Domino's Pizza Results

Domino's Pizza Reports Domestic Same Store Sales Growth of 9.5% for Q2 2017

International same store sales growth of 2.6%

Domino's Pizza

Domino's Pizza, Inc. (NYSE: DPZ) yesterday 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 millionvariable 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 milliondecrease 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.

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 billionin 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.

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



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