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Domino's Pizza Inc  (NYSE:DPZ)
Q3 2018 Earnings Conference Call
Oct. 16, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2018 Earnings Conference Call. At this time, all participant lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. I will now turn the call over to Tim McIntyre to begin. Please go ahead.

Timothy P. McIntyre -- Investor Relations

Thanks, Maria, and hello everyone. Thank you for joining us. Today's call will highlight the results of our third quarter and will feature commentary from Chief Executive Officer, Rich Allison and Chief Financial Officer, Jeff Lawrence. I just said Rich Allison, I should have said Ritch Allison, sorry, oh my goodness -- CEO Ritch Allison, and CFO, Jeff Lawrence.

This call is primarily for our investor audience, so I kindly ask that all members of the media and others to be in a listen-only mode. A friendly reminder to our analysts; we have asked you to stick to one question on this call, because we want to give all 19 of you the chance to participate. We will provide each of you the opportunity for more in-depth one-on-one calls later today and tomorrow.

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 and the 8-K. In addition, please refer to the 8-K to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call.

With that, I'd like to turn the call over to Jeff Lawrence.

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Thank you, Tim, and good morning everyone. In the third quarter, our positive global brand momentum continued, as we once again delivered great results for our shareholders. We continue to lead the broader restaurant industry with 30 consecutive quarters of positive US comparable sales and 99 consecutive quarters of positive international comps. We also continue to increase our global store count at a healthy pace.

Our diluted EPS was $1.95 which is an increase of 53.5% over the diluted EPS, as adjusted, in the prior year quarter, which excluded the impact of our recapitalization completed in 2017. With that, let's take a closer look at the financial results for Q3.

Global retail sales grew 8.3% in the quarter. When excluding the negative impact of foreign currency, global retail sales grew by 10.4%. This global retail sales growth was driven by increases in same-store sales and the average number of stores opened during the quarter. Same-store sales for the US grew 6.3%, lapping a prior year increase of 8.4%. And same-store sales for our international division grew 3.3%, rolling a prior year increase of 5.1%.

Breaking down the US comp, our franchise business was up 6.4%, while our company-owned stores were up 4.9%. Both increases were driven primarily by higher order count in addition to some ticket growth, as consumers continue to respond positively to our overall brand experience.

Our Piece of the Pie loyalty program once again contributed meaningfully to our traffic gains. Our international comp for the quarter was driven entirely by order count growth. During the quarter, comps in our Asia-Pacific, Americas and Middle East regions were strong. And while still positive year-to-date, the comp in our European business was slightly negative for the quarter.

Our teams on the ground are working hard with our European franchise partners to regain comp momentum. Our retail sales growth in Europe remains strong due to healthy store count growth and we remain optimistic, long-term, in the business there.

On the unit count front, we are pleased to report that we opened 59 net US stores in the third quarter, consisting of 61 store openings and 2 closures. Our international division added 173 net new stores during Q3, comprised of 192 store openings and 19 closures. On a total company basis, we opened 232 net new stores in the third quarter and 920 net new stores over the last 12 months, demonstrating the broad strength and attractive 4-wall economics our brand enjoys globally.

Turning to revenues, total revenues were up $142.3 million or 22% from the prior year quarter. As a reminder, we adopted the new revenue recognition accounting standard in the first quarter of 2018. As a result, we are now required to report the franchise contributions to our not-for-profit advertising fund and the related expenses gross on our P&L.

Although this did not have an impact on our reported operating or net income in the third quarter, it did result in an $82.5 million increase in our consolidated revenues. It is important to note, although these amounts are included in our financial statements, they are restricted funds that can only be used to support the Domino's brand and are not available to be used for general corporate purposes.

The remaining $59.8 million increase in revenues resulted primarily from the following. First, higher food volumes driven by strong US retail sales resulted in higher supply chain revenues. Second, higher US same-store sales resulted in increased royalties and fees from our franchise stores as well as higher revenues at our company-owned stores. Store count growth also contributed positively to these increases. And finally, 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 $1.9 million versus the prior year quarter due to the dollar strengthening against certain currencies. For the full fiscal year 2018, we now estimate that the impact of foreign currency on royalty revenues could come in near the low-end of our prior 2018 guidance of flat to positive $4 million. As you know, there are many uncontrollable factors that drive the underlying exchange rates which makes this a harder part of our business to predict.

Moving on to operating margin. As a percentage of revenues, consolidated operating margin for the quarter increased to 37.6% from 30.8% in the prior year quarter. This increase resulted entirely from the recognition of domestic franchise advertising revenues on our P&L from the new accounting guidance I mentioned previously. Supply chain operating margin was negatively pressured by delivery and labor costs. Procurement savings partially offset these margin pressures.

Our supply chain center operations in both the US and in Canada continue to have opportunities for improvement. We continue to invest heavily in both capacity and driving efficiencies in all of supply chain, and we remain committed to our franchise partners in making tangible headway in both capacity and efficiency in the near term. Company-owned store margin was negatively impacted by higher food, labor and insurance expenses as compared to the prior year quarter.

G&A cost decreased $1 million as compared to the prior year quarter. This net decrease resulted primarily from a $5.9 million pre-tax gain on the sale of 12 company-owned stores, and a $4 million impact from the adoption of the revenue recognition guidance primarily related to the reclassification of certain advertising expenses out of G&A into domestic franchise advertising costs.

These decreases were partially offset by continued investments in our marketing, supply chain and corporate store teams as well as our planned investments in technological initiatives, including e-commerce and the teams that support them. Please note that the company receives technology fees from franchisees that are recorded separately as franchise revenues.

We currently estimate that our G&A cost for the full year 2018 will come in near the low-end of our previously communicated range of $370 million to $375 million. Keep in mind too that our G&A expense for the year can vary up or down based on, among other things, our performance versus plan, which affects variable performance-based compensation expense.

Domestic franchise advertising costs were $82.5 million in the third quarter. As a reminder, we are now showing domestic franchise advertising in our revenues with an equal and offsetting amount of expense in our operating cost. Interest expense increased $800,000 in the third quarter, driven by increased net debt from our most recent recapitalization. This increase was largely offset by $5.8 million of incremental interest expense recorded in the prior year quarter related to our 2017 recapitalization.

Our weighted-average borrowing rate was flat as compared to the prior year quarter at 4.1%. Our reported effective tax rate was 15.3% for the quarter, down significantly from prior year. This was primarily due to the lower federal statutory rate of 21% resulting from the federal tax reform legislation enacted at the end of 2017. The impact of tax benefits on equity-based compensation also resulted in a $7.4 million reduction in our third quarter provision for income taxes. This resulted in a 7.5 percentage point decrease in our effective tax rate.

We continue to expect that our ongoing tax rate, excluding the impact of equity-based compensation, will be 22% to 24%. We also expect to see continued volatility in our effective tax rate related to equity-based compensation. When you add it all up, our third quarter net income was up $27.7 million or 49% over the prior year quarter.

Our third quarter diluted EPS was $1.95 versus $1.18 last year, which was a 65.3% increase. As compared to our prior year diluted EPS, as adjusted, of $1.27, our third quarter diluted EPS increased 53.5%. Here is how that $0.68 increase in diluted EPS breaks down. Our lower effective tax rate positively impacted us by $0.41, including a $0.31 positive impact from tax reform and a $0.10 positive year-over-year impact related to higher tax benefit on equity-based compensation.

Lower diluted share counts, primarily as a result of share repurchases benefited us by $0.17. Higher net interest expense, resulting primarily from a higher net debt balance negatively impacted us by $0.09; foreign currency negatively impacted royalty revenues by $0.02; and importantly, our improved operating results benefited us by $0.21 which includes $0.08 from the gain on the sale of company-owned stores.

Now turning to our use of cash; during the third quarter, we repurchased and retired approximately 397,000 shares for $109 million at an average purchase price of approximately $275 per share. Year-to-date, we repurchased and retired approximately 1.75 million shares for $429 million at an average purchase price of $245 per share.

We also returned $23.2 million to our shareholders in the form of a $0.55 per share quarterly dividend. All in all, our strong momentum continued and we are very pleased with our results for this quarter.

And with that, I'll turn it over to Ritch.

Richard E. Allison -- Chief Executive Officer

Thanks, Jeff, and good morning everyone. I'm very pleased with our third quarter performance and I'm extremely proud of our great franchisees and operators around the world, particularly within our US business who executed at high levels during the quarter. Our focus on global retail sales growth and franchisee economics continues to shape our steady, long-term strategy and approach.

My first three months on the job have only reinforced my point of view about what it takes to succeed in this business; the brand with the best people, the strongest franchisee relations, a focus on forward-thinking innovation; and most importantly, the courage to take smart risks and tackle the steep hills needed to create meaningful change and improvement will win. I am very proud to be leading an organization that continues to play the long game by taking this winning approach.

Focusing first on the US business, it was an outstanding quarter with strong retail sales growth driven by a solid balance of same-store sales and unit growth. The launch of Domino's Hotspots and the Paving for Pizza program both generated terrific attention and are two good examples of how we continue to make news for the brand in unique and different ways.

We see these as more effective than the limited time offering, product of the month approach which differentiates us from others, not only in Pizza, but across the QSR landscape. We continue to drive healthy traffic in order counts and as always, remain focused on our own strategy and execution rather than specific competitive or macro factors.

For years now, we've stressed the importance of franchisee profitability and cash-on-cash returns as important drivers of long-term growth for Domino's or any restaurant brand. Store openings are an obvious measure of the health of cash-on-cash returns, but it is also important to take a look at the rate of store closures.

Closures are a key indicator of brand momentum and franchisee confidence. I am pleased to note that year-to-date in 2018, we have only closed seven stores in the US. I'm just going to repeat that; year-to-date in 2018, we have close just seven US stores while opening 140. I credit the many efforts related to sales and efficiencies made by our team and our franchisee-base toward the industry-leading unit economics that are keeping stores open and profitable.

On our last call, we spoke about the need to accelerate supply chain capacity to support our industry-leading retail sales growth. I am pleased to report that during the quarter, we opened our new state-of-the-art supply chain center in Edison, New Jersey; the first Domino's US supply chain center to open in more than a decade.

I am very pleased to see us making progress on these efforts to expand capacity. And as Jeff mentioned earlier, continuing to address needed efficiency improvements as we invest toward upgrading capabilities within our centers both old and new.

I'd like to call out one more event during the quarter that makes a big statement about the strength of the Domino's brand. Stan Gage, a former member of the Domino's leadership team left Domino's and then became a 12 store franchisee in the Carolinas. Stan, in a familiar Domino's story, started as a driver more than 30 years ago and worked his way up through the company. Most recently he ran our company-owned stores.

I note this not only because it is one more outstanding talent to add to our nearly 800 franchisees in the US today, but also because it shows ultimate confidence in the brand. Stan, we wish you all the best as you build your Domino's business.

Many of you have told us we make this look easy at times, but the retail sales results, franchisee energy and momentum within our US system don't come easily. They take hard work each and every day. The US business results are driven by a system, culture and collection of franchisees and corporate team members that refuse to be complacent or to rest on past success. This collective energy and drive motivates me and my leadership team each and every day.

Turning to the international business, we had a good quarter, generating strong retail sales growth and improving store growth trends across all regions. Three of our four regions delivered positive same-store sales with our Europe region being the exception. While there is work to do in a few key markets, overall, I continue to be very pleased to see our international same-store sales growth being driven by order growth.

Across the international business, our master franchisees continue to perform at a very high level with excellent unit economics. We have the best master franchisee partners in the restaurant business and we will continue to work closely with them in driving home elements from the proven playbook used in the US and many other markets including, customer insights, franchisee alignment, technology innovation, and a clear focus on value and transaction growth as the main drivers of top line results. We are a work-in-progress brand and we will never rest in our quest to achieve a dominant number one position in every market where we compete.

On the technology front, our Hotspots program was featured front and center this past quarter. Beyond any sales expectations at this early stage, the thing I'm most pleased with has been the incredible engagement from this program, with our customers, our franchisees and the media. Hotspots received much attention because it is a program that is completely unique within our industry.

I couldn't be more proud at the store level execution of our franchisees and operators around the country as they delivered delicious Domino's Pizza to parks and beaches in more than 200,000 Hotspots across the US. Not all technology innovation is television commercial worthy and some that happens behind the scenes is as valuable as anything else. We continue to consider tech when discussing operational efficiencies with our franchisees, seeking to innovate and support their needs wherever possible. From this, we have recently incorporated voice and mobile capabilities into some of our store level activities, including inventory management and other areas.

While not a customer facing digital platform, which I'm still pleased to see us doing plenty of, these launches can also drive value. We are constantly striving to create a better experience in our stores. Utilizing technology to benefit our franchisees, managers and store team members in ways that improve efficiencies and make their lives easier is something we will continue to do wherever and whenever possible.

In closing, I am pleased with our third quarter results. As I mentioned during my opening remarks, I am very proud to be part of a brand with such a winning attitude and mentality, a winning strategy and approach and a winning collection of people that are, no doubt, the best in the industry. This is what gives me the upmost confidence that we can maintain our energy, momentum and success.

And now, operator, we'll open it up for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Brian Bittner of Oppenheimer & Co.

Brian Bittner -- Oppenheimer & Co. -- Analyst

Thank you, good morning guys. First question is, just when you look at the US business and you look at the fourth quarter last year, the comps of 4% in 4Q last year was still obviously very solid, but it also was a very clear temporary slowdown that we saw in the business. Can you just remind us what drove that temporary slowdown last year, so we can better understand your fourth quarter this year? Was it mostly driven by external issues or internal issues in the fourth quarter last year?

Richard E. Allison -- Chief Executive Officer

Brian, we were pleased with the fourth quarter last year. The 4.2% was within our three to five year outlook that we've been giving you guys for quite some time and we don't see any material -- didn't see any material challenges back then that gave us a cause for concern. When we take a look at the momentum in the business this year and on a multi-year stack looking backwards, we're very, very pleased with the performance.

Brian Bittner -- Oppenheimer & Co. -- Analyst

Okay, and just in the international business, I know your Australian franchisee is going to be doing a conversion, how do you expect that to impact the international openings over the next few quarters?

Richard E. Allison -- Chief Executive Officer

We are in the midst with our partner Domino's Pizza Enterprises of a conversion of Hallo pizza in Germany as we speak. So, Brian, that is a work in progress and conversions are -- been happening for several months now and will continue to go forward in the months to come. We won't comment on any specific unit count impact as it's an ongoing process.

Brian Bittner -- Oppenheimer & Co. -- Analyst

Okay, thank you Ritch.

Operator

Our next question comes from the line of Karen Holthouse of Goldman Sachs.

Karen Holthouse -- Goldman Sachs -- Analyst

Hi, thanks for taking the question. This is the first quarter in a while that we've seen really only a moderate increase in year-over-year supply chain cost. Is there anything specific you would point to that's sort of helping the cost curve there? Is that early benefits of the new facility that's been opened in the US? Are you starting to see changes on the freight or shipping side of things? Really just any color there.

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Yes Karen, it's Jeff. In supply chain we've really taken our role as a franchisor. Seriously we're investing materially as you know, both in capability building as well capacity building. As Ritch mentioned in his prepared remarks, we were super excited to get our first supply chain center in more than a decade opened and running to our (inaudible) running down the line as we speak in Edison, New Jersey and that's something that we're going to continue to do.

It's a great division. Guys are working really hard and our franchisees need that comfort that we're going to continue to get them high quality, safe food supply so that they have the confidence to continue to grow. They have that confidence in our supply chain. We're going to continue to invest again in even more capacity and more capabilities over time.

As I mentioned, I believe it was last quarter we raised our guidance on CapEx for 2018 to reflect the fact and the optimism and where we're going in the US business to pull forward supply chain centers number two and three in the US. So, lot of opportunity for improvement there like we have in lots of parts of our businesses, but it's a great business, a good ROI and most importantly, getting good food supply to our franchisees in the US and Canada.

Karen Holthouse -- Goldman Sachs -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Gregory Francfort of Bank of America.

Gregory Francfort -- Bank of America -- Analyst

Hey, I got two questions for Ritch. One is just a clarification, I think you said 3% to 5% long term algorithm, I think you meant 3% to 6%, just maybe clarify that. And then, the other question I had was just on the European sales and what the reason for the pressure there is and I guess what you're doing right now to address that market and maybe sort of bend the arc back?

Richard E. Allison -- Chief Executive Officer

Sure, thanks Greg. And yes, you are correct, 3% to 6% is our three to five year outlook. So thank you for correcting me on that. First, around the business in Europe, our three other regions were very strong in Q3, but within the Europe region we've got a couple of markets where we've got some improvements to address and some of those are short term and some of those are going to take a little bit of time.

When I take a look at the business over there, the issues that we have are by and large in our master franchisees control and we share a joint commitment to take whatever steps we need to get the business back to the performance on comps that we're all used to. If you take a look at it, holistically in Europe, I still feel very positive about our overall market position. We still have strong cash on cash returns across the region, and our retail sales growth performance has still been quite solid even in the face of a quarter where we didn't achieve the comp result that we'd like to see.

Gregory Francfort -- Bank of America -- Analyst

Thank you very much.

Operator

Our next question comes from the line of David Tarantino of Baird.

David Tarantino -- Baird -- Analyst

Hi, good morning. My question is on the domestic unit growth. I think this is maybe the seventh year in a row where the pace of growth has increased and I think that's probably an outcome of your fortressing strategy. But just wondering if you'd expect that pace to continue to move higher as we move forward and is it possible, in your view, that we could see domestic growth in line with your long run target for the global unit growth outlook?

Richard E. Allison -- Chief Executive Officer

Sure David. We're very pleased with what has now been a multi-year acceleration of the pace of unit growth in the US. And certainly, the strategy of fortressing and driving retail sales growth plays a big part of that. Also, the fact that we have seen consistently improving over the last couple of years, store level profitability which, as we reported out to you has been in the mid-130s on a store level basis. That's driving a lot of confidence in the franchisee base in building new stores. You know you combine that with the fact that we've got a lot of stores out there in the US right now that are really busy.

On Friday and Saturday nights, we've got some stores where we have a tough time putting an incremental pizza in the oven because they're so busy. Take all of that and you roll in a historically low rate of closures in the business and it's driven a nice acceleration and we're very optimistic about US store growth going forward. We've shared with you that we think the US, within a 10-year horizon, is an 8,000 store business. And so we're optimistic about the forward growth also.

David Tarantino -- Baird -- Analyst

And Ritch, maybe a related follow-up. Are you seeing any signs of concern among the franchises related to the overall labor environment? I know the cash flows are still quite good but is there any sort of pause or concern you're seeing anywhere in the system in the US on development?

Richard E. Allison -- Chief Executive Officer

I think labor is tight in any business in the US today and we're certainly no exception to that, with unemployment now under 4% for a while. But our franchisees out there are making it happen and they're hiring drivers. The fact that our drivers are so busy helps us. When we take a look at what a driver can make at a Domino's Pizza relative to delivering or driving for some other businesses, it's very, very attractive.

But yes, labor pressures are certainly on the minds of -- on the minds of our franchisees. On the flip side of that, one of the things or the thing that drives sales of pizza, as much as anything, is having people gainfully employed and earning good wages out in the marketplace. So as the number one player in the pizza business, we also get a nice top side benefit from a strong labor market.

David Tarantino -- Baird -- Analyst

Thank you very much.

Operator

Our next question comes from the line of Will Slabaugh of Stephens Inc.

Hugh Gooding -- Stephens Inc. -- Analyst

Hey guys, thanks for taking my question. And this is actually Hugh on for Will this morning. I think this is really the first full quarter with the HotSpots now in, and can you provide any learnings from the program and maybe any color on the adoption or topline contribution from this program?

Richard E. Allison -- Chief Executive Officer

Yes, HotSpots, it's been a really fun program for us. It's another one of our anywhere platforms with our goal of making Domino's Pizza accessible to our customers anytime and anywhere they want it. What I've been most pleased about on this is just the terrific brand engagement that we've seen on this platform and it starts with our franchisees who've set up these 200,000 plus HotSpots around the country. Our customers who've been excited about the program and also this has gotten a terrific amount of media attention as well which has been quite a bit of fun. So overall, we're quite pleased with the program.

Hugh Gooding -- Stephens Inc. -- Analyst

Thanks.

Operator

(Operator Instructions) Our next question comes from the line of Matt McGinley of Evercore ISI.

Matt McGinley -- Evercore ISI -- Analyst

Good morning. My question is on the G&A, when you back out that $5.9 million gain you had in the impact for ASC 606, your G&A dollars were up about $10 million in the quarter. Is that just a normal G&A increase or is there some sort of lumpiness in the quarter that that should go down. And just to confirm, the full year guide on G&A reflects that gain, meaning you went a little bit higher given that, that would have been an offset?

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Yes Matt, it's Jeff. The $370 million to $375 million remains the guide and that is inclusive of some of the noise that you see including the gains, so it's inclusive of that. We're guiding to the low end of that range or near the low end of that range, in part because of that gain that you saw from the store sales, so it kind of, I think, compensates for that a little bit.

As far as the rate and pace, what we're probably going to continue to give you is just one year at a time is our best guess on what's going to go into G&A because we are in such a dynamic environment. We have been in periods where we've decided to accelerate some strategic investments if we see the opportunity in the marketplace. And so, given one year at a time is what we feel responsible to do now. So any one quarter, you might always get some bounce around things like that. But $370 million to $375 million is what we'll invest this year. Again, possibly at the lower end of that range.

But again, if we outperform in Q4, that's going to go up. You have things like advertising that flows through on corporate stores and such. And if we underperform, we could be at even the lower end or below the range. So, I think the key point here is, is it continues -- the increases continue to go in strategic areas, it's in marketing, it's in analytics, it's in technology, it's in the things that are driving the profitable retail sales for franchisees around the world and that you're going to see more of, not less of, as we go forward.

Matt McGinley -- Evercore ISI -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of John Glass of Morgan Stanley.

John Glass -- Morgan Stanley -- Analyst

Thanks very much. Could you just talk a little bit about the US competitive environment? It's not lost on you or anyone on the call that one of your key competitors ceded some share this quarter but it's hard to see if you actually got a benefit or how much that benefit is, so -- and even what the store overlaps are? Can you can you talk about; one, the overall US competitive environment and the changes? But specifically to that comment on the competitor that's losing share, do you pick it up or is it too hard to measure, because from the outside, it's hard to see if you picked up share from that or not?

Richard E. Allison -- Chief Executive Officer

Yes, John. We're in -- as you're aware, we're in a very fragmented category and if we have a competitor donating share, it doesn't simply fall in our pocket, we've got to earn it. And sometimes, share that's donated doesn't necessarily all fall into the pizza category as well and that specific competitor has a relatively small share within the category. So the impact of this on the overall landscape isn't necessarily as heavy as some might assume.

When we take a look at the category overall, we're really more focused on our own competitive strategy than we are on kind of the short-term ups and downs with any specific competitor. And we think if we can continue to stay focused on bringing value to our customers and also on delivering terrific unit-level economics to our franchisees, we think we can continue to be successful and can continue to take share from competitors, small and large, in the pizza market.

John Glass -- Morgan Stanley -- Analyst

Got, it. Thank you.

Operator

Our next question comes from the line of Peter Saleh of BTIG.

Peter Saleh -- BTIG -- Analyst

Great, thanks. Yes, I want to circle back on the category as well. Can you guys talk a little bit about the growth of the pizza category? Have you seen that growth moderate or accelerate at all? And then also, anything you can discuss on the closure rate of some of your competitors, primarily the independent operators. Are you still seeing the closure rate accelerate and more closures in the system?

Richard E. Allison -- Chief Executive Officer

Peter, first of all on the overall market, we aren't seeing any significant swings one way or another, on what is just a pretty steady low single-digit growth of the category in the US, and then globally the pizza category continuing to grow, we believe, in that 3% to 5% range. So no significant changes that we've seen there.

With respect to closures, as I commented earlier, in our business, very strong unit-level economics have led to our franchisees maintaining confidence in keeping their stores open, seven closures across the entire US year-to-today.

As you look elsewhere broadly across the industry, I don't have any specific comments about closures at competitors small or large, but what I will say is that overtime, my experience has always taught me that it's going to follow unit-level economics. And if we have players in the marketplace that are struggling to generate returns at the unit-level, then that's what's going to drive either closures on the downside or openings on the upside going forward.

Peter Saleh -- BTIG -- Analyst

Alright, thank you very much.

Operator

Our next question comes from the line of Sara Senatore of Bernstein.

Sara Senatore -- Bernstein -- Analyst

Hi, thank you. Ritch, you mentioned both value (technical difficulty) economic to franchisees but I think sometimes in other systems we see those in conflict and the system struggle to stay on message around value because of franchisee pushback. So maybe could you just address how you're franchising about value and consistency in that $5.99 price point. Are there offsets that you're continually finding? Is it the mix stays sort of a fixed amount? Just trying to understand how you are able to be so consistent around value and others kind of float in and out?

Richard E. Allison -- Chief Executive Officer

Sure. Sara, I think you used exactly the right word in your question, which was the word consistent and that's really been the key within our system. So we've been on our $5.99 mix and match which is our hero offer in delivery. We've been on that for effectively about nine years now. And in our carry-out business, for multiple years now, we've been consistently at our $7.99 offer there.

And the key with value is consistency because it's really hard to offer those price points in the marketplace if you're not driving volume growth overtime. And you can't just jump on value for a quarter or for one promotional window and jump back out. That's just not a recipe to driving long-term transaction count gains in the business. And everything that we have experienced here at Domino's in the US and in our other large international markets is that, it is that transaction count growth over time that correlates not only with sales growth but with profit growth.

And staying consistent and focused on that value has helped us to drive the kinds of unit level profitability numbers that you've seen from us over time. So consistency and alignment is the key. Franchisees also have levers at their fingertips as well with local menu pricing, with how they price their delivery charges et cetera that allow them outside of the national price point to manage pricing and some of the profit dynamics in their business at a local level as well, and we think that mix of a strong consistent national price point with flexibility at the local franchisee level is the recipe for a profitable and growing business.

Sara Senatore -- Bernstein -- Analyst

Thank you.

Operator

Our next question comes from the line of Chris O'Cull of Stifel.

Chris O'Cull -- Stifel -- Analyst

Thanks. Ritch, I had a follow-up regarding labor. Several restaurant companies have stated they are having difficulty fully staffing the restaurants in the current market, and obviously this becomes a major concern if it hurts your customer service. So, are you able to monitor whether franchisees are properly staffing restaurants and can you tell us whether customer satisfaction or drive time performance has changed much in recent quarters?

Richard E. Allison -- Chief Executive Officer

We don't monitor franchisees staffing at the local level. They're independent business owners. And that's their job to track and manage their staffing at a local level. Certainly, as we look broadly across the business, service is critically important to us and it plays, Chris, into the fortressing strategy that we've been driving in the business.

Getting our stores closer to the customer is going to help obviously with that service dimension, but also when we get our stores closer to the customer, our drivers can execute more runs per hour, because the distances are shorter and more runs per hour means happier customers and it also means more tips, which helps us to attract and retain delivery drivers into our business over time.

Chris O'Cull -- Stifel -- Analyst

Have you seen a decline in customer satisfaction or changes in it in recent quarters?

Richard E. Allison -- Chief Executive Officer

No, we haven't seen any decline in customer satisfaction.

Chris O'Cull -- Stifel -- Analyst

Great, thanks.

Operator

Our next question comes from the line of Alton Stump of Longbow Research.

Alton Stump -- Longbow Research -- Analyst

I just had a question, I think about (inaudible) delivery providers. A, is that sort of have any have bigger impact from what you can see on your demand and then; B, kind of how do we model out increased labor costs from a driver standpoint that are most likely going to result, of course, of the growth in Easter party providers?

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Hey Alton, it's Jeff. On aggregators, we don't have that much more to add than what we've already said, been saying over the last 18 months to two years. It's more about what we're doing, our strategies, our great execution in more than 90 markets around the world, and we're -- as you see again we're hitting more often than not in that 8% to 12% global retail sales growth with really good flow through to the bottom line. So I don't think we have anything really to add to the conversation around this aggregator phenomenon other than to tell you that we're going to grow regardless.

Alton Stump -- Longbow Research -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Jeffrey Bernstein of Barclays.

Jeffrey Bernstein -- Barclays -- Analyst

Great, thank you very much. Just have a question on the unit growth. I mean it's hard to look at any system quarter-to-quarter, but there's a couple of quarters we've been sitting in the 6% range, which is the lower half, I guess of your 6% to 8% annual guidance and I recall last quarter there was talk about the international maybe coming in a little light of expectations.

So I was wondering if you could talk about whether the third quarter results saw the uptick you were anticipating or whether there is any reason why we might see more modest growth or particular regions that might see more modest growth on the international front, although as it does seem to imply a pretty big uptick as we think about fourth quarter growth and just wondering to get your thoughts there specific to the international?

Richard E. Allison -- Chief Executive Officer

Thanks, Jeff. First, keep in mind, that 6% to 8% unit growth outlook is a three to five year range in terms of outlook. Specifically related to the third quarter, we were pleased to see the pickup in international growth, 173 net units in the third quarter. We were pleased with what we saw there and when we take a look forward at the medium and the long-term, we've got solid unit economics across the international business and that's across all of the regions that we operate in and that is really the leading indicator of what is going to -- that gives us confidence in that 6% to 8% unit growth range that we give you on a global basis. And then, as we've talked about previously on this call, the unit level economics in our business in the US also continue to be very, very strong and at a level of returns that encouraged our franchisees to invest their hard earned dollars into building Domino's Pizza stores.

Jeffrey Bernstein -- Barclays -- Analyst

Thank you.

Operator

Our next question comes from the line of Jeremy Scott of Mizuho.

Jeremy Scott -- Mizuho -- Analyst

Hey, thank you. Good morning. Just bigger picture on international, the next 2,000, 3,000 stores versus the last 3,000 stores. Can you talk about the difference in contributions from your core market versus some of your younger markets that were launched in that 2013 to 2015 period when I believe Ritch you were leading the effort?

I have your long-term store targets in front of me, but just thinking about the momentum over the next three years which markets may surprise us and accelerate versus those that -- where the growth might level out. And then maybe just a follow-up on the previous comment, you mentioned that you share a joint commitment to drive business in your international franchisees. Wondering if you can expand on that a little bit, is there a threshold of underperformance in a major market that would induce you to step up with capital support or is there something else that you had in mind? Thanks.

Richard E. Allison -- Chief Executive Officer

Sure. Well, Jeremy, I'll start with your first question. When I think about the composition of store growth in international, the good news there is that it has been a pretty balanced portfolio of growth if you look overtime, in that we continue to get strong store growth out of long established core markets and you've seen that in the last couple of years in places like the UK and Australia for example, while also driving strong growth in some of the newer or more emerging markets that we've got around the world and you've seen a lot of units over the last couple of years come from places like India and Russia and Brazil and places that are relatively undeveloped for it.

When I take a look forward, honestly I don't see a lot of change in that dynamic. We still have very attractive unit level returns in our core markets and also a good bit of wide space for growth in those markets. If you take a look at the top 15 markets that we operate in by unit count, there's still another 4,000 or 5,000 units of opportunity available in those places.

And then beyond that, markets that wouldn't appear on that list, like places like, China and Russia and places like that, we're optimistic about the forward growth in some of those emerging markets as well. And having this balanced portfolio really helps us overtime, because frankly not all markets are going to be performing at any particular point in time, so you need that balanced portfolio to be able to consistently drive unit growth in that 6% to 8% range.

I'll turn now to your second question. We have a really deep partnership with our master franchisees around the world and I think that is one of the things that has allowed us to be successful over a sustained period of time. So our teams work side by side with our master franchisee teams to make sure that we're driving the business forward with our customers in those marketplaces, but also working hand-in-hand on the unit level economics in the business as well.

So, it's not so much stepping in with capital or other financial support as it is really making sure that we're taking the best of the learnings that we have whether that's from here in the US or from the more than 85 countries that we operate in and making sure that we don't repeat some of the same mistakes and making sure that we take advantage of those things that work. So that's how we look at it, is really a partnership that is driven by a shared set of expectations and a shared opportunity to create value for DPZ and for our master franchisees.

Jeremy Scott -- Mizuho -- Analyst

Makes sense. Thank you.

Operator

Our next question comes from the line of John Ivankoe of JPMorgan.

John Ivankoe -- JPMorgan -- Analyst

Hi, thank you. Ritch, you mentioned in your prepared remarks about taking risk and climbing steep hills and I did think that in and of itself was an interesting quote. And then secondly, Jeff and I think it was you at -- perhaps in answer to a question that talked about looking at G&A one year at a time which I understand, but also you mentioned accelerating strategic investment.

So I guess maybe I'm trying to connect two things that aren't necessarily directly connected, but what does that mean in terms of your future spend in G&A? Obviously this year $370 million to $375 million. But going forward, are you the organization at this point that wants to spend more-get more or are you beginning to think about potentially getting leverage out of the dollars spent that you're currently committed to?

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Yes John, this is Jeff. The first thing I would tell you is the overarching way that we view the business is to be front footed and really try to invest to get the gains that we want. We're not going to take our foot off the gas pedal and just hope that things continue to get better or we can continue to perform in a high fashion.

We really want to make sure that we're targeted with incremental investments in the areas that we think are going to drive the consumer experience, drive great franchise economics; all those things rolled together, hopefully we can do double digit retail sales growth out into the next three to five years. We are not a brand that is going to circle a number and say, you know G&A must be this percentage of revenues or this percentage of retail sales. We think that that's limiting and we think that that ultimately -- if we had that kind of mentality over the last three, five, 10 years, we would not be sitting in a competitive position that we are today.

So, we are going to continue to be front footed. We're going to continue to take smart risks. To Ritch's prepared remarks, I've been at the brand now for almost 19 years. I think the courage that Patrick, and now Ritch, have shown, our franchisees have shown to take on the really difficult challenges of the quick service restaurant industry and continue to fight through them and win is really energizing not only for the folks here in this building, but more importantly, the franchisees and team members in 90 markets around the world.

So we're going to continue to be front footed. We're going to continue to try to make the right choices, but we're not going to run off the clock John. We are going to be aggressive and try to grow share.

John Ivankoe -- JPMorgan -- Analyst

Thank you.

Operator

Our next question comes from the line of Alex Slagle of Jefferies.

Alex Slagle -- Jefferies -- Analyst

Thanks, good morning. As you think about building traffic over the next couple of years, how do you envision the balance between building frequency of existing guests, where you've done a great job with loyalty and analytics versus the opportunity to accelerate growth in new customer visits and perhaps thoughts on how you go about identifying those groups and reeling them into the Domino's loyalists?

Richard E. Allison -- Chief Executive Officer

Sure. Well, first and foremost the opportunity is there to continue to drive frequency among folks that buy from Domino's already. And when the loyalty program was first developed, our Piece of the Pie rewards program three years ago, the foundation of that program was built on driving frequency. That's why points are earned based on the number of purchases as opposed to the amount of dollars that are spent. So as we look across the landscape, we still see a significant amount of opportunity to get the customers who buy from us already to buy more.

Also, getting trial is important as well and reducing these kinds of veto votes that may keep folks away from Domino's is important. That's one of the reasons that you saw one of the few product introductions that we've done over the last couple of years was salads and that was a way to attract potentially some customers and some households into the brand that maybe otherwise weren't using us before. But I see -- I still see lots of opportunity in driving frequency.

Alex Slagle -- Jefferies -- Analyst

Thanks.

Operator

Our next question comes from line of Jon Tower from Wells Fargo.

Jon Tower -- Wells Fargo -- Analyst

Hi, thanks for taking the question. First, a clarification, I believe last year, at least according to my notes, there was roughly a 50 basis point headwind to US same store sales from the hurricanes. So first, is that correct? Second is, was there one this year from Florence? And then, the question is for Ritch, is there any sort of level of US market share that you feel like Domino's could get to or perhaps some other metrics that you're looking at where you'd consider monetizing the technology platform to other operators outside your franchise base?

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Hey Jon, this is Jeff. I'll take your comp/hurricane question and then I'll kick it over to Ritch for the second part of your question. The short answer is, last year and in this year we did not see a material either benefit or detriment to the US comp because of weather, including hurricanes or anything else. To the extent that we do see measurable stuff like that in the future, we'll point it out, but it's -- I know everybody in the industry likes to talk about weather when things aren't as good, but for us it wasn't either last year or this year, a material part of our comp performance.

Richard E. Allison -- Chief Executive Officer

And then Jon, to the second part of your question on market share. One of the great things about this segment of the QSR industry is that, we as the market leader still only sell about one in six pizzas that are sold in the US and only about one in 15 that are sold outside the US. So I think there is significant headroom for market share growth.

If you take a look at benchmarks across other segments of QSR whether you're looking at burgers or coffee or chicken or other places, the market leader is typically going to have a 25% or higher share and we see that in some of our own Domino's businesses around the world as well. So in my opinion, lots of room to continue to grow.

And that's really where we're focused, is on continuing to do what we do really well. I like the fact that we have more than 300,000 people around the world wearing the Domino's logo who wake up every day and think about selling more Domino's Pizza. And as long as we've got a lot of runway for growth, I want to remain focused and not distracted by trying to take some elements of our business across to other brands or other sectors of the restaurant industry.

Jon Tower -- Wells Fargo -- Analyst

Great. Thank you.

Operator

Our final question comes from the line of Stephen Anderson of Maxim group.

Stephen Anderson -- Maxim group -- Analyst

One comment you want to make is on your commodity outlook, I just want to see if there has been any change to that and if you're looking at any trends heading into 2019?

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Yes Stephen, this is Jeff. Our guidance for 2018, as you may recall, is 2% to 4% up on the food basket that our US franchisees are expecting. We're not updating that guidance at this point. Year-to-date we're in that kind of 3% to 4% range, so we're at the high end of that, but our franchisees have done a great job at executing at the local level, driving volume and continuing to drive really good dollar profit in their operations. So, no change to the food basket guidance in 2018. And as far as it relates to 2019, we're not giving any commentary or guidance on that today.

Stephen Anderson -- Maxim group -- Analyst

Alright, thank you.

Operator

Thank you ladies and gentlemen, that was our final question. I would now like to turn the call back over to Ritch Allison for any additional or closing remarks.

Richard E. Allison -- Chief Executive Officer

Well, thanks everybody, and we look forward to seeing many of you at our Investor Day on Thursday, January 17th, following the ICR Conference and we also look forward to discussing our fourth quarter and full year 2018 results on Thursday, February 21st.

Operator

Thank you, ladies and gentlemen. This does conclude today's third quarter 2018 earnings conference call. You may now disconnect.

Duration: 60 minutes

Call participants:

Timothy P. McIntyre -- Investor Relations

Jeffrey Lawrence -- Executive Vice President and Chief Financial Officer

Richard E. Allison -- Chief Executive Officer

Brian Bittner -- Oppenheimer & Co. -- Analyst

Karen Holthouse -- Goldman Sachs -- Analyst

Gregory Francfort -- Bank of America -- Analyst

David Tarantino -- Baird -- Analyst

Hugh Gooding -- Stephens Inc. -- Analyst

Matt McGinley -- Evercore ISI -- Analyst

John Glass -- Morgan Stanley -- Analyst

Peter Saleh -- BTIG -- Analyst

Sara Senatore -- Bernstein -- Analyst

Chris O'Cull -- Stifel -- Analyst

Alton Stump -- Longbow Research -- Analyst

Jeffrey Bernstein -- Barclays -- Analyst

Jeremy Scott -- Mizuho -- Analyst

John Ivankoe -- JPMorgan -- Analyst

Alex Slagle -- Jefferies -- Analyst

Jon Tower -- Wells Fargo -- Analyst

Stephen Anderson -- Maxim group -- Analyst

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