Domino’s Pizza, Inc. (NYSE:DPZ) Q4 2023 Earnings Call Transcript

Domino’s Pizza, Inc. (NYSE:DPZ) Q4 2023 Earnings Call Transcript February 26, 2024

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 Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a 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, Greg Lemenchick, Vice President, Investor Relations. Please go ahead, sir.

Greg Lemenchick: Good morning, everyone. Thank you for joining us today for our fourth 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-K 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. I thought you were going to sing the opening as we discussed, but I guess we’ll let that path today. Welcome to your first call here on Domino’s, and good morning to everyone joining us. Our strong Q4 demonstrated that our Hungry for MORE strategy is already delivering results. Our positive U.S. same-store sales and transaction growth in both delivery and carryout underscore the strength and momentum that we’re building in our business. These results and the initiatives that I’ll cover today give me confidence in Domino’s ability to continue to drive meaningful value for shareholders. We’re excited to share an update on the business through the lens of our Hungry for MORE strategy. Now as a reminder, Hungry for MORE is our new strategy around what we’re going to do to deliver over the course of the next five years, more sales, more stores and more profits.

We’re going to accomplish this through our four more pillars, MORE, that I’ll share a brief update on. Let’s start with M. M is for the most delicious food. And we know we have the most delicious food in the industry, but you know what, it’s time to talk about it more. It’s time to show it more, and we’re already doing that. We’re currently on air with Pan Pizza advertising for the first time since 2014. We call Pan Pizza, our best kept secret. It’s time to change that. Pan Pizza is a delicious product made with fresh never frozen dough. It also showcases the variety of crust we have to offer. You’re probably also noticing a shift in our advertising as we’re beginning to romance the product more to showcase the deliciousness of our food. You can expect this to continue throughout the year.

The O in Hungry for MORE stands for operational excellence, and this is how we’re going to deliver on our promise to have the most delicious food. By consistently driving a great experience with our products. As we’ve noted before, we made meaningful strides operationally in 2023 with our Summer of Service program, which has resulted in service times being back to pre-COVID levels. But we’re never satisfied, and we want to continue to get better, our operators and our franchisees, we are Hungry for MORE. In 2024, we’re rolling out a new service program. We’re calling that MORE Delicious Operations. This program will be a series of three product training sprints focused on our dough, how we build and make our products and how we cook them. All of this is being done with a keen focus on driving more consistency in our food by providing the proper teaching, tools and processes for our team members to succeed.

Our third pillar is R for Renowned Value. We’ve always been known as a premier value player, and we believe this can continue to be a differentiator for us in ’24 through our improved loyalty program, our national promotions, and our rollout on Uber. Domino’s rewards is off to a great start and was a key driver of our strong comp performance in the fourth quarter, when we saw positive sales and transactions in both our U.S. delivery and carryout businesses. We’ve also seen the following: an uptick in active members. We are up 3 million active members in 2023, with 2 million plus since our relaunch in September. Domino’s Rewards ended the year with approximately 33 million active members, a big driver of the increase in active members as well as the early success of the program was our Emergency Pizza promotion, which was an innovative marketing initiative that drove increased order counts and acquisition of customers into Domino’s rewards.

We’re seeing more redemptions than ever before, and we’re seeing them at those lower tiers that we implemented. And we know that this program has driven incremental profit dollars for our franchisees. So customers are getting more, and franchisees have earned more profits truly a win-win. Finally, we’re seeing more carryout users and light users in the program than we were prior to the relaunch. So Domino’s Rewards is working as we intended. National promotions will be another way will drive renowned value in ’24. And right now, we’re on air with our perfect combo promotion. We believe this is the best deal in the QSR industry to feed the family, and it highlights the depth we have in our menu. We also brought back our carryout special boost week in January for the first-time since January 2020.

And this performance exceeded my expectations. Clearly, customers want value, and we are driving it profitably for our franchisees. While providing value through our own channels is one part of our barbell strategy, tapping into the aggregator marketplace is the other. We’re very excited about this new sales layer, which we believe is a different and largely incremental customer that we had not been able to reach in the past. Our entrance into this marketplace with Uber is on track as we are now fully rolled out across our U.S. system. We’ve gone live with the marketing and formally kicked off our one-year exclusivity period in Q1. Sales are building in line with increased marketing, which has been great to see and we expect those orders to continue to grow throughout the year.

Sandeep will share more about our sales expectations in 2024 for Uber in his comments. Now everything we do at Domino’s is enhanced by our best-in-class franchisees, the E in our Hungry for MORE strategy. In 2023, we continue to enhance our U.S. franchisee base by adding more than 60 new franchisees to the system, the most in 15 years. Every one of these new franchisees started with Domino’s either as a delivery driver or from within our system. This remains the secret sauce to our success. We ended 2023 slightly ahead of our expectations on U.S. store growth and profits, adding 168 net new stores and finishing the year with estimated average franchisee profitability per store of $162,000. This highlights the momentum we expect to continue into 2024.

I couldn’t be more excited about 2024 and beyond for Domino’s Pizza. Our foundation has never been stronger and our vision has never been greater. We made a ton of progress in 2023 and our strong start to ’24 gives me confidence in our ability to win with customers and drive return for Domino’s franchisees and shareholders. Now with that, I’ll turn things over to Sandeep.

Sandeep Reddy: Thank you, Russell, and good morning, everyone. As a reminder, in the third quarter, we closed the remaining 143 stores in the Russia market. The 2023 global retail sales growth measures exclude the Russia market and are calculated as a growth in retail sales, excluding the retail sales from the Russian market from both 2023 retail sales and the 2022 retail sales pace. Now for our fourth quarter financial results. Excluding the impact of foreign currency, global retail sales grew 4.9% due to positive U.S. comps and global net store growth. U.S. retail sales increased 4.5% and international retail sales, excluding the impact of foreign currency, grew 5.2%. During Q4, same-store sales for the U.S. business saw an increase of 2.8%.

As Russell noted earlier, our strong comps in the quarter were driven by both delivery and carryout as they were up 2% and 3.9%, respectively. For the year, delivery represented 48% of our transactions and 58% of our sales, while carryout represented 52% of our transactions and 42% of our sales. The weight of sales and transactions shifted slightly more to carry out in 2023. The increase in U.S. Q4 same-store sales was driven by transaction growth from our new loyalty program inclusive of a benefit from Emergency Pizza, pricing of approximately 1%, and a 0.4% sales mix from Uber. It will take us some time to determine just how much of that Uber mix is incremental. So more to come on that as we move through 2024 and into 2025. These tailwinds were partially offset by a slightly lower average ticket that was the result of higher carryout mix.

Shifting to unit count. We added 92 net new stores in the U.S., bringing our U.S. system store count to 6,854 stores at the end of the year. For the year, we added 168 net new stores, which was a strong increase over the 126 net stores we opened in 2022. U.S. company-owned store gross margin decreased 1.6 percentage points in the fourth quarter of 2023. Excluding the impact from higher insurance costs and an increase in our loyalty liability, due to the change in point structure following the relaunch of the Domino’s Rewards program, margins would have expanded slightly. Domino’s unit economics remained strong with continued EBITDA growth for our U.S. franchisees. We are expecting that our average franchisee profitability per store will come in at $162,000 in 2023, up $23,000 from the prior year.

Shifting to International. Same-store sales, excluding foreign currency impact, increased 0.1%. The deceleration from the third quarter is being driven primarily by pressures in Europe and geopolitical tensions in the Middle East. Please note that the Middle East represents a relatively small portion of our profits at less than 3% of our operating income. Our international store count increased by 302 net stores in the fourth quarter. For the year, our net store growth in international was 702 units, excluding the Russia closures. In total for the year, we grew 870 net stores across the globe. Income from operations increased $8.4 million or 3.4% in the fourth quarter. Excluding the impact of the $21.2 million prior re-franchising gain that we are lapping income from operations would have been approximately — would have been up approximately 13% in the fourth quarter and up approximately 10% for the full year.

Now turning to our 2024 outlook, which remains in line with what we shared at Investor Day in December. Our guidance calls for the following in 2024. 7% or more of global retail sales growth excluding the impact of foreign currency. We are expecting our 2024 U.S. comp to be above the 3% long-term guide as a result of our expected outsized catalysts in Uber and loyalty. As we have communicated previously, we expect our sales with 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. We expect sales with Uber to start ramping up after Q1, which will have only a partial tailwind from marketing. In the U.S., we are planning for a modest price increase in the low-single digits.

This is inclusive of California, where we’re expecting to take pricing above that to offset the wage impacts from AB 1228. We expect our international comps to remain soft in the first half of the year due to a continuation of the trends we saw in the fourth quarter, 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 are expecting 1,100 or more, which will be driven by 175 in the U.S. and 925 in international. There was a meaningful uptick in our U.S. net store growth in the fourth quarter, which was slightly ahead of our expectations, and the pipeline continues to build. We are expecting net unit growth in the U.S. to be relatively flat to 2023 in the first half of the year and to accelerate slightly in the back half based on current visibility.

Internationally, we are expecting to increase net store growth each quarter over the prior year as we lap the one-time closures we had in 2023 and to step up significantly in the back half of the year. As previously communicated, we are expecting slightly less than half of our growth to come from China and India. On profits, we are expecting an 8% or more year-over-year increase in operating income excluding the impact of foreign currency. We do not expect the impact of foreign currency to have a material impact in 2024 based on current FX rates. A few additional points of color on some of the profit components. We are expecting our food basket to be up 1% to 3%. This has been driven by continued moderation on cheese prices. From meeting’s perspective, we expect the Q1 food basket to be deflationary as we lap the only quarter from 2023 when the basket increased followed by moderate increases for the remainder of 2024.

We are expecting our supply chain margins to be roughly flat for the year, barring any unforeseen shifts in the food baskets. We are expecting an increase in year-over-year supply chain margins in Q1 due to the expected negative food basket, followed by a slight moderation for the balance of the year. We expect supply chain margin dollars to grow in line with transaction growth throughout the year. We are estimating that rate (ph) inflation across the system, inclusive of California will be in the mid-single digits, and this has been primarily driven by minimum wage increases. We are expecting our G&A as a percentage of retail sales to be approximately 2.4%, which is in line with 2023. We also wanted to provide an update on our technology fee for 2024.

In Q2 2023, we increased this fee to $39.5 and temporarily lowered our advertising fund contribution percentage by 0.25% to 5.75% for a 12 month period. Starting at the beginning of Q2 2024, we are lowering the technology fee to $35.5 and increasing the ad fund back to 6%. As previously communicated, we are expecting operating income margins to be relatively flat compared to 2023. We do not expect 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 Q1 margin expansion due to lower inflationary pressures, as previously noted on our food basket and we are expecting the Q2 margin rate to be down because of the timing of G&A spend which will be partially driven by our worldwide rally (ph), a gathering of our U.S. and international franchisees that takes place every two years.

We expect margins in the back half of the year to be flat. As I conclude, I wanted to note that we announced a 25% increase in our dividend and increased our share repurchase authorization by $1 billion. All of this is being done in line with our capital deployment priorities. Thank you. We will now open the line for questions.

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Q&A Session

Operator: Certainly. [Operator Instructions] And our first question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Brian Bittner: Thank you. Good morning. Clearly, your underlying core business is showing very nice signs of improvement, positive traffic in both the carryout business and delivery business prior to any Uber benefits. And I understand improvements in the core business can continue moving forward, maybe even perhaps accelerate and they remain important, but now you are fully rolled out with Uber. And our conversations with the investment community suggests the expectations for Uber mix currently is still relatively low, maybe that 1% to 1.5% range. And you talked about getting to 3% by the end of the year. So can you talk about how this improvement should unfold as the year unfolds and maybe unpack the marketing that’s getting turned on. How is that bolstering your expectations for where the Uber mix will go? Thank you.

Russell Weiner: Good morning, Brian. How are you doing? Let me talk a little bit about what we’re seeing as far as the cadence of the flow of orders from Uber. Sandeep talked about the 0.4 in Q4, and we’re seeing a meaningful uptick in Q1, we just turned the marketing on and so essentially, and same with Uber. So essentially, what we expect to see as awareness grows, is that percent of sales grow, and we feel like we’re still in line for the 3% exit rate that we spoke about.

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

Lauren Silberman: Thank you very much. Congrats on the quarter. I wanted to ask about value in January, you ran the week-long carryout promo, which I haven’t seen before. Can you talk about the rationale behind that? Any commentary on how you saw that perform and to the extent that you’re willing to talk about January, just given a little bit of noise across the industry? And then more broadly, how you’re thinking about value and any incremental value offers through ’24. Thank you very much.

Russell Weiner: Yeah. Lauren, when you think about our Hungry for MORE strategy, renowned value is a big piece of it. And the carryout special isn’t something new. It’s something we brought back. I think the last time, we ran it was 2020. And frankly, that’s going to be part of our portfolio moving forward as well as 50% off as well as our mix and match deal. Value is a key component not only price but value from a loyalty standpoint and value in the aggregator space. So yeah, the weak loan carryout wasn’t anything new, but what I will tell you, it performed extraordinarily well. I’m really happy with the way it went.

Operator: Thank you. One moment for our next question. Our next question comes from of Gregory Francfort from Guggenheim (ph). Your question, please.

Gregory Francfort: Hey. Thanks for the question. Just looking at the unit growth this quarter, the domestic side, really strong pickup in terms of openings, international, maybe a little bit on the softer side. As you guys look out to next year, can you maybe talk about your confidence in that accelerating on a global basis next year and then maybe what that looks like from a domestic and international standpoint? Thanks.

Russell Weiner: Yeah. We still feel really strongly about the guidance we gave, the 1,100 plus stores and 5,500 over the next five years. I mean you saw some really nice momentum at the end of the year in the U.S. in 2023. We expect to see more at the end of the year in 2024. Internationally, I think we’ve got a lot of closures behind us, that was probably one of the things that was driving down the number this year. But those closures really focused on three areas. Domino’s Pizza Enterprises, and they talked about their number, Russia and Brazil. Those three were over 80% of our closures and no other market closed more than five stores. And so as we look forward, we feel really confident about openings. And I’m sure someone will ask a little bit later, but when you look at the profitability of our U.S. franchisees, you look at the fact that for the — we had more new franchisees in 2023 than we have in the last 15 years, they’re bullish about Domino’s Pizza, and they’re spending their money that way.

Sandeep Reddy: And Greg, I’m just going to add something in terms of the international store openings in particular. I think the — we provided some milestones to say that every quarter we’re expecting to actually grow against last year, as we lap the closures and then significantly accelerate more in the back half of the year. So very confident in where we are with store openings international. And we’ve been talking to our master franchisees and have good visibility to our expectations there.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Andrew Charles from TD Cowen. Your question, please.

Andrew Charles: Great. Thank you. Russell, within guidance for outsized ‘24 or U.S same-store sales, can you talk about your expectations for core traffic growth or what 2024 same-store sales will look like when you exclude the 3% mix for Uber and the low-single digit pricing? What I’m trying to get at is that do you believe similar to 4Q that you can drive positive carryout and delivery transactions, excluding the impact of Uber? Thanks.

Russell Weiner: Yeah. Andrew, absolutely. When I think about 2023, it was kind of a tale of two stories for us. The first part of the year was all about addressing the base and fixing things like delivery times and getting delivery times back to where they needed to be and getting franchisee profitability back where it needed to be, so that in Q4, we were able to really lean into the Hungry for MORE strategy and you saw it all in action. You saw most delicious food with innovation. You saw a renowned value from a promotional standpoint with loyalty. And so all of those things are going to be able to continue throughout 2024 with this improved base that we’ve got. So yeah, I expect both carryout and delivery orders to be positive.

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

Dennis Geiger: Great. Thanks. Good morning, guys and thanks for all of the color on the loyalty program. Wondering if you could just talk a little more about loyalty in the U.S. and sort of expectations for the program looking ahead. I think recently, you’ve kind of talked about that as being the biggest contributor to U.S. same-store sales growth this year. Curious if that expectation still holds. Thank you.

Russell Weiner: Yeah, Dennis. The loyalty program was just off to — it’s off to a great start. I’ll just repeat numbers that we had in the opening remarks because I just like them so much. We added 3 million folks last year, 2 million of them came with a new program. And so it’s important to know because I’ll talk about Emergency Pizza in a second and the effect on loyalty there. But the loyalty program out of the gate before even Emergency Pizza was doing exactly what we needed it to do, which was engage lower-frequency users, engage carryout users, then we brought in this powerhouse of Emergency Pizza that continue to inflect those numbers. And we have ideas like that in the future that we’ll be able to drive, there will be advantages and there are advantages to be in a Domino’s Rewards customer.

I’ll give you a little bit more color about the users. It’s doing exactly what we thought it would which is driving frequency, especially among the lower frequency customers, as I said before, also the carryout customers. And even though we have these lower tier levels, we’re down to two purchases now can get you a free item. Because of the food cost at these various tiers, it’s actually positive for the franchisees. So really, as I said, a win-win, a better program that’s more engaging to customers and more profitable for our franchisees.

Operator: Thank you. One moment for our next question. And our next question comes from the line of David Palmer from Evercore ISI. Your question, please.

David Palmer: Thanks. Good morning. Great update. I’m getting some feedback as I’m asking, so I’ll try to get through this. Wanted to ask you about a couple of profit drivers for this upcoming year, that being company-owned stores and supply chain. In the company store line is probably the only area of the P&L that was slightly disappointing on the quarter. But for the year, it looked like the company stores profitability was down maybe 10%. And your franchisees did a lot better than that, they were up double digits this last year. So any sort of callouts you would make in the quarter and for the year, and more importantly, how are you thinking about margins for company stores long term? They had been as high as 23.5% or so, consensus for ’24 is more like 18%. So I’m just wondering, how you’re thinking about company operated and then supply chain. Any comments there? Obviously, very strong on the supply chain in the fourth quarter, how you’re thinking for ’24. Thanks.

Sandeep Reddy: Thanks for the question, David. So I think on the company stores in the prepared remarks, I actually called out a couple of impacts in the fourth quarter that actually impacted our margins. One of them really was insurance costs. And the other one was the accrual because of the points that actually got generated with the new loyalty program. And I think when you take out those two impacts, our margins actually expanded. So the good thing about this is, I think the loyalty program has worked extremely well from a transaction perspective for company stores. And we expect this to be significantly driving profit dollars, and we expect to revert to margin expansion in 2024. And frankly, I think we expect to continue to build on our margins as we move forward even beyond 2024.

And then I would go to the supply chain profit. We’re really happy about our supply chain profitability that we generated in the fourth quarter. A big driver of supply chain profitability all year was the productivity improvements that we saw specifically driven by procurement and in food cost, and I think that was a big element of what we saw. As we pivot to 2024, the expectation on supply chain is, it’s going to be supply chain profit dollars because it’s going to be driven by our transaction growth. And as Russell talked about earlier, we’re expecting to see transaction growth before and after the impact of Uber. And all of that is going to fly through the supply chain P&L and expect that to actually drive significant profit dollar growth for the Supply Chain business.

Russell Weiner: Yeah. I’d just add those same transactions also add up to a low fees, online ordering fees as well. Yeah.

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. Very nice to see the order counts in both delivery and carryout, but I wanted to ask specifically about the Emergency Pizza promotion and whether you could try to frame up how much of a lift that might have cause for the transaction growth. And I know there’s a component about customer acquisition in there. So just wanting to sort of get a sense of how you’re thinking about the trend coming out of that promotion, which ended, I think, recently? Thanks.

Russell Weiner: David, I’ll start, maybe Sandeep, you can give some color to this one, too. Emergency pizza was a resounding success. It really was. And when I look back and just, again, giving complements to our marketing team, this is your traditional buy one get one free, that has been marketed in such a way that it really breaks through. We’ve done buy one get one free before. They’ve done nothing like this. And when I think about Emergency Pizza, what I like is not only what it did to order count, it also drove people into the loyalty program because you need to be a loyalty member in order to get your Emergency Pizza. I think last, we have a new thing in our arsenal now. Boost weeks have worked really well for us. We’ve got this Emergency Pizza piece now, and I expect this is ownable from our perspective. And so this is something we’ll be able to use in the future as well. Sandeep, if you want to add some color?

Sandeep Reddy: Yeah. I think Russell is exactly right. And I think the thing about what’s happening with Emergency Pizza, it’s a brilliant marketing innovation from our marketing team. But I think the broader construct of it is thinking about Domino’s rewards the loyalty program. And that essentially creates a key platform to our third pillar renowned value. So at the beginning of the quarter in the fourth quarter, we had pepperoni stuffed cheesy bread, which was a special offer that was actually being connected to the loyalty program. Then after that, we’ve got Emergency Pizza and there’s a number of different promotions that we can continue to bring along on to Domino’s rewards. So the driver rather than looking at Emergency Pizza by itself, is really Domino’s rewards and how much which can drive and transaction growth for us. This is a significant pillar of how we’re going to drive transaction growth in 2024, both in delivery as well as carry.

Russell Weiner: Yeah. That was a big learning from us for the first loyalty program we had. With Piece of the Pie rewards, we advertised on TV, hey, we have a rewards program. And what we learned over time is actually the best way to tell people that you have a rewards program is have a really compelling promotion, whether it’s a new product or something like Emergency Pizza that the only way you can get it is, if you sign up for the program. And once you sign up for the program, you’re in this flywheel of frequency driving point levels that we’ve never had before. And so I think Emergency Pizza was a highlight. But as Sandeep talked about, that type of mechanism driving people into the loyalty flywheel is something we’re going to continue to – a play will continue to run.

Operator: Thank you. One moment for our next question. And our next question comes from the line of John Ivankoe from JPMorgan. Your question, please. John, you might have your phone on mute.

John Ivankoe: Apologize. Can you hear me now?

Operator: Yes.

John Ivankoe: Okay. Perfect. All right. You’re on speaker, but all right, this will work. First, in terms of the — some of the slowdown that we saw, the brands saw in Continental Europe, were there any learning lessons that you could apply there, perhaps as Europe potentially being as a leading indicator to the U.S. of how you could get in front of some economic changes that would actually allow the perform — the brand to perform better in the U.S. than perhaps it has in Europe, at least in the last quarter is the first good question. And then secondly, obviously, there’s no direct P&L impact in advertising allocation, but there is a direct P&L impact in terms of the online ordering fee. In terms of reducing that online ordering fee or cutting it at least marginally relative to what it was in ’23.

I mean what was the reasoning behind that? Was that really franchise driven? Obviously, the economics at the franchise level would suggest that they could bear that higher fee, but I just wanted to have a sense of why you felt that, that reduction was necessary to make? Thank you so much.

Russell Weiner: Good morning, John. I’ll take the first question, maybe Sandeep will take the second one. Our European business is really strong, and we believe some of the pressures we’re seeing there are generally transitory in nature. If you listen to the call from DPE, Domino’s Pizza Enterprises, our master franchisee over several markets, but especially France, there have been some challenges there, and that’s one of our larger markets in Europe. We’re partnering closely with them right now on those challenges. What I’d point to for DPE in general, there are green shoots in a lot of the markets where they’re really leaning in on. And so, for example, Australia, New Zealand, the numbers there have been fantastic. And one of the reasons why is, they’re leaning into the M, the most delicious food part of Hungry for MORE.

I mean, I don’t think anyone is doing it better than they are right now. They give a little insight into Japan into the first kind of six, seven weeks of the second half and how that seems to have turned a corner. Germany is positive. So we’re working on France together, and that’s certainly a business that needs to turn.

Sandeep Reddy: Yeah. And I’ll just finish off on what Russell just said. And if you remember what I talked about in the prepared remarks, we expect to see pressure in the first half of the year on the international business. But exactly why we expect to see an improvement in the back half is because of all the more initiatives. Australia is one example. But taking those learnings and applying them across the international markets should enable us to offset any other headwinds that we have as we go into the back to our long-term guidance. And then specifically to your question on the advertising fund and the online fee. Now let’s go back to about a year ago. And I think about a year ago, where we were was franchisee profitability was not in the best place.

We had come off a big decline in franchisee profits in ’22. And we saw an opportunity because of the buildup in the reserves of the ad fund to essentially take a 25 basis point 12-month hiatus from the advertising fund contributions, but we did want to continue investing in our technology solutions. And so we did take up the technology fee by $0.08. View that as a temporary increase and kind of an offset between the ad fund contribution and the technology fee. Now that we’ve actually come to the point where we think it needs — it’s time to restore the ad fund the 6%, we have actually adjusted the technology fee to $35.5. Another way to look at it is we actually went up from $31.5 to $35.5. And if you look back at our history, we’ve consistently increased our technology fee because we’re making investments on technology for our franchisees, which drives the flywheel of their growth and eventually drives global retail sales and our royalty dollars as well.

And so that is the rationale. I think where we are. All of this is included in the $170,000 or more in franchisee EBITDA that we’re expecting for 2024, and we feel very good about it.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Chris O’Cull from Stifel. Your question, please.

Chris O’Cull: Thanks. Sandy, could you break down how much of the $23 million of the year-over-year supply chain profit dollar growth came from the productivity improvement versus the volume growth? And do you expect any productivity improvements to continue in that segment into ’24?

Sandeep Reddy: Thanks, Chris. Thanks for the question. A significant portion of the profit dollar growth that we saw in ’23 came from the productivity improvement that we saw. It was pretty outsized. And I think it was, it is probably a function of where the markets were, especially after the outsized inflationary period in 2022 that we were able to get such significant improvements in ’23. And as we move forward in ’24, this is definitely going to be a focus, but it’s not going to be as outside as it was in ’23. We do expect to get some benefits but I think we also have to make investments in capacity, like I talked about, both at Investor Day and earlier on the call today. So that’s why I think as we look at ’24, really expect profit dollar growth to be driven by transaction growth and productivity improvements that we can see, if anything should be an offset as some of the investments that we’re making in the business.

Russell Weiner: But the nice thing about what our supply chain team has done, the productivity we gained in 2023, it’s not going back and so, I would think about that as kind of accruing forward. So well done by Sandeep and the team (ph).

Operator: Thank One moment for our next question. And our next question comes from the line of Peter Saleh from BTIG. Your question, please.

Peter Saleh: Great. Thanks for taking the question. I want to come back to the loyalty conversation. Russell, I think you mentioned 2 million plus new loyalty members since launch. And I think at the Investor Day, in early December, you had mentioned there was about $1 million incremental. So just curious if you could comment, was there a meaningful acceleration in new loyalty members in December? Do you expect that trend to continue in ’24? And then is there any way to parse out how many of those are coming or more carryout customers versus traditional delivery?

Russell Weiner: Yeah, Peter. There are — I’d say a couple of meaningful moves in the loyalty program. First was just the launch of the loyalty program, right? We saw a meaningful increase, and that’s what we talked about with you in December. And then building on top of that, we had some more momentum driven by Emergency Pizza. So I’d say loyalty program on its own did well is doing very well. We have added a little bit more gas on the fire with Emergency Pizza. And as we continue into Q1, now with Emergency Pizza behind us, we’re still very happy with the way that’s growing, and we’ve got programs like Sandeep talked about earlier that we’ll continue to drive that business. The other thing, and you talked about this that I’m really happy with is the big objective here was to engage carryout customers and to engage light users. And we are absolutely doing that with the program. And we can see that even out of the gate so far.