Domino's Pizza® Announces Second Quarter 2017 Financial Results

  • Domestic same store sales growth of 9.5%
  • International same store sales growth of 2.6%
  • Global net store growth of 217
  • Global retail sales growth of 11.8%
  • Diluted EPS up 34.7% to $1.32

ANN ARBOR, Mich. - July 25, 2017 // PRNewswire // - Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the second quarter of 2017, comprised of strong growth in same store sales, global store counts and earnings per share. Domestic same store sales grew 9.5% during the quarter versus the year-ago period, which represents the 25th consecutive quarter of positive sales momentum in the Company's domestic business. International same store sales grew 2.6% during the quarter, marking the 94th consecutive quarter of positive international same store sales growth. The Company had global net store growth of 217 stores in the quarter, comprised of 39 net new domestic stores and 178 net new stores internationally. The Company has added 1,281 net new stores over the trailing four quarters.

Diluted EPS was $1.32 for the second quarter, which was up 34.7% over the Company's diluted EPS in the prior year quarter. This increase resulted from solid operational results as well as a lower effective tax rate.

During the quarter, the Company's Board of Directors declared a 46-cent per share quarterly dividend for shareholders of record as of June 15, 2017, which was paid on June 30, 2017.

"It was another outstanding quarter for our domestic business, as brand momentum, strong execution and emphasis on getting better each day continued to drive what we do," said J. Patrick Doyle, Domino's President and Chief Executive Officer. "While international same store sales growth was slightly under our expectations, we remain very confident in our continued ability to generate best-in-class growth, and are encouraged by the strong store growth we are seeing from our international franchisees."

"As a work-in-progress brand, we will always remain focused on areas we can improve – but I am extremely pleased that our steady strategy, solid fundamentals and strong alignment with franchisees and operators had us well positioned to sustain success and win."

Second Quarter Highlights:

(dollars in millions, except per share data)

 

Second

Quarter of

2017

   

Second

Quarter of

2016

   

Two Fiscal

Quarters of

2017

   

Two Fiscal

Quarters of

2016

 

Net income

 

$

65.7

   

$

49.3

   

$

128.2

   

$

94.7

 

Weighted average diluted shares

   

49,776,821

     

50,459,754

     

49,741,794

     

50,846,941

 

Diluted earnings per share*

 

$

1.32

   

$

0.98

   

$

2.58

   

$

1.86

 

 

     
   

*In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09), which requires the Company to record excess tax benefits from equity-based compensation as a reduction of the provision for income taxes in the income statement, whereas they were previously recognized in equity. See the "Adoption of New Accounting Guidance" section below for additional information.

 

  • Revenues were up 14.8% for the second quarter versus the prior year period, due primarily to higher supply chain revenues from increased volumes. Higher same store sales and store count growth in both our domestic and international markets also contributed to the increase in revenues. 

  • Net Income increased 33.5% for the second quarter versus the prior year period, primarily driven by an increase in same store sales growth and store count as well as higher supply chain volumes and lower food costs. The adoption of the new equity-based compensation accounting standard also positively impacted net income. These increases were partially offset by higher general and administrative expenses, primarily from investments in technological initiatives, as well as the negative impact of foreign currency exchange rates. 

  • Diluted EPS was $1.32 for the second quarter versus $0.98 in the prior year quarter. This represents a 34-cent or 34.7% increase over the prior year quarter. This increase was driven by the increase in net income, as well as lower diluted share count, primarily as a result of the share repurchases made during the trailing four quarters.

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

   

Second
Quarter of
2017

   

Second
Quarter of
2016

 

Same store sales growth: (versus prior year period)

               

Domestic Company-owned stores

   

+ 11.2

%

   

+ 9.1

%

Domestic franchise stores

   

+   9.3

%

   

+ 9.8

%

Domestic stores

   

+   9.5

%

   

+ 9.7

%

International stores (excluding foreign currency impact)

   

+   2.6

%

   

+ 7.1

%

                 

Global retail sales growth: (versus prior year period)

               

Domestic stores

   

+ 12.8

%

   

+ 11.8

%

International stores

   

+ 10.9

%

   

+ 11.5

%

Total

   

+ 11.8

%

   

+ 11.7

%

                 

Global retail sales growth: (versus prior year period,

   excluding foreign currency impact)

               

Domestic stores

   

+ 12.8

%

   

+ 11.8

%

International stores

   

+ 15.2

%

   

+ 16.6

%

Total

   

+ 14.1

%

   

+ 14.3

%

 

   

Domestic

Company-

owned Stores

   

Domestic

Franchise

Stores

   

Total

Domestic

Stores

   

International

Stores

   

Total

 

Store counts:

                                       

Store count at March 26, 2017

   

395

     

5,004

     

5,399

     

8,601

     

14,000

 

Openings

   

1

     

42

     

43

     

201

     

244

 

Closings

   

     

(4)

     

(4)

     

(23)

     

(27)

 

Store count at June 18, 2017

   

396

     

5,042

     

5,438

     

8,779

     

14,217

 

Second quarter 2017 net change

   

1

     

38

     

39

     

178

     

217

 

Trailing four quarters net change

   

10

     

183

     

193

     

1,088

     

1,281

 

2017 Recapitalization

On July 24, 2017, the Company completed its recapitalization with the receipt of $1.9 billion of gross proceeds. The Company borrowed $1.6 billion of fixed rate senior secured notes and $300.0 million of floating rate senior secured notes and entered into a new $175.0 million variable funding note facility, which replaced its previous $125.0 million variable funding note facility.

The Company will use a portion of the proceeds from the recapitalization to repay the remaining $910.5 million in outstanding principal and interest under its 2012 fixed rate notes on July 27, 2017. The proceeds will also be used to pay transaction-related fees and expenses in connection with the 2017 recapitalization and to pre-fund a portion of the principal and interest payable on the 2017 notes. The Company will use the remaining proceeds for general corporate purposes. For further details, refer to the Company's separate refinancing press release and the Company's Form 10-Q for the quarter ended June 18, 2017.

Adoption of New Accounting Guidance

The Company adopted ASU 2016-09 in the first quarter of 2017. This standard addresses the accounting for income taxes and forfeitures and the cash flow presentation of share-based compensation. The adoption resulted in a $10.4 million decrease in our second quarter 2017 provision for income taxes, or an 11.8 percentage point decrease in our second quarter 2017 effective tax rate, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. This item positively impacted our diluted EPS by approximately 21 cents in the second quarter of 2017. Refer to the Company's Form 10-Q for the quarter ended June 18, 2017 for additional detailed information regarding the impact of the adoption of ASU 2016-09.

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 second quarter 2017 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. The webcast will also be archived for one year on biz.dominos.com.

Share Repurchases

The Company did not repurchase any shares under its open market share repurchase program during the second quarter of 2017. As of June 18, 2017, the Company had a total remaining authorized amount for share repurchases of $136.4 million.

Liquidity

As of June 18, 2017, the Company had approximately:

  • $52.2 million of unrestricted cash and cash equivalents;
  • $2.18 billion in total debt; and
  • $79.3 million of available borrowings under its $125.0 million variable funding notes, net of letters of credit issued of $45.7 million. The Company has collateralized all of its letters of credit with restricted cash, and has the ability to access this cash with minimal notice.

The Company invested $25.2 million in capital expenditures during the two fiscal quarters of 2017, versus $25.0 million in the two fiscal quarters of 2016. Free cash flow, as reconciled below to cash flows from operations as determined under generally accepted accounting principles (GAAP), was approximately $89.9 million in the two fiscal quarters of 2017.

 

(in thousands)

 

Two Fiscal 
Quarters 
of 2017

 
 

Net cash provided by operating activities

 

$

115,086

 
 

Capital expenditures

   

(25,230)

 
 

Free cash flow

 

$

89,856

 

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. 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 "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 14,200 stores in over 85 international markets. Domino's had global retail sales of nearly $10.9 billion in 2016, with more than $5.3 billion in the U.S. and more than $5.5 billion internationally. In the second quarter of 2017, Domino's had global retail sales of more than $2.7 billion, with over $1.3 billion in the U.S. and nearly $1.4 billion internationally. Its system is comprised of independent franchise owners who accounted for over 97% of Domino's stores as of the second quarter of 2017. Emphasis on technology innovation helped Domino's reach an estimated $5.6 billion in global digital sales in 2016, and has produced several innovative ordering platforms, including Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and text message using a pizza emoji. In late 2015, Domino's announced the design and launch of the DXP®, a purpose-built pizza delivery vehicle, as well as Piece of the Pie Rewards™, its first digital customer loyalty program.

Order – dominos.com
AnyWare Ordering – anyware.dominos.com
Company Info – biz.dominos.com
Twitter – twitter.com/dominos
Facebook – facebook.com/dominos
Instagram – instagram.com/dominos
YouTube – 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; 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; 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 economies 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 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

 
   

June 18,

2017

   

% of

Total

Revenues

   

June 19,

2016

   

% of

Total

Revenues

 

(In thousands, except per share data)

                               

Revenues:

                               

Domestic Company-owned stores

 

$

112,430

           

$

97,834

         

Domestic franchise

   

82,403

             

69,675

         

Supply chain

   

390,104

             

339,259

         

International franchise

   

43,674

             

40,573

         

Total revenues

   

628,611

     

100.0

%

   

547,341

     

100.0

%

                                 

Cost of sales:

                               

Domestic Company-owned stores

   

89,040

             

73,795

         

Supply chain

   

346,726

             

301,708

         

Total cost of sales

   

435,766

     

69.3

%

   

375,503

     

68.6

%

Operating margin

   

192,845

     

30.7

%

   

171,838

     

31.4

%

General and administrative

   

79,978

     

12.7

%

   

68,137

     

12.4

%

Income from operations

   

112,867

     

18.0

%

   

103,701

     

19.0

%

                                 

Interest expense, net

   

(24,335)

     

(3.9)%

     

(25,009)

     

(4.6)%

 

Income before provision for income taxes

   

88,532

     

14.1

%

   

78,692

     

14.4

%

                                 

Provision for income taxes

   

22,791

     

3.6

%

   

29,431

     

5.4

%

Net income

 

$

65,741

     

10.5

%

 

$

49,261

     

9.0

%

                                 

Earnings per share:

                               

Common stock – diluted

 

$

1.32

           

$

0.98

         
                                 

Dividends declared per share

 

$

0.46

           

$

0.38

         

 

Domino's Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 
   

Two Fiscal Quarters Ended

 
   

June 18,

2017

   

% of

Total

Revenues

   

June 19,

2016

   

% of

Total

Revenues

 

(In thousands, except per share data)

                               

Revenues:

                               

Domestic Company-owned stores

 

$

225,975

           

$

194,278

         

Domestic franchise

   

162,304

             

137,826

         

Supply chain

   

778,657

             

674,954

         

International franchise

   

85,892

             

79,459

         

Total revenues

   

1,252,828

     

100.0

%

   

1,086,517

     

100.0

%

                                 

Cost of sales:

                               

Domestic Company-owned stores

   

176,224

             

146,550

         

Supply chain

   

689,943

             

600,912

         

Total cost of sales

   

866,167

     

69.1

%

   

747,462

     

68.8

%

Operating margin

   

386,661

     

30.9

%

   

339,055

     

31.2

%

General and administrative

   

157,760

     

12.6

%

   

136,641

     

12.6

%

Income from operations

   

228,901

     

18.3

%

   

202,414

     

18.6

%

                                 

Interest expense, net

   

(49,855)

     

(4.0)%

     

(50,880)

     

(4.7)%

 

Income before provision for income taxes

   

179,046

     

14.3

%

   

151,534

     

13.9

%

                                 

Provision for income taxes

   

50,836

     

4.1

%

   

56,822

     

5.2

%

Net income

 

$

128,210

     

10.2

%

 

$

94,712

     

8.7

%

                                 

Earnings per share:

                               

Common stock – diluted

 

$

2.58

           

$

1.86

         
                                 

Dividends declared per share

 

$

0.92

           

$

0.76

         

 

Domino's Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 
   

June 18, 2017

   

January 1, 2017

 

(In thousands)

               

Assets

               

Current assets:

               

Cash and cash equivalents

 

$

52,243

   

$

42,815

 

Restricted cash and cash equivalents

   

161,685

     

126,496

 

Accounts receivable

   

151,641

     

150,369

 

Inventories

   

37,664

     

40,181

 

Advertising fund assets, restricted

   

116,158

     

118,377

 

Prepaid expenses and other

   

41,512

     

17,635

 

Total current assets

   

560,903

     

495,873

 

Property, plant and equipment, net

   

137,793

     

138,534

 

Other assets

   

83,101

     

81,888

 

Total assets

 

$

781,797

   

$

716,295

 

Liabilities and stockholders' deficit

               

Current liabilities:

               

Current portion of long-term debt

 

$

305

   

$

38,887

 

Accounts payable

   

104,620

     

111,510

 

Dividends payable

   

22,648

     

619

 

Advertising fund liabilities

   

116,158

     

118,377

 

Other accrued liabilities

   

107,781

     

134,305

 

Total current liabilities

   

351,512

     

403,698

 

Long-term liabilities:

               

Long-term debt, less current portion

   

2,180,518

     

2,148,990

 

Other accrued liabilities

   

52,838

     

46,750

 

Total long-term liabilities

   

2,233,356

     

2,195,740

 

Total stockholders' deficit

   

(1,803,071)

     

(1,883,143)

 

Total liabilities and stockholders' deficit

 

$

781,797

   

$

716,295

 

 

Domino's Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
   

Two Fiscal Quarters Ended

 
   

June 18,

2017

   

June 19,

2016

 

(In thousands)

               

Cash flows from operating activities:

               

Net income

 

$

128,210

   

$

94,712

 

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

               

Depreciation and amortization

   

19,773

     

16,756

 

Losses on sale/disposal of assets

   

345

     

247

 

Amortization of debt issuance costs

   

2,714

     

3,133

 

Provision for deferred income taxes

   

3,581

     

1,775

 

Non-cash compensation expense

   

9,633

     

8,617

 

Other

   

204

     

16

 

Excess tax benefits from equity-based compensation

   

(16,906)

     

(34,852)

 

Changes in operating assets and liabilities

   

(32,468)

     

(20,951)

 

Net cash provided by operating activities

   

115,086

     

69,453

 

Cash flows from investing activities:

               

Capital expenditures

   

(25,230)

     

(25,045)

 

Changes in restricted cash

   

(35,189)

     

73,505

 

Other

   

519

     

1,861

 

Net cash provided by (used in) investing activities

   

(59,900)

     

50,321

 

Cash flows from financing activities:

               

Proceeds from issuance of long-term debt

   

     

10,000

 

Repayments of long-term debt and capital lease obligations

   

(9,766)

     

(39,878)

 

Proceeds from exercise of stock options

   

3,884

     

10,848

 

Excess tax benefits from equity-based compensation

   

     

34,852

 

Purchases of common stock

   

(12,721)

     

(224,139)

 

Tax payments for restricted stock upon vesting

   

(4,911)

     

(3,036)

 

Payments of common stock dividends and equivalents

   

(22,280)

     

(19,099)

 

Net cash used in financing activities

   

(45,794)

     

(230,452)

 

Effect of exchange rate changes on cash and cash equivalents

   

36

     

(466)

 

Change in cash and cash equivalents

   

9,428

     

(111,144)

 

Cash and cash equivalents, at beginning of period

   

42,815

     

133,449

 

Cash and cash equivalents, at end of period

 

$

52,243

   

$

22,305

 

Contact:

Tim McIntyre
Executive Vice President
Communications
Investor Relations and Legislative Affairs
(734) 930-3563

SOURCE Domino's Pizza, Inc.

###

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