10-Q
false0001286681Q12020DOMINOS PIZZA INC--01-03The balance sheet at December 29, 2019 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. 0001286681 2019-12-30 2020-03-22 0001286681 2020-03-22 0001286681 2019-12-29 0001286681 2018-12-31 2019-03-24 0001286681 2018-12-31 2019-12-29 0001286681 2020-04-16 0001286681 2018-12-30 0001286681 2019-03-24 0001286681 us-gaap:FairValueInputsLevel1Member 2020-03-22 0001286681 dpz:ClassA-2-IISeriesOneFourPointFourSevenFourPercentageFixedRateSeniorSecuredNoteMember 2020-03-22 0001286681 dpz:ClassA2IiSeriesOneThreePointZeroEightTwoPercentageFixedRateSeniorSecuredNotesMember 2020-03-22 0001286681 dpz:ClassA2IiiSeriesOneFourPointOneOneEightPercentageFixedRateSeniorSecuredNotesMember 2020-03-22 0001286681 dpz:TwoThousandSeventeenFiveYearFloatingRateNotesMember 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2019-03-24 iso4217:USD xbrli:shares xbrli:pure iso4217:USD xbrli:shares
SECURITIES AND EXCHANGE COMMISSION
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 22, 2020
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number:
001-32242
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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30 Frank Lloyd Wright Drive |
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(Address of Principal Executive Offices) |
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Domino’s Pizza, Inc. Common Stock, $0.01 par value |
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Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
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☒ |
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Smaller reporting company |
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☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes
☐
No
☒As of April 16, 2020, Domino’s Pizza, Inc. had 39,117,878 shares of common stock, par value $0.01 per share, outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash and cash equivalents |
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Prepaid expenses and other |
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Advertising fund assets, restricted |
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Property, plant and equipment: |
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Leasehold and other improvements |
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Accumulated depreciation and amortization |
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) |
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) |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Capitalized software, net |
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$ |
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$ |
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Liabilities and stockholders’ deficit |
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Current portion of long-term debt |
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$ |
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$ |
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Operating lease liabilities |
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Advertising fund liabilities |
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Other accrued liabilities |
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Total current liabilities |
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Long-term debt, less current portion |
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Operating lease liabilities |
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Other accrued liabilities |
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Total long-term liabilities |
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Additional paid-in capital |
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) |
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) |
Accumulated other comprehensive loss |
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) |
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) |
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Total stockholders’ deficit |
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) |
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) |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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(1) |
The balance sheet at December 29, 2019 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. |
The accompanying notes are an integral part of these condensed consolidated statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
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(In thousands, except per share data) |
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U.S. Company-owned stores |
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$ |
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$ |
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U.S. franchise royalties and fees |
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International franchise royalties and fees |
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U.S. franchise advertising |
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U.S. Company-owned stores |
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General and administrative |
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U.S. franchise advertising |
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) |
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) |
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Income before (benefit) provision for income taxes |
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(Benefit) provision for income taxes |
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) |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
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$ |
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$ |
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Currency translation adjustment |
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) |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
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Cash flows from operating activities: |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating |
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Depreciation and amortization |
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Loss on sale/disposal of assets |
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Amortization of debt issuance costs |
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Provision for deferred income taxes |
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Non-cash compensation expense |
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Excess tax benefits from equity-based compensation |
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) |
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Provision for losses on accounts and notes receivable |
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Changes in operating assets and liabilities |
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) |
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Changes in advertising fund assets and liabilities, restricted |
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) |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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) |
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) |
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) |
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Net cash used in investing activities |
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) |
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) |
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Cash flows from financing activities: |
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Repayments of long-term debt and finance lease obligations |
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) |
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Proceeds from exercise of stock options |
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Purchases of common stock |
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) |
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Tax payments for restricted stock upon vesting |
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) |
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Payments of common stock dividends and equivalents |
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) |
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) |
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Net cash used in financing activities |
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) |
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) |
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Effect of exchange rate changes on cash |
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) |
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Change in cash and cash equivalents, restricted cash and cash equivalents |
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) |
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Cash and cash equivalents, beginning of period |
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Restricted cash and cash equivalents, beginning of period |
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Cash and cash equivalents included in advertising fund assets, restricted, beginning of period |
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Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period |
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Cash and cash equivalents, end of period |
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Restricted cash and cash equivalents, end of period |
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|
|
|
Cash and cash equivalents included in advertising fund assets, restricted, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
Domino’s Pizza, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands, except percentages, share and per share amounts)
1. Basis of Presentation and Updates to Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form
10-Q
and Rule
10-01
of Regulation
S-X.
Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended December 29, 2019 included in the Company’s 2019 Annual Report on Form
10-K,
filed with the Securities and Exchange Commission on February 20, 2020 (the “2019 Form
10-K”).
In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter ended March 22, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 3, 202
1
.
Updates to Significant Accounting Policies
The Company adopted Accounting Standards Codification 326,
Financial Instruments – Credit Losses
(“ASC 326”) in the first quarter of 2020. As a result, the Company updated its significant accounting policies for the measurement of credit losses below. Refer to Note
9
for
information related
the impact of the adoption of ASC 326 on the Company’s condensed consolidated financial statements.
Allowances for Credit Losses
The Company closely monitors accounts and notes receivable balances and estimates the allowance for credit losses. These estimates are based on historical collection experience and other factors, including those related to current market conditions and events. The Company’s allowance
s
for accounts and notes receivable have not historically been material.
The Company also monitors its
off-balance
sheet exposures under its letters of credit, surety bonds and lease guarantees. None of these arrangements has or is likely to have a material effect on the Company’s results of operations, financial condition, revenues, expenses or liquidity.
The following table summarizes revenues, income from operations and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which the Company refers to as Segment Income, for each of its reportable segments.
|
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|
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|
|
|
|
|
|
Fiscal Quarters Ended March 22, 2020 and March 24, 2019 |
|
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|
|
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|
|
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|
|
|
|
|
|
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|
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|
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|
|
$ |
|
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|
$ |
|
|
|
$ |
|
|
|
$ |
|
) |
|
$ |
|
|
|
$ |
|
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) |
|
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|
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|
|
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|
|
|
|
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|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
) |
|
|
|
|
The following table reconciles Total Segment Income to consolidated income before (benefit) provision for income taxes.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Depreciation and amortization |
|
|
|
) |
|
|
|
) |
Loss on sale/disposal of assets |
|
|
|
) |
|
|
|
) |
Non-cash compensation expense |
|
|
|
) |
|
|
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
) |
|
|
|
) |
|
|
|
|
|
|
|
|
|
Income before (benefit) provision for income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders - basic and diluted |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares |
|
|
|
|
|
|
|
|
Earnings per share – basic |
|
$ |
|
|
|
$ |
|
|
Diluted weighted average number of shares |
|
|
|
|
|
|
|
|
Earnings per share – diluted |
|
$ |
|
|
|
$ |
|
|
The denominator used in calculating diluted earnings per share for the first quarter of 2020 does not include 128,280 options to purchase common stock as the effect of including these options would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2020 does not include 84,765 restricted performance shares, as the performance targets for these awards had not yet been met.
The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 71,880 options to purchase common stock as the effect of including these options would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 1,800 shares subject to restricted stock awards, as the effect of including these shares would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 96,712 restricted performance shares, as the performance targets for these awards had not yet been met.
The following table summarizes changes in stockholders’ deficit for the first quarter of 2020.
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
) |
|
$ |
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common stock and equivalents ($0.78 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(30,442 |
) |
|
|
— |
|
Issuance and cancellation of stock awards, net |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax payments for restricted stock upon vesting |
|
|
|
) |
|
|
|
|
|
|
|
) |
|
|
|
|
|
|
|
|
Purchases of common stock |
|
|
|
) |
|
|
|
) |
|
|
|
) |
|
|
|
) |
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC 326 (Note 9 ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 22, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
) |
|
$ |
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to the first quarter, on April 21, 2020, the Company’s Board of Directors declared a $0.78 per share quarterly dividend on its outstanding common stock for shareholders of record as of June 15, 2020 to be paid on June 30, 2020.
The following table summarizes changes in stockholders’ deficit for the first quarter of 2019.
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
) |
|
$ |
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common stock and equivalents ($0.65 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
) |
|
|
|
|
Issuance and cancellation of stock awards, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax payments for restricted stock upon vesting |
|
|
|
) |
|
|
|
|
|
|
|
) |
|
|
|
|
|
|
|
|
Purchases of common stock |
|
|
|
) |
|
|
|
|
|
|
|
) |
|
|
|
) |
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 24, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
) |
|
$ |
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Fair Value Measurements
Fair value measurements enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The fair values of the Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets. The following tables summarize the carrying amounts and fair values of certain assets at March 22, 2020 and December 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Estimated Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Restricted cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising fund cash equivalents, restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Estimated Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Restricted cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising fund cash equivalents, restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management estimated the approximate fair values of the 2015 fixed rate notes, the 2017 fixed and floating rate notes, the 2018 fixed rate notes and the 2019 fixed rate notes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Ten-Year Fixed Rate Notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
2017 Five-Year Fixed Rate Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Ten-Year Fixed Rate Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Five-Year Floating Rate Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 7.5-Year Fixed Rate Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 9.25-Year Fixed Rate Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Ten-Year Fixed Rate Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s variable funding notes are a variable rate loan and the fair value of this loan approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. This fair value represents a Level 2 measurement. The Company did
not have any outstanding borrowings under its variable funding notes at March 22, 2020 or December 29, 2019. Subsequent to the first quarter of 2020, the Company borrowed $
158.0 million under its variable funding notes
.
The fair values in the table above represent the fair value of such notes at March 22, 2020 and December 29, 2019. In light of the
pandemic (discussed further in Note 10), these fair values fluctuated significantly during the first quarter and may continue to fluctuate based on market conditions and other factors.
The fixed and floating rate notes are classified as Level 2 measurements, as the Company estimates the fair value amount by using available market information. The Company obtained quotes from two separate brokerage firms that are knowledgeable about the Company’s fixed and floating rate notes and, at times, trade these notes. The Company also performed its own internal analysis based on the information gathered from public markets, including information on notes that are similar to those of the Company. However, considerable judgment is required to interpret market data to estimate fair value. Accordingly, the fair value estimates presented are not necessarily indicative of the amount that the Company or the debtholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values stated above.
Contract liabilities
primarily
consist of deferred franchise fees and deferred development fees. Changes in deferred franchise fees and deferred development fees for the first quarter of 2020 and the first quarter of 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred franchise fees and deferred development fees at beginning of period |
|
$ |
|
|
|
$ |
|
|
Revenue recognized during the period |
|
|
|
) |
|
|
|
) |
New deferrals due to cash received and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred franchise fees and deferred development fees at end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
As of March 22, 2020, advertising fund assets, restricted of $110.0 million consisted of $88.2 million of cash and cash equivalents, $19.5 million of accounts receivable and $2.3 million of prepaid expenses. As of March 22, 2020, advertising fund cash, cash equivalents and investments included $3.2 million of cash contributed from Company-owned stores that had not yet been expended.
As of December 29, 2019, advertising fund assets, restricted of $105.4 million consisted of $84.0 million of cash and cash equivalents, $15.3 million of accounts receivable and $6.1 million of prepaid expenses. As of December 29, 2019, advertising fund cash and cash equivalents included $3.5 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
The Company leases certain retail store and supply chain center locations, supply chain vehicles and its corporate headquarters with expiration dates through 2041.
The components of operating and finance lease cost for the first quarter of 2020 and the first quarter of 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
|
|
|
|
|
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Rent expense totaled $
16.4 million
in both the first quarter of 2020 and the first quarter of 2019, and includes operating lease cost, as well as expense for
non-lease
components including common area maintenance, real estate taxes and insurance for the Company’s real estate leases. Rent expense also includes the variable rate per mile driven and fixed maintenance charges for the Company’s supply chain center tractors and trailers and expense for short-term rentals. Variable rent expense and rent expense for short-term leases were immaterial in both the first quarter of 2020 and the first quarter of 2019.
Supplemental balance sheet information related to the Company’s finance leases as of March 22, 2020 and December 29, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Accumulated depreciation and amortization |
|
|
|
) |
|
|
|
) |
|
|
|
|
|
|
|
|
|
Finance lease assets, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
|
|
Long-term debt, less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal payable on finance leases |
|
$ |
|
|
|
$ |
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As of March 22, 2020 and December 29, 2019, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:
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Weighted average remaining lease term |
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Weighted average discount rate |
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% |
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% |
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% |
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% |
Supplemental cash flow information related to leases for the first quarter of 2020 and the first quarter of 2019 was as follows:
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from operating leases |
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$ |
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$ |
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Operating cash flows from finance leases |
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Financing cash flows from finance leases |
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Right-of-use assets obtained in exchange for lease obligations: |
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Maturities of lease liabilities as of March 22, 2020 were as follows:
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$ |
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$ |
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Total future minimum rental commitments |
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Less – amounts representing interest |
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) |
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) |
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$ |
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$ |
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As of March 22, 2020, the Company has additional leases for two supply chain centers and certain supply chain tractors and trailers that had not yet commenced with estimated future minimum rental commitments of approximately $68.6 million. These leases are expected to commence in 2020 with lease terms of up to 21 years.
One of the supply chain center leases commenced in the second quarter of 2020. These undiscounted amounts are not included in the table above.
The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees was $
15.8 million as of March 22, 2020. The Company does not believe these arrangements have or are likely to have a material effect on its results of operations, financial condition, revenues
,
expenses or liquidity.
8
. Supplemental Disclosures of Cash Flow Information
The Company had
non-cash
investing activities related to accruals for capital expenditures of $
3.4 million at March 22, 2020 and $
6.9 million at December 29, 2019.
9
. New Accounting Pronouncements
Recently Adopted Accounting Standard
ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326)
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. ASC 326 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this standard as of December 30, 2019, the first day of its 2020 fiscal year, using the modified retrospective approach and it did not have a material impact on its condensed consolidated financial statements.
The effects of the changes made to the Company’s condensed consolidated balance sheet as of December 30, 2019 for the adoption of ASC 326 were as follows:
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Balance at December 29, 2019 |
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Balance at December 30, 2019 |
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$ |
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$ |
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$ |
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Prepaid expenses and other |
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) |
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Liabilities and stockholders’ deficit |
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) |
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) |
The Company recognized the cumulative effect of initially applying ASC 326 as an adjustment to the opening balance of retained deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for that period. An adjustment to beginning retained deficit and a corresponding adjustment to the allowance for doubtful accounts and notes receivable of approximately $1.5 million was recorded on the date of adoption, representing the remeasurement of these accounts to Company’s estimate for current expected credit losses. The adjustment to beginning retained deficit was also net of a $0.4 million adjustment to deferred income taxes.
Accounting Standards Not Yet Adopted
The Company has considered all new accounting standards issued by the FASB. The Company has not yet completed its assessment of the following standard.
ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes (Topic 740)
In December 2019, the FASB issued
Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12)
, which simplifies the accounting for income taxes. ASU
2019-12
is effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In December 2019, a novel coronavirus disease
(“COVID-19”)
was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the
COVID-19
threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized
COVID-19
as a pandemic. While the Company did not incur significant disruptions to its operations during the first quarter of 2020 from COVID-19, it is unable at this time to predict the impact that COVID-19 will have on its business, financial position and operating results in future periods due to numerous uncertainties and is closely monitoring the impact of the pandemic on all aspects of its business.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Unaudited; tabular amounts in millions, except percentages and store data)
The 2020 and 2019 first quarters referenced herein represent the twelve-week periods ended March 22, 2020 and March 24, 2019.
Domino’s is the largest pizza company in the world based on global retail sales, with more than 17,000 locations in over 90 markets around the world. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Domino’s generates revenues and earnings by charging royalties and fees to our independent franchisees. The Company also generates revenues and earnings by selling food, equipment and supplies to franchisees primarily in the U.S. and Canada, and by operating a number of our own stores in the U.S. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza
®
brand to master franchisees. These master franchisees are charged with developing their geographical area, and they can profit by
sub-franchising
and selling ingredients and equipment to those
sub-franchisees,
as well as by running pizza stores directly. We believe that everyone in the system can benefit, including the end consumer, who can feed their family Domino’s menu items conveniently and economically.
Our financial results are driven largely by retail sales at our franchise and Company-owned stores. Changes in retail sales are driven by changes in same store sales and store counts. We monitor both of these metrics very closely, as they directly impact our revenues and profits, and we strive to consistently increase both metrics. Retail sales drive royalty payments from franchisees, as well as Company-owned store and supply chain revenues. Retail sales are primarily impacted by the strength of the Domino’s Pizza
®
brand, the results of our extensive advertising through various media channels, the impact of technological innovation and digital ordering, our ability to execute our strong and proven business model and the overall global economic environment.
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Global retail sales growth (versus prior year period, excluding foreign currency impact) |
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% |
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% |
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Same store sales growth (1): |
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U.S. Company-owned stores |
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% |
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% |
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% |
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% |
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% |
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% |
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International stores (excluding foreign currency impact) |
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% |
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% |
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Store counts (at end of period): |
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