Domino's Pizza Announces Third Quarter 2006 Results
ANN ARBOR, Mich., Oct. 12 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the third quarter ended September 10, 2006. Diluted EPS was $0.39, including a $0.04 per share benefit relating to a gain on the sale of Company-owned operations in France and the Netherlands, up 30% from year ago levels. Although domestic same store sales were weakened by lighter consumer traffic, international same store sales grew 3% from the prior year period. This marked the Company's 51st consecutive quarter of international same store sales growth.
Third Quarter Highlights:
(dollars in millions, except per share data) Third Quarter Third Quarter
of 2006 of 2005
Revenues $326.7 $337.6
Net income $24.5 $20.3
Weighted average diluted shares 63,405,773 68,226,744
Diluted earnings per share $0.39 $0.30
* Revenues were down 3.2% for the third quarter compared to the prior year period, due primarily to lower domestic distribution revenues. Distribution revenues decreased 3.6% because of lower food prices, primarily cheese, and lower volumes due to a decrease in domestic franchise same store sales. The average cheese block price per pound was $1.19 in the third quarter of 2006, down 19.6% from $1.48 in the third quarter of 2005. Revenues from international operations decreased 8.4% due primarily to the sale of Company-owned operations in France and the Netherlands to an existing master franchisee.
* Net income was up 20.9% for the third quarter compared to the prior year period, driven primarily by strong performance in the Company's international business and gains recognized on the sale of certain Company- owned operations.
* Diluted EPS was $0.39 for the third quarter, up 30% from the prior year period, driven by both an increase in net income and a reduction in diluted shares outstanding. The reduction in diluted share count was due primarily to the Company's previously reported $145.0 million share repurchase which occurred in the first quarter of 2006.
David A. Brandon, Domino's Chairman and Chief Executive Officer, commented on the Company's third quarter performance: "This quarter is another example of the resiliency of our business model and the way we perform during sluggish sales cycles. Our domestic business operated in a significantly weaker sales environment than expected. We experienced negative traffic counts for most of the quarter and we did not achieve consistent positive sales results across our domestic system of stores."
Brandon continued, "Our goal will always be to grow our sales regardless of external factors, but we were not able to accomplish this during the third quarter. However, we were able to maintain strong earnings growth despite our weaker-than-expected same store sales. We continue to benefit from the growth of our international business, and the cost-management programs we have implemented throughout our business units."
Brandon concluded, "Overall, our company is strong and continues to grow. Our consistent earnings growth and strong cash flows are the best measures of the health of our business. Our global retail sales were up during the quarter as compared to a very strong quarter a year ago. We believe the current sluggish domestic sales environment will improve ... and when it does, we are in a very strong position to take advantage of the opportunities it will create for Domino's Pizza."
Third Third
Quarter Quarter
of 2006 of 2005
Same store sales growth (versus prior year period)
Domestic Company-owned stores (2.3)% +4.2%
Domestic franchise stores (3.2)% +0.7%
Domestic stores (3.1)% +1.1%
International stores +3.0% +4.5%
Global retail sales growth (versus prior year period)
Domestic stores (1.3)% +3.3%
International stores +11.5% +17.7%
Total +3.1% +7.8%
* The decrease in domestic same store sales was due primarily to stronger promotion performance and related higher same store sales in the prior year.
* The 3.0% increase in international same store sales marks the 51st consecutive quarter of positive international same store sales growth.
* Global retail sales increases were driven primarily by increases in international same store sales and worldwide store counts.
Domestic Domestic Total
Company-owned Franchise Domestic International
Stores Stores Stores Stores Total
Store counts
Store count at
June 18, 2006 577 4,526 5,103 3,087 8,190
Openings - 21 21 65 86
Closings - (24) (24) (14) (38)
Transfers (12) 12 - - -
Store count at
September 10,
2006 565 4,535 5,100 3,138 8,238
Third quarter
net growth (12) 9 (3) 51 48
First three
quarters net
growth (16) 24 8 151 159
Trailing four
quarters net
growth (9) 83 74 219 293
Conference Call Information
The Company plans to file its quarterly report on Form 10-Q this morning. Additionally, as previously announced, Domino's Pizza, Inc. will hold a conference call today at 10 a.m. (Eastern) to review its third quarter 2006 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 http://www.dominos.com . If you are unable to participate on the call, a replay will be available through midnight November 12, 2006 by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International), Conference ID 3420123. The web cast will be archived for 30 days on http://www.dominos.com .
Company Sells Operations in France and the Netherlands
During the second quarter of 2006, the Company signed a stock purchase agreement to sell its Company-owned operations in France and the Netherlands to its master franchisee for Australia and New Zealand. The sale closed in the third quarter. During the third quarter, the Company recognized a gain of approximately $2.8 million (or approximately 4 cents per share) related to the sale. The gain was included in general and administrative expenses. During the second quarter of 2006, the Company recorded a $2.9 million tax benefit as it was apparent that it would realize a benefit resulting from tax losses to be realized upon the sale of these operations.
Company Sells 11 Domestic Company-owned Stores
During the third quarter of 2006, the Company sold 11 domestic Company- owned stores to an existing franchisee. The sale resulted in a pre-tax gain of approximately $0.7 million.
Liquidity
As of September 10, 2006, the Company had:
* $740.9 million in total debt,
* $11.0 million of cash and cash equivalents, and
* borrowings of $92.9 million available under its $125.0 million
revolving credit facility (net of letters of credit issued of $32.1
million.)
The Company has repaid $95.2 million of debt year-to-date, including $50.1 million in the third quarter. The Company also borrowed $100.0 million in the first quarter which, along with cash from operations, was used to repurchase and retire $145.0 million of common stock from its largest shareholder.
The Company's average borrowing rate for the third quarter of 2006 was 6.6%. The Company is not required to make the next scheduled senior credit facility principal payment of $1.2 million until September 30, 2007 and is not required to make principal payments on its senior subordinated notes until 2011.
The Company incurred $14.8 million in capital expenditures during the first three quarters of 2006 versus $20.7 million during the first three quarters of 2005. The decrease was due primarily to increased spending in 2005 related to the renovation of the Company's headquarters.
Comments on Regulation G
In addition to the GAAP financial measures set forth in this Press Release, the Company has included certain non-GAAP financial measures within the meaning of Regulation G, including metrics commonly used in the quick- service restaurant industry that are important to understanding Company performance.
The Company uses "Global retail sales" to refer to total worldwide retail sales at Company-owned and franchise stores. 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, distribution 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 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
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 8,238 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 $5.0 billion in 2005, comprised of $3.3 billion domestically and $1.7 billion internationally. During the third quarter of 2006, the Domino's Pizza(R) brand had global retail sales of approximately $1.2 billion, comprised of more than $700 million domestically and more than $400 million 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)." 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:
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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: 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 Domino's and other food-industry competitors; the ongoing profitability of our franchisees and the ability of Domino's and our franchisees to open new restaurants; 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 Domino's financial and other results is included in the Company's filings 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.
TABLES TO FOLLOW
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Fiscal Quarter Ended
September 10, % of September 11, % of
2006 Total 2005 Total
Revenues Revenues
(In thousands,
except per share data)
Revenues:
Domestic Company-owned
stores $89,284 $91,024
Domestic franchise 35,696 35,914
Domestic distribution 175,531 182,085
International 26,158 28,553
Total revenues 326,669 100.0% 337,576 100.0%
Cost of sales:
Domestic Company-owned
stores 71,785 71,784
Domestic distribution 157,070 164,430
International 12,035 14,850
Total cost of sales 240,890 73.7% 251,064 74.4%
Operating margin 85,779 26.3% 86,512 25.6%
General and administrative 35,066 10.7% 41,992 12.4%
Income from operations 50,713 15.6% 44,520 13.2%
Interest expense, net 13,219 4.1% 11,591 3.4%
Income before provision for
income taxes 37,494 11.5% 32,929 9.8%
Provision for income taxes 12,970 4.0% 12,645 3.8%
Net income $24,524 7.5% $20,284 6.0%
Earnings per share - diluted $0.39 $0.30
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three Fiscal Quarters Ended
September 10, % of September 11, % of
2006 Total 2005 Total
Revenues Revenues
(In thousands,
except per share data)
Revenues:
Domestic Company-owned
stores $275,987 $280,923
Domestic franchise 109,588 112,384
Domestic distribution 527,967 572,127
International 88,523 88,764
Total revenues 1,002,065 100.0% 1,054,198 100.0%
Cost of sales:
Domestic Company-owned
stores 218,221 223,017
Domestic distribution 471,317 516,753
International 43,688 46,504
Total cost of sales 733,226 73.2% 786,274 74.6%
Operating margin 268,839 26.8% 267,924 25.4%
General and administrative 117,836 11.8% 127,207 12.1%
Income from operations 151,003 15.0% 140,717 13.3%
Interest expense, net 37,704 3.7% 32,479 3.0%
Income before provision for
income taxes 113,299 11.3% 108,238 10.3%
Provision for income taxes 38,117 3.8% 40,152 3.8%
Net income $75,182 7.5% $68,086 6.5%
Earnings per share - diluted $1.16 $0.99
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 10, 2006 January 1, 2006
(In thousands) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $11,043 $66,919
Accounts receivable 66,553 74,437
Inventories 19,108 24,231
Advertising fund assets,
restricted 23,060 35,643
Other assets 18,074 20,116
Total current assets 137,838 221,346
Property, plant and equipment,
net 120,862 131,455
Other assets 100,949 108,273
Total assets $359,649 $461,074
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term
debt $279 $35,304
Accounts payable 55,301 60,330
Advertising fund liabilities 23,060 35,643
Other accrued liabilities 79,189 86,108
Total current liabilities 157,829 217,385
Long-term liabilities:
Long-term debt, less current
portion 740,656 702,358
Other accrued liabilities 53,599 52,316
Total long-term liabilities 794,255 754,674
Total stockholders' deficit (592,435) (510,985)
Total liabilities and stockholders'
deficit $359,649 $461,074
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Fiscal Quarters Ended
September 10, September 11,
2006 2005
(In thousands)
Cash flows from operating activities:
Net income $75,182 $68,086
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization 22,390 22,240
Amortization of deferred financing costs
and debt discount 2,568 2,057
Provision (benefit) for deferred
income taxes (2,570) 1,281
Non-cash compensation expense 3,412 1,984
Other (3,832) 1,368
Changes in operating assets and
liabilities (7,034) (5,941)
Net cash provided by operating activities 90,116 91,075
Cash flows from investing activities:
Capital expenditures (14,794) (20,692)
Proceeds from sale of property, plant
and equipment 12,974 2,672
Other 73 (678)
Net cash used in investing activities (1,747) (18,698)
Cash flows from financing activities:
Repurchase of common stock (145,000) (75,000)
Proceeds from issuance of long-term debt 100,000 40,000
Repayments of long-term debt and capital
lease obligation (95,194) (65,220)
Common stock dividends (14,875) (13,512)
Tax benefit from exercise of stock options 4,112 17,814
Other 6,657 4,828
Net cash used in financing activities (144,300) (91,090)
Effect of exchange rate changes on cash and
cash equivalents 55 219
Decrease in cash and cash equivalents (55,876) (18,494)
Cash and cash equivalents, at beginning
of period 66,919 40,396
Cash and cash equivalents, at end of period $11,043 $21,902
SOURCE Domino's Pizza, Inc.
-0- 10/12/2006
/CONTACT: Lynn Liddle, Executive Vice President, Communications and
Investor Relations of Domino's Pizza, Inc., +1-734-930-3008/
/Web site: http://www.dominos.com /
(DPZ)
CO: Domino's Pizza, Inc.
ST: Michigan
IN: RST
SU: ERN CCA
TH
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6768 10/12/2006 07:00 EDT http://www.prnewswire.com