout the year as marketing and awareness increases, and we are expecting to exit the year with an overall sales mix of 3% or more. Third, international comps to remain soft in the first half of the year due to a continuation of the trends we saw at the end of last year, but expect them to accelerate to our 3% or more long-term guidance in the back half of the year. Now, shifting to net stores, where we continue to expect 1,100 or more, which will be driven by 175 in the U.S. and 925 in international. We continue to expect an 8% or more year-over-year increase in operating income, excluding the impact of foreign currency. To highlight some of the components which remain unchanged, expect operating income margins to be relatively flat compared to 2023.

As a reminder, we are not expecting to see cost leverage in 2024 due to investments we are making in consumer technology, store technology and supply chain capacity to support future sales growth in the U.S. We are expecting our G&A as a percentage of retail sales to be approximately 2.4%. This is inclusive of approximately $9 million in timing of G&A spend in Q2, driven by our worldwide rally, which takes place every two years. We are expecting supply chain margins to be roughly flat compared to the prior year, incorporating an inflationary food basket for the rest of the year with a full year range of up 1% to 3%. Should our food basket pricing for the year move to the lower end of our expectations, we may see modest leverage in operating and supply chain margins.

Thank you. We will now open the line for questions.

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Q&A Session

Operator: Certainly. One moment for our first question. Our first question comes from the line of Andrew Charles from TD Cowen. Your question please.

Andrew Charles: Great. Thank you. A question first on same store sales. Just, 1Q is 5.6%, obviously, a very impressive number. Should we think of that as the high watermark for 2024 U.S. same store sales? You talked about how 2Q will sequentially moderate, partially given the benefit of Emergency Pizza rolls off while Uber Eats picks up. But just curious, if you think this performance though is broadly sustaining as we think about the remainder of 2024.

Russell Weiner: Good morning, Andrew. Thanks for the call. Part of the reasoning for putting out 3% or more as part of our Hungry for MORE algorithm is that, 3% for us is the floor, but we’re going to do everything we can to beat that and deliver more every single quarter. And so, I’m not going to get into forward-looking on the quarters, but what I will say that I really liked about this quarter is, there are two things I look at. I look at results and I look at repeatability. And the results, like you said, were strong. What I then look is say, “Okay, were the components that drove those results, are those repeatable?” And when you think about our Hungry for MORE platform, we had product news in first quarter. We’ve got actually our first new product in the year, in second quarter.

We talk about operational excellence. We delivered more pizza in Q1 than we did Q1 of last year at a better delivery time. Our renowned value, we went the second half of Emergency Pizza in Q1. We had a carryout boost week. And you probably read we just put out a new renowned value promotion called You Tip, We Tip. And so, as Sandeep said earlier about the smart pricing we took, that’s part of what’s driving the consistent order count increase across every segment and consumer of our business. And so, while I can’t get into the specifics, what I can tell you is the repeatability of the M-O-R-E formula is what we’re going to be leaning into.

Operator: Thank you. And our next question comes from the line of Dennis Geiger from UBS. Your question please.

Dennis Geiger: Great. Thanks guys, and congrats on the quarter. Sandeep, wondering if you could talk a little bit more about supply chain margin and sort of the overall operating margin strength that you saw in the quarter and perhaps anything more on the latest thoughts on full year. I know you gave color on the quarter. You just talked about reiterating your thoughts for the full year. Anything more if you could kind of break down that procurement benefit, perhaps exactly maybe what you saw inflation — deflation in the quarter itself for the supply chain and anything on that go-forward procurement, et cetera, as we think about the full year? Thank you.

Sandeep Reddy: Thanks, Dennis. And I think that’s a great question because if you really go back to our fourth quarter call, Dennis, we talked about our expectations for the first quarter to be really margin improvement and margin expansion, which we did see. And directionally, it was slightly more, and I’ll get to that in a second. But I think overall, when we look at the full year, our expectations really haven’t changed. We were expecting to see procurement productivity benefits for the whole year, and we were expecting to make investments that offset the procurement productivity. What we did see specifically in Q1 is that while we got the procurement productivity, some of the investments we are planning to make in supply chain capacity really pushed out into later in the year.

So, Q2 to Q4 gets a little bit more pressured as a result of it, but the overall year really doesn’t change. And so, directionally, I think that’s what — the way to think about supply chain margins and where we expect to take that. Now, when you talk about the full year expectations, included in that was a timing factor on G&A specific to Q2 because we have our worldwide rally. We’d already messaged on the last call that we were expecting to see some compression, but we’ve quantified it a little bit for you to help you with your modeling. And other than that, the back half really remains relatively similar to what we said in the fourth quarter call. So, broadly, not a very different picture on the P&L than what we saw back in February.

Operator: Thank you. And our next question comes from the line of Brian Bittner from Oppenheimer. Your question please.

Brian Bittner: Thanks. Good morning. Your same store sales in the U.S. accelerated in the first quarter about 300 basis points from 4Q. Can you just talk about how much of that acceleration was traffic? Was all the acceleration traffic? And it sounds like one of the biggest drivers of the strong comps are the rewards program. That’s where you seem to be citing the most. And I realized 2Q may be a little lower than 1Q. But in general, can you just unpack why you believe the rewards program and all the improvements that you’ve made there can be an ongoing driver for sales trends, not just even in 2024, but how it can build on itself in ’25? Thanks.

Russell Weiner: Sure. Good morning, Brian. The Q1 results, I think you nailed it. What makes me so proud of the team is that they were order count driven. They were order count driven overall, they were order count driven on our delivery business, on our carryout business across the different segments we’ve got. And I think that’s something special in general, let alone given the current environment for QSR. Rewards, certainly was a big part of it and will be a tailwind for us as we continue this year and for the next few years. I mean, we saw this the first time we launched a loyalty program. It was time to reinvent it and we did. The nice thing about the reinvented program is it’s driving activity with folks that maybe we didn’t engage as much in the old program.

And so, the carryout customer engagement is much higher than it was before. Light users are much higher than they were before. And so that gives you a little bit of a sense of where that growth is coming from. And I don’t expect the tailwind from loyalty to go away anytime soon.

Operator: Thank you. And our next question comes from the line of Sara Senatore from Bank of America. Your question please.

Sara Senatore: Thank you. I wanted to ask about the promotional environment. I guess a couple of things. One is, I know you mentioned that 3P is more promotional. So, I think the appeal for pizza had been that it was more margin neutral or maybe even accretive because of the — maybe the absence of deals. So, I’m just curious if that’s still going to be the case? And then, as you think about the promotional cadence consistent with 2019, I think the implication was that promotional intensity is not particularly high relative to history, but 2019 was a bit of a slower comp year for Domino’s. And so, I just wanted to kind of understand how you’re thinking about the implications on same store sales from promotional intensity and the potential for competitors to match? Thank you.

Russell Weiner: Thanks, Sara. I’ll try to get to each piece of that, unpack it a little bit. I think, what we talked about that we’re seeing on 3P is definitely a high/low value-driven business, and what we’re doing is we’re kind of adjusting accordingly. The important thing to remember it’s the best prices for consumers and our loyalty program are always going to be on our own channels. But it’s interesting though, when you look at what’s going on in 3P, I think that really exacerbates the difference between what we’re doing on our own channels. So, there it’s price. It’s this percent-off, you’re giving this away free, up and down. What we’re doing out there, which is why I think, it feels like — and you said this, it feels like there are more promotions out there, it’s the difference between value and renowned value.

I talk to the team a lot. When we think about what renowned value means, it means bringing the talk to value. So, it’s talk value versus value. And so, the promotions may feel that we’re doing out there may be feeling like the activity is increased. I think what has increased is just the power of them. And like I said, a BOGO versus a Buy One — versus Emergency Pizza or a $3 bounce back for purchase in a week versus You Tip, We Tip, they just feel more powerful because the talk value is there. And I think that’s a great juxtaposition understanding how we’re going to break out from both 3P and the rest of QSR with the promotions that we do.

Sandeep Reddy: And I’m just going to add something, Sara, because I think, sometimes when you talk about promotion, the subtext is what’s happening to profitability. What is great for us is our profit dollar growth continues to grow as we expected it to. We’re on track to the $170,000 or more for the year, and we’re doing exactly what we hoped for. And I think on the last call you asked about profit dollar growth versus margin expansion. Even on the corporate stores, we saw a very healthy profit dollar growth and we did see a bit of margin expansion, but we’re not solving for margin expansion. We’re solving for profit dollar growth. And I think what we’re seeing is very healthy the way all this explains with the P&Ls.

Operator: Thank you. And our next question comes from the line of David Palmer from Evercore ISI.

David Palmer: Thanks. Good morning. I was hoping maybe we could drill down into just the labor situation for Domino’s as you see it across not just your company stores and supply chain, but also the franchisees. Any metrics you can share that could speak to how labor availability is impacting the business, both sales and margins? Thanks.

Russell Weiner: Maybe, I’ll talk big picture, and Sandeep, you can talk on the margin level. I mean, David, the biggest indicator to me about both labor availability, and frankly, the improvements that we’re driving operationally is the fact that we delivered more orders in Q1 than we did last year at better delivery times. And so, if labor was an issue, we wouldn’t be able to do that. And obviously, the flow through to profitability front, Sandeep spoke about that a little bit. And so that to me should be a takeaway that is working right now.

Sandeep Reddy: Yeah. I think — and Russell is exactly right, I think accessing labor has been not a problem at all as we moved through the year. What I do think is reality, and we talked about this on the last call as well is, there is some wage pressure in the year with some minimum wage increases, statutory increases that will impact the franchisee P&L and even our corporate store P&Ls. But I think specifically, California is a good example, right, where we had the AB 1228 wage increases. So, we essentially would have had to — we had to increase our prices in California to address the wage increases that we saw over there. Our price increase is probably in the high-single digits, but we will modify it if we need to actually adjust to what the competitors are doing.

But overall, we’re solving for profit dollar growth. That’s what we are always solving for. And we are looking to protect that franchisee profitability in California and throughout the system. And so, margin percentages are good to look at and maintain good flow through, but we’re solving for dollar growth.

Russell Weiner: The ex-marketer in me needs to follow-up with that. There are two profitabilities that we care about at Domino’s Pizza, because we know if we balance those, our profit follows. And certainly, the franchisee profitability is one of them. But the other is the profitability of — for every American out there, every pizza buying citizen kind of all over the world. And that is where I think our record of smart pricing, which has been, call-it, 15 years of doing so, has proved out. I mean, we had the $5.99 Mix & Match offer for 12 years. Profits went up, order count went up. We took smart pricing. And smart pricing is based on lots of analytics around what the competition is doing, what’s going on with — in consumers wallets, and we took pricing.

And that’s pretty much the majority of at least promotional pricing we’ve taken already. And you’re seeing how that’s translated into order count growth. And the way I think about it is every year should the analytics say we can stay with $6.99 as an example, we get more and more in value. And so, when you balance consumer profitability and franchisee profitability, you get Q1.

Operator: Thank you. And our next question comes from the line of Lauren Silberman from Deutsche Bank. Your question please.

Lauren Silberman: Thanks so much. Congrats on the quarter. You talked about the strong performance across income cohorts. Can you expand on what you’re seeing with the consumer and whether there are any observable differences in how consumers across cohorts are using the brand? And then, any changes in consumer behavior, signs of [trade] (ph) down within each channel? Thank you.

Russell Weiner: Sure. We talked, I think, Lauren, in Q4 even maybe in Q3 a little bit about what we were — we thought was coming in 2024 and that is coming to fruition. Traffic is hard to come by, orders are hard to come by in QSR. I think you’re going to see that continue throughout the year. I don’t think that’s going to be the case at Domino’s because of what we talked about before. And the traffic doesn’t just come. It becomes — like I said before, results are important if they’re repeatable, and they’re repeatable if there’s a formula. And essentially, our pricing is stable and right. Our promotional context — or promotions have come back, carryout special, we brought that back, our new products. I think the key thing, though, when you’re talking about why is every income cohort engaging in Domino’s with positive order count is a big piece of that is the new loyalty program.

I mean, we specifically designed it to tap into consumers that we hadn’t done before. So, reducing the purchase from $10 to $5, well, all of a sudden, this is a much more compelling program for carryout customers and just customers in general who don’t want to spend a lot of money at $5, they get points. And the other thing is the 20 and 40 point levels. Adding those redemption levels to our loyalty program has been key in driving frequency among kind of lower-income and lower-frequency customers. The amazing thing to me, if you think about the old program, which was only 60 points for a medium two-topping pizza, our new program, the 20 point and the 40 point level actually combined are higher than the 60 point level. And so that gives you a sense of why we’re breaking through in every cohort across delivery and carryout.

Operator: Thank you. And our next question comes from the line of Danilo Gargiulo from Bernstein. Your question please.

Danilo Gargiulo: Thank you, guys. Congrats again on the quarter. I was wondering if you can elaborate on what is causing international markets to have a little bit more compressed growth this quarter, which again was in-line with your previous expectations. And particularly, if you can elaborate if you have been able to estimate how the pressure from — the tension in the Middle East are impacting you specifically? And more broadly, if you can take any lessons from the domestic markets that are growing so fast and you can transfer them over to the international markets? Thank you.

Russell Weiner: Thanks. Well, you both asked and answered the question, so great job. Yeah, look, Q1 comps were in-line with our expectations. We continue to see pressure in Europe and Middle East. Sandeep had talked about this last time. The Middle East represents a relatively small percentage, less than 3% of our operating income. But what makes us continue to expect comps to return to our 3% algorithm in the back half is exactly what you were saying, we see key markets starting to bring to life the Hungry for MORE strategy. So, if you look at Australia, for example, they launched a campaign that literally is called MORE in Q4 that really, just romances and products and they’ve had delicious new products that have launched as part of that.

Their business has responded accordingly. We looked at — in Mexico, I talked about them a little bit. They just reported Q1 of 12.2%. They launched Domino’s Mania, which is a boost week. And so, what we’re starting to see is as folks follow this playbook, it’s starting to work internationally. And our job, and that’s part of why we have this rally coming up, is to continue to share these best practices. And that’s why at the back half of the year, we think we’ll return to the 3%-plus algorithm.

Operator: Thank you. And our next question comes from the line of Gregory Francfort from Guggenheim. Your question please.

Gregory Francfort: Hey, thanks for the question. Russell, you made a comment about just the third-party channel having more single item orders. And I think the reason for why you expected sales to build as you move through the year was because you were still figuring out how to promote on the platform. I’m curious, what do you think has been working and what do you think still needs to be tweaked to kind of get you to where you want to be as you exit the year from a mix perspective in terms of pricing and promotional structure.

Russell Weiner: Yeah, Greg, we — like I said, things are a little bit different on the platform than they were last year. The competition — the promotional competition is just up, but we’re still sticking to our strategy there of best pricing online at Domino’s. It’s just more about how we manage it. So, for example, your base price could be higher if you want to discount a little bit more. I mean, that — all of that stuff is available to us. And so, we feel good about kind of the way our team is handling that. We’re promoting on the Uber channel. Uber is promoting us on the Uber channel. Sandeep talked about, we’re at 1.4% of sales, which is up from 0.4% in Q4. And all of that makes me really confident that we’re going to get to that 3% exit rate for the year.

Operator: Thank you. And our next question comes from the line of John Ivankoe from JPMorgan. Your question please.

John Ivankoe: Hi. Thank you. In the context of third-party delivery, maybe being a little bit more promotional, I was hoping if you could put that in the context of your own delivery fee. We’ve actually seen some stores where it can be as high as $7.99. I think that’s a New York example, but it’s still an example. How are you feeling about the current structure of the relatively fixed delivery fee? No matter how much customer orders, if there’s any opportunity to kind of look at that over time? And when I think consumers increasingly look at the total landed cost of that delivery, if you feel the overall algorithm is still in the right place? And obviously, I understand orders being up year-over-year might just simply answer that question. But just wanted to get your thought on just delivery fee overall in terms of consumers value perception. Thank you.