Good morning. My name is LaShawna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Domino's Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference over to Ms. Lynn Liddle. Ma'am, you may begin.
Thanks. Good morning, everybody, and thanks for joining us. Hopefully, you saw that we also released our 10-Q this morning. Within that, of course, is our safe harbor statement, which I will refer you to. Also, we do these calls primarily for our investors, so I will ask the media to kindly be in listen-only mode. Today we're going to have some prepared remarks from our chief financial officer and our chief executive officer, followed by some Q&A. With that, I would like to start by introducing Mike Lawton, our chief financial officer.
Thanks, Lynn. Good morning, everyone. We continued to build on the positive results we had in the first quarter and delivered another quarter of solid results for our shareholders. Our international division led the way with both strong same-store sales and store count growth. Our domestic stores posted positive same-store sales and net positive store growth. Our bottom line grew in the second quarter with 17.5% EPS growth over the prior year, which provided additional free cash flow for share repurchases. Here's how the second quarter came together. Our global retail sales, which are the total retail sales at franchise and company-owned stores worldwide, grew 7.9% when excluding the impact of foreign currency. When we include the negative currency impact, our global retail sales grew by 4.3%.
The drivers of the global retail sales growth included domestic same-store sales, which grew 1.7% in the second quarter, lapping a positive 4.8% in the prior year quarter. This was comprised of franchisee same-store sales, which were up 1.9%, and company-owned store sales, which were up 0.3%. Our international division had another strong quarter as same-store sales grew 5.7%, lapping a very strong 7.4% last year. We opened three net stores domestically, made up of eight store openings and five closures. Our international division grew by a net 111 stores this quarter, made up of 120 store openings and nine closures, bringing the total store count to over 5,000 as of the end of the second quarter. Turning to revenues. Our total revenues for the second quarter were down $8.8 million or 2.3% from the prior year quarter. This decrease was primarily the result of two factors.
First, supply chain revenues declined as a result of reduced volumes that were due primarily to slightly lower order counts at the store level. Second, company-owned store revenues declined due to the sale of some corporate stores in 2011 and early in 2012. Both of these decreases were mitigated by higher international and domestic franchise revenue. More detail regarding our revenue by business unit can be found in our 10-Q, which was filed this morning. Moving on to operating margin. As a percentage of revenues, our consolidated operating margin increased 1.7%, from 28.8% to 30.5%, due primarily to a change in our mix of revenues resulting from fewer company-owned stores and increased franchise revenues. We also had an increase in our company-owned store operating margin.
Operating margins for our company-owned stores as a percentage of revenues increased 3.6% from the prior year quarter, in part due to the positive impact of a higher average ticket, some product mix, and reduced occupancy cost. Our supply chain margin percentage was flat at 10.8% quarter-over-quarter. The average cheese block price in the second quarter was $1.52 per pound versus $1.68 per pound last year, which led to a slight decrease in our overall market basket during the quarter. As many of you are aware, grain and other commodity prices have risen recently as a result of the dry weather across the country.
Despite these recent increases, we continue to expect that our overall market basket in 2012 will be up just 1%-2% over 2011 levels due to the fixed pricing that we have on approximately 35%-40% of our expected purchases in 2012. Turning to G&A expenses. G&A increased slightly in the second quarter versus the prior year quarter. Our intention was and remains to strengthen key areas of our business, including information technology and international. We've been working on filling all of the open positions in these key areas and are making progress. However, finding the right people has taken a little longer than planned, and due to the delay in filling these open positions, we're now trending below our previously anticipated spend in these areas. We're now currently estimating G&A to be up $5 million-$7 million over 2011 reported results.
Our net income, as reported, was up $2.8 million, or 11.3%. This increase was primarily the result of our higher domestic and international same-store sales, international store growth, and higher company-owned store margins. These increases were partially offset by the negative impact of changes in foreign currency rates on our international royalties. We reduced our share count by purchasing approximately 1.1 million shares for $36.9 million or an average price of $32.15 per share during the quarter. So far, during the third quarter, we repurchased approximately 129,000 additional shares for $3.7 million or an average price of $29 per share. Our second quarter diluted EPS, as reported on a GAAP basis, was $0.47. There were no significant items that affected comparability during the quarter. The $0.47 was a $0.07 or 17.5% increase from the $0.40 in the second quarter of last year.
Here's how the $0.07 breaks down. Our improved operating results benefited us by $0.055. Our lower diluted share count, primarily due to the share repurchases in 2011 and in 2012, benefited us by approximately $0.03, and foreign currency exchange rates negatively impacted us by about $0.015. In closing, we're pleased with the operating results this quarter as we continue to grow our business and drive strong EPS growth. We're committed to continue to drive improved operating results and return value to our shareholders. Thanks for your time today, and now I'll turn it over to Patrick.
Thanks, Mike, and good morning, everyone. As Mike just said, we couldn't be more pleased with our 17.5% increase in EPS, despite a fairly tepid world economy. We had solid earnings growth, positive same-store sales right in line with our long-range outlook, as well as robust store growth internationally and a continued strengthening of our domestic store profitability. This quarter is a perfect example of how our model can reliably produce strong EPS growth with the long-range outlook that we provide. This kind of performance for domestic and international sales, combined with strong store growth and the thoughtful deployment of our free cash flow, has been the investment thesis we've presented and demonstrated over time.
Our domestic same-store sales this quarter were right in line with where we'd expect them to be based on historical precedent and our long-term outlook of +1% to +3% up on an annual basis. Meanwhile, our international sales continue to be strong despite the noise out of Europe. Our business there continues to perform well. The U.K. is our largest operation in that region. They reported their half-year results just yesterday, and they're continuing their remarkable streak of positive same-store sales and store growth. Anecdotally, they also reported that they experienced terrific online sales the afternoon of the men's Wimbledon match, with over GBP 1.2 million in sales that Sunday alone. Evidence that sports, online ordering, and pizza delivery are a perfect consumer combination.
Even though I've talked a bit about Europe, I'd like to make the larger point that one of the great strengths of our international portfolio is that it is not greatly concentrated in any one geographic area. We're a diversified brand with stores in every region of the world, which is why our international performance has been so consistent. It's also part of what drove the accelerated store growth we saw in the quarter of 111 net new stores. On a trailing 12-month basis, we've now actually grown 481 net new stores internationally, a record pace for Domino's Pizza International. We have real traction with the Domino's brand around the world, and the resulting strong per-store returns have been a catalyst for this accelerated store growth. We highlighted our international success this quarter when we announced another important store growth milestone. We exceeded 5,000 international Domino's Pizza stores.
We commemorated this milestone with celebrations in some of the newest and fastest-growing markets in our system: Brazil, Germany, and Malaysia. We now operate nearly 10,000 stores globally in 72 international markets. Our congratulations go to our international master franchise partners, their teams, and the Domino's International team for reaching this milestone and for their continued success. On the U.S. side, we also posted consistent same-store sales and strong store profits again this quarter. This continued improvement in store profitability drove modest U.S. store growth of +3 net new stores. Underlying this, though, was a positive trend of fewer store closings, five versus 28 in the prior year quarter. As we've experienced in so many international markets, we believe this is a direct result of improved unit economics and better store profitability.
Compared with the first six months of last year, first half 2012 franchise-reported profitability was up by about $5,000 per store or up about 18% per store. Our corporate store profits were up even more. There are a lot of moving pieces when it comes to what has improved store profitability lately, from promotions and pricing and a manageable food cost environment to improved energy and labor efficiencies. We know one key element is technology. Online orders continue to drive sales, and mobile ordering is growing at a steady clip. Both of our U.S. mobile apps, iPhone and Android, are in the top 10 lifestyle and food and drink rankings in the iTunes Store and on Google Play, and both are ranked higher than either of our main competitors. Our ordering apps, iPhone, Android, Kindle, have been downloaded almost 3.5 million times.
Domino's now offers its mobile ordering app to more than 80% of the smartphones in the U.S. We also announced during the second quarter that for the first time in our history, we surpassed the $1 billion mark in digital sales in the U.S. alone during the trailing 12 months ending April 2012. As a company, we're going to remain focused on innovation for our consumers, and much of that will come in the form of new technology, offering convenient and efficient ways to order from us. That includes the new Kindle Fire ordering app we rolled out earlier this month. As Mike mentioned, we were very active this quarter repurchasing our stock. We bought back $37 million worth of shares, bringing us close to our share repurchase program's maximum.
Since we were nearing our approved limit, we went to the board this month to get a reauthorization to purchase more shares. I'm pleased to say that the board agreed, and we now have $200 million available in our open market repurchase authorization. We've now gone to our board for share authorizations three times since going public in 2004. This demonstrates our commitment to act on the behalf of our shareholders, not just create fodder for press releases. Historically, we have never sat on cash. We strategically deployed it, including both special and regular dividends, share repurchases, and debt buybacks. In conclusion, we have a lot to be proud of this quarter. We've continued to have success internationally. We opened stores and sold pizza to consumers worldwide. We hit a new store growth milestone internationally and grew store profits here in the U.S.
We deployed our cash judiciously towards share repurchases to benefit our shareholders. With that, I'd like to ask the operator to open the lines for any questions.
At this time, I would like to remind everyone, in order to ask a question, press star, followed by the number 1 on your telephone keypad. Again, that's star 1. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Glass.
Thanks very much. First, if I could just ask about the U.S. same-store sales, certainly it suggests your model within that 1%-3% can deliver mid-teens earnings growth. One company store same-store sales were less than franchise. You could just comment on that. Secondly, I think last quarter there was conversation about transaction counts being negative, and my guess is they still are, at least the company stores. Maybe you were thinking about last quarter, how do you address the transaction count issue? You want margins to be good, but you also want to grow transaction counts. Maybe were you disappointed at all in that? Going forward, just conceptually, how do you think about transaction counts versus total comps?
Sure. Thanks, John. Yeah, at first, the corporate versus franchise, those numbers are always kind of moving around. I think we're actually rolling in the second quarter of last year about a half a point higher numbers on the corporate store side. The answer is the same as it usually is, which is it's just about geographies and a little bit of movement up and down, and I think you're always going to get some differential, just given the size of the base of the corporate store side. We were negative on order counts in the second quarter. It's something that we absolutely continue to focus on hard. To me, the one disappointment in the quarter is we've got to be positive on order counts domestically over time. We're doing things to address that.
I think you're going to see things from us that are going to hopefully move that the right direction. That's something that was an outcome of decisions that we made over the course of the quarter on what we were promoting, et cetera. Clearly, we want and need positive order counts on the domestic side.
Just to follow up on that, do you believe it is something that's self-inflicted as the choices of things you promoted, or is it a competitive issue with perhaps Pizza Hut's resurgence in their sales growth, or do you think it's a combination?
I think it's really about the things that we're doing. The fact is, I think while the category is competitive, we really don't see that much effect on our business from anything that any individual competitor is doing. We've done a lot of analysis around that, our ability to grow the business is 95% about what we do as opposed to anything we're experiencing from the competition.
Just lastly, you did highlight something interesting. Obviously, the combination of sports and delivery pizzas goes way back in the U.S., now you're citing examples internationally. Is there currently any international or global tie-ins that you're doing in sporting events? Is that an opportunity over time, the way one of your non-pizza competitors sponsors a major Olympic event? Is there a way to think about how you tie your brand globally into sports to firm up that tie-in?
Yeah. Generally, it is very regional in terms of the different events that are going on. For instance, with the Olympics coming up here, that is probably, for a few weeks, a net positive thing, mostly in Europe, just because of the time zones. What we have experienced is when we had the Olympics in Japan and Korea, because of the time of the day that they are running live, it does not affect the business as much in the U.S. The answer is, there are opportunities for tie-ins with sports that are going to tend to be for us more a local thing or a country-by-country decision than anything we are going to do globally.
Thank you.
Your next question comes from the line of Michael Kelter.
I wanted to just follow up actually first on John's question on the transaction counts being down in the U.S. You said you were doing some things to address that. Can you, to the extent that you can, be a little more specific? Are we talking about some new products on the horizon that you are excited about, some incremental promotions, or the way you are going to approach it that way, or something different than that?
Well, despite what I just said about competitive activity not affecting us that much, we're not going to tip them off too much to our plans. I guess all I can say is it's certainly something we're very focused on. It's important for the long-term health of the business. When we're not getting order count growth, it's something we're going to look at and work on very hard, and we got to get it back that way. You will certainly see some changes. Other than that, I'm not going to tip off the competitors anymore.
Looking outside the U.S., international same-store sales were better than last quarter and flat on a two-year basis, despite some slowing in the global economy. I'd love to hear just some granularity to the extent that you can provide it on where you're seeing a little bit of softness and where things are holding up really well.
Yeah. You know what? It's pretty broad. I've said in the past that we've certainly seen weakness in Greece, but we've got 35 stores there and are working with our master franchisee on the ground to strengthen that business. We've seen a little weakness in Spain, but only a little. Really after that, the rest of Europe is strong. Asia is strong. It's very broad-based, and it's frankly something that we've been concerned about. As you see the weakening economy, particularly in Europe, as we see those sales come in, it's something we've been looking at very closely for signs of weakness, and it just hasn't been there.
One last one. McDonald's yesterday said that their latest projections regarding the Affordable Care Act are that it would cost about $10,000-$30,000 per restaurant in 2014 or thereabouts. For them, that's a small percentage. For you guys, it's much more meaningful for your franchisees as a % of profits. Love to get your thoughts on how you're thinking about it and what that might look like for you guys in a couple of years here.
Yeah. Well, clearly McDonald's employs a lot more people per store than we do on average. I will tell you that this is the case of, or an instance of the devil's in the details, and the details aren't resolved yet. There are still a lot of things that need to be nailed down in terms of look-back periods and how long does somebody have to have been an employee for you and how consistently do they have to have been above a 30-hour level, and just all sorts of things that, frankly, from a unit economic standpoint, could still have a pretty material impact. The answer is, it's certainly likely to be a cost.
In terms of nailing down the exact number, we've done it for the way it's written today, but I'm pretty sure you're going to see change between where we are today and when it gets enacted.
Thank you very much.
Your next question comes from the line of Brian Bittner.
Thank you. With domestic store profits sitting here at all-time highs, what are you hearing from your franchisees as far as what type of visibility do you have into the backlogs for domestic unit growth? The net unit growth is more about just not so many closing, not really so many opening.
Yep.
I'm also just wondering if you could also touch on what maybe you are doing internally at the corporate level to maybe also try to drive some enhanced unit growth domestically.
Yep. I think the answer, Brian, is you got it exactly right. In terms of second quarter, the story was more about lack of closures than it was about new openings. That's ultimately a very healthy thing. The five closures in the second quarter was as low a number as I can remember for a very long time. The unit economics are getting much healthier. I think my answer in terms of openings is going to be consistent with what I've said in the past, which is we want to get back to some modest positive net growth domestically. We have more people working on it and working with our franchisees on that than we have in the recent past. It's still going to take some time. Let's say much better and more available for larger franchisees. There's definitely access for our bigger players.
For one and two-store folks that want to add another store, it's still relatively tough out there. That's some of the constraint. I think you're going to see with what has been, I think, a little bit more conservative mindset, given what we've all gone through the last three or four years. It's going to take some time before that's really going to crank up again.
Okay, great. Great quarter, guys.
Thanks, Brian.
Your next question comes on the line of Joe Buckley.
Thank you. Just a little clarification on the G&A. Is the $5 million-$7 million full year increase what the reported number will look like? Is that net of any additional franchise payments for additional services you're providing?
That would be versus last year's reported numbers. It's not net of anything that we would collect from the franchisees for online or anything like that, which is booked in revenue.
Okay. The reported G&A number will be up five to seven from the reported number of last year.
That's correct.
Okay.
Yeah. The payments that we get, for instance, on online ordering, come in as a revenue. They're not kind of netted out against the expense.
Okay. I've seen the sandwiches being advertised again recently, and I guess I'm curious. Can you talk a little bit about that? Is this the first time in a while you featured those on TV? Just maybe within your answer, talk a little bit about what you promoted this quarter versus the first quarter, where some of the side item promotions factored into the transaction count decline-
Yeah
Better profitability.
Yeah. It has been mostly sandwiches for this quarter so far along with the early week carryout special. I'm sorry, your question was on Q2 or on Q3?
It was sort of both because I guess the sandwiches have been more Q3, have they not?
Yeah. So far in Q3, it's been mostly sandwiches. You're right, it had been a couple of years since we'd hit sandwiches. They've continued to do very well for us over time, even without advertising support. It was definitely time to come back around to those. Second quarter was more around Artisan, I think for the quarter. We also had Cheesy Bread was finishing up kind of in the front part of the second quarter. Sandwiches have been real successful, held together very nicely without television support, and it was just definitely time to come back around and hit those again.
Okay. Is there any new news around the sandwiches, or is it basically just featuring the existing products?
Yeah, there's a new sandwich in the line. It's really featuring the whole line again.
Got it. Okay. Thank you.
Your next question comes on the line of Jeffrey Bernstein.
Great. Thank you very much. A couple of questions. One to follow up on the franchisees with the less closures and the hope for openings. I know there was discussion about financial incentives, or you talked about kind of the financial side of things. I'm wondering whether that's ever been considered before, considering the strong positioning you're in right now to accelerate the growth, whether it be royalty relief or reduced marketing spend. You mentioned the one and two Z franchisee who has a tough time getting financing, whether you'd provide any kind of support for that, to what would seem to be to accelerate the growth in good times.
Yes. Jeffrey, the answer is we've always got some incentives out there. Have always had. We've got some that are a little more targeted right now at some specific geographies where we think there are opportunities for growth. If the question goes towards are we going to get into the lending business to try to generate store growth, the answer is no. We use our balance sheet very lightly for that. Are there exceptions on that along the way? Yes. Do we have a little bit? Yes. Certainly we're not going to make a material shift in strategy and using our balance sheet to kind of support the store growth. We don't think that's the right answer. Yeah, there are some growth incentives out there. They may be a little bit better with some specific opportunities, but we kind of balance that out.
There have typically been some in the past as well. In fact, there have always been some in the past.
Got you. Just as a follow-up to the, I guess the margin versus traffic question. I think last quarter you talked about some quarters it's self-inflicted and you're not opposed to necessarily, not that you ever want to see traffic down a little bit, but you run some of these side items, perhaps acknowledging that that was going to be the case with lower traffic. Obviously, the second quarter was somewhat of a mix, but now with the third quarter being the sandwich promotion, at least thus far, would that be a product that you would say is more of a center of the plate driver and therefore should drive traffic? Inherently, I guess you would be more disappointed in the third quarter if you didn't get the traffic lift, or are you willing to sacrifice that further?
I thought kind of center plate pizzas were the one that you said, "You know what? That will drive the positive traffic again, if and when we want to do that.
Yeah, I guess what I'd say is, anytime, there is absolutely going to be some balance and there are going to be some things that you think are going to drive it a little better than others. Anytime order counts are not positive, we're not going to be happy about it. As we put together our plan, that is certainly always the goal. There are some things that we know are going to drive that a little bit more relative to others, some things that are going to drive ticket a little bit more, and it's about getting the balance. Anytime that I'm telling you that orders aren't positive, I'm not going to be happy with that.
Got you. Did you just say from the franchise side that their profitability was up $5,000 in the first half of the year? I think you had told us in the past that 2011 profits for the full year was up, was in total $69,000 per store. Is that apples to apples? That's the $69,000 I know.
I think it was around 70 last year, kind of in that range. We've talked about a range in the past of kind of 50 to 75 in the 2008 time range. We were at the bottom end of that. We've now gotten back up to the top end of that. Yes, you heard it right. First six months or first half of the year, our franchise stores looked like they were up around $5,000 versus the first half of last year. A really nice move forward. If you look at our corporate store numbers, they're actually up quite a bit more than that on a year-over-year basis.
Got it. Just lastly on the cash usage, I should say, seems like, in the past was all about debt pay down. Now it seems like debt is pretty close to par, which I'm guessing is what you're seeing now, therefore we should expect the more aggressive share of purchase activity in future quarters.
Only if you tell me what the debt's going to trade at, the stock is going to trade at, and overall market conditions. That's the answer. We're looking at all of the possible uses of the cash, and we're going to use it in the way that we think is going to generate the best returns for our shareholders. That's going to change based on how the debt is trading and how the stock is trading and overall market conditions.
Got it.
Clearly, second quarter, the answer was we thought buying our stock was the best use of cash, and that'll change based on the market conditions.
Appreciate it. Thank you.
Your next question comes from the line of Mitchell Speiser.
Thanks very much. My first question is on margins, the margin expansion was very strong this quarter. It has been for the past few quarters. Just on this quarter, how much of that expansion would you say is more maybe fundamental in terms of online ordering, driving margins, perhaps that increased focus on add-on sales driving margins versus just lower cheese costs or lower commodities? I'm just trying to get a sense of how much of this expansion you would say is more fundamental or sustainable.
Mitch, I would say that the majority of it has got to do with the kind of product mix that we had, pricing that was out there. The fact is, commodities for the quarter were relatively stable year-over-year, so it was not that we were getting a breakout of commodities. We just priced for it. We did get a little bit more leverage on our labor, which is attributable in part to online. I would put more of it on the product mix of what we were selling.
Okay, great. I believe your store margins now for the company stores are in that 24.5%, 25% range. Do you view that as a level that can be held up over the next few years?
I think that's always dependent upon a lot of circumstance between what food costs could do, what Obamacare can do. There's a lot of things that can affect us over time. We're going to try and make up for it. It certainly is a level that we like to be at.
Okay, great. The Parmesan Bread Bites you did as a $1 add-on in the first quarter, and I believe you did heavily advertise it. There wasn't any advertising, I think, for that add-on in the second quarter. Can you give us a sense, did that momentum sustain without the advertising?
We're still definitely selling Parm bites, you're always going to have the mix on that ease off when you go off air. Are they off from where they were when we were on television? Absolutely. They're still moving nicely.
Yeah. I'm sure it is off a bit, yeah, I guess. Would you say it was a margin contributor in the second quarter?
Versus the prior year, yes. Versus the first quarter, it was probably off a bit.
Okay.
It was off a bit.
Understood. Thanks. Just a question I've been getting a lot. I'd just like to ask you. It's been very warm weather. Any history around heat waves and how your sales seem to do during particularly hot weather periods?
We talked in the first quarter about the fact that we'd had unusually weird weather in the first quarter and analyzed it had not had a lot of impact. Really, the same kind of holds true for the second quarter. Weather just is not Over the course of a quarter and across the country as big as the U.S., just doesn't make that much difference.
Okay, great. I think my last question is just, you mentioned lower occupancy as one of the store-level margin drivers. Can you just comment on that more? Was it sales leverage or was it renegotiating leases that helped out the occupancy line?
It's a little bit of renegotiating leases, it's a little bit of leverage, it's also a little bit of the fact that energy costs that you use in the store are down a little bit. Natural gas has been coming down in a few markets, that's helped a little bit.
Great. Thanks very much.
Your next question comes from the line of Mark Smith. Mr. Smith, your line is open. There is no response from that line. Your next question is from Alvin Concepcion.
Hi, good morning. We've heard a few companies call out a domestic consumer slowdown impacting sales trends, but it doesn't appear to have been an issue for you in the quarter. Have you seen any signs of that in your business or for the pizza category in general?
Well, as I said before, order counts weren't positive in the second quarter. I think the answer is, the U.S. consumer is still being pretty conservative about how they're spending money. The pizza category looks like it's continuing to be up a little bit, which is a positive from where it's been prior to the last couple of years. We view that as a positive change overall. I think the U.S. consumer is still pretty darn conservative. Until we get some of the uncertainty resolved around the economy and taxes and et cetera, I think the consumer is going to stay pretty conservative.
Okay, great. Then just to follow up on your international. You mentioned Europe continues to perform well. Are you gaining share there? If that's the case, where do you think it's coming from?
Yeah. I think we've been gaining share for quite a while outside of the U.S. and continue to. The best information we get is that on outside of the U.S., we think the category is growing at about a 5% kind of a clip. If you look at our store growth, at our same-store sales growth, we're clearly taking share out there. With a growing category, it's more a question of who's getting more than their fair share of the growth as opposed to it necessarily coming out of somebody else's hide. So I think it's more that. We're clearly outperforming the category by a lot outside of the U.S., it's in a pretty healthy category.
Okay, great. Just one more. Can you talk about the consumer reaction so far on the Gluten Free Crust? Did you see new customers checking out the pizza that weren't there before?
Yeah, we did. We got pretty much exactly what we expected out of it. It's a small part of the business. It was expected to be a small part of the business. For those who want a Gluten Free Crust, it's a pretty big deal that we're offering it now.
Great. Thanks a lot.
Your next question comes from the line of Stephen Anderson.
Good morning. Just wanted to follow up on the international side. A pretty large competitor has announced that they're moving more toward value platforms. In fact, one of the competitors mentioned they are cutting prices across India. Just as an example, have you or the franchisees have felt any kind of pressure to engage in more aggressive discounting as some of your competitors have?
No.
Okay.
No, the fact is, category is growing. You look at India and you know the story well there. Our business has been absolutely booming in India, and commodity prices have been up pretty good in India. The answer is no. Our group over there has announced when they've taken price increases, and they have taken some price increases to offset the commodity pressure in India.
Okay. Thank you.
Yeah.
Your next question comes from the line of Howard Penney.
Hi. Thanks very much. One too many questions on consumer behavior, I'll pass. Thank you.
Okay.
Your next question comes from the line of John Ivankoe.
Hi, thanks. If I may, just looking at one of your competitors, Pizza Hut, I guess I'll say it, to be obvious. In the U.S., they're talking about a delivery carryout, like kind of a light model that I guess would be maybe used for smaller markets and other types of things. I was wondering if, are those the types of markets that you're in or are those the types of markets that you could be in? Is there any thought of kind of developing something similar to the format that they've talked about? That's one question.
Completely separately, Patrick, in your prepared remarks, you mentioned Brazil. I just checked my notes. I don't think it's a top 10 market for you guys. It might be interesting for many of us on the call for you to kind of talk about where you are in Brazil, who your partners are, what the growth strategy may be in that, what's obviously a very big market in the next several years. Thanks.
Yep. The answer in terms of Pizza Hut, the model that you're talking about is our model. They're basically talking about a move away from their restaurants, their red roofs, and using smaller footprints. I think they've talked about that publicly before, that as they've looked at their model and our model, they've seen some of the advantages in the approach that we've taken, the smaller footprint, et cetera. That's the answer there. As they're talking about that, I think that's really a move towards more Delco units than where they've historically been. In terms of Brazil, it is still relatively small. It's growing nicely. We're getting good results there. We've got a strong partner down there that owns an Italian concept with 200 units. Good experience in the restaurant industry. We're getting good results.
You're right, it hasn't cracked the top 10 yet. Given the size and scale of the market, we're pleased with where we are and really making very good progress down there. That's something that probably won't hit the radar quite as much for a few more years. It's an area where we're putting out a lot of focus.
Thank you.
Thanks, John.
Your next question comes from the line of Peter Saleh.
Great, thanks. Just a quick question. Where do you guys stand on China and growing there and finding franchisees to develop further?
We've got a couple dozen stores in mainland China now. We're making progress. We've got a new partner that we're very happy with. We think we're running our stores better than we were before. They've got a good team on the ground. I think we've got the model where it needs to be. We'd experimented with some bigger units over there over the past few years. While we were experimenting with that, the consumer came towards us and started putting more value on the convenience of delivery. We've kind of reset our model over there, and definitely it looks far more like a standard Domino's business now than it would have two or three years ago. Still very early. Like our partners, like the progress that we're making, we think we've got the model where it needs to be now.
Kind of like Brazil, big market, so it's an area that's going to get a lot of focus over the next few years.
Great. Thank you.
Your final question comes from the line of Joe Buckley.
I'm actually good. Thank you.
All right. Thanks, Joe.
There are no additional questions at this time.
All right. Well, thank you all for your questions today and getting on the call. We look forward to speaking with you in October for our third quarter call.
Ladies and gentlemen, this does conclude today's conference. You may now disconnect.