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Domino's Pizza Announces 2007 Financial Results

ANN ARBOR, Mich., Feb. 26 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the fourth quarter and fiscal 2007, each ended December 30, 2007. Net income was negatively impacted versus the prior year by increased interest expense as a result of higher borrowings under the Company's new debt structure. International same store sales growth of 9.5% during the fourth quarter marked the 56th consecutive quarter of International same store sales growth. The income from International reached nearly 30% of the Company's consolidated income from operations in 2007.

    Fourth Quarter and Fiscal 2007 Highlights:


    (dollars in millions,
     except per share data)         Fourth     Fourth
                                    Quarter    Quarter
                                      of         of        Fiscal     Fiscal
                                     2007       2006        2007       2006

    Net income                        $16.2      $31.0       $37.9     $106.2

    Weighted average diluted
     shares                      61,900,133 63,697,961  63,785,124 64,541,079

    Diluted earnings per share,
     as reported                      $0.26      $0.49       $0.59      $1.65
    Items affecting
     comparability (see section
     below)                          $(0.06)        $-       $0.44     $(0.09)
    Diluted earnings per share,
     as adjusted                      $0.21      $0.49       $1.03      $1.56

  • Net income was down 47.9% for the fourth quarter and 64.3% for the full year versus the prior year periods, driven primarily by increased interest expense from higher borrowings under the Company's new debt structure and, to a lesser extent, a decrease in domestic supply chain margins resulting from lower volumes and lower domestic Company-owned store margins. This was offset in part by continued strong performance in International.
  • Diluted EPS was $0.26 on an as-reported basis for the fourth quarter, down $0.23 from the as-reported prior year period. However, excluding items affecting comparability, diluted EPS declined $0.28. Diluted EPS on an as-reported basis was $0.59 for the full year 2007, down $1.06 from 2006 on an as-reported basis. Diluted EPS, as adjusted for the full year 2007 was $1.03, down 34.0% versus $1.56 for the full year 2006. (See the Items Affecting Comparability section and the Comments on Regulation G section.)
                                                         Fourth
                                                       Quarter of
                                                          2007     Fiscal 2007
    Same store sales growth: (versus prior year
     period)
      Domestic Company-owned stores                      (1.1)%       + 1.0 %
      Domestic franchise stores                          (3.9)%        (2.1)%
      Domestic stores                                    (3.5)%        (1.7)%
      International stores                              + 9.5%        + 6.7%

    Global retail sales growth: (versus prior year
     period)
      Domestic stores                                    (2.4)%        (0.5)%
      International stores                              +23.4%        +18.8%
      Total                                             + 7.4%        + 6.6%



                            Domestic      Domestic   Total     Inter-
                            Company-owned Franchise  Domestic  national
                            Stores        Stores     Stores    Stores   Total
    Store counts:
      Store count at
       September 9, 2007        565       4,571       5,136     3,374   8,510
      Openings                    6          64          70       104     174
      Closings                    -         (51)        (51)       (9)    (60)
      Store count at
       December 30, 2007        571       4,584       5,155     3,469   8,624
      Fourth quarter 2007 net
       growth                     6          13          19        95     114
      Fiscal 2007 net growth      -          12          12       246     258

David A. Brandon, Domino's Chairman and Chief Executive Officer, said: "The combination of unprecedented cost inflation and cautious consumer spending continues to create significant challenges for us in our domestic market. However, instead of worrying about external factors we cannot control, we continue to stay focused on those factors we can control. There isn't a challenge we face that won't be cured when we regain positive traffic growth in our domestic business. We are obsessively focused on improving our store operations, including our service levels, product consistency and brand image. And, we continue to adjust our marketing strategies in an effort to jumpstart traffic throughout our domestic system of stores."

Brandon continued: "Our international markets continue to grow as a percentage of Domino's overall sales and profits and has established a strong track record for reliable, vibrant growth. As our international business marks its 25th anniversary in 2008, I want to acknowledge the tremendous job our master franchisees have done over the years and highlight the important role this division will play in the future growth of our Company."

Conference Call Information

The Company plans to file its annual report on Form 10-K this morning. Additionally, as previously announced, Domino's Pizza, Inc. will hold a conference call today at 11 a.m. (Eastern) to review its fiscal 2007 financial results. The call can be accessed by dialing (888) 306-6182 (U.S./Canada) or (706) 634-4947 (International). Ask for the Domino's Pizza conference call. The call will also be web cast at www.dominos.com. If you are unable to participate on the call, a replay will be available for thirty days by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International), Conference ID 20158669. The web cast will also be archived for 30 days on www.dominosbiz.com.

Share Repurchases

During the fourth quarter the Company repurchased and retired approximately 2.6 million shares (resulting in a total share repurchase for 2007 of approximately 3.6 million shares) of its common stock under our open market share repurchase program. In the fourth quarter the expenditure was approximately $36.4 million, with an average price of $14.22 per share. The total costs for share repurchases in 2007 were approximately $54.4 million, with an average price of $15.05 per share. The Company has used approximately 27% of the total amount authorized under its open market share repurchase program.

Items Affecting Comparability

The Company's reported financial results for 2007 included several items that affect the comparability to the reported financial results in the comparable year. The table below presents certain items that affect comparability between our 2007 and 2006 financial results. Management believes that including such information is critical to the understanding of our financial results for the fourth quarter and full year 2007 as compared to similar periods in 2006 (See the Comments on Regulation G section).

In addition to the items noted in the table below, the Company's recapitalization had a significant impact on ongoing interest expense as a result of higher debt levels. This impacts comparability to periods in the prior year. The increase in ongoing interest expense as a result of the recapitalization resulted in a decrease in diluted EPS of approximately $0.20 in the fourth quarter and $0.42 in fiscal 2007.



                                 Fourth Quarter              Full Year
    (in thousands)                          Diluted                    Diluted
                             Pre-   After-  EPS       Pre-    After-   EPS
                             tax    tax     Impact    tax     tax      Impact
    2007 items affecting
     comparability:

    Recapitalization
     expenses:
    General and
     administrative
     expenses (1)               $-      $-     $-   $(2,873)  $(1,781) $(0.03)
    Additional interest
     income on
     recapitalization
     funds (2)              (1,175) (1,175) (0.02)    1,457     1,457    0.02
    Additional interest
     expense (3)                 -       -      -   (33,878)  (21,005)  (0.33)
    Premium on bond
     extinguishment (4)          -       -      -   (13,294)   (8,242)  (0.13)
    Total recapitalization
     expenses               (1,175) (1,175) (0.02)  (48,588)  (29,571)  (0.46)

    Legal expenses (5)           -       -      -    (5,000)   (3,100)  (0.05)
    Gain on sale of
     corporate aircraft      1,792   1,111   0.02     1,792     1,111    0.02
    State tax reserve
     reversals (6)           5,010   3,532   0.06     5,010     3,532    0.06
    2007 items affecting
     comparability          $5,627  $3,468  $0.06  $(46,786) $(28,028) $(0.44)

    2006 items affecting
     comparability:

    Gain on the sale of
     France and Netherlands
     operations and related
     tax effects (7)            $-      $-     $-    $2,825    $5,571   $0.09


    (1) Primarily includes non-cash stock compensation expenses, payroll taxes
        related to the payments made to certain stock option holders and legal
        and professional fees incurred in connection with the
        recapitalization, including the tender offers for Domino's Pizza, Inc.
        common stock and Domino's, Inc. senior subordinated notes due 2011.
    (2) Includes tax-exempt interest income that was earned on funds received
        in connection with the recapitalization prior to disbursement of the
        funds.  The Company recorded $2.6 million of interest income in the
        second quarter of 2007.  The Company reduced this amount by $1.2
        million in the fourth quarter of 2007 to properly state the income
        earned during the year.
    (3) Includes the write-off of deferred financing fees and bond discount
        related to extinguished debt as well as net expense incurred in
        connection with the settlement of interest rate derivatives.
    (4) Represents the premium paid to bond holders in the tender offer for
        the Domino's, Inc. senior subordinated notes due 2011 which is
        recorded as other expense in the Company's consolidated statement of
        income.
    (5) Represents expenses incurred in connection with certain legal matters
        in California.
    (6) Represents $4.2 million of income tax benefit and $0.8 million of
        contra interest expense (pre-tax), both relating to required FIN 48
        state tax reserve reversals due to favorable outcomes of related state
        tax matters.
    (7) Represents the gain recognized in the third quarter of 2006 on the
        sale of our Company-owned France and Netherlands operations of
        approximately $2.8 million and the related tax benefit recognized in
        the second quarter of 2006.

    Long Range Outlook

The Company does not provide quarterly or annual earnings estimates. The following long range outlook does not constitute specific earnings guidance, but management believes these ranges to be appropriate and achievable over the long term.


                                                             Year-Over-Year
                                                                 Growth

    Domestic same store sales                                    1% - 3%
    International same store sales                               3% - 5%
    Net units                                                   200 - 250
    Global retail sales                                          4% - 6%

    Liquidity
    As of December 30, 2007, the Company had:

    -- $1.7 billion in total debt,
    -- $11.3 million of unrestricted cash and cash equivalents,
    -- $15.0 million of borrowings under its $150.0 million of variable
       funding notes, and
    -- letters of credit issued under the variable funding notes of $32.4
       million.

The Company's cash borrowing rate for the fourth quarter of 2007 was 6.1%. The Company incurred $42.4 million in capital expenditures during 2007 versus $20.2 million during 2006. The increase was due primarily to the purchase of a corporate aircraft following the sale of a previously owned aircraft.

Comments on Regulation G

In addition to the GAAP financial measures set forth in this press release, the Company has included a non-GAAP financial measure within the meaning of Regulation G due to items affecting comparability between fiscal years. Additionally, the Company has included metrics commonly used 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 less the items that affect comparability to the prior year periods discussed above. The most directly comparable financial measure calculated and presented in accordance with GAAP is Diluted EPS. The Company's management 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 "Global retail sales" to refer to total worldwide retail sales at Company-owned and franchise stores. Management believes global retail sales information is useful in analyzing revenues, because franchisees pay royalties that are based on a percentage of franchise retail sales. Management reviews comparable industry global retail sales information to assess business trends and to track the growth of the Domino's Pizza(R) brand. In addition, domestic supply chain revenues are directly impacted by changes in domestic 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," 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 on a constant dollar basis, which reflects changes in international local currency sales.

About Domino's Pizza(R)

Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery. Domino's is listed on the NYSE under the symbol "DPZ." Through its primarily franchised system, Domino's operates a network of 8,624 franchised and Company-owned stores in the United States and more than 55 countries. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of over $5.4 billion in 2007, comprised of $3.2 billion domestically and $2.2 billion internationally. Domino's Pizza was named "Chain of the Year" by Pizza Today magazine, the leading publication of the pizza industry and is the "Official Pizza of NASCAR(R)." Customers can place orders online in English and Spanish by visiting www.dominos.com or from a Web-enabled cell phone by visiting mobile.dominos.com. More information on the Company, in English and Spanish, can be found on the Web at www.dominos.com. Domino's Pizza. You Got 30 Minutes(TM).

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

This press release contains forward-looking statements. These forward- looking statements relating to our anticipated profitability and operating performance reflect management'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 can cause actual results to differ materially include: our increased leverage as a result of the borrowings under our asset-backed securitization facility; the uncertainties relating to litigation; consumer preferences, spending patterns and demographic trends; the effectiveness of our advertising, operations and promotional initiatives; our ability to retain key personnel; new product and concept developments by us and other food- industry competitors; the ongoing profitability of our franchisees and the ability of Domino's Pizza and our franchisees to open new stores; changes in food prices, 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 in which we operate; severe weather conditions and natural disasters; changes in our effective tax rate; changes in government legislation and regulations; adequacy of our insurance coverage; costs related to future financings and changes in accounting policies. Further information about factors that could affect our financial and other results is included in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended December 30, 2007. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.



                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income

                                             Fiscal Quarter Ended

                                               % of                    % of
                                 December 30,  Total     December 31,  Total
                                     2007     Revenues       2006     Revenues
    (In thousands, except per
     share data)
    Revenues:
      Domestic Company-owned
       stores                      $116,959                $117,419
      Domestic franchise             47,571                  48,153
      Domestic supply chain         237,258                 234,815
      International                  44,153                  34,868
    Total revenues                  445,941    100.0%       435,255    100.0%

    Cost of sales:
      Domestic Company-owned
       stores                        95,964                  93,908
      Domestic supply chain         217,947                 210,383
      International                  20,044                  15,271
    Total cost of sales             333,955     74.9%       319,562     73.4%
    Operating margin                111,986     25.1%       115,693     26.6%

    General and administrative       55,868     12.5%        52,499     12.1%
    Income from operations           56,118     12.6%        63,194     14.5%

    Interest expense, net           (34,594)    (7.8)%      (16,067)    (3.7)%
    Other                                 -        -              -        -
    Income before provision for
     income taxes                    21,524      4.8%        47,127     10.8%

    Provision for income taxes        5,348      1.2%        16,082      3.7%
    Net income                      $16,176      3.6%       $31,045      7.1%

    Earnings per share:
      Common stock - diluted          $0.26                   $0.49



                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income

                                                Fiscal Year Ended

                                               % of                    % of
                                 December 30,  Total     December 31,  Total
                                     2007     Revenues       2006     Revenues

    (In thousands, except per
     share data)
    Revenues:
      Domestic Company-owned
       stores                      $394,585                $393,406
      Domestic franchise            158,050                 157,741
      Domestic supply chain         783,330                 762,782
      International                 126,905                 123,390
    Total revenues                1,462,870    100.0%     1,437,319    100.0%

    Cost of sales:
      Domestic Company-owned
       stores                       317,730                 312,130
      Domestic supply chain         710,894                 681,700
      International                  55,392                  58,958
    Total cost of sales           1,084,016     74.1%     1,052,788     73.2%
    Operating margin                378,854     25.9%       384,531     26.8%

    General and administrative      184,944     12.6%       170,334     11.9%
    Income from operations          193,910     13.3%       214,197     14.9%

    Interest expense, net          (125,057)    (8.6)%      (53,772)    (3.7)%
    Other                           (13,294)    (0.9)%            -        -
    Income before provision for
     income taxes                    55,559      3.8%       160,425     11.2%

    Provision for income taxes       17,677      1.2%        54,198      3.8%
    Net income                      $37,882      2.6%      $106,227      7.4%

    Earnings per share:
      Common stock - diluted          $0.59                   $1.65



                    Domino's Pizza, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets

                                                     December 30, December 31,
                                                         2007         2006
    (In thousands)
    Assets
    Current assets:
        Cash and cash equivalents                        $11,344     $38,222
        Restricted cash                                   80,951           -
        Accounts receivable                               68,446      65,697
        Inventories                                       24,931      22,803
        Advertising fund assets, restricted               20,683      18,880
        Other assets                                      20,527      20,703
    Total current assets                                 226,882     166,305

    Property, plant and equipment, net                   122,890     117,144

    Other assets                                         123,392      96,754

    Total assets                                        $473,164    $380,203

    Liabilities and stockholders' deficit
    Current liabilities:
        Current portion of long-term debt                $15,312      $1,477
        Accounts payable                                  60,411      55,036
        Advertising fund liabilities                      20,683      18,880
        Other accrued liabilities                         79,102      79,808
    Total current liabilities                            175,508     155,201

    Long-term liabilities:
        Long-term debt, less current portion           1,704,771     740,120
        Other accrued liabilities                         43,024      49,775
    Total long-term liabilities                        1,747,795     789,895

    Total stockholders' deficit                       (1,450,139)   (564,893)

    Total liabilities and stockholders' deficit         $473,164    $380,203



                    Domino's Pizza, Inc. and Subsidiaries
               Condensed Consolidated Statements of Cash Flows

                                                          Fiscal Year Ended
                                                     December 30, December 31,
                                                         2007         2006

    (In thousands)
    Cash flows from operating activities:
      Net income                                         $37,882    $106,227
      Adjustments to reconcile net income to net cash
       flows provided by operating activities:
        Depreciation and amortization                     31,176      32,266
        Gains on sale/disposal of assets                    (766)     (2,678)
        Amortization of deferred financing costs,
         debt discount and other                          38,612       3,380
        Benefit for deferred income taxes                 (5,564)       (615)
        Non-cash compensation expense                      8,405       5,218
        Provision (benefit) for losses on accounts
         and notes receivable                              2,358        (728)
        Changes in operating assets and liabilities      (27,915)    (10,067)
    Net cash provided by operating activities             84,188     133,003

    Cash flows from investing activities:
      Capital expenditures                               (42,415)    (20,204)
      Proceeds from sale of assets                        13,354      14,369
      Change in restricted cash                          (80,951)          -

      Other                                                  543         (97)
    Net cash used in investing activities               (109,469)     (5,932)

    Cash flows from financing activities:
      Purchase of common stock                           (54,548)   (145,000)
      Common stock dividends and equivalents            (896,972)    (29,841)
      Proceeds from issuance of long-term debt         2,524,938     100,000
      Repayments of long-term debt and capital
       lease obligation                               (1,547,201)    (95,284)
      Cash paid for financing costs                      (60,337)       (250)
      Tax benefit from stock options                      22,113       5,075
      Other                                               10,393       9,543
    Net cash used in financing activities                 (1,614)   (155,757)

    Effect of exchange rate changes on cash and
     cash equivalents                                         17         (11)

    Decrease in cash and cash equivalents                (26,878)    (28,697)

    Cash and cash equivalents, at beginning of period     38,222      66,919

    Cash and cash equivalents, at end of period         $ 11,344    $ 38,222

SOURCE Domino's Pizza, Inc. 02/26/2008 CONTACT: Lynn Liddle, Executive Vice President, Communications and Investor Relations, Domino's Pizza, Inc., +1-734-930-3008 /Web site: http://www.dominos.com (DPZ)