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Domino's Pizza Announces Second Quarter 2004 Financial Results

Domestic Same Store Sales Up 2.1%; International Same Store Sales Up 5.0%

ANN ARBOR, Mich., July 27 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced its financial results for the second quarter and first two quarters of 2004, which ended June 13, 2004. Income from operations increased for the second quarter and first two quarters of 2004 despite significant increases in food costs, driven primarily by higher cheese costs. Management attributed the Company's positive results primarily to increases in international and domestic franchise same store sales, as well as increases in net worldwide store counts.

The Company plans to file its quarterly report on Form 10-Q this morning. Additionally, Domino's Pizza, Inc. will hold a conference call today at 11 a.m. (Eastern) to review its second quarter 2004 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 simulcast at http://www.dominos.com .

"Our positive second quarter results were once again driven by the success of our great franchisees. Despite significant increases in cheese costs, we posted operating income for the second quarter of over $39 million, reinforcing the strength of our business model," said David A. Brandon, Chairman and CEO.

Brandon also commented on the Company's recent initial public offering: "We are proud to have completed the largest initial public offering in restaurant history, which provided significant returns to the selling shareholders, and will enable us to pay down an appropriate portion of our debt. Our strong cash flow capabilities allowed us the flexibility to use the IPO proceeds in this manner, and still have ample investment capital to continue the growth of our business."

Quarterly Highlights
(versus second quarter 2003)

  • Income from operations increased $0.2 million to $39.3 million, despite a $0.90 per pound, or 81%, increase in cheese costs.
  • Net income decreased $1.6 million to $15.9 million, due primarily to increased interest expense from higher average debt balances as a result of our 2003 recapitalization.
  • Global retail sales increased 7.1%, driven by increases in same store sales and store counts.
  • Domestic Stores same store sales increased 2.1%; comprised of a domestic franchise same store sales increase of 2.6% and a domestic Company- owned same store sales decrease of 1.4%.
  • International same store sales increased 5.0%, on a constant dollar basis, marking the 42nd consecutive quarter of international same store sales growth. International same store sales increased 9.4% on a historical dollar basis, reflecting the generally weaker U.S. dollar in the key markets in which we compete.
  • At the end of the second quarter, there were 7,530 Domino's Pizza stores in operation worldwide, a net increase of 239 stores since the end of the second quarter of 2003 and a net increase of 103 stores since 2003 year- end.
                             Financial Summaries

                           Fiscal Quarter Ended    Two Fiscal Quarters Ended
                           June 13, June 15,  %     June 13, June 15,  %
    (Dollars in millions)   2004     2003   Change   2004     2003   Change
    Total revenues(1)     $324.2    $295.2   9.8%   $643.0   $607.5    5.8%
    Income from operations  39.3      39.1   0.5      82.8     82.1    0.8
    Net income              15.9      17.5  (9.2)     34.3     35.7   (4.1)

(1) Total revenues include retail sales at our Company-owned stores, royalties from franchise stores, and related sales from our distribution operations, which sell food and equipment to all Company-owned stores and certain franchise stores. Company-owned store and franchise store revenues may vary significantly from period to period due to changes in store count mix, while distribution revenues may vary significantly as a result of fluctuations in food prices, primarily cheese prices.

Revenues

The increases in second quarter and year-to-date total revenues was due to an increase in revenues from our domestic distribution operations and, to a lesser extent, international operations and domestic franchise operations. These increases in revenues were offset in part by a decrease in revenues from our domestic Company-owned stores. The increase in domestic distribution revenues was due primarily to a market increase in overall food prices, primarily higher cheese prices. The cheese block price-per-pound averaged $2.01 and $1.67 in the second quarter and first two quarters of 2004, respectively, up from $1.11 and $1.12 in the comparable periods in 2003. The positive impact on domestic distribution revenues from higher cheese prices was approximately $28.1 million and approximately $34.3 million for the second quarter and first two quarters of 2004, respectively.

The increase in our international revenues was due primarily to an increase in international same store sales, an increase in the average number of international stores open during 2004 and an increase in revenues from our international distribution operations. On a constant dollar basis, international same store sales increased 5.0% and 5.7% in the second quarter and first two quarters of 2004, respectively, compared to the comparable periods in 2003. On a historical dollar basis, international same store sales increased 9.4% and 13.0% in the second quarter and first two quarters of 2004, respectively, compared to the comparable periods in 2003, reflecting a generally weaker U.S. dollar in those markets in which we compete. There were 2,605 international stores in operation at the end of the second quarter of 2004, a 176 store net increase from the comparable period in 2003.

Domestic franchise same store sales increased 2.6% and 0.8% in the second quarter and first two quarters of 2004, respectively, compared to the comparable periods in 2003. There were 4,348 domestic franchise stores in operation at the end of the second quarter of 2004, a 65 store net increase from the comparable period in 2003.

Domestic Company-owned same store sales decreased 1.4% and 1.5% in the second quarter and first two quarters of 2004, respectively, compared to the comparable periods in 2003. There were 577 domestic Company-owned stores in operation at the end of the second quarter of 2004, a 2 store net decrease from the comparable period in 2003.

Earnings

The increases in the operating margin, defined as consolidated revenues less consolidated cost of sales, during the second quarter and first two quarters of 2004 were due primarily to increases in revenues from both our international and domestic franchise operations, offset in part by decreases in the operating margins at both our domestic Company-owned stores, due primarily to higher cheese costs, and our domestic distribution operations. The increases in general and administrative expenses during the second quarter and first two quarters of 2004 were due primarily to increases in rents, insurance and administrative labor costs.

The increases in second quarter and year-to-date income from operations was due primarily to an increase in royalty revenues from our international and domestic franchise stores, offset in part by increases in food costs at our Company-owned stores, primarily cheese. Had the average 2004 cheese price for the periods presented been in effect during the comparable periods in 2003, income from operations as a percentage of consolidated revenues would have been unchanged for the second quarter (12.1%) and would have increased slightly for the first two quarters of 2004 (from 12.8% to 12.9%).

The decreases in second quarter and year-to-date net income was due primarily to an increase in interest expense, offset in part by the aforementioned increase in income from operations. Additionally, year-to-date net income was positively impacted by a decrease in other expense. The increase in interest expense was due primarily to higher average debt levels in the first two quarters of 2004 as a result of increased borrowings as part of our June 2003 recapitalization. The decrease in other expense was due to $1.7 million of losses incurred in connection with the retirement of $20.5 million of senior subordinated notes in the first quarter of 2003.

Initial Public Offering of Domino's Pizza, Inc.

On July 16, 2004, we completed the initial public offering of Domino's Pizza, Inc. common stock. Our common stock trades on the New York Stock Exchange under the ticker symbol "DPZ." In the initial public offering, we issued and sold 9,375,000 shares resulting in net proceeds to us of approximately $119.3 million. We intend to use these net proceeds to redeem, at a premium plus accrued interest, approximately $109.1 million aggregate principal amount of Domino's, Inc.'s 8 1/4% senior subordinated notes. We expect this redemption to occur during the third quarter of fiscal 2004. Immediately following the closing of the initial public offering, we had 68,653,626 shares of common stock outstanding or approximately 72.6 million shares on a fully diluted basis.

In connection with the initial public offering, our board of directors approved certain new equity programs, including our 2004 equity incentive plan, our 2004 employee stock purchase plan and our dividend reinvestment and direct stock purchase plan, and approved the grant of options to purchase an aggregate of 1,713,870 shares of our common stock to our directors, officers and other employees at an exercise price per share of $14.00.

Definitions

Same store sales growth: Same store sales growth is calculated including only sales from stores that also had sales in the comparable period of the prior year, but excluding sales from certain seasonal locations such as stadiums and concert arenas. International same store sales growth is calculated similarly to domestic same store sales growth, on a constant dollar basis. Changes in international same store sales on a constant dollar basis reflect changes in international local currency sales. Changes in international same store sales on a historical dollar basis reflect changes in international sales converted using the U.S. dollar exchange rates that were in effect for the applicable periods.

Retail sales: Because our franchisees pay royalties that are based on a percentage of franchise retail sales, management believes that franchise retail sales information is useful in analyzing our revenues. Management reviews comparable industry retail sales information to assess business trends and to track the growth of the Domino's Pizza(R) brand. In addition, distribution revenues are directly impacted by changes in domestic franchise retail sales. Retail sales for our franchise stores are reported to us by our franchisees and are not included in our revenues.

About Domino's Pizza: 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 7,530 franchised and Company-owned stores in the United States and more than 50 countries. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of nearly $4.2 billion in 2003. Domino's Pizza was named "2003 Chain of the Year" by Pizza Today magazine, the leading publication of the pizza industry. In 2003, Domino's became the "Official Pizza of NASCAR." More information on the Company, in English and Spanish, can be found on the web at http://www.dominos.com .

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain statements contained in this release relating to our anticipated profitability and operating performance are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Among these risks and uncertainties are competitive factors, increases in our operating costs, ability to retain our key personnel, our substantial leverage, ability to implement our growth and cost-saving strategies, industry trends and general economic conditions, adequacy of insurance coverage and other factors, all of which are described in our regulatory filings made with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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


                             Fiscal Quarter Ended    Two Fiscal Quarters Ended
                             June 13,    June 15,      June 13,      June 15,
                              2004        2003          2004           2003
    (In thousands)
    Revenues:
       Domestic Company-owned
        stores               $84,062     $85,875      $172,027      $175,817
       Domestic franchise     33,767      32,349        68,405        66,753
       Domestic distribution 180,927     154,632       351,776       322,068
       International          25,480      22,360        50,783        42,830
    Total revenues           324,236     295,216       642,991       607,468

    Cost of sales:
       Domestic Company-owned
        stores                68,970      68,400       139,073       140,172
       Domestic distribution 164,482     137,743       318,681       286,469
       International and
        other                 13,183      12,280        26,524        23,586
    Total cost of sales      246,635     218,423       484,278       450,227
    Operating margin          77,601      76,793       158,713       157,241

    General and
     administrative           38,280      37,654        75,920        75,144
    Income from operations    39,321      39,139        82,793        82,097

    Interest expense, net     13,808      10,928        27,708        23,158
    Other                          -           -             -         1,743
    Income before provision
     for income taxes         25,513      28,211        55,085        57,196

    Provision for income taxes 9,631      10,725        20,794        21,449
    Net income               $15,882     $17,486       $34,291       $35,747

    Net income available to
     common stockholders -
      basic and diluted      $15,882     $12,882       $34,291       $26,680

    Earnings per share:
      Class L common stock -
       basic                   $2.57       $3.10         $5.07         $5.84
      Class L common stock -
       diluted                 $2.57       $3.09         $5.06         $5.83

      Common stock - basic     $0.20       $0.05         $0.49         $0.17
      Common stock - diluted   $0.18       $0.05         $0.43         $0.15


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


                                                           December 28, 2003
                                      June 13, 2004              (Note)
    (In thousands)
    Assets
    Current assets:
        Cash and cash equivalents        $51,303                 $42,852
        Accounts receivable               67,136                  64,571
        Inventories                       20,541                  19,480
        Advertising fund assets,
         restricted                       22,929                  30,544
        Other assets                      20,716                  25,555
    Total current assets                 182,625                 183,002

    Property, plant and equipment, net   131,636                 127,067

    Other assets                         135,196                 138,506

    Total assets                        $449,457                $448,575

    Liabilities and stockholders' deficit
    Current liabilities:
        Current portion of long-term debt   $306                 $18,572
        Accounts payable                  49,485                  53,388
        Advertising fund liabilities      22,929                  30,544
        Other accrued liabilities         77,406                  81,759
    Total current liabilities            150,126                 184,263

    Long-term liabilities:
        Long-term debt, less current
         portion                         928,905                 941,165
        Other accrued liabilities         47,114                  41,110
    Total long-term liabilities          976,019                 982,275

    Total stockholders' deficit         (676,688)               (717,963)

    Total liabilities and
     stockholders' deficit              $449,457                $448,575

Note: The balance sheet at December 28, 2003 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

SOURCE Domino's Pizza, Inc.

CONTACT: Lynn Liddle, Executive Vice President of Communications and Investor Relations
of Domino's Pizza, Inc.,734-930-3008
Web site: http://www.dominos.com