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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 . 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 .

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.

    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

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 .


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

                                        Fiscal Quarter Ended
                              September 10,  % of   September 11,  % of
                                  2006       Total      2005       Total
                                           Revenues              Revenues
    (In thousands,
     except per share data)
       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

                                       Three Fiscal Quarters Ended
                              September 10,  % of   September 11,  % of
                                  2006       Total      2005       Total
                                           Revenues              Revenues
    (In thousands,
     except per share data)
       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)
    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

                                                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: /

CO:  Domino's Pizza, Inc.
ST:  Michigan

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