Domino's Pizza® Announces Third Quarter 2015 Financial Results

Continued Global Momentum with Strong Sales and Store Count Growth

ANN ARBOR, Mich. - Oct. 8, 2015 // PRNewswire // - Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the third quarter of 2015, comprised of strong same store sales results and store count growth. Domestic same store sales grew 10.5% during the quarter versus the year-ago period, continuing the positive sales momentum in the Company's domestic business. The international division also posted strong results with same store sales growth of 7.7%, marking the 87th consecutive quarter of international same store sales growth. The Company had global net store growth of 194 stores in the quarter.

During the quarter, the Company incurred incremental insurance expense relating to updated independent actuarial estimates for the Company's casualty insurance program, and faced continued pressure from foreign currency exchange rates. Diluted EPS was 67 cents for the third quarter, which was up 6.3% over the Company's diluted EPS in the prior year quarter.

The Company repurchased 365,460 shares of its common stock during the quarter for approximately $40.9 million. The Board of Directors also declared a 31-cent per share quarterly dividend for shareholders of record as of December 15, 2015, to be paid on December 30, 2015.

J. Patrick Doyle, Domino's President and Chief Executive Officer, said: "We are pleased with the sustained strong sales and continued momentum behind store growth. The things we are doing are working, and we will continue to aggressively lead the industry."

Third Quarter Highlights:

(dollars in millions, except per share data)

 

Third

Quarter of

2015

   

Third

Quarter of

2014

   

Three Fiscal

Quarters of

2015

   

Three Fiscal

Quarters of

2014

 

Net income

 

$

37.8

   

$

35.6

   

$

130.0

   

$

114.6

 

Weighted average diluted shares

   

56,115,670

     

56,610,608

     

56,584,913

     

57,030,669

 

Diluted earnings per share, as reported

 

$

0.67

   

$

0.63

   

$

2.30

   

$

2.01

 

Items affecting comparability*

   

     

     

     

(0.02)

 

Diluted earnings per share, as adjusted*

 

$

0.67

   

$

0.63

   

$

2.30

   

$

1.98

 

*    Refer to the Items Affecting Comparability section below for additional details. Diluted earnings per share figures may not sum to the total due to the rounding of each individual calculation.

  • Revenues were up 8.5% for the third quarter versus the prior year period, driven by higher supply chain volumes and sales of equipment to stores in connection with the Company's global store reimaging program. Higher domestic same store sales and store count growth, which resulted in increased royalties from franchised stores and higher revenues at Company-owned stores, also contributed to this increase. International revenues benefited from increased same store sales and store count growth, and were offset in part by the negative impact of foreign currency.
  • Net Income was up 6.2% for the third quarter versus the prior year period, driven by domestic and international same store sales growth, global store count growth and higher supply chain volumes. These increases were offset in part by the negative impact of foreign currency exchange rates and incremental insurance expense related to the Company's casualty insurance program.
  • Diluted EPS was 67 cents for the third quarter versus 63 cents in the prior year quarter, an increase of 4 cents, or 6.3%. This increase was due to higher net income and lower weighted average diluted shares outstanding.

The table below outlines certain statistical measures utilized by the Company to analyze its performance. Refer to the Comments on Regulation G section below for additional details.

   

Third Quarter

of 2015

   

Third Quarter

of 2014

 

Same store sales growth: (versus prior year period)

               

Domestic Company-owned stores

   

+ 11.5

%

   

+ 6.1

%

Domestic franchise stores

   

+ 10.4

%

   

+ 7.8

%

Domestic stores

   

+ 10.5

%

   

+ 7.7

%

International stores (excluding foreign currency impact)

   

+ 7.7

%

   

+ 7.1

%

                 

Global retail sales growth: (versus prior year period)

               

Domestic stores

   

+ 12.7

%

   

+ 9.3

%

International stores

   

+ 0.7

%

   

+ 17.9

%

Total

   

+ 6.1

%

   

+ 13.8

%

                 

Global retail sales growth: (versus prior year period,

   excluding foreign currency impact)

               

Domestic stores

   

+ 12.7

%

   

+ 9.3

%

International stores

   

+ 17.4

%

   

+ 15.2

%

Total

   

+ 15.2

%

   

+ 12.4

%

 

   

Domestic

Company-

owned Stores

   

Domestic

Franchise

Stores

   

Total

Domestic

Stores

   

International

Stores

   

Total

 

Store counts:

                                       

Store count at June 14, 2015

   

376

     

4,722

     

5,098

     

6,827

     

11,925

 

Openings

   

1

     

23

     

24

     

201

     

225

 

Closings

   

     

(10)

     

(10)

     

(21)

     

(31)

 

Transfers

   

     

     

     

     

 

Store count at September 6, 2015

   

377

     

4,735

     

5,112

     

7,007

     

12,119

 

Third quarter 2015 net change

   

1

     

13

     

14

     

180

     

194

 

Trailing four quarters net change

   

1

     

95

     

96

     

742

     

838

 

Casualty Insurance

The Company has retention programs for workers' compensation, general liability and owned and non-owned automobile liabilities for its corporate stores, offices and supply chain centers. Insurance reserves relating to these retention programs are based on independent actuarial estimates.

While the Company's claims activity in these areas has been fairly consistent over the past several years, as the Company announced on September 28, 2015, a more recent increase in the frequency and severity of claims resulted in an independent actuarial determination that required the Company to record a pre-tax expense of approximately $5.7 million in the third quarter. This resulted in an approximate six-cent decrease in the third quarter 2015 diluted earnings per share. The Company will continue to focus on its safety efforts for all of its team members.

Proposed Debt Refinancing

On September 28, 2015, the Company issued a press release announcing the intent of certain of its subsidiaries to complete a recapitalization transaction, which will include the refinancing of a portion of their outstanding securitized debt with a new series of securitized notes under its existing securitized financing facility.

Conference Call Information

The Company will file its quarterly report on Form 10-Q this morning. As previously announced, Domino's Pizza, Inc. will hold a conference call today at 10 a.m. (Eastern) to review its third quarter 2015 financial results. The call can be accessed by dialing (888) 400-9978 (U.S./Canada) or (706) 634-4947 (International). Ask for the Domino's Pizza conference call. The call will also be webcast at biz.dominos.com. If you are unable to participate on the call, a replay will be available for 30 days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International), Conference ID 71624546. The webcast will also be archived for 30 days on biz.dominos.com.

Share Repurchases

During the third quarter of 2015, the Company repurchased and retired 365,460 shares of its common stock under its open market share repurchase program for approximately $40.9 million, or an average price of $111.96 per share.

Dividends

On October 6, 2015, the Board of Directors declared a 31-cent per share quarterly dividend for shareholders of record as of December 15, 2015, to be paid on December 30, 2015.

Items Affecting Comparability

The Company's reported financial results for the three fiscal quarters of 2015 are not comparable to the reported financial results for the equivalent period in 2014. The table below presents certain items that affect comparability between 2015 and 2014 financial results. Management believes that including such information is critical to the understanding of its financial results for the three fiscal quarters of 2015 as compared to the same period in 2014 (See the Comments on Regulation G section below for additional details).

In addition to the items noted in the table below, the Company had lower weighted average diluted shares outstanding in 2015 that resulted in an increase in diluted EPS of approximately one cent in the third quarter of 2015 and two cents in the three fiscal quarters of 2015.

   

Third Quarter

   

Three Fiscal Quarters

 

(in thousands, except per share data)

 

Pre-tax

   

After-tax

   

Diluted

EPS

Impact

   

Pre-tax

   

After-tax

   

Diluted

EPS

Impact

 

2014 items affecting comparability:

                                               

Gain on the sale of

Company-owned stores (1)

 

$

   

$

   

$

   

$

1,652

   

$

1,033

   

$

0.02

 

Deferred tax asset valuation allowance

   reversal (2)

   

     

     

     

     

329

     

0.01

 

Total of 2014 items*

 

$

   

$

   

$

   

$

1,652

   

$

1,362

   

$

0.02

 

*      Diluted earnings per share figures may not sum to the total due to the rounding of each individual calculation.

(1)   Represents the gain recognized on the sale of 14 Company-owned stores to a franchisee. The gain is net of a reduction in goodwill of approximately $0.5 million.

(2)   As a result of the capital gain recognized in connection with the sale of Company-owned stores, the Company was able to utilize a portion of a previously unrecognized benefit of a capital loss carry forward.

Liquidity

As of September 6, 2015, the Company had approximately:

  • $32.5 million of unrestricted cash and cash equivalents;
  • $1.53 billion in total debt; and
  • $56.5 million of available borrowings under its $100.0 million variable funding notes facility. This amount is net of letters of credit issued of $43.5 million, of which $5.0 million has been collateralized with restricted cash. The Company has the ability to access this collateralized cash with minimal notice.

The Company invested $33.8 million in capital expenditures during the three fiscal quarters of 2015, versus $31.0 million in the three fiscal quarters of 2014.

Free cash flow, as reconciled below to cash flows from operations as determined under generally accepted accounting principles (GAAP), was approximately $133.5 million in the three fiscal quarters of 2015.

(in thousands)

 

Three Fiscal Quarters

of 2015

 

Net cash provided by operating activities

 

$

167,308

 

Capital expenditures

   

(33,834)

 

Free cash flow

 

$

133,474

 

Comments on Regulation G

In addition to the GAAP financial measures set forth in this press release, the Company has included non-GAAP financial measures within the meaning of Regulation G due to items affecting comparability between fiscal quarters. The Company has also included metrics such as global retail sales growth and same store sales growth, which are commonly used statistical measures in the quick-service restaurant industry that are important to understanding Company performance.

The Company uses "Diluted EPS, as adjusted," which is calculated as reported Diluted EPS adjusted for the items that affect comparability to the prior year period discussed above. The most directly comparable financial measure calculated and presented in accordance with GAAP is Diluted EPS. The Company believes that the Diluted EPS, as adjusted measure is important and useful to investors and other interested persons and that such persons benefit from having a consistent basis for comparison between reporting periods. The Company uses Diluted EPS, as adjusted to internally evaluate operating performance, to evaluate itself against its peers and in long-range planning. Additionally, the Company believes that analysts covering the Company's stock performance generally eliminate these items affecting comparability when preparing their financial models, when determining their published EPS estimates and when benchmarking the Company against its competitors.

The Company uses "Global retail sales" to refer to total worldwide retail sales at Company-owned and franchise stores. The Company believes global retail sales information is useful in analyzing revenues because franchisees pay royalties that are based on a percentage of franchise retail sales. The Company reviews comparable industry global retail sales information to assess business trends and to track the growth of the Domino's Pizza® brand. In addition, supply chain revenues are directly impacted by changes in franchise retail sales. Retail sales for franchise stores are reported to the Company by its franchisees and are not included in Company revenues.

The Company uses "Same store sales growth," which is calculated by including only sales from stores that also had sales in the comparable period of the prior year. International same store sales growth is calculated similarly to domestic same store sales growth. Changes in international same store sales are reported excluding foreign currency impacts, which reflect changes in international local currency sales.

The Company uses "Free cash flow," which is calculated as cash flows from operations less capital expenditures, both as reported under GAAP. The Company believes that the free cash flow measure is important to investors and other interested persons, and that such persons benefit from having a measure which communicates how much cash flow is available for working capital needs or to be used for repurchasing debt, making acquisitions, repurchasing common stock, paying dividends or other similar uses of cash.

About Domino's Pizza®

Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery, with a significant business in carryout pizza. It ranks among the world's top public restaurant brands with a global enterprise of more than 12,100 stores in over 80 international markets. Domino's had global retail sales of over $8.9 billion in 2014, comprised of more than $4.1 billion in the U.S. and nearly $4.8 billion internationally. In the third quarter of 2015, Domino's had global retail sales of over $2.1 billion, comprised of over $1.0 billion in the U.S. and over $1.1 billion internationally. Its system is comprised of independent franchise owners who accounted for nearly 97% of Domino's stores as of the third quarter of 2015. Emphasis on technology innovation helped Domino's generate approximately 50% of U.S. sales from digital channels at the end of 2014, and reach an estimated run rate of $4.0 billion annually in global digital sales. Domino's features an ordering app lineup that covers nearly 95% of the U.S. smartphone market and has recently introduced several innovative ordering platforms, including Ford SYNC®, Samsung Smart TV® and Pebble Watch, as well as Twitter and text message using a pizza emoji. In June 2014, Domino's debuted voice ordering for its iPhone® and Android™ apps, a true technology first within traditional and e-commerce retail.

Order – www.dominos.com
Mobile – http://mobile.dominos.com
Digital Info – anyware.dominos.com
Company Info – biz.dominos.com
Twitter – http://twitter.com/dominos
Facebook – http://www.facebook.com/dominos
YouTube – http://www.youtube.com/dominos

Please visit our Investor Relations website at biz.dominos.com to view a schedule of upcoming earnings releases, significant announcements and conference webcasts.

Safe Harbor Statement Under The Private Securities Litigation Reform Act Of 1995:

This press release contains forward-looking statements. You can identify forward-looking statements because they contain words such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or similar expressions that concern our strategy, plans or intentions. These forward-looking statements relating to our anticipated profitability, estimates in same store sales growth, the growth of our international business, ability to service our indebtedness, our future cash flows, our operating performance, trends in our business and other descriptions of future events reflect the Company's expectations based upon currently available information and data. However, actual results are subject to future risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause actual results to differ materially include: the level of our long-term and other indebtedness, as well as our ability to complete the proposed refinancing on the terms described or at all; uncertainties relating to litigation; consumer preferences, spending patterns and demographic trends; the effectiveness of our advertising, operations and promotional initiatives; the strength of our brand in the markets in which we compete; our ability to retain key personnel; new product, digital ordering and concept developments by us, and other food-industry competitors; the ongoing level of profitability of our franchisees; and our ability and that of our franchisees to open new restaurants and keep existing restaurants in operation; changes in operating expenses resulting from changes in prices of food (particularly cheese), labor, utilities, insurance, employee benefits and other operating costs; the impact that widespread illness or general health concerns may have on our business and the economy of the countries where we operate; severe weather conditions and natural disasters; changes in our effective tax rate; changes in foreign currency exchange rates; changes in government legislation and regulations; adequacy of our insurance coverage; costs related to future financings; our ability and that of our franchisees to successfully operate in the current credit environment; changes in the level of consumer spending given the general economic conditions including interest rates, energy prices and weak consumer confidence; availability of borrowings under our variable funding notes and our letters of credit; and changes in accounting policies. Important factors that could cause actual results to differ materially from our expectations are more fully described in our other filings with the Securities and Exchange Commission, including under the section headed "Risk Factors" in our annual report on Form 10-K. These forward-looking statements speak only as of the date of this press release, and you should not rely on such statements as representing the views of the Company as of any subsequent date. Except as required by applicable securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

TABLES TO FOLLOW

 

 

 

Domino's Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 
   

Fiscal Quarter Ended

 
   

September 6,

2015

   

% of

Total

Revenues

   

September 7,

2014

   

% of

Total

Revenues

 

(In thousands, except per share data)

                               

Revenues:

                               

Domestic Company-owned stores

 

$

86,456

           

$

77,644

         

Domestic franchise

   

59,385

             

51,858

         

Supply chain

   

303,591

             

282,506

         

International franchise

   

35,264

             

34,560

         

Total revenues

   

484,696

     

100.0

%

   

446,568

     

100.0

%

Cost of sales:

                               

Domestic Company-owned stores

   

70,032

             

59,754

         

Supply chain

   

272,710

             

253,300

         

Total cost of sales

   

342,742

     

70.7

%

   

313,054

     

70.1

%

Operating margin

   

141,954

     

29.3

%

   

133,514

     

29.9

%

General and administrative

   

61,411

     

12.7

%

   

56,573

     

12.7

%

Income from operations

   

80,543

     

16.6

%

   

76,941

     

17.2

%

Interest expense, net

   

(19,915)

     

(4.1)

%

   

(19,952)

     

(4.4)

%

Income before provision for income taxes

   

60,628

     

12.5

%

   

56,989

     

12.8

%

Provision for income taxes

   

22,796

     

4.7

%

   

21,371

     

4.8

%

Net income

 

$

37,832

     

7.8

%

 

$

35,618

     

8.0

%

Earnings per share:

                               

Common stock – diluted

 

$

0.67

           

$

0.63

         

Dividends declared per share

 

$

0.31

           

$

0.25

         

 

Domino's Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 
   

Three Fiscal Quarters Ended

 
   

September 6,

2015

   

% of

Total

Revenues

   

September 7,

2014

   

% of

Total

Revenues

 

(In thousands, except per share data)

                               

Revenues:

                               

Domestic Company-owned stores

 

$

267,625

           

$

238,915

         

Domestic franchise

   

181,986

             

157,317

         

Supply chain

   

918,150

             

851,768

         

International franchise

   

107,584

             

102,883

         

Total revenues

   

1,475,345

     

100.0

%

   

1,350,883

     

100.0

%

Cost of sales:

                               

Domestic Company-owned stores

   

204,266

             

183,262

         

Supply chain

   

819,387

             

762,420

         

Total cost of sales

   

1,023,653

     

69.4

%

   

945,682

     

70.0

%

Operating margin

   

451,692

     

30.6

%

   

405,201

     

30.0

%

General and administrative

   

184,665

     

12.5

%

   

162,722

     

12.0

%

Income from operations

   

267,027

     

18.1

%

   

242,479

     

18.0

%

Interest expense, net

   

(58,939)

     

(4.0)

%

   

(60,071)

     

(4.5)

%

Income before provision for income taxes

   

208,088

     

14.1

%

   

182,408

     

13.5

%

Provision for income taxes

   

78,058

     

5.3

%

   

67,854

     

5.0

%

Net income

 

$

130,030

     

8.8

%

 

$

114,554

     

8.5

%

Earnings per share:

                               

Common stock – diluted

 

$

2.30

           

$

2.01

         

Dividends declared per share

 

$

0.93

           

$

0.75

         

 

Domino's Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 
   

September 6, 2015

   

December 28, 2014

 

(In thousands)

               

Assets

               

Current assets:

               

Cash and cash equivalents

 

$

32,506

   

$

30,855

 

Restricted cash and cash equivalents

   

91,021

     

120,954

 

Accounts receivable

   

112,398

     

118,395

 

Inventories

   

39,826

     

37,944

 

Advertising fund assets, restricted

   

96,030

     

72,055

 

Other assets

   

32,651

     

48,158

 

Total current assets

   

404,432

     

428,361

 

Property, plant and equipment, net

   

119,452

     

114,046

 

Other assets

   

79,312

     

76,873

 

Total assets

 

$

603,196

   

$

619,280

 

Liabilities and stockholders' deficit

               

Current liabilities:

               

Current portion of long-term debt

 

$

256

   

$

565

 

Accounts payable

   

86,423

     

86,552

 

Dividends payable

   

17,316

     

14,351

 

Advertising fund liabilities

   

96,030

     

72,055

 

Other accrued liabilities

   

79,266

     

92,085

 

Total current liabilities

   

279,291

     

265,608

 

Long-term liabilities:

               

Long-term debt, less current portion

   

1,527,664

     

1,523,546

 

Other accrued liabilities

   

52,190

     

49,591

 

Total long-term liabilities

   

1,579,854

     

1,573,137

 

Total stockholders' deficit

   

(1,255,949)

     

(1,219,465)

 

Total liabilities and stockholders' deficit

 

$

603,196

   

$

619,280

 

 

Domino's Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
   

Three Fiscal Quarters Ended

 
   

September 6,

2015

   

September 7,

2014

 

(In thousands)

               

Cash flows from operating activities:

               

Net income

 

$

130,030

   

$

114,554

 

Adjustments to reconcile net income to net cash flows provided by
   operating activities:

               

Depreciation and amortization

   

22,695

     

20,024

 

Gains on sale/disposal of assets

   

(73)

     

(1,381)

 

Amortization of deferred financing costs

   

3,825

     

4,046

 

Provision for deferred income taxes

   

959

     

1,008

 

Non-cash compensation expense

   

11,188

     

11,897

 

Tax impact from equity-based compensation

   

(15,745)

     

(10,899)

 

Other

   

(1,216)

     

(888)

 

Changes in operating assets and liabilities

   

15,645

     

(19,476)

 

Net cash provided by operating activities

   

167,308

     

118,885

 

Cash flows from investing activities:

               

Capital expenditures

   

(33,834)

     

(30,983)

 

Proceeds from sale of assets

   

10,464

     

5,802

 

Changes in restricted cash

   

29,933

     

51,861

 

Other

   

1,304

     

(1,365)

 

Net cash provided by investing activities

   

7,867

     

25,315

 

Cash flows from financing activities:

               

Proceeds from issuance of long-term debt

   

5,000

     

-

 

Repayments of long-term debt and capital lease obligations

   

(5,198)

     

(12,152)

 

Proceeds from exercise of stock options

   

4,459

     

3,094

 

Tax impact from equity-based compensation

   

15,745

     

10,899

 

Purchases of common stock

   

(138,550)

     

(82,407)

 

Tax payments for restricted stock upon vesting

   

(7,442)

     

(7,889)

 

Payments of common stock dividends and equivalents

   

(48,141)

     

(39,208)

 

Net cash used in financing activities

   

(174,127)

     

(127,663)

 

Effect of exchange rate changes on cash and cash equivalents

   

603

     

16

 

Change in cash and cash equivalents

   

1,651

     

16,553

 

Cash and cash equivalents, at beginning of period

   

30,855

     

14,383

 

Cash and cash equivalents, at end of period

 

$

32,506

   

$

30,936

 

SOURCE Domino's Pizza

Contacts:

Lynn Liddle
Executive Vice President
Communications
Investor Relations and Legislative Affairs
(734) 930-3008

###

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