Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2017 earnings call. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then 1 from your telephone keypad. To withdraw your question, press the pound key. Thank you. Tim McIntyre, Executive Vice President of Communications and Investor Relations, you may now begin your conference.
Thank you, Kelly, and hello, everyone. Thank you for joining us for our second quarter 2017 earnings call. As you know, this call is primarily for our investor audience, I kindly ask that all members of the media and others be in a listen-only mode. I also refer you to our safe harbor statement that is both in this morning's 8-K release and in our press release in the event that any forward-looking statements are made. This morning, we will start with prepared comments from our Chief Financial Officer, Jeff Lawrence, and our Chief Executive Officer, Patrick Doyle, followed by your questions. With that, I'd like to introduce Jeff Lawrence.
Thank you, Tim, and good morning, everyone. In the second quarter, our positive global brand momentum continued as we once again delivered solid results for our shareholders. We continue to lead the broader restaurant industry with 25 consecutive quarters of positive U.S. comparable sales and 94 consecutive quarters of positive international comps. We also continue to increase our store count at a healthy pace, which we believe is more evidence that our brand is strong and growing. Our diluted earnings per share was $1.32, which is an increase of 34.7% over the prior year quarter. This increase resulted from strong operational results as well as a lower effective tax rate. With that, let's take a closer look at the financial results for Q2. Global retail sales, which are the total retail sales at franchise and company-owned stores worldwide, grew 11.8% in the quarter.
When excluding the impact of foreign currency, global retail sales grew by 14.1%. The drivers of this retail sales growth included strong domestic same-store sales, which grew by 9.5% in the quarter. Our U.S. franchise business was up 9.3%, while our company-owned stores were up 11.2%. Both of these comp increases were driven by order count or traffic growth as consumers continue to respond positively to the overall brand experience we offer them. Our Piece of the Pie loyalty program continues to contribute significantly to our traffic gains. Overall ticket increased slightly during the quarter. On the unit count front, we are pleased to report that we opened 39 net domestic stores in the second quarter, consisting of 43 store openings and four closures. Same-store sales for our international division grew 2.6%, lapping a prior year increase of 7.1%.
All four of our geographic regions were positive in the quarter, with the Americas and Asia Pacific regions leading the way. We have had challenging performance in a handful of our 85 markets and are working hard with the teams on the ground to improve those results. We continue to have strong confidence in our international business. The international division added 178 net new stores during Q2, comprised of 201 store openings and 23 closures. On a total company basis, we opened 217 net new stores in the second quarter and 1,281 stores over the last 12 months, clearly demonstrating the broad strength and outstanding four-wall economics our brand enjoys globally. Turning to revenues. Total revenues were up 14.8% from the prior year quarter. This increase was primarily a result of increased global comps and store count growth, which also drove higher supply chain volumes.
Currency exchange rates negatively impacted international royalty revenues by $1.6 million versus the prior year quarter due to the dollar strengthening against certain currencies, primarily the British pound. As you know, there are many uncontrollable factors that drive the underlying exchange rates, which does make this a harder part of our business to predict. Moving on to operating margins. As a percentage of revenues, consolidated operating margin for the quarter decreased to 30.7% from 31.4% in the prior year quarter. The operating margin in our company-owned stores decreased to 20.8% from 24.6%, driven primarily by higher insurance expense as well as higher transaction-related expenses and increased labor costs. Lower occupancy expenses as a % of sales benefited the operating margin and partially offset these decreases. Supply chain operating margin was flat at 11.1%.
Although margins benefited from lower food costs and lower insurance costs, this increase in margin percentage was offset entirely by increased labor and delivery costs. There was very strong domestic volume growth this quarter and even stronger volume growth in Canada. Market basket pricing to stores increased slightly this quarter. We continue to estimate that the domestic stores' market basket cost will range from flat to up 2% in 2017 from 2016 levels. Before we leave operating margin, I'd also like to note that franchisees in the U.S. continue to share in our success with record profit-sharing checks that they have earned alongside of us with great execution and performance. As I mentioned before, we also expect to make additional investments in supply chain in the near to medium term to keep up with our rapid growth. Let's now shift to G&A.
G&A increased by $11.8 million in the second quarter versus the prior year quarter, driven primarily by our planned investments in technological initiatives, including investments in e-commerce and our point-of-sale system and the teams that support them. Please note that these investments are partially offset by fees that we receive from our franchisees, which are recorded as franchise revenues. Additionally, G&A increased due to higher advertising expenses at our company-owned stores, which increased as a result of our positive sales growth and continued investments in other strategic areas. Moving down the income statement, interest expense decreased slightly in the second quarter, and our weighted average borrowing rate remained at 4.6%. Our reported effective tax rate was 25.7% for the quarter.
As previously communicated, we adopted the new accounting standard in the first quarter, which requires us to record the excess tax benefit on equity-based compensation as a reduction to our income tax provision on the profit and loss statement. As a result of this new standard, there is a $10.4 million decrease in our second quarter provision for income taxes, which resulted in an 11.8 percentage point decrease in our effective tax rate. Again, the economics have not changed, just the way we are required to present it. We expect that we will continue to see volatility in our reported effective tax rate. When you add it all up, our second quarter net income was up $16.5 million or 33.5% over the prior year quarter. Our second quarter diluted EPS was $1.32 versus $0.98 last year, which was a 34.7% increase. Here is how the $0.34 increase breaks down.
Our lower effective tax rate positively impacted us by $0.20, including the $0.21 impact from the adoption of the new equity-based compensation accounting standard. Lower diluted share count, primarily as a result of share repurchases, benefited us by $0.02. Foreign currency exchange rates negatively impacted royalty revenues by $0.02. Most importantly, our improved operating results benefited us by $0.14. Now turning to our use of cash. During the second quarter, we returned $22 million to our shareholders in the form of a $0.46 per share quarterly dividend. As we previously announced, we have been in the process of recapitalizing our company, increasing our leverage to match our growing business, which has been our consistent pattern for many years. The recapitalization transaction closed yesterday, July 24th, with the receipt of $1.9 billion in gross proceeds.
We're happy to report that the deal was very well received by the lending community. The interest rates we'll be paying on this new debt are a good reflection of the investment community's confidence in our business and our brand. Now on to some details about this deal. The transaction, which again has taken advantage of the whole business securitization structure, included issuing $1.6 billion of new fixed rate notes and $300 million of new floating rate notes, which was made up of the following tranches: a $1 billion fixed rate tranche at a 4.118% coupon rate with an anticipated repayment date of 10 years, a $600 million fixed rate tranche at a 3.082% coupon rate with an anticipated repayment date of five years. Finally, a $300 million floating rate tranche priced at three months LIBOR plus 1.25%, also with an anticipated repayment date of five years.
On a blended rate basis, the new 2017 notes currently carry pretax interest rates of approximately 3.5%. When added together with the interest rates from the 2015 notes still outstanding, our weighted average borrowing rate has decreased from 4.6% pre-deal to 3.8% post-deal. We are extremely pleased to have driven down our cost of debt so substantially. Standard & Poor's rated our debt BBB+, which is the top rating in the restaurant industry for whole business securitizations. We are proud of our long-term investment grade credit profile and our strong history of performance in this space. Our debt-to-EBITDA leverage ratio using Q2 trailing 12 months EBITDA is now approximately 5.9 times, up from approximately 4.1 times before this deal and near the top of our previously stated 3 to 6 times range.
The 2017 notes have scheduled principal payments of 1% of the principal each year, which equates to approximately $19 million per year over the next five years. The outstanding 2015 notes will also begin re-amortizing in Q4 with scheduled principal payments of $3.3 million in 2017 and $13 million in 2018. Our 2015 and 2017 notes will cease principal amortization payments when our leverage ratio falls below five times. With these scheduled principal payments on both our 2015 and 2017 notes and our momentum in the business, we currently expect our leverage ratios to fall over the medium term, consistent with prior experience. We also entered into a new $175 million variable funding notes facility, essentially a revolving line of credit at LIBOR plus 1.8%. This pricing is a significant improvement over our expiring $125 million facility. The new facility is currently undrawn.
Approximately $44 million of letters of credit have been issued in support of our insurance programs and certain leased properties consistent with our past practice. Use of funds from this recapitalization include $910 million to prepay and retire the remaining balance of our existing 2012 notes, which carried an interest rate of 5.2%. We feel great about swapping out this debt for lower-cost new debt. We will also pay fees and expenses related to the deal of approximately $18 million and pre-fund approximately $5 million for a portion of the principal and interest on the 2017 notes. As with our previous recapitalization, we plan to use the remaining proceeds for general corporate purposes, which may include share repurchases and/or a special dividend, subject to approval by our board of directors. We expect to announce plans for the remaining excess proceeds over the next couple of weeks.
This recapitalization and these uses of cash will have a significant impact on our financial statements, and you can expect to see some changes and some noise in the back half of this year. We currently estimate that approximately $17 million in debt issuance costs for the deal will be reported on the balance sheet and amortized over the weighted average life of the new deal. When you add it all up, the new deferred financing cost amortization schedule, the expected principal payments, and the newer debt at lower rates, we expect as reported Q3 interest expense to be approximately $33 million on a pre-tax basis. This includes approximately $6 million in deal-related charges and other interest charges, which will be adjusted out as items affecting comparability.
For the full year 2017, as reported interest expense is currently expected to be between $122 million and $123 million on a pre-tax basis, and again, approximately $6 million will be adjusted out as an item affecting comparability. It is important to note that these current estimates of interest expense may change due to borrowings under our VFN and changes in LIBOR that would affect our new variable rate among other factors. Separately, from a non-interest expense perspective, there will also be approximately $1 million of non-capitalized deal costs, which will be expensed in the third quarter and also adjusted out as an item affecting comparability. All in all, our strong momentum continued, and we are very pleased with our results this quarter, including our recapitalization. With that, I will turn it over to Patrick.
Thanks, Jeff, good morning, everyone. As I reflect on the second quarter, two main thoughts come to mind. First, how proud I am of our domestic franchisees and operators, as it was yet another phenomenal performance by our U.S. business. Brand momentum, execution, and relentless focus on getting better each day continue to drive what we do. I wake up each day proud to lead and be a part of a company and store-level culture that refuses to level off or become complacent. Second, while we continue to view ourselves as a brand in progress, while our international business continues to thrive as a store growth engine with most markets and master franchisee organizations executing at high levels within our over 85 markets worldwide, our sales performance has softened below what we've come to expect from the best international model in QSR.
With this proven foundation, a diverse portfolio of geographies, and issues easily categorized as correctable, I am confident we can get top-line performance of this business to the levels we are used to. We've gone with football parallels in the past, so I'll stick with what works and share yet another one. I'm pleased we continue to execute the fundamentals without the need for trick plays. On offense, we continue to innovate, keeping our focus on long-term success and making investments that reflect that long-term focus. On defense, we continue to aggressively protect our growing share and competitive position in pursuit of being number one. All in all, I'm pleased we continue to win. With that said, we remain mindful of our need to always execute the basics better. With plenty of game film to break down and learn from, that's exactly what we intend to do.
Our U.S. results and ability to sustain and lap outstanding performance continues to amaze me. Our 25th consecutive quarter of positive same-store sales growth can be attributed to our franchisees and operators just plain getting it done. We have never been more aligned as a domestic system, and our sound, simple strategy and sturdy fundamentals continue to position us for success. We opened 39 net new stores in the second quarter as our domestic store growth continues to track in the right direction. Our internal team and franchisees are showing impressive alignment on the importance of smart, strategic growth. This area of our business, one that has certainly demonstrated opportunity in the past, is moving in a very strong direction, and I continue to be pleased with the progress. Happy to announce plans to open our 17th domestic supply chain center in the Northeast sometime in mid-2018.
This new center will strengthen our roster of dough manufacturing and food distribution centers in the U.S. and relieve some of the good problem to have capacity issues we have encountered due to the tremendously high volumes flowing through our supply chain operations. Lastly, while it won't impact results until the third quarter, we recently launched a new product we're very excited about. Our new Bread Twists are handmade and make for a terrific side item with three flavors to choose from, Parmesan, Garlic, and Cinnamon. This is not only a great addition to the $5.99 mix and match menu platform, but a great example of us constantly looking at how and where we can improve. Our talented chefs saw an opportunity to make our bread sides better, like everything else we do, we tested and made sure our customers agreed.
We're pleased with results so far, particularly for a product not yet on television, and look forward to feedback from customers continuing to give them a try. Wrapping up, our domestic business is getting it done, to say the least. I couldn't be more pleased and proud of the many that are making it happen. I briefly touched on our international business earlier in my remarks and reiterate that our 94th consecutive quarter of positive same-store sales weren't exactly the type of results we've all come to expect within this high-performing business segment. The model is proven, and we continue to see terrific performance from many markets, particularly within the Americas, highlighted by another great quarter in Canada. The slowdown in same-store sales this quarter was driven primarily by our Europe region, where the issues in a few select markets are known and fixable.
As an example, our dialogue with one of those markets, Domino's Pizza Group out of the U.K., which released its first half results this morning, is constant and productive. Working together to improve top-line results in the U.K., in addition to the other markets that were soft during Q2. I am highly confident we will do so. Would add, while same-store sales were not as strong, unit level return on investment remains extremely healthy, and we continued to drive significant store growth in the U.K. and across our entire international business in both developed and emerging markets at a tremendous pace.
We opened a net 178 stores during the quarter. In addition, continued to grow our technology position abroad, surpassing 70% of international stores on Domino's Pulse during the quarter and over 1,100 stores now on our Global Online Ordering platform. On that thought, technology continued to be at the forefront during the second quarter for the business as a whole, as our Domino's Tracker campaign highlighted a core Domino's digital ordering fan favorite. With our strong, unmatched lineup of anywhere ordering platforms, we now look to the future of digital with near endless opportunities in store and within the delivery experience itself to examine and consider, as well as applying data learnings to further enrich an online ordering experience that continually sets the pace for our competitors and peers.
In closing, I'm extremely pleased with yet another phenomenal quarter from our domestic business and congratulate our franchisees, operators, and domestic leadership for refusing to rest on past success. Instead, they're pushing forward with more energy and vigor than ever. Our work in progress brand and team continue forward with the same approach that got us here, addressing areas that can get better, listening to the customer before listening to ourselves, and establishing global alignment that is stronger than any other within the industry. For three for three in our focus on those elements, we'll continue to win. Thanks. We'll now open it up for questions.
At this time, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. Your first question comes from the line of Karen Holthouse of Goldman Sachs. Your line is open.
Hi. Thanks for taking the question. Looking at the U.K. where you saw you had some weakness in the quarter, could you maybe help us understand, were there macro factors or competitive factors that were at play there? When you think about the playbook to regain momentum in the business, what are you most focused on, and how quickly do you think some of those things could start to have an impact?
Yeah. Thanks, Karen. I think if you look at the U.K., clearly consumer confidence has been a little bit weaker. At the end of the day, we've got to execute in any environment, and the team over there is very focused on it. I think with consumers where they are, we've got to make sure that we're getting our value offer right, that we're getting our advertising right. I know that there are things in the works to make sure that we're addressing those things in the U.K. and that they're going to do it in the relatively near term. There's a terrific team there. It's an overwhelmingly sub-franchise market, and there are great sub-franchisees there. They know how to execute. We know how to execute there, and I'm confident that they're going to get this on track.
Certainly, there's been a little bit of a shift in the environment there, and we've got to make sure that we're listening to customers and getting it right.
A quick housekeeping on the reporting of comps. I know that Domino's Pizza U.K. makes a differentiation between reported comps, excluding where they've split stores, what that would look like without excluding that. Which convention do you follow when you're pulling their results up to yours?
These do not exclude splits.
Okay, thank you.
Your next question comes from the line of Gregory Francfort of Bank of America. Your line is open.
Hey. Maybe just one quick one. Can you talk about just the comp flow through in the company margins and particularly insurance costs? How much of that is specific to the second quarter versus an ongoing step-up in the insurance cost line?
Hey, Greg, it's Jeff. Yeah, in Q2 versus Q2 last year, we had a 1.8 percentage point headwind from insurance costs. That's primarily a year-over-year increase in the actuarial update for workers' compensation and auto liability program that we run for our 400 corporate stores. It's an area where we continue to invest behind in safety teams and want to make sure we continue to get that culture right. Quite frankly, the results aren't what we want them to be. We're going to continue to focus on it very aggressively, and we hope that we can post better results on that line item in the future.
Got it. Maybe one more. Just on the thoughts on the supply chain changes that are coming, is that going to show up where you have one or two new centers you have to add to really fix the issues? Is this going to be a real rethink of just the overall supply chain set up and rethinking the entire plans as they stand today?
Yeah. We've got new leadership from, I guess, 18 months ago in our supply chain now. Troy has built a fairly new team at the top there, and they've done a full rethink of where we are. I think at the end of the day, the model is going to remain very much the same that we have executed in terms of our own centers and how we're doing it. As we look at our footprints of centers, more centers that are delivering fewer miles, I think, is going to drive greater efficiency for us. The team has gone through some terrific kind of analysis around how are we going to optimize costs. There's options, could have included growing the size and capacity of the existing centers.
I think while there will be some of that in a few centers, you are going to see us open some more centers over the next few years. We talked about the first one in the Northeast, we've now got a lease signed, and they've turned the building over to us, and we're starting to swing hammers there. That is basically a year process to get that open. There will be others down the road. What you're going to see is us kind of expanding the footprint in the number of centers, which ultimately drives transportation efficiencies in those centers.
That's really helpful. Thank you.
Yep.
Your next question comes from the line of Peter Saleh from BTIG. Your line is open.
Great. Thank you. I want to come back to the domestic system-wide comp. I think you guys said primarily driven by transactions and the loyalty program has a significant impact. Any more color you could provide on what's driving the comp in terms of the loyalty program?
Peter, you know what? It is honestly the same story we've been saying for a while. Our goal is to be nice and boring and consistent on this. The answer is, it is a number of factors. It is loyalty. It is almost all orders and only a little bit of ticket in the second quarter. You've got some from kind of just digital and what we're doing and getting more effective on digital media. Loyalty is clearly a big one. A little bit of a boost from television, both GRPs and I think the effectiveness of our advertising. You've got a little bit of market growth out there as well. Not a lot, but the category is up, I think, a point or two.
Add to that operational execution, and our franchisees and our Team USA stores investing in giving customers better service in the face of some pressure on wage rates, which is ultimately giving our customers a better experience. We'll take that trade-off. It's a combination of really a lot of things. Our model and analytics give us pretty good read on kind of exactly how that's contributing, and honestly, it is a fairly long list of a number of things that are doing it.
Great. Just on the international business, I know there's been some softening, and it seems like you're, at least for the time being, maybe below that long-term guidance of 3%-6% on comps. What is your confidence on getting back to that 3%-6% longer term on comp?
Our confidence on our long-term guidance remains high.
Excellent. Thank you very much.
Your next question comes from the line of John Glass from Morgan Stanley. Your line is open.
Thanks very much. If I could also go to international. You talked about a handful of markets, citing the U.K. in particular. It made it sound like there were some operational things that may have gone wrong. Maybe if that's the case, could you just elaborate on what it is? Is it delivery times or something else? How confident are you it's not competitive pressure? In particular, U.K. is a very advanced market from a food delivery and non-pizza food delivery market. Is that impacting the business in your view, or any of the other markets as you look at? Is there any commonalities from a competitive standpoint that make you think something's changing on that front?
Yeah, John. First, I don't think it really is kind of operational executional issues. Those can always get better, and there are always opportunities there. I think it's more around making sure we're getting value right, that we're getting the offering right. I think that is more the issue, and frankly, those are the things that we can control. If you look in the U.K. at kind of the other delivery options, I think our perception to date, and it's frankly the same in the U.S., you've got a growing number of players in that space. We simply are not seeing that affecting our business at this point.
The one thing that I would say in the U.K. that's interesting, we don't know that it's had any material effect, but you do see increasing amounts of advertising from the Deliveroo and Just Eat, and some of the other players in that market. If you look at share of voice on a broad basis and include kind of all of the delivery options, there are more advertising there. To date, from a direct competitive pressure and are people choosing to swap out occasions with other food for pizza, we just aren't seeing that. We clearly are not seeing that in the U.S. I think the only thing that we're looking at that's just interesting is share of voice within food delivery more broadly in the U.K.
Thank you for that. Just on the U.S. business, there's been some talk, I'm not sure if it comes from you or franchisees, about raising your fee to the franchisees for the technology fee. Can you remind us where the technology fee or the transaction fee is right now, and if there are plans to look at that again, given you've got some rising costs in that area, what you might think of raising it to?
Yeah. The fee is $0.21. We do have the ability to increase that fee. What I would say is, if that fee is increased, and we have increased it in the past, it was increased from $0.17 to $0.21, I think about three years ago. Is that correct?
Two, three years ago, yeah.
Three years ago. That's to fund more investments into technology. From kind of your perspective, if that fee changes, understand that that is going to be coming with increased investments as well. For the time being, it is $0.21. If there were an increase, it's going to be about making more investments into technology.
Just from a financial standpoint, it is recorded in your comps or not?
The comps.
Yeah.
No.
Yeah. It's not in revenues. Yeah. It's not in the comps for the U.S. business, but it is in franchise revenues on the income statement.
Okay. Thank you.
Your next question comes from the line of Matthew DiFrisco from Guggenheim Securities. Your line is open.
Hi, guys. Thanks for taking my call. This is Jake on for Matt. I was just wondering if you could provide any detail onto the digital sales growth or what % of total sales did digital make up in this last quarter?
Yeah, it's still in the same range we've been in, so kind of 60%-plus. I guess what I would say is our pattern has been very consistent on this. That in the fall into the winter is when we see that tend to ramp up seasonally, then it tends to go flat kind of in the spring through the summer. That has been consistent for five, six, seven, eight years now. We're kind of right in that 60% range as we have been. Ramps tend to happen kind of a little bit later in the year and early into the following year.
Okay, great. Thank you.
Your next question comes from the line of Matt McGinley of Evercore. Your line is open.
Hi. My first question is on the capital return. I appreciate you probably can't comment about what the board will do in the next few weeks. Historically, mostly you use repurchases to return capital, but there were two times in the past where you did do special dividends. I guess hindsight's in 2020, it would probably been a better idea to do share repurchases looking where the stock is at today relative to a special dividend. I guess historically, what led you to do the share repurchase or rather the dividends in the past, and does multiple over time factor into the decision to do buybacks?
Matt, the answer remains the same as it's always been, which is we go through the analysis at the time and look at what we think is going to help generate the best returns for our shareholders. We are completely agnostic as to what we're going to do. As you mentioned, we've done pretty much everything since we've been a public company. We have paid special dividends. We commenced a regular dividend. We've done share buybacks, and there was even a point about a decade ago during the crisis that we were buying in debt when we could do it at $0.50, $0.60, $0.70 on the dollar. We come to each of these decisions separately, look at the set of facts that we have in front of us, and make our decision based on that. Our board will be making that decision shortly as Jeff said.
Great. On the CapEx as it relates to the supply chain, can you give us a sense of what these new D.C.s would cost in terms of the cash for CapEx? You've been talking for a while about how you need to invest in the supply chain to expand capacity in existing D.C.s and then build new ones. Is this something that's tens of millions of dollars, or could this be a significantly bigger number over time?
Yeah, Matt, it's Jeff. When we think about building a new supply chain center, you can think about anywhere between an order of magnitude, $10 million and $20 million, depending on if we pick up the tenant improvements or the landlord does. Again, that's just an economic decision that we'll make on each of the centers separately based on those facts. But a big new building, think somewhere between 60,000 and 100,000 sq ft, full capacity, between $10 million and $20 million. We certainly believe that we have more than one of these to build, as Patrick has talked about over the medium term. We've got the first site identified. We've got the lease. We're starting to swing hammers. We feel pretty confident that there will be another one to follow pretty quickly. Again, these are great capital problems to have.
If we're needing to put money into the capacity of supply chain, that is the best capital dollars that I can spend. Expect it to be material, expect it to be material over time. Again, as for the timing of each individual center, when we get closer, we'll announce that.
Okay, great. Thank you.
Your next question comes from the line of Jeffrey Bernstein of Barclays. Your line is open.
Great. Thank you very much. Two questions, just one following up on the delivery topic. I'm just wondering how you would go about monitoring success of other restaurants that are launching or testing delivery in the U.S. As you mentioned, it doesn't appear to be an impact to the comp. Whether you see it in your delivery or labor costs or whatever costs for drivers, it just seems like ties to your comment in the U.K. about how you're seeing greater delivery advertising. I would think you're going to see that in the U.S. in coming quarters. I'm just wondering how you read your competitors' success thus far and perhaps how you protect yourself in the U.S. with your learnings from the U.K.
Yeah. I think that the answer is because of our geographic coverage in the U.S., we know where delivery services are well developed and where they're not. We can look at New York and Los Angeles and Chicago and big markets where those services in San Francisco, big markets where those services may be more penetrated, whereas you get into smaller markets and they're not available at all in smaller towns. Then can break those markets apart and see whether or not there is kind of differentiation in results. We're just not seeing it. It just does not show. Any way we cut the numbers, it does not show up in our results today as pressuring our comps. You can argue that at some point it actually will grow the delivery business in general.
What I would add to that, I've said before, but would reiterate, a lot of these delivery services are finding out very quickly that delivery is a lot harder than they thought it was going to be. Some of them are already gone. There are others who are still kind of understanding what the economics look like around this. For it to work, it's got to work for the driver, it's got to work for the restaurant, it's got to work for the company providing that service, and it's got to work for the customer. There's got to be value creation for all four of those parties to have a successful delivery business. I think that there is still a lot of learning going on in this space around how difficult it is to make all of that work.
Fortunately, we have 57 years of learning around how to make delivery efficient on food, and our advantages there seem to be holding up very well.
Got it. Just the other question was on G&A, and I guess you don't give quarterly guidance, but versus this quarter was higher than we had expected. I know your prior guidance, I think, was for $340 million-$345 million in investments in tech and supply chain marketing. Just wondering whether we should read into the spend this quarter and maybe with the outside fundamental strength, it is compelling to increase your investments and therefore you'd be happy to go above that $340 million-$345 million or maybe what the greatest area of opportunity would be if you were to exceed that target.
This is Jeff. The first thing I'd tell you is that we're not updating our guidance right now on G&A. As we sit here today, a long way to go for the rest of the year. Certainly, if we did outperform, particularly given our internal plan, we have the opportunity to go higher on G&A, and we would announce updated guidance at that particular time when we felt comfortable. As far as what we're going to invest in and when we're going to invest in it and to what amount, I think Patrick has said it very clearly before. When we see really good ideas, whether it's in technology, marketing, analytics, supply chain, we're going to put the money, whether it gets classified as G&A or something else in the P&L. We're just going to chase those good ROI projects.
Again, no update to guidance right now, but our mindset around what we invest in and when we invest in it has not changed.
Understood. Thank you.
Your next question comes from the line of Will Slabaugh from Stephens. Your line is open.
Yeah, thanks guys. I had a question on average ticket. I know you don't break this out specifically, but I was wondering if you could speak to it more broadly on what you're seeing from either a check growth or contraction standpoint versus what you've seen in the past. Secondarily, if you're seeing any impact on Domino's from what seemed to be an increasingly price point-oriented peer group within QSR and pizza in particular.
Our growth in the second quarter was overwhelmingly orders. Ticket was up just a little bit. We don't see the competitive situation to be really materially any different than it has been in the past.
Got you. A quick follow-up, if I could, on the cost of goods commentary. Jeff, you say that the insurance, you did view that as more one-time, or that should just continue to get a little bit better in future quarters?
We really hesitate to call anything one-time because we have to get it right, regardless of what the line item is. We view insurance costs, both to our supply chain and our Team USA businesses, as largely something that we can invest behind and hopefully have a positive impact on. We certainly did not see that in Q2 in the corporate store business as we updated our independent actuarial models. As a result, we had to take that hit in Q2. What I can tell you is, again, we think it's something that we are investing behind. We're not seeing the results that we want yet. Certainly, the more you deliver, the more activity you have, the more opportunity you have for auto accidents or workers' compensation claims, things like that. We just have to do better in this area. We're investing behind it.
We hope that over time, volume adjusted, we can hopefully outperform a little bit.
Understood. Thanks, Jeff.
Your next question comes from the line of Sara Senatore from Bernstein. Your line is open.
Hi, thank you very much. Just a few follow-up questions on some of the topics that have already been touched on. One is to go back to the international markets. I think some of what we've actually seen there may be more intense competition from direct pizza competitors. I wanted to see if you saw any risk of that in the U.S., for example, as maybe some of your large competitors announce initiatives to improve their own businesses. I guess a related note, one of the sort of sustained competitive advantages I think you have is the technology in the U.S. Is that less the case in international markets, where you have such a lead on things like digital ordering or loyalty? I have one more follow-up.
Okay, there were a few in there. First, international markets in general are actually less competitive in pizza than our domestic market on average. There are certainly exceptions to that. The category is growing faster outside of the U.S. than inside the U.S. The competitive set is generally less restricted and 95% of the people in the world live outside of the U.S. The pizza category is probably a little over double the size internationally what it is in the U.S. Clearly far less developed, less competition, more opportunity to grow. What I would say though is, are we looking at kind of competitive pressures domestically and is there any change there? Really, the answer is no. There's been no material change. The broad story remains the same that it has been domestically, which is larger players taking share from smaller players.
Certainly, we've been doing better than the rest of the large players over the course of the last few years. I still believe that the longer-term story is the competitive advantage that scale brings to the larger players versus the smaller players. In terms of technology internationally and where we stand, our penetration of digital orders internationally is a little bit lower on average than it is domestically. I would say that the sophistication of our markets around how technology is getting used today ranges from markets doing a terrific job on this, there are still markets that don't have digital ordering today, smaller ones. We've now got our offering with our Global Online Ordering and are bringing markets onto that. I think that there remains, still on average, a little more opportunity in international to do some of the things we've been doing domestically.
When you look at our international performance, and areas where we think we can improve, one of them is in the digital space. It's part of what gives us confidence about longer-term growth in the international business is there are still things in the toolkit that have not been applied in all of our international markets that we know work, and it just takes some time to roll those all out.
Okay. Thank you. Although I thought the U.K. was somewhat ahead, it sounds like there's maybe some opportunity there, or where you're seeing softness. My follow-up was.
U.K. is very developed on digital, and their digital penetration is very high in the U.K. They've done a good job there overall. There are always opportunities, and there are things that, in our conversations with them, that we share with them. Frankly, they share with us, too. They rolled out digital ordering in the U.K. nationally before we did in the U.S. Learnings can go both directions.
Okay. Thank you. That's very helpful. Then just quickly on the U.S., just trying to understand how your customers think about making a delivery order to Domino's. I know we've sort of belabored this point, but with some of the very large QSRs getting into delivery, it seems that maybe they could compete on convenience, speed of service, or price point, the things that you're so good at. Do your customers decide they want Domino's and then they figure out how to access your product? Do they say, "I want delivery," and then they figure out what's available? Do you have any sort of research that tells you how customers make that decision so we can think about what competition looks like?
They actually decide they want delivered pizza, and then they decide the brand on average. That's part of where we've been making gains is we make it so easy for somebody who says they want to get pizza delivered to make us the choice. We've got everything set up in the pizza profile and make it possible for them to order from anywhere and with any technology they're interacting with. That's part of what's been driving the growth that we've had. There are certainly a lot of people who are experimenting with delivery now. With only a couple of exceptions, Panera has been starting to add their own drivers. Most of them are using third-party delivery services. What I would reiterate is it's got to work for the driver, the restaurant, the customer, and the people providing that delivery service.
Getting all of that right and getting that balanced is a challenge, and I think there are a lot of folks who are kind of understanding how much that's a challenge. Look, we are watching it very carefully. We understand this marketplace very well. We are looking at all of these different players and understanding where people may be doing things well and where they're not doing it well. We will take good ideas anywhere we can find them. 57 years of doing delivery ourselves has given us an awful lot of know-how, and it remains a real competitive advantage. I would reiterate, we have seen in the more developed markets from kind of other options on delivery, zero effect on our sales.
Very clear. Thank you so much.
Your next question comes from the line of Jon Tower from Wells Fargo. Your line is open.
Good morning. A quick question or a couple of questions. On the U.S. first. Trying to dig a little bit more into the comp itself. I'm curious to get your thoughts on whether or not you believe it requires more promotional activity, whether it be lowering the price of the product or more deals during the week or adding more loyalty points per transaction in order to drive these share gains that you're seeing in the market. On that same thought, we're now in year 2, I think, of seeing store level margins, at least on the corporate side, contract. I was curious to hear your thoughts on pricing potentially later this year.
Absolutely no change is the short answer. Our price point, two medium, two tops for $5.99 has been the same for what, 8, 9 years now. Our loyalty program has been very consistent with how we launched it. We did one 1-week promotion around that earlier. Otherwise, everything has remained very, very consistent from a pricing standpoint, both in terms of what we're doing and in terms of the competitive set. We're just not seeing a lot of change out there.
Okay. On the GOLO platform in the international markets, I think you had mentioned 1,100 stores earlier in the transcript. I was curious to hear your thoughts on what the impediments to growth are getting faster adoption in these markets globally.
Yeah. Part of the investments that we've been making and that you're seeing in G&A is we've been adding to the team who can support and onboard international markets. One of the priorities to date has been getting some of these smaller markets and medium sized markets on our platform that weren't offering digital. Those are frankly less efficient. If you're onboarding an island in the Caribbean that has 2 stores, but has a different tax structure, you still have to do some customization around that. We've been investing in our ability to roll out in more and more countries, adding stores and making sure that everybody around the world is able to access the brand digitally.
That's part of what the ramp-up has been, in terms of G&A investment, along with a lot of other things in technology, adding new capabilities and new platforms and all of that. That's been part of the investment is adding to the team who's able to support it internationally.
Okay. Thank you.
Your next question comes from the line of Alton Stump of Longbow Research. Your line is open.
Hi. Thanks. Good morning.
Morning, Alton.
I guess there's two things. First off, I think I heard you mention, Jeff, earlier in the queue, that in total insurance costs were 180 basis point headwind to margin. Is that right? Did I hear that right?
Yeah, you heard that right. The details are on page 15 of the 10-Q, if you want the specifics.
Okay. Just as far as the margin question, obviously, as mentioned, company margins were down or store level margins were down almost 400 basis points. How much of that, if you're able to splice it out, will continue or could continue in coming quarters over the back half year or beyond? Or is there any other kind of one-time short term items that were in there here in 2Q?
Yeah. If you look at the year-over-year changes, the biggest thing we had Q2 versus Q2 is the insurance, which I've already talked about. We think that remains an opportunity area for us, not only for the financial ramifications, but more importantly, we just owe it to our employees to continue this culture of safety that we have and get better results. On labor, we were up 70 basis points year-over-year. That really was all and more of labor rate at our stores that we were on. Again, only 400 stores, but we're in pockets that include New York and Arizona, which both had minimum wage increases. As minimum wage rate increases that are on the books or new ones are enacted, could be a percentage of labor headwind for us. Then, you go up and down.
Food hasn't been that big of a deal for us this year. It's been pretty benign. I think when you add it all up and you move away from the percentages, I think it's important to note that despite all these headwinds, we've made more money at the margin line in Team USA year-to-date than we did through 6 months last year. Driving those transaction counts, being consistent with the pricing and promotion that Patrick spoke about, I think at least gives you a chance to be competitive when it comes to bottom line dollars here. That has certainly been our focus as we try to battle some of these headwinds. I'm going to add one thing on that, which is first clarify. On labor rate, our team actually leveraged labor hours.
The increase in labor is more than all in wage rate versus hours. They were still getting some efficiency in the hours used. It's not just minimum wage. There is pressure out there on wages in general as the labor market continues to strengthen, and that's a really high-class problem. When strength in the labor market is putting pressure on rates. That's the way you want to see it working. We are always going to be conservative about reacting to that with pricing to our customers. It is far easier to make a short-term move on pricing and protect a little bit of margin. We don't think that's the right answer. We pay what we need to pay to keep our stores staffed and give our customers great service.
When there is pressure on those wage rates, we're going to be cautious about passing that through, because we want to make sure that we're getting that right. When you're seeing some of this movement, you may see a little bit of a lag. In the short term, it may have some effect on margins, then we kind of fine-tune pricing where we can, but we want to be conservative around that. I would add, our franchisees are prospering right now. They're doing very well, but I would applaud their discipline around this as well. They want to make sure that they're taking care of the customers. They're putting that first. Then where we take some price, it's done conservatively and cautiously to make sure that we're not going to chase off customers.
Great. Understand. Thank you, Patrick and Jeff.
Our last question comes from the line of John Ivankoe from JP Morgan. Your line is open.
Hi, thank you. The comments made, Patrick, earlier of share of voice of, I guess, delivery competition broadly increasing in the U.K. Certainly, we understand that from a customer perspective, but is that market seeing any particular demand of staffing around delivery drivers? Not just cost, which I think can be understood, but the ability to execute the brand that you want during your peak hours. Is that competition materially changing as delivery increases overall in the market?
Yeah. Look, DPG is a public company, so I think getting into the specifics, we will always let them kind of talk about the real specifics there. I guess what I would say is we're confident in their ability to manage through that. In terms of the share of voice, the pizza category in 2016 had exactly half of the share of voice on delivered food. If you look at Domino's and Pizza Hut and Papa John's in the U.K. in 2016, collectively, we spent exactly the same amount on advertising that Deliveroo did and Just Eat and some of the others, and that's a change. I'll let them kind of answer around the specifics on pressure on hiring drivers. There is certainly some, but I think it's very manageable. The advertising one is interesting.
We don't know that it's having an effect, but it's certainly something that we're watching.
Thank you so much.
This concludes the Q&A portion of today's call. I now turn the call back over to the presenters for their closing remarks.
Thank you all for your interest in getting on the call, and we look forward to discussing our third quarter results with you on October 12th.
This concludes today's conference call. You may now disconnect.