Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 Domino's Pizza Incorporated Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Tim McIntyre, Executive Vice President of Communications.
You may begin.
Thank you, Sonia, and hello, everyone. Thank you for joining us for our conversation today regarding the results of our Q2 2019. The call will feature commentary from Chief Executive Officer, Rich Allison and Chief Financial Officer, Jeff Lawrence. As this call is primarily for our investor audience, I ask all members of the media and others to be in a listen only mode. In the event that any forward looking statements are made, I refer you to the Safe Harbor statement you can find in this morning's release, the 8 ks and the 10 Q.
In addition, please refer to the 8 ks to find disclosures and reconciliations of non GAAP financial measures that may be used on today's call. A request to our analysts, we want to do our best to accommodate all of you today, so we encourage you to ask only one question on this call, if you would, please. And with that, I'd like to turn it over to Chief Financial Officer, Jeff Lawrence.
Thank you, Tim, and good morning, everyone. In the Q2, our positive global brand momentum continued as we delivered solid results for our shareholders. We continue to lead the broader restaurant industry with 33 straight quarters of positive U. S. Comparable sales and 102 consecutive quarters of positive international comps.
We also continue to increase our global store count at a healthy pace as we opened 200 net new stores in Q2. Our diluted EPS was $2.19 an increase of 19% over diluted EPS as adjusted in the prior year quarter, which excluded the impact of our recapitalization transaction completed in 2018. With that, let's take a closer look at the financial results for Q2. Global Retail sales grew 5.1% as compared to
the prior year quarter, pressured by
a stronger dollar. When excluding the negative impact of FX, global retail sales grew by 8.4%. This global retail sales growth was driven by both increases in same store sales and the average number of stores opened during the quarter. Same store sales for the U. S.
Grew 3%, lapping a prior year increase of 6.9%. And same store sales for our international division grew 2.4%, rolling over a prior year increase of 4%. Breaking down the U. S. Comp, our franchise business was up 3.1%, while our company owned stores were up 2.1%.
The comp this quarter was driven by ticket growth. We continue to experience pressure on the U. S. Comp from our successful fortressing strategy as well as from aggressive marketing of 3rd party aggregators. On the international front, our comp for the quarter was also driven by ticket growth.
On the unit count front, we opened 42 net U. S. Stores in the Q2, consisting of 45 store openings and 3 closures. Our international division added 158 net new stores during Q2 comprised of 171 store openings and 13 closures. We are very happy with the rate and pace of our net store growth during the first half of twenty nineteen and note that we have opened 50% more units globally than at the same point last year.
We have opened approximately 100 net units per month over the last 12 months, which we believe demonstrates the broad and enduring strength of our 4 wall economics, combined with the efforts of the best franchise partners in the restaurant industry. Turning to revenues. Total revenues for the Q2 were up 32 point $2,000,000 or 4.1 percent from the prior year, resulting primarily from the following. 1st, higher U. S.
Franchise retail sales resulting from both same store sales and store count growth drove increased supply chain and U. S. Franchise revenues Higher international retail sales resulted in increased international royalty revenues, but were partially offset by the negative impact of changes in foreign currency exchange rates. FX negatively impacted international royalty revenues by $3,000,000 versus the prior year quarter due to the dollar strengthening against certain currencies. These increases were partially offset by lower company owned store revenues, resulting from the previously disclosed sale of the 59 corporate stores in our New York market to existing franchisees during the quarter.
As I mentioned during the Q1 call, this transaction will help us accelerate fortressing the New York market and further allows us to remain focused on fortressing our remaining corporate store markets. Moving on to operating margin. As a percentage of revenues, consolidated operating margin for the quarter increased to 39% from 37.7% in the prior year quarter and was positively impacted by the New York sale. Supply chain operating margin was up 0.6 percentage points year over year and was positively impacted by procurement savings and lower insurance costs, but was negatively pressured by higher labor costs. Company owned store operating margin was up 0.9 percentage points year over year, driven by the New York sale.
We continue to experience labor rate pressures in many of our remaining company owned store markets. G and A costs increased $2,700,000 as compared to the prior year quarter, driven in part by a $2,400,000 loss on the New York sale. Interest expense decreased $2,200,000 in the 2nd quarter, driven by $3,300,000 of incremental interest expense recorded in the prior year related to our 2018 recapitalization. Our reported effective tax rate was 12.9 percent for the quarter, down 2.2 percentage points from the prior year quarter. The reported effective tax rate included a 9.2 percentage point positive impact from tax benefits on equity based compensation.
We expect to see continued volatility in our effective tax rate related to equity based compensation for the foreseeable future. When you add it all up, our 2nd quarter net income was up $15,000,000 or 19.3% over the prior year quarter. Our 2nd quarter diluted EPS was $2.19 versus $1.78 in
the prior year, which was a
23% increase. As compared to our prior year diluted EPS as adjusted for the 2018 recapitalization of $1.84 our 2nd quarter diluted EPS increased 19%. Here is how that $0.35 increase breaks down. Our lower effective tax rate positively impacted us by 0 point
$9 primarily related to higher tax benefits on equity
based compensation. Lower diluted share count resulting primarily from share repurchases over the past 12 months benefited us by $0.06 Higher net interest expense resulting primarily from slightly higher interest rates negatively impacted us by $0.02 Foreign currency negatively impacted royalty revenues by 0 point 0 $5 And most importantly, our improved operating results benefited us by 0 point $4 negative impact from the loss recorded on the New York sale. Now turning to cash. Would like to take a moment to highlight the continuing strength of the Domino's financial model, in particular, our cash flow generation. During the first half of twenty nineteen, we generated net cash provided by operating activities of more than $200,000,000 After deducting for CapEx, free cash flow generated for the first half of the year was more than $175,000,000 Over the past 12 months, we have generated more than $330,000,000 in free cash flow.
I highlight our cash flow story not only to demonstrate our outstanding financial model and performance, but also to remind folks of our long term commitment to returning cash to shareholders. During the Q2, we repurchased and retired $3,300,000 worth of shares at an average purchase price of $2.69 per share, bringing our year to date total repurchases to $11,500,000 and our total share repurchases over the past 12 months to more than $280,000,000 We also returned 26 $7,000,000 to our shareholders in the form of a $0.65 per share regular quarterly dividend. As always, we will continue to evaluate the most effective and efficient capital structure for our business as well as the best ways to deploy our excess cash to the benefit of our shareholders. Overall, our solid consistent momentum continued and we are pleased with our results this quarter. We will remain focused on relentlessly driving the brand forward and providing great value to all of our stakeholders, including our customers, franchisees, team members and shareholders.
Thank you for joining the call today. And now I'll turn it over to Rich.
Thanks, Jeff, and good morning, everyone. Overall, I'm pleased with our 2nd quarter performance. As we discuss the quarter, I'll try to put things in the context of what matters on our long game journey to drive profitable growth for brand and our franchisees. We continue to lead the pizza category and we continue to gain share around the globe, But we are a work in progress brand. There have been and always will be plenty of areas where we can improve.
With that context, let's talk about the quarter. Starting with the U. S. Business, our retail sales performance was once again driven by a balance of same store sales and solid net unit growth. Our same store sales performance for the quarter came in toward the lower end of our 3 to 5 year outlook as we continue to navigate through headwinds related to aggressive activity from 3rd party delivery aggregators.
I do not expect this activity to ease in the near term. We also continue to put some pressure on our comps through our own fortressing strategy. As we've discussed in the past, this is an investment that we and our franchisees are happy to make for the long term growth and profitability of the business. During the quarter, our comp was mostly ticket driven, which does not signal a shift in strategy away from driving order counts, but it does reflect the franchisee flexibility being utilized at the store level related to menu price and delivery charge having more of an impact. Make no mistake, we remain focused on utilizing data with our franchisees to drive transaction growth coupled with smart ticket opportunities where possible.
It is the strategy that got us here, the strategy that is sustainable and the strategy that will help us navigate through challenges in the future. Our Points for Pies promotion extended into the Q2. And while it was a solid sales driver, I am most pleased by the progress toward our additional objectives related to app downloads, awareness and reengagement tied to the loyalty program. I continue to be pleased with the pace of unit growth in our U. S.
Business. A solid quarter of 45 openings and only 3 closures once again demonstrated our industry leading unit economics. Fortressing continues to be the right long term answer for the brand, and I am pleased with the strong support for this strategy within our franchise system. Our data driven approach to territory assessment has created a meaningful, educated conversation around how we can best continue to win the long game by establishing closer proximity to households, driving carryout, shrinking delivery areas, improving service and lowering cost per delivery for franchisees. This approach is also creating meaningful opportunities for our franchisees to grow their enterprise profitability.
We remain excited about this initiative and its positive impact on unit growth and retail sales for the remainder of 2019 beyond. Fortressing is a critical component of our efforts to improve service to our customers, but it is not the only component. Our operators must continue to push harder every day to improve service, getting to the door consistently on time with great tasting pizza. As a brand, we will also continue to invest in technology to help our franchisees and operators. I am pleased to announce today that our GPS tracking technology will be launched by the end of 2019.
This will be an innovation step that will bring even further transparency to the experience of tracking an order. And I am pleased that we will be getting it off the ground very shortly. During the quarter, we announced our new pilot program in partnership with Neuro as we continue to expand the self driving delivery learnings that bring us closer every day to the technology that could truly revolutionize the way we do business. We will be testing this in the Houston area this fall. We will also continue our multi market testing of Dom voice order taking, now in over 40 company owned stores.
Across these and other initiatives, rest assured that we will not slow down. We will continue to invest and innovate aggressively to stay at the forefront of our industry. For the U. S. Business, as we look forward, we will remain focused on our long game approach to balanced growth via volume driven retail sales, strong unit economics and franchisee health.
I want to thank our U. S. Franchisees for continuing to dig in during what has recently been a unique operating and competitive environment. Beyond all other things, my top priorities remain your profitability, your long term growth potential and staying aligned on what matters as we head into the back half of twenty nineteen. Moving on to international.
It was another very solid quarter for unit growth. While near term challenges continue in getting comps back to levels we are used to, our retail sales performance showed a blend of units and comps, leading to a healthy result. This blend may shift over time, but so long as there is balance, coupled with our strong fundamentals related to unit economics and market share, I remain confident in our proven international model. During the quarter, net unit growth of 158 stores was a strong improvement over Q2 of 2018, demonstrating the strength of our unit economics and the terrific commitment of our international master franchisees. Unit openings were strong across all regions.
Same store sales were ticket driven, and we continue to stress the importance of data analytics and insights with our master franchisees in helping to make smart decisions related to pricing and promotional strategy. During the quarter, we gathered our international master franchisees from around the world in Amsterdam for a week of best practice sharing and learning. We discussed many of the successful strategies and tools that have been developed in our leading markets around the world. It is one example of how our various centers of excellence are engaging with and supporting our international partners. Our international model and our partners are very strong.
However, it is not lost on me that our comp performance over the last 3 quarters has come up short of our 3 to 5 year outlook. While we may be near the low end of our target for a period of time, our international business remains healthy and poised to contribute meaningfully toward our 8% to 12% global retail sales outlook over time. All in all, as I look across the global Domino's business, I am pleased with the first half of twenty nineteen. I am as encouraged by our many successes as I am by our passion and our focus on addressing the areas where we can improve. We will never stop striving to get better.
And with that, we are happy to take some questions.
Thank you. And our first question comes from Lauren Silverman of Credit Suisse. Your line is now open. Hi, thanks for the question. Can you talk about where you see the greatest opportunity to drive same store sales?
Is it from your existing customer
Lauren, it's Rich. Thanks for the question. We see opportunity honestly across both of those, both in terms of attracting new customers into the brand and also driving incremental sales with those existing customers. During the Q2, we continued our Points for Pies program, which was all about continuing to do both of those things. Number 1, driving increased number of loyalty program enrollments, resulting in additional customers coming in to the brand and purchasing for the first time, but also continuing to expand our engagement with our existing customer base.
As we discussed back in January, we've got more than 20,000,000 active members in that piece of the pie rewards program. So as we look forward, we see opportunity on both of those fronts.
Thank you. And our next question comes from Brian Bittner of Oppenheimer and Company. Your line is now open.
Hi, thanks. It's Mike Tamas on for Brian. I think we're sort of all just kind of wondering what changed in the same store sales trajectory from last quarter. You mentioned the 3rd party delivery headwind probably peaked last quarter and then you kind of said this quarter is going to keep going and you didn't see any let up there. So is that did something change there or with the fortressing headwind that sort of changed the trajectory of your traffic or how do we think about that?
And then how do you think about reaccelerating your traffic going forward and just your overall sales trends? Thanks.
Sure. So Mike, as we take a look at Q2, no material differences in the pressures on our same store sales in the U. S. Business. We continue to progress forward with our fortressing strategy that we've been working on for a while, and we've shared with you the range of downward pressure on the comp from that.
That honestly doesn't fluctuate much on a quarter to quarter basis. And then we did during Q2 continue to see a significant amount of pressure in the part of 3rd party aggregators. There is a substantial amount of discounting out there as they drive to gain market share. And second, a lot of spending on advertising in the marketplace, which puts some downward pressure on our share of voice. So same really a very similar story to Q1 in terms of the pressures on the comp.
As I look forward and think about how do we drive comps in the future and reaccelerate, there is the story is going to be fairly similar to what it's gotten us here over the past several years. There are some things that are still going to matter a lot even in this new competitive landscape. We've still got to bring great product to our customers each and every day. We are heavily focused on that. We've got to remain intensely focused on value.
And while we've certainly seen cost pressures into the business, we and our franchisees have been steadfast with our $5.99 mix and match, our Delivery Hero offer there and our $7.99 carryout offer. That's still going to be important. We've got to drive every day to provide consistent and great service delivery service to our customers. We're working on that every day. And we'll continue to invest in technology.
I mentioned some of those in my prepared remarks on the call. I'm particularly excited about our rollout of GPS coming later in the year, which will once again put some fantastic technology, not only in the hands of our customers to get better transparency into their pizza order, but also in a lot of ways, I'm even more excited about the additional information that it will give our restaurant operators as they manage the efficiency around their delivery operations.
Great. Thanks.
Thank you. And our next question comes from Chris O'Cull of Stifel. Your line is now open.
Yes, thanks. Rich, I know you talked a lot about these several technology test initiatives later this year like the GBS tracking, but are you considering any menu or value messaging changes? And I understand you might be able to elaborate on it, but is there anything else you're considering in terms of the business to address the transaction declines? And then I had a follow-up.
So, we're going to stay consistently, Chris, focused on value without question. And as we've talked about in the past, we very regularly use our research and our analytical tools to make sure that we fully understand what the right value offering in the marketplace is to drive transaction growth over the long term. We will continue to do that, and the answer continues to come back that the platforms that we have out there now, the $5.99 and the $7.99 are still very strong and competitive value platforms in the marketplace. As it relates to menu, we don't like a lot of other restaurant brands roll out LTOs on a regular basis. We just we don't like the economics and the operational complexity of doing that.
That said, we do recognize that we're in the food business and menu innovation is important over the long term. So we are constantly looking at new menu items and platforms that we might bring forward to our customers. We're testing those on an ongoing basis. In fact, I was personally in the test kitchen just about a week and a half ago, looking at a number of different items. And so as we develop and test and prove out those items with customers, then we'll launch them as the opportunities arise.
For a product to come onto our menu, it's got to drive incremental not only incremental transactions, but also we are very mindful of the profitability of those items to our franchisees' P and L. So we won't launch items just to drive short term comp. We want to make sure that any new items
category struggled to raise prices
without affecting transactions. Do you think Domino's has more pricing power now because of delivery freeze being charged by aggregators? Or is it critical for the company to reverse transaction declines soon?
So I think the pricing power in the category is in the hands of the customer. There are very few QSRs that have pricing power, and I don't see a lot of that in the pizza category. A big part of our success over the last decade has been the fact that you can still get a Domino's Pizza for the same price you were paying 9, 10 years ago. And we don't see any near term signs of that changing. It's really kind of early to tell around what impact these 3rd party aggregators are having on kind of setting pricing in the marketplace.
There's been so much discounting that even though some of the stated fees for food delivery are quite high relative to the underlying cost of the product, you probably get the same push notifications I get all of the time and emails from these aggregators with significant discounting to try to entice you to order. So we're keeping an eye not only on our traditional competitors as we always have with respect to their pricing practices, but we're also keeping an eye on this new set of competitors, these 3rd party aggregators. And we'll see over time, but our experience has certainly shown that remaining focused on value is the way to drive long term transaction growth in the business.
Great. Thank you.
Thank you. And our next question comes from
I think in the past you've talked about the 3rd party aggregators potentially creating a lot of trial with these offers that might not be sustainable. And I guess as you get further in to what they're doing and see the trend, Do you still have that view? Do you think this is maybe a temporary phenomenon related to the discounting they're doing? And then I guess secondly, you mentioned that you're not expecting the environment to change much in the near term. And I'm just wondering if you would comment on your degree of confidence in maintaining comps kind of near or above the low end of your 3% to 6% target given this environment?
Thanks.
Got it. Yes. So David, it's still a bit early to tell how sustainable the trial driving activities are. There still remains a heavy degree of discounting in the marketplace by the 3rd party aggregators and also a heavy degree of advertising spend as well. That group of aggregators has taken a fairly significant share of voice out there in terms of the advertising landscape around food delivery.
So we expect that behavior to continue for some period of time. I think these players, while the economics of the business are still, I think, open to question for the long term, the near term activity certainly indicates that investors are very willing to lose a lot of money in the near term to try to drive trial and market share in those businesses. So we remain attentive and watchful of everything that's going on and certainly analyzing our own data to better understand what our customers' behavior is over time, but don't see any signs that, that activity is going to slow down in the short term. When I take a look at our business, our 3 to 5 year outlook, 3% to 6% same store sales, no changes to that outlook for us. I still see significant opportunities in our business to continue to drive solid transaction growth.
We've got we continue to produce terrific advertising, industry leading advertising that drives awareness of the brand. That advertising is fueled by, without question, the largest and most powerful advertising budget in the pizza industry. We continue to develop fantastic technologies to put into the hands of our customers and into our stores to better drive operations. And we are pushing, I think, very importantly, very hard on service within our system because a critical element as we look forward into this new world where you can get anything delivered, well, we not only have to be the most economical and lowest cost delivery provider, but we've also got to be the best at getting to the door on time every time. And so we've got a pretty aggressive push internally to take service to the next level.
And we've got fabulous operators within the U. S. And around the world that are really setting new standards for how great we can be in terms of our on time delivery performance. And the fortressing strategy is really helping us to drive that over the long term as well as we tighten down these delivery areas continuing to allow us to get great service, but also to improve the underlying economics of each of those deliveries.
Thank you. And our next question comes from Matt DiFresco of Guggenheim Securities. Your line is now open.
Thank you. Just wanted something to clarify, and then I do have a question. I think there was a mention early on about the same store sales being driven not by traffic but by check and within that context some delivery charges. Was there a change in the quarter as far as franchisees on aggregate taking up delivery charges? Just curious if that had an effect on the traffic.
And then I just wanted to know if you could speak a little bit more about the change in your tone about the respect that you're hearing now or we hear now more for the 3rd party guys. What changed? Is it the additions of the fast food brands on those platforms? Is it their new regional expansion? Is it the level of discounting that they're doing, so maybe that's temporary and when that goes away, it goes away.
Just want to understand better sort of the anatomy of how their competitive intrusion is impacting the Domino's brand. Thank you.
Sure, Matt. So on your first question, the increase in ticket in the second quarter, it was a combination both of some of the delivery charges going up and also some menu price increases that some franchisees have taken during the quarter. On the delivery charges, a lot of that those are more pronounced. And as are the menu price increases, they are more pronounced in areas where we have seen significant increases in wages, primarily driven by states and in municipalities across in states and in municipalities across the country. The second your second question around our tone around the 3rd party aggregators, we still have the same questions that we have always had about the economic viability of the model.
Certainly, there is still a heavy amount of investor subsidy that is going into the discounting to the customer and into the incremental advertising point of the restaurants or the franchisees that are using 3rd party delivery. If you take a look at the growth rate in transactions in the restaurant industry and even in sales overall, there has not been a significant change in the growth rate of the restaurant industry with the entry of these delivery aggregators. So there's certainly some share some shift in how customers are receiving their food, more getting delivery as opposed to going into the restaurants or picking it up themselves. But there's no real indication that there's an overall growth in demand. We also still continue to hold the belief that ultimately, this is extracting profitability out of the restaurant industry for those players that are going on to these 3rd party platforms.
Now for the brands that are going on, you can take a look at top line sales growth, which will contribute royalties to brands. But I think the ultimate question about the viability will lie with the So we still hold a lot of the same questions around So we still hold a lot of the same questions around the overall business model. When I talk about the fact that we don't expect the pressure from these 3rd party aggregators to subside in the near term, that is really driven by the fact that we don't we haven't seen any slowdown in the pace of discounting or in the pace of their investment in marketing and advertising. And when you think about it, while the behavior at first blush may seem irrational, it is actually quite the rational behavior on their part. These there are going to be some survivors in this business and some of these aggregators will not be around in the future, would be my hypothesis.
And I suspect that the desire to spend to drive share is a rational behavior in the near term to try to be as each of these players tries to become one of those that will ultimately emerge.
Thank you. Thank you very much for that answer.
Thank you. And our next question comes from Gregory Francfort of Bank of America. Your line is now open.
Hey, thanks for the question. I'm maybe going to shift topics a little bit. Can you maybe address the store level margin performance in the quarter and the New York City benefit and help frame up either, what that means for lost EBITDA or what that means for margin benefit on a go forward basis for the next few quarters, however you maybe want to frame it up? And then the proceeds were a lot less than I guess I'd expected. Does that mean that the profitability of these stores were very low or any help on framing up that sort of multiple paid for the business and profitability change going forward that would be helpful?
Hey, Greg, it's Jeff. On the New York sale, we got market price for those assets, really excited to get those into the hands of those franchisees who committed not only to run those stores, but also to continue to fortress that market. We're going to take that money and continue to look at the best opportunity for that, but we are definitely all in unforetrusting and that includes the remaining corporate store markets where we compete and what markets those are. When you think about the operating margin change quarter over quarter for the corporate stores that we reported, We were up almost 100 basis points year over year. All that is New York.
While New York was certainly a good and profitable market, the operating margin percentages there weren't quite as high as some of our other even better performing markets. So, little bit of a math problem there. As we continue to move forward, as Rich mentioned earlier, labor pressures continue to persist regardless of where you're operating in the U. S, franchise versus corporate, East Coast versus West Coast versus the Heartland, whether government mandated or just economically mandated, we're paying more to really attract and retain great team members who continue and not to be missed, we continue to take material share in the U. S.
Pizza business in 2019 just as we have for this decade. So as we look forward, our operators, we have the right operators, we have the right business partners, we're getting technology into their hands to allow them to better compete with both the traditional and the upstart competitors. And how much money they'll make for 2019, we'll report to you in early 2020. But what I would tell you is, there is every opportunity in the last 6 months of the year, just as they have had 6 months in the bag already to put up hopefully another record year in dollar profitability. That's up to us and our operators to go and execute.
But we have all the opportunity in the world. It's the best economic model out there. And we feel good about where the brand is going.
Thank you. And our next question comes from Will Slabaugh of Stephens Incorporated. Your line is now open.
This is actually Niall on for Will. Thanks for taking the question. So regarding unit growth internationally, as you mentioned, openings were up nicely year over year. Could you give us a little more detail there in terms of what markets seem to be accelerating at this point? Or if there's any markets that could be stolen a bit and need a little more attention?
Neal, it's Rich. Yes, very pleased with unit growth in our international business. The 158 net units was a really nice increase over the Q2 of last year and trailing 4 quarter net store growth in the international business at 939. We're very pleased with that. When we take a look across, we had strong unit growth across all of our regions around the world.
And in particular, really pleased to see terrific unit growth in our brick markets, which have continued to accelerate back in January at Investor Day. We spoke with you some about the potential that we see in the business in the brick markets. We had strong growth there. But then we also saw some very strong growth in some of our more mature and established markets as well as a number of those markets are also implementing some similar fortressing strategies that we've been working on in the U. S.
Business as well. So all in all, I'm very pleased. When I take a look at what drives that growth, it's the same thing that has driven our growth in the U. S. And has driven what is a remarkably low number of store closures, both in the international business and in the U.
S. Business. And that is that we have terrific unit economics. The four wall economics in these Domino's Pizza boxes in the U. S.
And around the world remains incredibly strong. So really pleased with the unit growth and the very healthy contribution that it gave us to our global retail sales growth, which ex FX was 8.4% for the quarter, 9.8% in the international business. So very pleased with that 9.8
Perfect. Thank you.
Thank you. And our next question comes from John Ivankoe of JPMorgan. Your line is now open.
Hi, thank you. We've talked a lot about competition for customers requiring customers on this call, but I wanted to see kind of how you felt right now about the competition for drivers, if there are any markets that are particularly competitive for drivers and if you felt that that's impeded your execution levels in any way. And I think it's completely related to this, but some of your 3rd party competition have begun to separate delivery fees from service fees. Do you think that that is an opportunity and whether and if so, whether the economics could go to the franchisee or maybe there could potentially be some enhancements for the drivers themselves?
Thanks, John. I'll take that one. Absolutely, there is a lot of competition for delivery drivers out there in the marketplace. Record low levels of unemployment in the U. S.
And the rise of third party delivery, not only in the restaurant business, but in grocery and other areas has definitely heated up the competition for drivers. And we are working with our franchisees every day to continue to improve our service. And having the right scheduling and staffing is critically important. So we don't talk a lot about the technologies that we're working on that aren't customer facing, those technologies in the stores. But we've been working really hard on our store scheduling algorithms, for example, and have started to see some really nice success in our corporate store business around better service because simply with the labor that we have available, we're making sure that they are on the clock at the right times and the right days.
And our franchisees are also working very hard in this area as well. There are a couple of other things that we're working on to try to help us mitigate some of the driver challenge. The U. S. Market is actually fairly unique in the context of Domino's globally and that we send almost all of the pizzas that go out in the U.
S. Market go out in a passenger automobile. That's not how we do business most of the other places around the world. And so we're looking at other alternative delivery methods in the U. S.
As well. And in a number of cities, we're now delivering on bicycles and then also we've got some e bikes that we've deployed in some markets, including some of our corporate stores. Now the interesting thing about those is not only is it a lower cost way to deliver food, but also it opens up some additional workforce to us because not everyone has an automobile. And increasingly, young people and that kind of 18 to 20 year old range, fewer of them seem to have cars. So we're looking at those types of methods as well.
The testing that we're going to do in October with neuro, another round of autonomous delivery testing is yet another step forward to try to get us to a place where we can reduce the dependency on the labor market and also lower our cost of delivery. When you the second part of your question asked about the 3rd parties and their separating delivery fees from service fees, etcetera. We are we're taking a look at the fees that they charge in the marketplace just as we regularly take a look at the delivery fees that our pizza competitors charge. We take all of that data and use that to inform where we think our delivery fees should be on a market by market basis around the country. So we're constantly keeping an eye on that and adjusting the dial with the mindset that we want to make sure that we are not just taking short term price or profit at the of long term transaction growth over time.
That's always the balance that we try to strike.
Thank you.
Thank you. And our next question comes from Sara Senatore of Bernstein. Your line is now open.
I wanted to ask about the international markets. You had said there were near term challenges for comps that continue. I think in the past, Domino's has maybe disagreed with the licensees about what the source of those challenges might be, with respect to whether it's a value proposition or something more pervasive regarding aggregators and the fortress thing. Do you have any, I guess, color or any update on your thinking or the changes that are being made? Because it feels like it is taking some time and I would have thought that if the issue is value that could be a lever you could push pretty quickly.
So if you could just talk a little bit about what the sources and whether there's any risk to unit growth, if those comps don't improve? Thanks.
Sarah, thanks for the question. There's no real there's no one answer around the short term the challenges we've had over the last three quarters or so with respect to the international comps. The issues are different market by market. What we have been trying to do, and it just takes time to get there, is working hand in hand with our markets to help make sure that we're driving good fact based decision making around things like products and pricing, etcetera. And a lot of those efforts do take some time to ultimately flow through to the results in the business.
We gathered all of our international master franchisees just last month, where we brought a significant portion of our leadership team and our subject matter experts from Ann Arbor to meet with our master franchisees from around the world over in Amsterdam and had a terrific week of best practice sharing, where we're taking tools from the U. S. And our other leading markets to make sure that we're using the best of Domino's IP around the globe as we think about how we grow the 3 6% range for the last three quarters, yes, we absolutely need to improve those. The retail sales growth overall has still been quite healthy. And at 9.8% in the quarter, we continue to gain significant market share around the globe in the pizza category.
And the unit growth strength that you saw during the quarter, 171 international openings against 13 closures, once again demonstrates the strength of the four wall economics in the international business. So while we've had some challenges with the comp over the previous three quarters, I do want to reiterate that I still have an incredible amount of confidence in our master franchise business partners. Our four wall economics are strong. We've got leading market share positions in the majority of the big and attractive pizza markets around the world. And so we'll work through the challenges that we've had together with our master franchisees, but the health of that business is still incredibly strong.
Okay. Thank you. And our next question comes from Jon Tower of Wells Fargo. Your line is now open.
Great, thanks. I just wanted to go back to the comments earlier on the Points for the Pride program. Rich, I think you had mentioned that you're pleased with the reengagement in the loyalty program and how it's having a positive impact on the business. But in aggregate, the order counts didn't contribute to comp growth in the U. S.
During the period. So can you discuss what you're seeing with those members coming in through the Points of the Pies program Points for Pies program into the loyalty platform? And are they using the brand as you expected when you launched this program back earlier in the year? Thank you.
Yes. Thanks, John. Yes. So I'll start my answer to your question just to kind of once again reinforce the purpose of that program, Points for Pies. As when we established it back in late 2015, we went through a lot of different iterations as to how we might build that program.
And if you look at loyalty programs across brands, some are designed to drive spend, some are designed to drive transactions and engagement. Ours is absolutely designed to drive transaction growth over time. It's why it's very simple that if you order from us basically 6 times, you're going to get a free pizza. So taking that then to points for PIES. We entered the year with an active member base and loyalty program of over 20,000,000 active users.
We know that those members order more often than the average customer. So the goal of Points for Pies really do a couple of things. Number 1, once again, raise awareness of that program and to do it in a kind of oh, yes, we did kind of manner because nobody gives points for buying things from a competitor, right? Only Domino's would do that. So it was a great message out there in the marketplace, great advertising that raised awareness.
Then gave us an opportunity to engage and get more customers to come in and download our app, which we know once we get that app on the customer's phone, that real estate is incredibly valuable going forward. Then the enrollment in the program, getting folks in the program for the first time and then ultimately, orders coming after that. And we've seen nice movement across all of those metrics, across awareness, across downloads, across enrollments and then across customers ultimately ordering once and then twice and going forward. And a loyalty program like ours is something that you do have to feed over time. So there is a need to periodically have news in the marketplace and something interesting to kind of refuel those enrollments over time.
Okay. Thank you.
Thank you. And our next question comes from Dennis Geiger of UBS. Your line is now open.
Thanks for the question. Rich, wondering if you could talk a bit more about the U. S. Carryout business given the increased focus there in recent quarters and then given I assume it could be better insulated from the aggregator risk. At least at a high level, can you at least talk about the performance of carryout, how it's trended perhaps maybe just beyond fortressing, any opportunities to support that business over the near and longer term?
Thanks.
Thanks, Dennis. Yes, the carryout business is still a critical component of our strategy over time. And as we talked about it, we effectively operate 2 businesses inside the same box. We've got a delivery business and a carryout business. And as we look at them, we design pricing, promotion, advertising for each of those individual businesses.
We've seen healthy growth in our carryout business. Fortressing does play an important part of that. When we open new units, the vast majority of that carryout business is incremental in its business that we weren't getting before. So I think about how we drive carryout going forward, that will continue to be a component of it. But also, you will continue to see our carryout advertising on TV.
We're going to continue to support that platform on an evergreen basis. And we do look at it as a piece of the business that is more insulated relative to some of the new competition in the marketplace. So no slowdown in focus or let up on the carryout business going forward.
Thank you.
Thank you. And our next question comes from Geoffrey Bernstein of Barclays. Your line is now open.
Great. Thank you. Just a broader question maybe on the global unit growth. I know, Rich, you've been encouraged by the strong first half growth, but it is more difficult to read these numbers on a quarterly basis. And I know you therefore focus on annual.
So does your bullish comments indicate you expect upside to full year unit growth guidance for I guess the 6% to 8% long term especially as both the U. S. And international comps seem to be below plan? And I guess I asked that question more so focused on the U. S.
I'm just wondering whether you think your smaller mom and pop franchisees are more motivated by the long term franchise profit that keeps increasing every year versus maybe they'd be more cautious by the directional short term comp trends? Any color on that broader unit growth would be great.
Yes. On the global unit growth, Jeff, we don't give full year outlook or guidance, but our 6% to 8 percent unit growth outlook over the 3 to 5 year timeframe, we still feel very positive there. And we based on a couple of different things, 1st and foremost, it comes back to the underlying unit level economics. And at $141,000 per unit in EBITDA in 2018. You combine that with the low cost of getting a Domino's Pizza store open, the incentives that we have in place for franchisees, this is a really attractive investment for our franchisees in the U.
S. And so we therefore, we have seen really nice performance over the last couple of years in growth and a lot of optimism as we look forward about franchisees continuing to want to invest in the business. And really, the same dynamics hold true on the international front. While things may ebb and flow across individual markets, when we look at our portfolio of over 85 countries around the world, very healthy unit economics. And as I said last month, I was with our international master franchisees, the vast majority of them, and I can tell you that the optimism around the brand remains incredibly strong.
Thank you.
Thank you. And our next question comes from Alton Stump of Longbow Research. Your line is now open.
Yes, thank you. Actually just had a question for Jeff, just on the buyback front. Obviously, of course, the pace of buybacks has slowed here in, of course, first half versus what you had done over the prior 12 to 18 month period. Could you just remind us how opportunistic you are with that program, I. E.
Would you use a move like today's downward move as an opportunity to kind of bolster up your buyback program, just maybe not so much what you're actually doing today, but just kind of in theory, ask what your thoughts are behind that?
Yes. Thanks, Alton. So we have about $150,000,000 of Board authorization left on the current buyback program. You guys know just as well as we do our long and consistent history of getting our fantastic free cash flow back to shareholders in both buybacks and through dividends after of course we invest in the business. I wouldn't read too much into the rate and pace of the 1st 6 months.
We had other things bouncing around. We paid off our revolver for $65,000,000 year to date. The balance sheet more than $1,000,000,000 balance sheet, you have balance sheet things that move around. So and also just remind you that year to date last year, we had about $135,000,000 of buybacks from our recap proceeds, which of course, we didn't do a recap this year. So again, I wouldn't read too much into the rate and pace.
We remain committed to generating best in class free cash flow and getting it back to you folks the best way we can.
Great. Thanks, Jeff.
Thank you. And our next question comes from Peter Saleh of BTIG. Your line is now open.
Great. Thanks. I just wanted to ask about the commitment to the $5.99 price point. I recognize you're still committed to value. But in the past, you've said that the $5.99 platform really only works if you're driving positive transaction growth.
And it seems like this quarter your comp has really been driven by ticket. So are you seeing or hearing a pushback from the franchisees at that price point? And do you expect that you may change that price point if they start pushing back on that level given it's been the same price for the past decade?
Hey, Pete, it's Rich. We've still got strong commitment in the system to the $5.99 price point. And I would not read a single flat quarter on traffic as any more than it is, which is a quarter. If you take a look at our performance over any period of time, since we launched that 599 platform, transaction growth in the business. And there's no slowdown on our part relative to the commitment to continuing to drive transactions.
Our franchisees understand that, that is a long term healthy way to grow their businesses and to grow their profitability. We have looked at it time and time again and proven that sales and profits over the long term are correlated with transaction question comes from Jeremy Scott
of Mizuho. Your line is now open.
Thank you. Question comes from Jeremy Scott of Mizuho. Your line is now open.
Hey, thank you. If I could just follow-up on the 3rd party question and hopefully ask in a different way. Rich, you mentioned all the discounts, push notifications, email that we all see the same thing. I think what's still unclear at this time is when those 3rd party campaigns level out, they dry up or just become less marginally impactful, how the market resets or how quickly customers revert? I know you mentioned, Rich, that you don't expect it to last anytime soon, but the customer response to email number 100 is likely not the same as email 1 or 2.
So, wondering if you could share some insight on comp trends in those higher trade areas that have been battling against promotions for 2 years or more versus those in restaurants and trade areas that have been battling third parties for about 6 months? I mean, can you talk about the life cycle if you see 1 of the customer response? And what would convince you if the playing field in delivery is more permanently warped?
Yes. So Jeremy, good question. I'll try to talk a little bit about kind of what we see to date, but then there's also some uncertainty around how it unfolds going forward. So let me try to describe. I think there is a cycle around the 3rd party penetration, where I think at least from what we see in places where those 3rd parties have been in the market for an extended period of time, it does tend to level off a bit.
I think your point is a valid one that the 100 coupon you get is probably less effective than the second. So there's certainly some of that dynamic that we observe and we track across the many DMAs that we operate in, in the U. S. What we still don't know yet though is what the ultimate demand will be once the customer has to pay a price for the service that exceeds the cost of providing the service. And that is still an unknown.
As long as this discounting continues in a fairly heavy way, we're continuing to watch and learn, but I suspect it will be a little don't think we yet I don't think we yet know what supply is going to ultimately be in the marketplace as well because there has certainly been a big rush of brands, large and small, to sign on with these 3rd party aggregators. But ultimately, there the brands are going to have to see and their franchisees are going to have to see that there is some incrementality or profitability from using those services. And I think there are a lot of questions out there among restaurant operators as to how truly incremental this is or are they just trading a higher margin transaction for a lower margin transaction? So there's questions still in my mind around both the demand and the supply. And until we see how some of this shakes out, the true equilibrium around how much business there actually is to be had through those 3rd party apps, I think, is still uncertain.
Thank you.
Thank you. And our next question comes from Stephen Anderson of Maxim Group. Your line is now open.
Yes. Just wanted to go a little take a little bit of a different track and discuss your new point of sale system. I know this has been something that's been under test and I just want to ask for an update on this test and whether you still see next year as a possible implementation date?
Yes, Steven, it's Rich. Yes, we're still we're working hard on our next generation point of sale system. And our with a goal of having a test store up and running by the end of the year. And then we'll see the rollout will take we've got more than 13,000 stores on our common point of sale system today. The rollout is going to take some time.
So I don't have an update for you yet on that, but that's something that periodically as the project unfolds, we'll be sure to brief you all on.
Thank you.
Thank you. And ladies and gentlemen, this does conclude
Listen, thanks everybody. We certainly look forward to discussing our Q3 2019 results with you on Tuesday, October 8.
Ladies and gentlemen, thank you for participating in today's conference. This