Domino's Pizza, Inc. (DPZ) Q2 2012 Earnings Report, Transcript and Summary

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. [Operator Instructions] 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 investors, so I will ask the media to kindly be in listen-only mode. And today, we're going to have some prepared remarks from our Chief Financial Officer and our Chief Executive Officer, followed by some Q&A. So with that, I would like to start by introducing Mike Lawton, our Chief Financial Officer.

Thanks, Lynn, and good morning, everyone. We continue 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 lead the way with both strong same-store sales and store comp growth. And 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 3 net stores domestically, made up of 8 store openings and 5 closures. Our international division grew by a net 111 stores this quarter, made up of 120 store openings and 9 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 2 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. Now moving onto 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% on the prior-year quarter, in part due to the impact -- 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. Now 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% to 2% over 2011 levels due to the fixed pricing that we have on approximately 35% to 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 to $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. And 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 plus 1% to plus 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 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, up 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 plus 3 net new stores. Underlying this though was a positive trend of fewer store closings, 5 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 6 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. But 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 convenience 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 3 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 had a new store growth milestone internationally and grew store profits here in the U.S. And 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.

[Operator Instructions] Your first question comes from the line of John Glass.

First, if I could just ask about the U.S. same-store sales. And certainly, it suggests your model within that 1% to 3% can deliver mid-teens earnings growth. But, one, company stores, same-store sales were less than franchise, if you could just comment on that? And 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. So -- and 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. So maybe were you disappointed at all in that? And going forward, just conceptually, how do you think about transaction counts versus total comps?

Sure. Thanks, John. First, the corporate versus franchise. I mean those numbers are always kind of moving around. I think we're actually rolling in the second quarter of last year about 0.5 point higher numbers on the corporate store side. And 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. So we were negative on order counts in the second quarter, and it's something that we absolutely continue to focus on hard. That's, to me, the one disappointment in the quarter is we've got to be positive on order counts domestically over time. And we're doing things to address that. But -- so I think you're going to see things from us that are going to, hopefully, move that the right direction, but that's something that was an outcome of decisions that we made over the course of the quarter on what we are promoting, et cetera. But clearly, we want and need positive order counts on the domestic side.

And just to follow-up on that, do you believe it is something -- it'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?

No. 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. I mean, we've done a lot of analysis around that, and our ability to grow the business is 95% about what we do as opposed to anything we're experiencing from the competition.

Okay. And just lastly, you did highlight something interesting. Obviously, the combination of sports and delivery pizzas goes way back in the U.S., and now you're setting examples internationally. Is there any -- currently any international or global tie-ins that you're doing at sporting events? Is that an opportunity over time, really one of your non-pizza competitors sponsors a major -- the Olympic event, is there a way to think about how you tied up your brand globally into sports to firm up that tie-in?

It's -- generally, it's very regional in terms of the different events that are going on. So for instance, with the Olympics coming up here, that's probably for a few weeks, a net positive thing, mostly in Europe just because of the time zones. And so what we've experienced is when we had the Olympics in Japan and Korea, because of the time of the day that they're running live, it doesn't affect the business as much in the U.S. But the answer is -- so 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're going to do globally.

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. And you said you were doing some things to address that. Can you be -- to the extent that you can, be a little more specific? Are we talking about some new products on the horizon that you're excited about? Some incremental promotions, or -- the -- in the way you're 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, what I'll -- 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. So when we're not getting order count growth, it's something we're going to look at and work on very hard and we've got to get it back that way. So you will certainly see some changes, but other than that, I'm not going to tip off the competitors anymore.

And then looking outside the U.S., international same-store sales were better than last quarter and flat on a 2-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?

Yes. It's -- 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. And really after that, the rest of Europe is strong. Asia is strong. I mean it's really -- it's very, very broad-based. And it's frankly something that we've been concerned about. I mean 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.

And one last one. McDonald's yesterday said that their latest projections regarding the Affordable Care Act, that it would cost about $10,000 to $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 percent of profits. I'd 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.

Yes, well, I mean 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. So the answer is, it's certainly likely to be a cost, but 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.

Your next question comes from the line of Brian Bittner. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: 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 backlog for domestic unit growth? Because it is -- and that unit growth is kind of more about just not so many closing, not really so many opening. So I'm also kind of just wondering if you could also kind of touch on what maybe you are doing internally at the corporate level to maybe also try to drive some enhanced unit growth domestically?

Yes. Yes, I think the answer, Brian, is you got it exactly right. I mean in terms of second quarter, the story was more about lack of closures than it was about new openings. And that's ultimately a very healthy thing. I mean, the 5 closures in the second quarter was as low a number as I can remember for a very, very long time. And 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. But it's still going to take some time. Financing is now, I'd say, much better and more available for larger franchisees. There is definitely access for our bigger players, but for 1 and 2 store folks that want to add another store, it's still relatively tough out there. So that's some of the constraint. And I think you're going to see what has been, I think, a little bit more conservative mindset given what we've all gone through the last 3 or 4 years. It's going to take some time before that's really going to crank up again.

Your next question comes from the line of Joe Buckley.

Just a little clarification on the G&A. Is the $5 million to $7 million full year increase what the reported number will look like? Is that net of any additional franchise payments or additional services you're providing?

That would be versus last year's reported numbers, so it will include -- 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. So reported G&A number will be up $5 million to $7 million from the reported number of last year?

That's correct.

Yes. 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. And then, 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've featured those on TV? And 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 counts of buying and better profitability?

Yes, so it has been mostly sandwiches for this quarter so far with the -- along with the early-week carryout special. But -- I'm sorry, your question was on Q2 or on Q3?

Well, it was sort of both. Sandwiches have been more Q3, haven't they not?

Yes, sandwiches have been -- yes. So far, in Q3, it's been mostly sandwiches. You're right, it has been a couple of years since we hit sandwiches. They've continued to do very well for us over time, even without advertising support. So 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. And -- but 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 are you basically just featuring the existing products?

Yes, I mean there's a new sandwich in the line, but it's really featuring the whole line again.

Your next question comes from the line of Jeffrey Bernstein.

A couple of questions. One, a follow-up on the franchisees with the less closures and the hope for openings. I know there was discussion about financial incentives. So you talked about kind of 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 just marketing spend? You mentioned the one and twosie 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 time.

Yes, Jeffrey, the answer is, we've always got some incentives out there, I mean, 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. So are there going to be exceptions on that along the way? Yes. Do we have a little bit? Yes, but certainly, we're not going to make the 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. But -- so, yes, 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, and there have typically been some in the past as well. In fact, there have always been some in the past.

Got you. And 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? And 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 of the 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?

Yes. I guess what I'd say is, anytime -- I mean, 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. But anytime order counts are not positive, we're not going to be happy about it. And so 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. But anytime that I'm telling you that orders aren't positive, I'm not going to be happy with that.

Got you. And did you say from a franchise side that profitability was up $5,000 in the first half of the year? I think you have told us in the past that 2011 profit for the full year was up -- was in total $69,000 per store? Is that apples to apples, that $69,000 a store?

Yes. Yes, I think it was around $70,000 last year. But kind of in that range. So we got -- we've talked about a range in the past of kind of $50,000 to $75,000. In the '08 time range, we were at the bottom end of that. We've now gotten back to up to the top end of that. And yes, you heard it right. The first 6 months or first half of the year, we were -- our franchise stores look like they were up around $5,000 versus the first half of last year. So a really nice move forward. And 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. And just lastly on the cash usage -- cash usage, I should say, seems like in the past was all about debt paydown and now it seems like debt is pretty close to par, which I'm guessing is what you're seeing now and, therefore, we should expect a more -- just a more aggressive share repurchase activity in future quarters?

Only if you tell me what the debt is going to trade at, the stock is going to trade at and overall market conditions. And that's -- I mean, that's the answer. I mean, we're looking at all 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, and that's going to change based on how the debt is trading and how the stock is trading and overall market conditions. So clearly, second quarter, the answer was we thought buying our stock was the best use of cash, and that will change based on the market conditions.

Your next question comes from the line of Mitch Speiser.

My first question is on margins. And the margin expansion was very strong this quarter. It has been for the past few quarters. And 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 cost 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's 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-on-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 to, in part, to the online. But I would put more of it on the product mix of what we were selling.

Okay, great. Because 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 circumstances between what food costs could do, what ObamaCare can do, what -- I mean, there's a lot of things that can affect us over time. We're going to try and make up for it, what those are, but it certainly is a level that we like to be at.

Okay, great. And the Parmesan 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. But you're always going to have the mix on that ease off when you go off air. So are they off from where they were when we were on television? Absolutely. But they're still moving nicely.

Yes, I'm sure it is off a bit. But yes, I guess, it's still -- 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. It was off a bit.

Okay, understood. And just a question I've been getting a lot, I'd just like to ask you, it's been very warm weather. And any history around heat waves and how your sales seem to do during particularly hot weather periods?

Now we've talked in the first quarter about the fact that we had unusually weird weather in the first quarter and analyzed it and had not had a lot of impact, and 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 U.S., just doesn't make that much difference.

Okay, great. And 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 more?

It's a little bit of renegotiating leases, it's a little bit of leverage, and it's also a little bit of the fact that energy cost that you use in the store are down a little bit. Natural gas has been coming down in a few markets, and that's helped a little bit.

Your next question is from Alvin Concepcion.

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, our -- as I've said before, our order counts weren't positive in the second quarter. But 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. So we view that as a positive change overall. But I think that the U.S. consumer is still pretty darn conservative. And 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. And then just a follow-up on international. You mentioned Europe continues to perform well. Are you gaining share there? And if that's the case, where do you think it's coming from?

Yes, I mean, I think we've been gaining share for quite a while outside of U.S. and continue to. The best information we get is that outside of the U.S., we think the category is growing at about a 5% kind of a clip. And if you look at our store growth and our same-store sales growth, we're clearly taking share out there. And some of that is -- but 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. And so I think it's more of that. We're clearly outperforming the category by a lot outside of the U.S., but it's in a pretty healthy category.

Okay, great. And just one more. Can you talk about the consumer reaction so far on the gluten-free crust? I mean, did you see new customers checking out the pizza that weren't there before?

Yes, we did. And 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. But for those who wanted gluten-free crust, it's a pretty big deal that we're offering it now.

Your next question comes from the line of Steve Anderson. Stephen Anderson - Miller Tabak + Co., LLC, Research Division: Just wanted to follow up on the international side. There's -- a pretty large competitor has announced that they're moving more towards 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. I mean, the fact is category is growing. And 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. So the answer is, no. I mean we've -- 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.

Your next question comes from the line of John Ivankoe. John W. Ivankoe - JP Morgan Chase & Co, Research Division: If I may, I mean, just looking at one of your competitors, Pizza Hut, I guess I'll say it, not to be obvious, in the U.S., they're talking about a delivery carryout like kind of a light model that I guess will be maybe used for smaller markets and other types of things. And I was wondering if -- I mean, are those the types of markets that you're in, or are those the types of markets that you could be in? I mean, is there any thought of kind of developing something similar to the format that they've talked about? So that's one question. And then completely separately, Patrick, in your prepared remarks, you mentioned Brazil. And I just checked my notes, and I don't think it's a top 10 market for you guys. But 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.

So the answer in terms of Pizza Hut's, the model that you're talking about, is it's our model. They're basically talking about kind of a move away from their restaurants, their red roofs and using smaller footprints. And I think they've talked about that publicly before, that as they've looked at kind of their model and our model, they've seen some of the advantages in the approach that we've taken, the smaller footprint, et cetera. So that's the answer there. They're kind of -- if 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, but it's growing nicely. We're getting good results there. We've got a strong partner down there that owns an Italian concept with a couple of hundred units. So, good experience in the restaurant industry. And we're getting good results. So you're right, it hasn't cracked the top 10 yet, but given the size and scale of the market, we're pleased with where we are, and really making very, very good progress down there. So that's something that probably won't hit the radar quite as much for a few more years, but it's an area where we're putting on a lot of focus.

Your next question comes from the line of Peter Saleh.

Great. Just a quick question. Where do you guys stand on China, in growing there and finding franchisees to develop further?

We've got a couple of 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. And 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. And while we were experimenting with that, the consumer came towards us and started putting more value on the convenience of delivery. So 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 2 or 3 years ago. So still very early, but like our partners, like the progress that we're making, we think we've got the model where it needs to be now. And 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.

Your final question comes from the line of Joe Buckley.

I'm actually good.

And there are no additional questions at this time.

All right. Well, thank you, all, for your questions today and being 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.