Domino's Pizza Announces 2008 Financial Results and 2009 Outlook
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
$0.19on an as reported and as adjusted basis for the fourth quarter, down $0.07from 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
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,
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
The Company has used approximately 49% of the total amount authorized
under its open market share repurchase program and has approximately
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
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
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, Tennesseeand Minnesotain fiscal 2008 including 22 Company-owned stores in California, Washingtonand Minnesotain the fourth quarter of 2008. (2) Represents $0.1 millionand $2.8 millionof income tax benefit in The fourth quarter and fiscal 2008, respectively, and $1.0 million( $0.6 millionafter-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 millionreduction 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 millionof interest income in the second quarter of 2007. The Company adjusted this amount by $1.2 millionin 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 millionof income tax benefit and $0.8 million( $0.5 millionafter-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 millionrange 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 billionin total debt, -- $45.4 millionof 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 millionreadily 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
As a result of the reduction in the VFN, the Company wrote-off
The Company's cash borrowing rate for the fourth quarter of 2008 was 6.1%.
The Company incurred
The Company's free cash flow, as reconciled below to cash flows from
operations as determined under generally accepted accounting principles
(in thousands) Fiscal 2008 Net cash provided by operating activities (as reported)
$75,257Capital expenditures (as reported) (19,411) Free cash flow $55,846Comments 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
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
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
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: MichiganIN: RST FOD SU: ERN ERP CCA PR -- DE74418 -- 0718 02/24/2009 07:30 ESThttp://www.prnewswire.com