Chief Financial Officer at Domino's Pizza
Thank you, Rich and good morning to everyone on the call. I'm thrilled to now be a part of the Domino's team. Having had the privilege of working with many great brands over my career, this opportunity to work with such an iconic global brand with enormous growth potential is very exciting to me.
I look forward to partnering with Russell and the leadership team, as we craft the road map to continued value creation. To start with, I would like to comment on one of my initial observations in the past few weeks, as I start to learn the business.
Given the softness in comparable sales trends in the U.S. and the resulting contraction of operating income as a percentage of sales in the first quarter, we expect margins for the rest of 2022 to be pressured.
However, we are already actively working on several initiatives, to drive improved profitability. These include, number one, exploring further optimization of our consumer pricing architecture in the United States.
Specifically, this covers our many levers of pricing which includes our standard menu pricing, national offers, local offers and delivery fees to enable both our company-owned and franchisee stores to better cover the cost increases we are facing in both the food basket and labor market.
Number two, efficiencies in our cost structure as we seek to ensure that revenues consistently grow faster than expenses. Number three, actions to accelerate our capacity to service the demand we see and generate incremental sales growth.
Once implemented, we expect the initiatives I just covered to enable annual operating income margins to recover to pre-pandemic levels post 2022, I will now review our financial results for the quarter in more detail.
Global retail sales increased 0.3% in Q1 2022 as compared to Q1 2021. When excluding the negative impact of foreign currency, global retail sales grew 3.6% due to sustained positive momentum in our international business, lapping 14% growth in Q1 2021.
As we've discussed in the past, we believe it remains instructive to look at the cumulative stack of sales across the business, anchored back to 2019, as a pre-COVID baseline. And we'll continue to do so for as long as we believe it is useful in understanding our business performance.
Looking at the three-year stack our Q1 2022 global retail sales, excluding foreign currency impact grew 23.5% versus 2019.
Breaking down total global retail sales growth, international retail sales excluding the negative impact of foreign currency grew 8.4%, rolling over a prior year increase of 12.8% and are up 28% on a three-year stack basis relative to 2019. U.S. retail sales declined 1.4%, rolling over a prior year increase of 15.3% and are up 18.8% on a three-year stack basis relative to 2019.
Turning to comps, during Q1 same-store sales for our international business grew 1.2%, rolling over a prior increase of 11.8% and were up 14.5% on a three-year stack basis relative to 2019. The international comp in the quarter was driven by both ticket and order count growth.
Same-store sales for our U.S. business declined 3.6%, rolling over a prior year increase of 13.4% and were up 11.4% on a three-year stack basis relative to 2019. Breaking down the U.S. comp our franchise business was down 3.2% in the quarter, while our company-owned stores were down 10.5%.
We believe the difference in the top line performance in our company-owned stores as compared to our franchise stores, continues to be driven by more substantial operational challenges combined with more conservative price increases as compared to our franchise stores.
The decline in US same-store sales in Q1 was driven by a decline in order counts, which were pressured by the very challenging staffing environment which had certain operational impacts such as shortened store hours and customer service challenges in many stores, both company-owned and franchised. The decline in order counts was partially offset by ticket growth, resulting from higher menu prices, as well as more items per transaction and increases to our average delivery fee.
Shifting to unit count. We and our franchisees added 37 net stores in the United States during Q1, consisting of 40 store openings and three closures. We've also completed the purchase of 23 franchise stores in the Detroit DMA during Q1, bringing our total company-owned store count to 400 as of the end of the quarter. The purchase of these stores allowed us to consolidate the market along with higher-performing franchisees and should unlock growth in the Detroit DMA.
We believe there will be some markets where corporate stores can unlock growth and others where franchisees can optimize the market, as was the case with the sale of our New York corporate stores to franchise partners in 2019. We believe leveraging our corporate portfolio to unlock growth will be an important strategic use or source of capital in the United States going forward.
Our international business added 176 net stores in Q1, comprised of 217 store openings and 41 closures. More than half of the closures were in Brazil, where our master franchisee remains highly committed to the Domino's brand, while making strategic decisions to get out of some underperforming locations to focus resources and grow stores in other areas. This brought our net global store openings in the quarter to 213.
Turning to revenues and operating income. Total revenues for the first quarter increased approximately $27.5 million or 2.8% from the prior year quarter, driven by higher supply chain revenues, resulting from higher market basket pricing to stores.
This increase was partially offset by declines in our company-owned stores and US franchise revenues, due to the decline in retail sales I mentioned earlier. Changes in foreign currency exchange rates negatively impacted international royalty revenues by $4.3 million during Q1.
Our consolidated operating income as a percentage of revenues decreased by 270 basis points to 16.3% in Q1 from the prior year quarter, primarily driven by food basket and labor increases in excess of pricing increases, as well as G&A deleverage due to the decline in same-store sales in our US business.
Our diluted EPS in Q1 was $2.50 versus $3 in the prior quarter. Breaking down that $0.50 decrease in our diluted EPS, our operating results negatively impacted us by $0.36. Changes in foreign currency exchange rates negatively impacted us by $0.08.
The gain on our investment in Dash in Q1 of last year negatively impacted us by $0.05. Our higher effective tax rate negatively impacted us by $0.04. Higher net interest expense negatively impacted us by $0.15. And a lower diluted share count, driven by share repurchases over the trailing 12 months, benefited us by $0.18.
Although, we faced operating headwinds in Q1, we continue to generate sizable free cash flow. During Q1, we generated net cash provided by operating activities of approximately $79 million.
After deducting for capital expenditures of approximately $12 million, which included investments in our technology initiatives such as our next-generation point-of-sale system and investments in our supply chain centers, we generated free cash flow of approximately $66 million.
We invested $6.8 million in purchases of franchise operations in our Detroit DMA. We repurchased and retired approximately 101,000 shares for $47.7 million or an average price of $473 per share.
As of the end of Q1, we had approximately $656 million remaining under our current Board authorization for share repurchases. And subsequent to the end of the first quarter we also returned $40 million to our shareholders in the form of a $1.10 per share quarterly dividend payment.
In addition, we would like to update the guidance we provided in March for 2022. Based on the continuously evolving inflationary environment, we now expect the increase in the store food basket within our US system to range from 10% to 12% as compared to 2021 levels.
Changes in foreign currency exchange rates are now expected to have a negative impact of $12 million to $16 million compared to 2021. We anticipate that we will continue to see fluctuations in commodity prices including wheat and fuel costs and foreign currency exchange rates resulting from geopolitical risk and the impact on the overall macroeconomic environment.
G&A is now expected to range from $420 million to $428 million as we cancel or delay some of the investments originally planned for 2022 and prioritize those projects we believe will be more near-term drivers of growth. capex is not expected to change from the $120 million projection we provided in March.
Finally, while our global retail sales growth excluding the impact of foreign currency in 2022 will likely drop below the low end of our 6% to 10%, two year to three year outlook, we are confident that the long-term growth algorithm is still very much intact and we expect to recover back to that range starting in 2023.
Our practice has been to not comment on short-term sales trends in the business and we do not plan to make a habit of doing so. However, based on the very unusual and volatile operating environment, we and others are experiencing, we are making an exception in this case. On future investor calls, plan on not sticking with our two year to three year outlook as the best indicator of our expected global retail sales trends.
Thank you all for joining the call today. And now I will turn it over to Russell.