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Domino's Pizza Announces 2008 Financial Results and 2009 Outlook

ANN ARBOR, Mich., Feb. 24 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the fourth quarter and fiscal 2008, each ended December 28, 2008. Net income in the fourth quarter was $11.0 million, with domestic same store sales down 3.0% and international same store sales up 4.5%. This marked the 60th consecutive quarter (the 15th year) of International same store sales growth. The International division has grown to comprise over 40% of our global retail sales, and over 30% of the Company's consolidated income from operations in 2008.


    Fourth Quarter and Fiscal 2008 Highlights:

    (dollars in millions, except
     per share data)              Fourth     Fourth
                                  Quarter    Quarter     Fiscal      Fiscal
                                  of 2008    of 2007      2008        2007

    Net income                     $11.0      $16.2       $54.0       $37.9

    Weighted average diluted
     shares                   57,101,782 61,900,133  58,339,535  63,785,124

    Diluted earnings per
     share, as reported            $0.19      $0.26       $0.93       $0.59
    Items affecting
     comparability (see
     section below)                   $-     $(0.06)     $(0.18)      $0.44
    Diluted earnings per
     share, as adjusted            $0.19      $0.21       $0.75       $1.03


    --  Diluted EPS was $0.19 on an as reported and as adjusted basis for the
        fourth quarter, down $0.07 from the as reported prior year period.
        However, excluding items affecting comparability from the prior year
        period, diluted EPS declined $0.02, primarily due to lower operating
        income from domestic operations and the negative impact of foreign
        currency.  (See the Items Affecting Comparability section and the
        Comments on Regulation G section.)

    --  Global Retail Sales were up 2.7% in the fourth quarter and up 2.4% for
        the year, excluding foreign currency translation impacts. This was
        driven by strong International same store sales and store growth.


                                                   Fourth
                                                   Quarter          Fiscal
                                                   of 2008           2008
    Same store sales growth: (versus prior
     year period)
      Domestic Company-owned stores                 (2.2)%          (2.2)%
      Domestic franchise stores                     (3.1)%          (5.2)%
      Domestic stores                               (3.0)%          (4.9)%
      International stores                         + 4.5%          + 6.2%

    Global retail sales growth: (versus prior
     year period)
      Domestic stores                               (3.9)%          (4.7)%
      International stores                          (5.7)%         +10.3%
      Total                                         (4.7)%         + 1.4%

    Global retail sales growth: (versus prior
     year period and excluding foreign currency
     translation impacts)
      Domestic stores                               (3.9)%          (4.7)%
      International stores                         +11.1%          +12.8%
      Total                                        + 2.7%          + 2.4%



                                  Domestic
                                  Company- Domestic  Total    Inter-
                                   owned   Franchise Domestic national
                                   Stores  Stores    Stores   Stores   Total

    Store counts:
      Store count at September 7,
       2008                          512    4,574    5,086    3,640    8,726
      Openings                         2       50       52      118      170
      Closings                        (3)     (88)     (91)     (32)    (123)
      Transfers                      (22)      22        -        -        -
      Store count at December 28,
       2008                          489    4,558    5,047    3,726    8,773
      Fourth quarter 2008 net
       growth                        (23)     (16)     (39)      86       47
      Fiscal 2008 net growth         (82)     (26)    (108)     257      149

David A. Brandon, Domino's Chairman and Chief Executive Officer, said: "Throughout 2008, we battled many external challenges while laying the groundwork for better future results. I have mixed feelings about our overall results. I am disappointed with our domestic sales performance and the pressure this created on our short-term profits. However, I am excited about the aggressive steps we have taken to improve our franchise system, expand our menu and lunch day-part, and strengthen our marketing. And, our International business continues to expand and grow. The current economic crisis has been challenging and at times, painful. However, I am convinced we will come out of this a stronger brand, stronger system of stores, and a stronger company."

Brandon continued, "As it relates to the current situation, there seems to be no consensus on where the general economy is going, making forecasting riskier than ever before. Our plan is to protect and strengthen our business in 2009. We will make decisions with a long-term view, while executing a conservative 2009 budget plan. We are well positioned to protect our Company, our balance sheet and retain our talented team members as we face the challenges that will continue in our domestic economy."

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 2008 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 30 days by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International), Conference ID 66295847. The web cast will also be archived for 30 days on www.dominosbiz.com.

Share Repurchases

During the fourth quarter of 2008, the Company repurchased and retired 136,600 shares (resulting in a total share repurchase for 2008 of nearly 3.4 million shares) of its common stock under its open market share repurchase program. Total costs for share repurchases in the fourth quarter were approximately $1.8 million, or an average price of $13.49 per share. The total costs for share repurchases in 2008 were approximately $42.9 million, with an average price of $12.73 per share.

The Company has used approximately 49% of the total amount authorized under its open market share repurchase program and has approximately $102.7 million remaining under the previously approved $200.0 million plan.

Sale of Certain Company-Owned Stores

During the first quarter of 2008, the Company announced it had agreements in place to sell certain Company-owned stores in California and Georgia in a series of transactions primarily with current franchisees. During the fourth quarter of 2008, the Company completed the sale of the four remaining California stores, bringing the year-to-date total to 63 stores in California and Georgia. Separately, the Company sold all 17 Company-owned stores in Washington during the fourth quarter to a current franchisee. Additionally, the Company sold one store each in Tennessee and Minnesota during fiscal 2008. In connection with the sale of these 82 stores, the Company recognized a pre-tax gain of approximately $1.3 million and $14.2 million in the fourth quarter and fiscal 2008, respectively. These pre-tax gains were recorded in general and administrative expense.

Items Affecting Comparability

The Company's reported financial results for the fourth quarter and fiscal 2008 are not comparable to the reported financial results in the prior year periods. The table below presents certain items that affect comparability between our 2008 and 2007 financial results. Management believes that including such information is important to the understanding of our financial results for the fourth quarter and fiscal 2008 as compared to the same periods in 2007 (See the Comments on Regulation G section).

In addition to the items noted in the table below, the Company's 2007 recapitalization had a significant impact on ongoing interest expense as a result of higher debt levels. This also impacts comparability to fiscal 2007. The increase in ongoing interest expense resulted in a decrease in diluted EPS of approximately $0.17 in fiscal 2008 versus fiscal 2007. Separately, in the fourth quarter of 2008 the Company recorded a $1.1 million income tax benefit related to differences in the Company's income tax payable that accumulated over a number of prior years. This income tax adjustment resulted in an increase in diluted EPS of approximately $0.02 in the fourth quarter and fiscal 2008 periods versus the comparable periods in 2007.


                             Fourth Quarter             Full Year
                                          Diluted                     Diluted
                                            EPS                         EPS
    (in thousands)       Pre-tax After-tax Impact  Pre-tax  After-tax  Impact
    2008 items affecting
     comparability:
      Gain on the sale
       of Company-owned
       stores (1)         $1,254    $790  $0.01   $14,223    $8,571    $0.15
      Tax reserve
       reversals (2)          20     133   0.00     1,011     3,424     0.06
      Deferred financing
       fee write-off (3)  (1,278)   (805) (0.01)   (1,278)     (805)   (0.01)
      Separation
       expenses (4)            -       -      -    (1,445)     (867)   (0.01)
    Total of 2008 items      $(4)   $118  $0.00   $12,511   $10,323    $0.18

    2007 items affecting
     comparability:
    Recapitalization
     expenses:
    General and
     Administrative
     expenses (5)             $-      $-     $-   $(2,873)  $(1,781)  $(0.03)
    Additional interest
     income on
     recapitalization
     funds (6)            (1,175) (1,175) (0.02)    1,457     1,457     0.02
    Additional interest
     expense (7)               -       -      -   (33,878)  (21,005)   (0.33)
    Premium on bond
     extinguishment (8)        -       -      -   (13,294)   (8,242)   (0.13)
       Total
        Recapitalization
        expenses          (1,175) (1,175) (0.02)  (48,588)  (29,571)   (0.46)

    Legal expenses (9)         -       -      -    (5,000)   (3,100)   (0.05)
    Gain on sale of
     corporate aircraft    1,792   1,111   0.02     1,792     1,111     0.02
    Tax reserve
     reversals (10)          803   3,532   0.06       803     3,532     0.06
    Total of 2007 items   $1,420  $3,468  $0.06  $(50,993) $(28,028)  $(0.44)

    (1)  The gain recognized relates to the sale of 82 Company-owned stores
         in California, Georgia, Washington, Tennessee and Minnesota in
         fiscal 2008 including 22 Company-owned stores in California,
         Washington and Minnesota in the fourth quarter of 2008.
    (2)  Represents $0.1 million and $2.8 million of income tax benefit in
         The fourth quarter and fiscal 2008, respectively, and $1.0 million
         ($0.6 million after-tax) of contra interest expense in fiscal 2008
         relating to required FIN 48 tax reserve reversals due to outcomes of
         related state tax matters.
    (3)  Represents the write-off of deferred financing fees in connection
         with the $90.0 million reduction of the variable funding notes
         resulting from the bankruptcy of one of the Company's variable
         funding notes providers.
    (4)  Represents separation and related expenses incurred in connection
         with a previously announced restructuring action and other staffing
         reduction costs related to the sale of Company-owned stores in
         California.
    (5)  Primarily includes 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 2007
         recapitalization, including the tender offers for Domino's Pizza,
         Inc. common stock and Domino's, Inc. senior subordinated notes due
         2011.
    (6)  Includes tax-exempt interest income that was earned on funds
         received in connection with the 2007 recapitalization prior to
         disbursement of the funds.  The Company recorded an estimated $2.6
         million of interest income in the second quarter of 2007.  The
         Company adjusted this amount by $1.2 million in the fourth quarter
         of 2007 to reflect the income earned during the year.
    (7)  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.
    (8)  Represents the premium paid to bond holders in the tender offer for
         the Domino's, Inc. senior subordinated notes due 2011.
    (9)  Represents expenses incurred in connection with certain legal
         matters in California.
    (10) Represents $3.0 million of income tax benefit and $0.8 million ($0.5
         million after-tax) of contra interest expense, both relating to
         required FIN 48 state tax reserves reversals due to the favorable
         outcomes of related state tax matters.


    2009 Outlook

The Company does not provide quarterly or annual earnings estimates or guidance, but management has regularly provided their view of the long-range growth rates the Company will achieve and reaffirms that long-range view. However, in these uncertain economic times in the domestic economy, the Company has made the following set of assumptions for 2009:

    --  Flat domestic same store sales,
    --  Net negative domestic store growth,
    --  Targeted general and administrative investments,
    --  Lower commodity costs and the benefit of a 53rd week,
    --  Capital expenditures at the lower end of the stated $20 million to $30
        million range estimate,
    --  Significant negative impact on royalties from foreign currency
        movements, and
    --  Net positive international store growth, resulting in global net store
        growth in the 175 to 225 range.

    Long Range Outlook

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 28, 2008, the Company had:

    --  $1.7 billion in total debt,
    --  $45.4 million of unrestricted cash and cash equivalents,
    --  total borrowings available under its variable funding notes ("VFN") of
        $60.0 million,
    --  letters of credit issued under the VFN of $37.0 million, resulting in
    --  $23.0 million readily available for borrowing under the VFN.

During the fourth quarter of 2008, one of the Company's VFN providers (the "Primary VFN Provider") declared bankruptcy. As a result of the Primary VFN Provider's bankruptcy, the Company's ability to draw upon the VFN was reduced. Under the existing terms of the VFN, the Primary VFN Provider's share was $90.0 million. As a result of the Primary VFN Provider's non-performance under the existing agreement, the Company's availability under the VFN was reduced to $60.0 million, of which $37.0 million is currently committed under pre-existing letters of credit. These letters of credit primarily relate to our insurance programs and supply chain center leases. The maximum amount of borrowings under this scenario available to the Company under the VFN is approximately $23.0 million.

As a result of the reduction in the VFN, the Company wrote-off approximately $1.3 million of deferred financing fees to interest expense during the fourth quarter of 2008. The Company has historically funded its working capital requirements, capital expenditures, debt repayments and share repurchases primarily from its cash flows from operations and when necessary, its available borrowings under the VFN. Management believes its current unrestricted cash and cash equivalents balance and its expected ongoing cash flow from operations is sufficient to fund operations for the foreseeable future.

The Company's cash borrowing rate for the fourth quarter of 2008 was 6.1%. The Company incurred $19.4 million in capital expenditures during fiscal 2008 versus $42.4 million during 2007. The decrease was due primarily to the purchase of a corporate aircraft following the sale of a previously owned aircraft in 2007.

The Company's free cash flow, as reconciled below to cash flows from operations as determined under generally accepted accounting principles (GAAP), was $55.8 million in fiscal 2008.


    (in thousands)                                                  Fiscal
                                                                     2008
    Net cash provided by operating activities (as reported)        $75,257
    Capital expenditures (as reported)                             (19,411)

    Free cash flow                                                 $55,846

    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. Additionally, the Company has included metrics such as global retail sales and same store sales growth, which are commonly used in the quick-service restaurant industry and 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 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.

The Company uses "Free cash flow," calculated as cash flows from operations less capital expenditures, both as reported. The Company's management 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 flows are available for working capital needs or to be used for de-levering, making acquisitions, repurchasing shares or similar uses of cash.

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 locally-owned and operated franchised system, Domino's operates a network of 8,773 franchised and Company-owned stores in the United States and 60 international markets. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of over $5.5 billion in 2008, comprised of nearly $3.1 billion domestically and over $2.4 billion internationally. Domino's Pizza was named "Chain of the Year" by Pizza Today magazine, the leading publication of the pizza industry. 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.dominosbiz.com.

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

This press release contains forward-looking statements. These forward-looking statements relate to future events or our future financial performance and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these 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 and keep existing stores in operation; 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; 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 weakening consumer confidence; availability of borrowings under our variable funding notes 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 28, 2008. 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.

    TABLES TO FOLLOW


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

                                                Fiscal Quarter Ended
                                                 % of                 % of
                                      Dec. 28,   Total     Dec. 30,   Total
                                        2008    Revenues     2007    Revenues

    (In thousands, except per
     share data)
    Revenues:
       Domestic Company-owned stores  $101,836             $116,959
       Domestic franchise               46,987               47,571
       Domestic supply chain           237,501              237,258
       International                    41,843               44,154
    Total revenues                     428,167    100.0%    445,942    100.0%

    Cost of sales:
       Domestic Company-owned stores    85,831               95,964
       Domestic supply chain           214,907              217,947
       International                    18,682               20,042
    Total cost of sales                319,420     74.6%    333,953     74.9%
    Operating margin                   108,747     25.4%    111,989     25.1%

    General and administrative          56,856     13.3%     55,872     12.5%
    Income from operations              51,891     12.1%     56,117     12.6%

    Interest expense, net               35,736      8.3%     34,593      7.8%
    Income before provision for
     income taxes                       16,155      3.8%     21,524      4.8%

    Provision for income taxes           5,129      1.2%      5,348      1.2%
    Net income                         $11,026      2.6%    $16,176      3.6%

    Earnings per share:
       Common stock - diluted            $0.19                $0.26



                         Domino's Pizza, Inc. and Subsidiaries
                      Condensed Consolidated Statements of Income
                                                Fiscal Year Ended
                                                 % of                 % of
                                      Dec. 28,   Total     Dec. 30,   Total
                                        2008    Revenues     2007    Revenues
    (In thousands, except per
     share data)
    Revenues:
       Domestic Company-owned stores   $357,703             $394,585
       Domestic franchise               153,858              158,050
       Domestic supply chain            771,106              783,330
       International                    142,447              126,905
    Total revenues                    1,425,114   100.0%   1,462,870   100.0%

    Cost of sales:
       Domestic Company-owned stores    298,857              317,730
       Domestic supply chain            699,669              710,894
       International                     63,327               55,392
    Total cost of sales               1,061,853    74.5%   1,084,016    74.1%
    Operating margin                    363,261    25.5%     378,854    25.9%

    General and administrative          168,231    11.8%     184,944    12.6%
    Income from operations              195,030    13.7%     193,910    13.3%

    Interest expense, net               112,160     7.9%     125,057     8.6%
    Other                                     -        -      13,294     0.9%
    Income before provision for
     income taxes                        82,870     5.8%      55,559     3.8%

    Provision for income taxes           28,899     2.0%      17,677     1.2%
    Net income                          $53,971     3.8%     $37,882     2.6%

    Earnings per share:
       Common stock - diluted             $0.93                $0.59



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

                                                December 28,     December 30,
                                                   2008             2007
    (In thousands)
    Assets
    Current assets:
      Cash and cash equivalents                   $45,372            $11,344
      Restricted cash and cash equivalents         78,871             80,951
      Accounts receivable                          69,390             68,446
      Inventories                                  24,342             24,931
      Advertising fund assets, restricted          20,377             20,683
      Other assets                                 15,899             20,527
    Total current assets                          254,251            226,882

    Property, plant and equipment, net            108,430            122,890

    Other assets                                  101,113            123,392

    Total assets                                 $463,794           $473,164

    Liabilities and stockholders' deficit
      Current liabilities:
      Current portion of long-term debt              $340            $15,312
      Accounts payable                             56,906             60,411
      Advertising fund liabilities                 20,377             20,683
      Other accrued liabilities                    71,931             79,102
    Total current liabilities                     149,554            175,508

    Long-term liabilities:
      Long-term debt, less current portion      1,704,444          1,704,771
      Other accrued liabilities                    34,419             43,024
    Total long-term liabilities                 1,738,863          1,747,795

    Total stockholders' deficit                (1,424,623)        (1,450,139)

    Total liabilities and stockholders'
     deficit                                     $463,794           $473,164



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

                                                      Fiscal Year Ended
                                                December 28,     December 30,
                                                    2008             2007
    (In thousands)
    Cash flows from operating activities:
      Net income                                  $53,971            $37,882
      Adjustments to reconcile net income to net
      cash flows provided by operating activities:
        Depreciation and amortization              28,377             31,176
        Gains on sale/disposal of assets          (13,752)              (766)
        Amortization of deferred financing
         costs, debt discount and other            11,103             38,612
        Provision (benefit) for deferred income
         taxes                                      2,046             (5,564)
        Non-cash compensation expense               9,059              8,405
        Other                                       7,714              2,358
        Changes in operating assets and
         liabilities                              (23,261)           (27,915)
    Net cash provided by operating activities      75,257             84,188

    Cash flows from investing activities:
      Capital expenditures                        (19,411)           (42,415)
      Proceeds from sale of assets                 28,874             13,354
      Change in restricted cash and cash
       equivalents                                  2,080            (80,951)
      Other                                           549                543
    Net cash provided by (used in) investing
     activities                                    12,092           (109,469)

    Cash flows from financing activities:
      Purchase of common stock                    (42,976)           (54,548)
      Common stock dividends and equivalents            -           (896,972)
      Proceeds from issuance of long-term debt      3,000          2,524,938
      Repayments of long-term debt and capital
       lease obligation                           (18,312)        (1,547,201)
      Cash paid for financing costs                  (278)           (60,337)
      Tax benefit from stock options                  272             22,113
      Other                                         4,763             10,393
    Net cash used in financing activities         (53,531)            (1,614)

    Effect of exchange rate changes on cash
     and cash equivalents                             210                 17

    Change in cash and cash equivalents            34,028            (26,878)

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

    Cash and cash equivalents, at end of period   $45,372            $11,344

SOURCE  Domino's Pizza Inc.
    -0-                           02/24/2009
    /CONTACT:  Lynn Liddle, Executive Vice President, Communications and
Investor Relations, +1-734-930-3008/
    /Web Site:  http://www.dominos.com /
    (DPZ)

CO:  Domino's Pizza Inc.
ST:  Michigan
IN:  RST FOD
SU:  ERN ERP CCA

PR
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0718 02/24/200907:30 ESThttp://www.prnewswire.com