SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 28, 2008
Domino’s Pizza, Inc.
(Exact name of registrant as specified in its charter)
Commission file number:
001-32242
| Delaware | 38-2511577 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
30 Frank Lloyd Wright Drive
Ann Arbor, Michigan 48106
(Address of principal executive offices)
(734) 930-3030
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 7.01. | Regulation FD Disclosure. |
As previously announced, the Company plans to hold the Domino’s Pizza 2008 Investor Day at 9:00 a.m. Eastern Time on October 28, 2008. A copy of the presentation materials to be used for the conference are attached hereto and furnished as Exhibit 99.1.
| Item 9.01. | Financial Statements and Exhibits |
| (c) | Exhibits |
| Exhibit |
Description | |
| 99.1 | Domino’s Pizza, Inc. Investor conference presentation materials. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| DOMINO’S PIZZA, INC. (Registrant) | ||||
| Date: October 28, 2008 | /s/ Wendy A. Beck | |||
| Wendy A. Beck | ||||
| Chief Financial Officer | ||||
 Domino’s Pizza Investor Day 2008 Domino’s Pizza Leadership Team October 28, 2008 Exhibit 99.1 |
 Forward-Looking Statements 2 This presentation and our accompanying comments may contain “forward-looking
statements.” These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance or achievements
to differ materially from these expressed or implied by these
forward-looking statements. Although we believe that the expectations
reflected in the forward- looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements.
We caution you not to place undue reliance on forward-looking
statements, which reflect our analysis only and speak only as of the date of
this presentation. We undertake no obligation to update the forward- looking statements to reflect subsequent events or circumstances. This presentation contains trade names, trademarks and service marks of other companies. We do not intend our use or display of other parties’ trade names, trademarks and service marks to imply a relationship with, or endorsement or sponsorship of, these other parties. 2 |
 Today’s Agenda A Context: When the “Game Began to Change” The Turnaround Plan – Our Current Position 2009 and Beyond… Supply Chain Costs – a Range of Possibilities Q&A Lunch: New Store Concept and Test Product Review Financial Overview Q&A International – Master Franchisee Perspective Q&A Closing |
 A
Context: When the “Game Began to Change” Domino’s Pizza 2005 – 2008 David A. Brandon Chairman & CEO |
 Pizza
Industry Traffic & Check 5 Percent Change vs. Year Ago Essentially a 6-Year Negative Trend -1.5% -2.4% -4.5% 2.6% 3.0% 1.7% 3.8% 3.3% 0.5% 0.0% -1.5% 2.5% 2002 2003 2004 2005 2006 2007 Party Check Transactions Source: The NPD Group/CREST |
 6 7% -2% 4% -3% -1% 5% -1% 2% 1% 4% 0% -2% Party Check Transactions Percent Change vs. Year Ago 2002 2003 2004 2005 2006 2007 Source: The NPD Group/CREST Domino’s Pizza Traffic & Check |
 Domino’s Overview – Circa 2005 National Marketing was driving strong results Franchisee attitudes and behavior The results of our environment and strategy – Store growth – Strong unit economics – Heavy reliance on national promotions / marketing – National Advertising Fund growth |
 Marketing Spend 8 National (TV – Print PR) Co-Op (Spot TV – Radio – Print) Local (Box-toppers, local sponsorships) 3% of sales in 2004 4% of sales in 2005 5% of sales in 2006 5% of sales in 2007 4% of sales in 2008 Avg. 2.3% of sales in ‘04 Avg. 1.5% of sales in ‘05 Avg. 0.5% of sales in ‘06 Avg. 0.5% of sales in ‘07 Avg. 2% of sales in ‘08 Store by store decision Averages 3% - 5% of sales Highly dependent on franchisee resources and confidence |
 History of National Promotions Q1 Q2 Q3 Q4 Full Year - Weeks of National TV 2008 BFD & Brooklyn/Philly (5.2%) Comp 444 Promotion (5.1%) Comp Gotham City Pizza (6.1%) Comp Oven-Baked Sandwiches 20 2007 Cheesy Garlic Bread Pizza (2.9%) Comp Brooklyn/Philly & 555 promotion 2.1% Comp Philly/Brooklyn & 1 week of Oreo (1.6%) Comp 3 weeks Oreo & Crispy Melt Pizza (3.5%) Comp 29 2006 Spectacular Sevens/555 Deal (3.8%) Comp XLP one-topping $9.99 (4.9%) Comp Super Six Mix & Brownies (2 wks) (3.1%) Comp Brownies & Brooklyn Pizza (4.4%) Comp 38 2005 555 Deal 11.2% Comp Cheeseburger Pizza
6.9% Comp 555 Deal 1.1% Comp Steak Fanatics Pizza 1.7% Comp 34 2004 $.99 Cheesy Dots w/large 1 topping (0.9%) Comp Philly Cheese Steak Pizza 2.1% Comp 555 Deal 8.0% Comp Doublemelt Pizza (0.2%) Comp 25 |
 Learning from the Past: 2005 10 Strategy & Tactics – “555” became a sub-brand of Domino’s Pizza – Low cost delivered pizza option – VARIETY and VALUE – Drove ticket and traffic – Other (LTO) promotions drove only ticket Implications – Traffic decline was happening, but not for DPZ due to the success of “555” – Part of success was securing another national roll-up from franchisees for 2006 Jan/Feb/March April May/June July/August Sept/Oct Nov/Dec Oct |
 Learning From the Past: 2006 Strategy & Tactics – Knew rolling ’05 comps would be tough – Had more national TV weeks (38 vs. 34) – Pursued aggressive ticket growth strategy (through LTO/bundles) – Delivery charges were rolling out fast Implications – Bad test reads and bad market timing • 555 success skewed tests from the previous year • Missed the consumer (ticket too high – too fast) – Bundles drove ticket, but traffic fell at a faster rate (LTOs underperformed) – Secured another roll-up from franchisees for 2007 – Delivery charge (“consumer tax”) - further negative traffic pressure Feb/Mar Jan/Feb Apr/May May/June June/July August Aug/Sept Nov/Dec Oct 11 |
 Learning from the Past: 2007 Strategy & Tactics – Rolling weak comps (9 less TV weeks due to media inflation/alternative media investments) – Continued with LTO promotions – national events dominated calendar – Local store marketing (LSM) campaigns were most successful • Q2 positive comps – Increased prices (both menu and delivery) during year as costs rose Implications – LTO events didn’t drive traffic – The steadily-rising ticket was weakening traffic more – Comps were weak – the system was relying on national promotions that weren’t working – no roll-up for 2008! 12 Nov Feb/Mar Jan April May June July Oct Sept July/Aug Nov/Dec |
 Back
to the Present: 2008 13 Strategy & Tactics – “You Got 30” message – heavy reliance on LSM – “Chased” value message based on consumer malaise (BFD failure led to 444 promotion launch) – Started attacking traffic issue (sandwich tests and roll-out) – Stepped-up R&D – get out of LTOs and into menu/day part expansion Implications To-Date – “You Got 30” message didn’t change trends – 444 message performed OK, but didn’t sustain traffic growth – Fewer weeks on TV – competitors gained “share of voice” advantage – Sandwiches growing traffic after years of decline Feb Jan. Feb/Mar Mar/Apr Apr/May May/June July Gotham City Pizza $9.99 |
 The Consequences: Franchisee Reactions 2005: Happiness! Love the roll-up Signed up for increased roll-up in 2006 National marketing doing much of the “work” Costs “in check” – making lots of money! 14 |
 2006: What Happened? Must be a blip…rolling over tough comps Costs are moving…but store economics still good Let’s “give Ann Arbor another chance” – Rolled-up again for 2007 – Less local spending/activity The Consequences: Franchisee Reactions 15 |
 2007: What the Hell Happened? National promotions “don’t work any more” Less money for Ann Arbor for 2008 (no roll-up) Some increase in local store marketing Environment getting tougher – increasing costs are a major problem! The Consequences: Franchisee Reactions 16 |
 2008: When will it End? Agency / client learning curve Reduced share of voice – Less weeks on national TV than in many years! Continued traffic declines and tremendous cost inflation “No matter what I do, it isn’t working” – store level economics lousy Hope on the horizon – promising test products and new media strategy (no more LTOs!) The Consequences: Franchisee Reactions 17 |
 The
Consequences: Store Growth Total 2001 2002 2003 2004 2005 (’01-’05) DPZ U.S. Store Count 4,813 4,848 4,904 5,008 5,092 +279 Pizza Hut Store Count 6,569 6,503 6,400 6,306 6,254 -315 Papa John’s Store Count 2,589 2,585 2,574 2,565 2,599 +10 18 Historically Steady Growth |
 Consequences: Store Growth DPZ U.S. Open Close Net 2005 172 88 84 2006 126 75 51 2007 138 126 12 2008 (through Q3) 71 140 (69) 19 Growth declined as sales declined |
 Consequences: Unit Economics Squeezed Sales Declines Profits Squeezed Higher Minimum Wage Higher Food Cost Lower Traffic Higher Delivery Cost Decreasing Advertising 20 |
     Consequences: Unit Economics Historically Now • Growing Sales • Low Cost Volatility • High ROI • Good stores sold at lower multiples • Bad stores sold at “fire-sale” rates • More upside potential than ever $150-$250K to build Bargains available |
 What
We’ve Learned… Traffic growth is key – bring excitement back to Domino’s Pizza – Sustainable, organic growth – Today’s traffic = tomorrow’s same-store sales results LTOs don’t drive sustained traffic – Need product platforms, not “product-of-the-month” – Need day part expansion Need timely consumer insight and strategic response – Delivery charge “management” – Better pricing model (“barbell”) – Menu strategy 22 |
 The
2008 Turnaround Plan Patrick Doyle President, Domino’s USA |
 Traffic Builder – Near Term New product appeal New day part 24 |
 Sandwiches Results from Test Drove strong traffic and increased sales 40% of sandwich orders included a pizza Sandwiches increased customer frequency by 30% – Improves the overall profitability of each customer Sandwiches skewed towards carry-out (better margins) Sandwich customers reported: – High product satisfaction – High repurchase intent – Better perception of Domino’s 25 |
 Sandwiches – National Roll-Out Results from the first couple of weeks show that: – Traffic is strong – the best results in over a year – Early sales results promising – Sandwiches are over 20% of mix – Still skewing towards carry-out (especially at lunch) – 40% of sandwich orders include a pizza – Driving strong lunch sales (but we’re also selling a lot at dinner) – So far, national results are coming in close to test results 26 |
 Menu
Strategy: New Product Platforms Value – Large party, small party & carry out Premium – Local Legends Day part / menu expansion / variety – sandwiches & pasta Core pizza – improve! Ticket – Desserts, sides and beverage Online – Enabler for broader menu, higher ticket 27 |
 Menu
Strategy New Product Platforms Pasta Perfecta Local Legends Three Cheese Mac-n-Cheese Italian Sausage Marinara Chicken Alfredo Chicken Carbonara Pasta Primavera Philly Cheese Steak Honolulu Hawaiian Memphis Barbecue Chicken Cali Chicken Bacon Ranch Pacific Coast Veggie Buffalo Chicken Pizza 28 |
 Menu
Strategy New Product Platforms Ready-To-Go Chicken Traditional and boneless Six sauce flavors Only in select stores Three hot-hold, ready-to-go items 29 |
 Improve Current Product Improved core pizza product – Dough – Sauce – Cheese – Toppings Respect the Food 30 |
 More
Advertising Asking franchisees for a roll-up in national advertising
Looking at options for partnership funding Enough advertising to support all product and promotional initiatives 31 |
 32 Average Ticket Per Eater Year Ending 2007 Source: The NPD Group/CREST Pizza Delivery Charge + Tip $3- 4 +19% +15% +13% 32 +17% Pricing: Perception vs. Reality $4.20 $4.76 $5.72 $6.57 $8.21 $10.00 $5.14 $6.20 0 2 4 6 8 10 2001 2002 2003 2004 2005 2006 2007 Total QSR QSR Pizza Pizza Delivery - Party of 2 Pizza Delivery - Party of 4 |
 Pricing Lessons: “$-Eye” Don’t over-price the single pie Don’t increase delivery charge too much Cull down coupons Expand day part (lunch, late night) Leverage online ordering 33 |
 34 “A,” “B” and “F” Franchisees’ YTD Stats “A” Franchisees “B” Franchisees “F” Franchisees Franchisees 143 829 247 Stores 933 2895 644 Avg. Stores/Fran 6.5 3.5 2.5 2008 AWUS YTD 13,460 11,311 9,412 2008 PCYA -5.0% -5.9% -8.5% 2008 DOT % 77.3% 76.3% 75.5% |
 35 Store Development & Recruitment On track to open 100 -120 stores (125 opened in 2007) 70 new franchisees in the system YTD (vs. 93 for full year 2007) 58 potential franchisees have attended Discovery Day Plans are in place to save and transfer as many at-risk stores as possible |
 U.S.
Store Growth Expectations Open 100 to 120 Close 225 to 250 Net -100 to -150 Bill Kapp leading financial effort – Working to prevent closures – Even A’s and B’s struggling to finance purchases in past few weeks Transition to store growth driven by sales growth 36 |
 Prefer Quality vs. Quantity Gulfport Vision 20/20 store 37 |
 2009 and Beyond |
 39 Russell Weiner, CMO Domino’s and Michigan: my new home! “Classically-trained marketer” – Consumer brands (Pepsi, Phillip Morris) – Company and agency side General management – Large projects, large teams, agency relationships Collaborative philosophy – Attracts talent and drives results |
 Why
I’m Here The Domino’s team The Domino’s brand Upside potential! Can make a difference Karma 40 |
 The
next 90 days… 41 Forge a Lighthouse Identity for the Domino’s brand – Grounded in consumer insights – Informed by our past and inspired by the future Lighthouse drives brand decisions – Store design – Advertising & Communications – Innovation |
 Innovation Philosophy… 42 Long-Term Approach • 30 days and 30 years Quality, Quality, Quality! • We’re delivery. We’re service. We’re 30 minutes… AND the FOOD is great • Deliciously Fast Born out of a rational business need…Developed with an emotional POV that makes it uniquely Domino’s Drive incremental growth and profitability |
 Our
Vision for the Menu Then and Now (Handouts) 43 |
 Operators of the Future Closer to 5+ stores on average per franchisee All “A” and “B” franchisees No “F” franchisees Targeted exceptions for external franchisees 44 |
 Team
USA of the Future Contribute more EBITDA Test platforms People pipeline 45 |
 Maintain & Grow Stores Same store sales increases...leverage “the four walls” Targeted real estate improvements Focus on struggling stores during tough times Grow as business improves 46 |
 Future Unit Economics Need to assume that costs won’t dramatically change – Minimum wage increases staying – Commodities might flatten, might not – Delivery costs probably won’t improve – If costs decrease, we have upside The way we will strengthen unit economics is to grow the top line – “Grow your way to greatness” 47 |
 Commodities and Costs David Mounts, EVP Supply Chain |
 Q3
2008 Update Commodities tough, but… a better outlook – Domino’s commodity index – Domino’s food basket Holy cow… what’s up with cheese? What we’re doing about it 49 |
 Commodities Update – External Real Time 50 Date Cheese Pork Boxes Wheat Wings Sauce Beef Diesel/Fuel Electric Kickers Natural Gas October 17, 2008 $1.79 $0.88 127.7 $6.40 $1.04 $63.00 $0.91 $77.46 $61.60 $1.29 $6.79 10 Yr Average $1.41 $0.82 97.16 $3.95 $0.87 $53.22 $0.79 $39.01 $62.19 $0.88 $5.35 Unit USD / Pound USD / Pound Index USD / Bushel USD / Pound USD / Pound USD / Barrel USD / MWh USD / Pound USD / MMBTU Ten Year Average Domino's Commodity Index - 10 Year 60.00 80.00 100.00 120.00 140.00 160.00 180.00 200.00 DCI 10 Year Avg. of DCI |
 Commodities –
Last Two Years, Ugh. Why??? 51 Domino's Commodity Index - 2 Year 60.00 80.00 100.00 120.00 140.00 160.00 180.00 200.00 DCI 2 Year Avg. of DCI |
 Crude (blue) vs. Corn Futures Commodities - Energy and Food For 8 of 10 Years Not Correlated 52 |
 But
Then Corn Correlated Two Years And Corn Leads Beef, Pork, Chicken, Soy, Wheat Crude (blue) vs. Corn Futures 53 |
 Q3
Culprits – Fuel on Everything Cheese Stayed High and… Kickers $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 Chicken Beef $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 Beef Sauce* $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 Paperboard 0 20 40 60 80 100 120 140 Sauce Boxes 54 |
 Commodities – Internal Food Basket Core Products Fixed or Contract Pizza Cheese Dough and Crust Chicken Wings Floating Fuel Sauce Vegetables Meats Boxes 55 |
 An indication of food cost to store Hypothetical store - $10K/week AWUS Heavily influenced by price of cheese Cheese and dough are approximately 50% of the price of the basket Competitive comparison quarterly Commodities – Internal Food Basket 56 |
 Price
Basket - Trending 2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000 1 2 3 4 5 6 7 8 9 10 11 12 13 Period 2005 2006 2007 2008 Cheese Inc. - $147 Cheese Inc. - $165 Dough Inc. – Phased in P1 & P2 Wing ‘K’ ends – inc. $55 Cheese inc. $87 Cheese Inc. - $108 Box ‘K’, P&P, Meat Inc. – Total of $48 Cheese Inc. - $106 57 |
 Increases of DCI and Food Basket 2006 2007 YTD 2008 DCI (1.74) (1.53%) 24.82 21.85% 47.01 41.39% Food Basket ($83.85) (2.73%) $230.10 7.48% $499.25 16.23% Increase over 2005 58 |
 3 Party Price Comparison 3 Qtr Differences Competitor 1 9.15% Competitor 2 15.50% Competitor 3 10.71% 59 rd rd |
 Holy
Cow…What’s Up With Cheese? Not moving with oil Supply / demand tight in dairy, particularly cheese International prices above U.S. – strong foreign demand Butter has not carried its weight until recently High farm input prices for feed – Causing liquidations and productivity reductions 60 |
 Holy
Cow…What’s Up With Cheese? Summer High gas and other high prices decreased domestic demand Milk flowed into cheese and powder increasing supply International buying then picked up Fall Seasonal school milk tightened domestic demand Cheese buyers replenished inventories, increasing demand 61 |
 Holy
Cow…What’s Up With Cheese? This just in: Global financial crisis impacting key drivers – High export demand – High farm cost Global demand softening International supply increasing International prices have dropped, reducing exports of cheddar Two forecasts for 2009 Soft demand $1.50 – $1.60 Moderate demand $1.70 – $1.80 Sources: USDA, Leprino, IAG 62 |
 What
are We Doing About all This? 63 New contract strategies: – Better supply contracts – Locked in prices via forwards – End-to-end price and logistics savings New operating efficiencies: – Drove fewer miles – Used less fuel – More efficient warehouses |
 Panel Q&A |
 What’s Next? Lunch! Brandon Solano, VP Brand Innovation Vision 20/20 store New product operations Sampling test products at our “chef’s table” in the test kitchen – Taste products that have been or are in test – Not guaranteed to roll out nationally Brand strategy at work! 65 |
 Web-cast Break for Lunch Back Around 1:15 p.m. EST |
 Financial Overview Wendy Beck, CFO |
 Agenda Asset Backed Securitization (ABS) ABS 101 Revolver Liquidity Free Cash Flow Operational considerations Labor & Product Mix Foreign currency impacts Long Range Outlook 68 68 |
 ABS
Facility – Key Terms $1.6B Senior ABS debt – 5.961% cash interest rate $0.1B Subordinated debt – 7.629% cash interest rate $1.7B Total funded debt – 6.059% cash interest rate $150M revolver facility Senior debt wrapped with insurance “Full-company securitization” secured with most cash flows of the company Fixed rate with no amortization for 5 years Two possible 1-year extensions 69 |
 ABS
Time Line 70 70 April 16, 2007 - $1.7 billion ABS Debt Facility funded • 6.06% fixed cash interest rate • Also includes $150 million unfunded revolver April 16, 2014 – Maturity if both 1-year extensions exercised If not refinanced after 5 or 7 years: • 30-Year Legal Maturity • 100% of cash flow beyond servicing fee amortizes April 16, 2012 – 5-year expected maturity, • Extensions likely to be more attractive than refinancing 5 Yrs 7 Yrs 1 Yr 30 Yrs 70 October 28, 2008 – Investor Day, 1 year and 6 months after ABS |
 ABS
Waterfall 71 |
 Debt
Service Coverage Ratio (DSCR) – Defined as Collections / Senior Interest Expense – Collections cannot be calculated using publicly-disclosed information, but it tracks closest to EBITDA – EBITDA performance would need to drop by $65 - $75M annually before first trigger is reached – Triggers: Est EBITDA % of water- Trigger drop fall trapped (*) First $65-$75M 25% Second
$75-$85M 50% Third $95-$105M 100% – (*) Waterfall is after interest and minimal G&A service fee 72 72 |
 ABS
DSCR Extreme Stress Test 73 2009 Assumptions: – Domestic Net Store Growth (500) – Domestic Same Store Sales Growth (10%) Results: – Our DSCR still exceeds the first trigger |
 Current Credit Markets - Insurers Bond insurers have experienced credit issues – MBIA and Ambac wrapped our ABS debt facility Insurer Impact on Domino’s – Insurers’ troubles do not impact our current debt facility or debt costs – Availability of future ABS-type debt facility diminished in current economic climate 74 74 |
 Current Credit Markets – Revolver Lenders 75 75 In Q4, one of Domino’s lenders declared bankruptcy – Lender’s troubles do not impact our current senior or subordinated debt or debt costs – Our revolver is likely impacted, though – However, we do NOT need the revolver for operating needs |
 Revolver Revolver facility – Original Capacity $150.0mm – Capacity Lost ($90.0mm) – Current Capacity $60.0mm – Less: LCs outstanding ($38.3mm) – Total Currently Available $21.7mm Letters of Credit (LCs): unfunded commitments pledged to insurance companies or lessors Current LCs: $ 31.2M self-insurance reserves, $7.1M for supply chain center leases and other 76 |
 Liquidity Main source is, and has always been, our free cash flow We generate FCF of over $1M per week, on average (please see chart on next page) We have unrestricted cash of $20.1M at the end of Q3 The current revolver, as well as previous revolver facilities, have not been used for working capital needs, but instead for dividend payments and opportunistic share repurchases We are exploring alternative sources of liquidity for maximum flexibility but, again, we do not need the revolver for operating needs 77 |
 Domino’s Free Cash Flow • Free Cash Flow = cash flow from operations minus CapEx • 2005-2007 are pro-forma to reflect the current debt level 78 $77 $81 $54 $65 2005 PF 2006 PF 2007 PF LTM Q3 2008 Domino's Free Cash Flow ($ millions) |
 Uses
of Free Cash Flow 79 Return of Capital Share Repurchases Dividend Payments Debt Repayments Reinvest in the Business |
 Debt
& Liquidity Summary Comfortable with our capital structure and terms
of our ABS debt facility Debt facility with: – 6.06% fixed interest rates – A 5-year term with two 1-year extensions Business model with low cash needs that generates strong operating cash flow 80 80 |
 Operational Considerations: Minimum Wage Impact Most corporate markets had 2008 and 2009 increases: Min. Rate 2007 2008 2009 – Fed Min Wage $5.85 $6.55 $7.25 – Florida $6.67 $6.90 $7.25 – Minnesota $6.15 $6.55 $7.25 – Arizona $6.75 $6.90 $7.25 – North Carolina $6.15 $6.55 $7.25 – Maryland $6.15 $6.55 $7.25 Expected cost increase in 2008 and 2009 is about 1% of sales each year, assuming no other changes 81 |
 Operational Considerations: Food Cost Comparison Lowest to Highest Food Cost % Bread Pizza Pasta Chicken Sandwich Beverage 82 |
 Foreign Currency Impact International royalties are earned in local currencies When the U.S. dollar strengthens, we receive fewer U.S. dollars for the same amount of local currency Currency has helped us to a limited extent the last several years, as the U.S. dollar has weakened This impact has turned negative for the 4 quarter, as the U.S. dollar has strengthened 83 th |
 Impact for Our Major Currencies = Weaker $ is Favorable to DPII EBITDA 84 2008 Full Year Projected vs. 2007 2009 Projected vs. 2007 British Pound Euro Mexican Peso Canadian Dollar Australian Dollar Japanese Yen Korean Won = Flat = Stronger $ is Unfavorable to DPII EBITDA * See safe harbor statement relating to forward-looking statements
|
 Foreign Currency Impact 85 Q4 2008 FX rates are estimated using consensus forecasts taken October 13, 2008
FX rates are volatile and further changes will impact results Year-Over Year Figures in $ millions, except per-share data 2008 Q3 2008 Q4 YE 2008 YTD Forecast Forecast 2009 Gross Royalty Sales Impact $71.0 ($78.3) ($7.3) Revenues Impact $1.5 ($2.2) ($0.7) Estimated Dilutes EPS $0.02 ($0.02) ($0.01) ? |
 86 Long Range Outlook & Possibilities • Long Range Outlook and Possibilities do not constitute specific earnings guidance. Domino’s does not provide quarterly or annual earnings estimates. See safe harbor statement relating to forward
looking statements. Long Range Bull Middle Bear Outlook Case Case Case Top Line Growth - Domestic Same Store Sales +1% to +3% 5% 2% -2% - International Same Store Sales +3% to +5% 6% 4% 2% - Net Units 200 to 250 300 150 -50 Domestic 0 -100 -250 International 300 250 200 - Global Retail Sales +4% to 6% 7% 4% 0% 2009 Possibilities |
 Q&A |
 Domino’s Pizza Michael Lawton EVP Domino’s Pizza International |
 89 International – A Big Piece of the Pie Represented 3,469 stores across 60 markets¹ – 3-year store count CAGR of 8.1% Accounted for over 40% of global retail sales – Posted $2.2 billion in Retail Sales in 2007 – 3-year retail sales CAGR of 15%² Made up 30% of DPZ operating income³ In 2007, Domino’s International Division… ¹ Store count as of YE 2007 ² International Retail Sales CAGR from 2004 - 2007 ³ Based on adjusted operating income from 2007 |
 90 Q3 2008 marks the 59 consecutive quarter of positive same store sales th |
 91 International Leadership with Significant Upside ¹ Based on 2007 YE total store count ² Potential store count based on Domino’s Pizza International estimates Top 10 Markets YE 2007 Delivery
Market Stores Position Potential Store Count Mexico 566 #1 700 United Kingdom 467 #1 900 Australia 405 #1 550 South Korea 289 #3 350 Canada 277 #3 400 Japan 180 #3 700 India 176 #1 400 Taiwan 122 #2 150 France 121 #1 700 Turkey 84 #1 300 TOTAL 2,687 5,150 |
 92 Market Highlights Smaller markets: Greece and Israel – Greece reached critical mass and began TV ads for the first time – Israel is growing phenomenally lately and Domino’s is the #1 pizza brand in the country Medium-sized markets: Malaysia and Saudi Arabia
– Domino’s stores in Malaysia are expanding outside of Kuala Lumpur – 46 stores in Saudi Arabia as sales continue to grow |
 93 Market Highlights Continued success: France, Netherlands and India
– France recently began advertising on TV Up and coming market: Brazil – Strong growth from new partners – Building more stores - currently in Rio and São Paulo is next target New market: Indonesia, Qatar and Shanghai – First store in Jakarta opened in August |
 Continuing Success: 2008 Milestones! 750 Stores operated by Domino’s Pizza Enterprises (Australia, New Zealand, Netherlands, France, Belgium) 94 300 Stores operated by Domino’s Pizza Korea 200 Stores operated by Domino’s Pizza India 100 Stores operated by Domino’s Pizza Turkey |
 95 25 Anniversary of Domino’s Pizza International th |
 96 Michael Berkman – Grupo Mozzarella International Area Franchisee Domino’s Pizza International Franchisee since 1993 Began career as sub-franchisee for ALSEA in Mexico – Became the largest sub-franchisee in Mexico Michael is now the Master Franchisee for Panama, Costa Rica and Honduras Joint Venture with the Master Franchisee of Peru Clipped the ribbon on the 3,000 th international store |
 Domino’s Pizza Michael Berkman – Grupo Mozzarella |
 Agenda Grupo Mozzarella - Current Status How Did We Get There? Maintaining One Brand, One System Continuing Success Q&A 98 |
 Grupo
Mozzarella Where We Are Today 99 |
 International Master Franchise Model 100 DPZ Ann Arbor, Michigan Master Franchisee: ALSEA Distribution System Corporate Stores Sub- Franchise Stores (Grupo Mozzarella) Royalty Royalty Store Profits Distribution System Profits Where Grupo Mozzarella Started |
 International Master Franchise Model 101 DPZ Ann Arbor, Michigan Master Franchisee: Grupo Mozzarella Distribution System Corporate Stores Royalty Store Profits Distribution System Profits Where Grupo Mozzarella is Today |
 o 1993: Sub-franchised first store in Mexico from ALSEA • Quickly became the top sales store in Mexico o 1996: Opened stores in two Wal-Mart stores • First Domino’s stores in Mexico to open inside another retail outlet o 1997: El Rosario store joins Domino’s Million Dollar Club o 2000: Opens first store outside of Mexico City o 2004: Becomes Mexico’s biggest sub-franchise with 27 stores o 2005: ALSEA purchases all of Grupo Mozzarella’s stores Grupo Mozzarella - How it All Began 102 |
 Grupo Mozzarella Mexico Yearly Sales 1993 – 1998 ($ in Millions) 1995 1996 1997 1998 $2.6 $4.2 $4.8 1994 1993 $.45 $1.4 $6.8 210% 89% 61% 14% 42% 103 |
 2001 2002 2003 2004 $9.3 $9.6 $11.4 2000 1999 $7.3 $8.2 $13.3 13% 13% 3% 18% 17% 7% 104 And the Success Continued… Yearly Sales 1999 – 2004 ($ in Millions) |
 How
Did We Do It? People – Robust training for all Managers, Customer Service Representatives, Pizza Makers and Drivers – Strong relationships with suppliers, customers and the community Intense focus on a quality product Service: store operations built around 30-minute guarantee Investment in the new store image, computer systems and store-owned motorcycles. 105 |
 Grupo Mozzarella’s Move to Central and South America Panama – 1989: First Domino’s store opens in Panama – 2005: Grupo Mozarella enters Panama and opens the sixth store – 2008: Plans to open the 11 store by year end Costa Rica – 1996: First Domino’s Pizza store opens in Costa Rica – 2006: Grupo Mozzarella enters Costa Rica and shortly opens the eighth and ninth stores in the country 106 th |
 Grupo Mozzarella’s Move to Central and South America Peru – 1992: First store opens in Peru – 2006: Grupo Mozarella enters into a Joint Venture with the Bolona Family – 2008: Operating 21 stores in Peru Honduras – 1987: First ever Domino’s Pizza store opens in Latin America – 2008: Grupo Mozarella enters Honduras with plans to open stores number 10 and 11 in 2009 11 |
 Market Opportunity - Panama 108 Republic of Panama – Population of 3.4 Million Panama Economics – Dollarized Economy – 37% below poverty line and 6.4% unemployment Economic activities: banking, Panama Canal, construction and tourism Competition – Pizza Hut, Tamburelli, Leonardos and Sbarro |
 Market Opportunity - Costa Rica Republic of Costa Rica – Population of 4.5 Million…..smaller than West Virginia! Costa Rican Economics: – 13% devaluation of currency, the Colon, in 2008 – 16% below poverty line and 4.6% unemployment Economic activities: agriculture, call centers and tourism Competition – Pizza Hut, 2X1 Pizza and Papa John’s 109 |
 Market Opportunity - Honduras 110 Republic of Honduras – Population of 7.4 Million – Tegucigalpa– 1.2 Million Honduras Economics: – Currency is the Lempiras – 50% below poverty line and 27% unemployment Primary economic activities: agriculture (coffee) and tourism Competition – Pizza Hut, Little Caesar’s and Sbarro |
 Grupo Mozzarella in Panama Annual Sales ($ in millions) 2005 2006 2007 2008 $1.9 $2.5 $3.1 $4.8 32% 21% 56% $1.1 71% 2004 111 |
 Grupo Mozzarella in Costa Rica Annual Sales ($ millions) 2005 2006 2007 2008 $1.7 $2.2 $2.4 $2.8 25% 9.5% 18.9% $1.4 22% 2004 112 |
 Grupo Mozzarella in Honduras Annual Sales ($ millions) 2005 2006 2007 2008 $1.5 $1.7 $2.5 $2.8 16% 48% 12% $1.2 17% 2004 113 |
 8,000 Domino’s Pizza Store Opening January 2006 Grupo Mozzarella clipped the ribbon on the 3,000 international store in Panama City – 5,000 store in the U.S. opened simultaneously in Huntley, Illinois
Celebration included fireworks and a visit from Panama’s First Lady Kicked off a program, “Gracias, Panama” where Grupo Mozzarella donated 8,000 pizzas to local charities 114 th th th |
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 Best
Practices from Central America Local store marketing – Direct mail – Massive door hanging events Support system of strong area supervisors Focusing on financial results: sales and profits 116 |
 GRUPO MOZZARELLA CENTRAL AMERICA Stores before.... Grupo Mozzarella Stores Before Remodel 117 |
 GRUPO MOZZARELLA CENTRAL AMERICA New Image Grupo Mozzarella – New Image 118 |
 One
Brand – One System Same Core Strategy: – Focus on delivery Marketing: – Same brand, logo and consumer promise Operations: – Same layouts, training and people focus Quality Control: – Same core products across the globe – Conduct audits and approve local suppliers 119 |
 Localization Store Operations – Central American stores often have sit-down area • People in developing countries prefer dining out • Over 50% is carry-out or in-store dining business Local Product Adaptations – Crust, sauce and cheese remain the same as Domino’s U.S. – Toppings and side items, if they meet Domino’s specifications, are our local twist 120 |
 Teriyaki Pizza in Peru – Mozzarella Cheese – Peppers – Onions – Mushrooms – Chicken – Teriyaki Sauce 121 Local Product Adaptations |
 GRUPO MOZZARELLA CENTRAL AMERICA PROMOTIONS Recognize this Promotion? 122 |
 GRUPO MOZZARELA CENTRAL AMERICA PROMOTIONS “2X Tuesday” in the United States… “2X1 Everyday” Limited-Time Promotion in Costa Rica 123 |
 Continuing Success in Central America Change stores to the new Vision 20/20 image Optimize pricing Call Center (a single phone number for the region) Consolidate suppliers for more effective buys Streamline promotions between the Central American countries 124 |
 What’s Next for Grupo Mozzarella Store opening events – Company motorcycle caravans – Free pizzas to team members’ families – Mobil unit – Massive flyer distribution – Press Expanding to other countries – Currently a Joint Venture with Peru – Goal is to also be in El Salvador and Nicaragua Exciting promotions – Any pizza $7.99 - Panamá – 2X1 for 15 days - Costa Rica – Mega-Deal - Honduras 125 |
 Thank you! Questions? |