Sandeep Reddy: Thanks, Greg. Really good question. I think from a supply chain profit standpoint, as we’ve talked about all year, we’ve had procurement productivity benefits, right? And that predominantly is food. And when it actually ties back to you – the last part of your question, which is how do we take a look at adjusting the margins that we basically are taking on, what we’re serving on to the franchisees. And so I think a lot of this benefit is flowing through our P&L, clearly, when we talk about the procurement productivity. We’ll continue to optimize around this. But I think what has really been great is with the adjustment of volume that has actually happened in the last couple of years leading up into this year, the supply chain flow through has become much tighter as we’ve actually gotten adjusted to the lower level of volumes.
All that’s about a change because I think we’ve reset capacity to be able to deal with volume growth that is expected to come but with a much, much leaner operating model and a much more efficient operating model. So from a profitability standpoint, we continue to expect to see improvements, not massive improvements, but improvements. The big focus should be profit dollar growth from a supply chain standpoint with transaction growth that’s coming in the fourth quarter and beyond.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Steven Gojak from Cleveland Research. Your question, please.
Steven Gojak: Yes. Thank you. More of a near-term question, but it does look like you ran a boost week or at least a 50% off offer that first week of October. And it looked like it was outside of the normal pre-COVID cadence you have for those types of promotions. Just curious on the strategy and timing of what looks to be an incremental boost week promotion and particularly doing that, the week ahead of the Emergency Pizza deal, and then how much does that play into the positive fourth quarter outlook that you’ve laid out earlier in the call? Thank you.
Russell Weiner: Yes. Steven, we don’t – we will not be doing another boost week this quarter that our cadence is to do it quarterly. Obviously, we’d like to keep you guys on your toes, so that’s why we don’t know. So we maybe we do like to keep you on your toes, but we pick strategic time periods in which to do with it. Obviously, we talk about a stepped up fourth quarter and so getting this out early, I think, makes a lot of sense. I also want to make sure that when we talk about promotional cadence that I touch on, I know this wasn’t a direct question, but I know a lot of you have these questions about our product innovation. And I just want to make sure you understand that we’re leaning into that again. If you look at our product innovation this year, we’ve had two major launches.
The last time we had two major launches was 2011. And interestingly enough, one of those two launches was Stuffed Cheesy Bread, and so how fitting is it that we’ve got pepperoni Stuffed Cheesy Bread now in the marketplace. And we’re really – and we’re doing that purposely because we’re seeing a change in the dynamic. If we look back several years and you think about Domino’s, we didn’t do a lot of product innovation. We did a lot of technology innovation. We built delivery vehicles, all of those kinds of things, and we’re going to continue to do that. But we’re realizing we need to do more of now is lean into product innovation. And I’ll use cheesy bread as an example of how it’s really, really working well for us. So we’ve got platforms. Like I said, we launched Stuffed Cheesy Bread in 2011.
We launched sandwiches in 2008, we launched pastas in 2009. A lot of people don’t know that we’ve got these platforms. Even though they’re pretty robust mix, there are a lot of people out there that don’t know we have them. And so what do we do with Stuffed Cheesy Bread. We launched a new SKU. Believe it or not, we are selling more pepperoni Stuffed Cheesy Bread s now than we are base regular Stuffed Cheesy Bread. I have – I have been doing promotion – I have been doing innovation most of my professional career, and I’ve never seen a line extension outperform the base. So one, when you do product innovation like this, you get sales on the new product. Two, is you bring awareness back to these great platforms that we have. And then third, what we’re doing with the launch is we’re leveraging our loyalty program.
And so normally, Stuffed Cheesy Bread is a 40-point redemption. In this case, for a limited time, we’re doing 20 points. And so you see about how we’re working all of these things together is not a one-trick pony. There are kind of three levers going on at one time. I just want to make sure folks on the call know we’re going to continue to lean into all types of innovation, including product.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Nick Setyan from Wedbush. Your question please.
Nick Setyan: Thank you. Just a question on how you’re thinking about company margins over the medium to longer term. And obviously, pre-COVID over 20% company margins. Just given all of the changes going forward in terms of loyalty, third-party delivery post two, three years of inflation, pricing now seems like it’s going to be pretty close to flat. How should we think about company-owned margins not only in Q4 but 2024 and beyond?
Sandeep Reddy: So Nick, I think it’s a really good question. And if you look at the company margins in the third quarter, we expanded about 350 basis points, I think, in gross margins. And that was on the back of, I think, a 270 basis points improvement in Q2. So we continue to look at margin expansion in company store margins, and I do acknowledge that it’s definitely on peak levels. But there are a number of initiatives that we have been taking as we’ve been going along. Obviously, from a pricing standpoint, we talked about being late to take pricing a little bit, but I think that’s – all of that is actually caught up with us. And I think the other thing we’ve actually been doing is looking at the cost structure within the P&L, and that is being optimized as well.
But overall, the big driver of further improvement in terms of profitability is going to be transaction growth. I talked about transaction growth earlier, which is going to impact the fourth quarter. It’s going to impact next year even more. And I think when you see that, we’re going to be able to leverage the fixed cost on the P&L a lot better on the company store margins and we’ll make the march towards where peak margins used to be over time.
Russell Weiner: Yes. I think the way I look at it is we are going into 2024 with an improved operating model, both for DPZ and our franchisees. As I said earlier, what we had talked about where we thought Q3 would land and it’s kind of landed where we expected. Think about the foundation now of this business, right, in a quarter that was essentially flat in the U.S. business, margins improved and the franchisee profit has improved. And so you take that and you bring in the orders that we expect both in Q4, but especially in 2024 that just leverages really, really nice. And so the foundation of Domino’s is ready to be leveraged.
Nick Setyan: Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from the line of David Tarantino from Baird. Your question please.
David Tarantino: Hi, good morning. Had question on pricing and value. And I guess, one part of it is, I was wondering, how you and your franchisees are approaching pricing as you think about 2024? And then the second part of the question is, with this Emergency Pizza promotion, it does seem like, maybe you’re leaning a bit more towards value or into promotions even outside of the Rewards Program. So I guess are you thinking about leaning in more frequently on value promotions like the one you’re running or as you think about 2024.
