Domino’s Pizza Announces First Quarter 2017 Financial Results

ANN ARBOR, Mich., April 27, 2017 (hospitalitybusinessnews.com) — Domino’s Pizza, Inc., the recognized world leader in pizza delivery, today announced results for the first quarter of 2017, comprised of strong growth in same store sales, global store counts and earnings per share. Domestic same store sales grew 10.2% during the quarter versus the year-ago period, which represents the 24th consecutive quarter of positive sales momentum in the Company’s domestic business. The international division also posted strong results, with same store sales growth of 4.3% during the quarter, marking the 93rd  consecutive quarter of positive international same store sales growth. The Company had global net store growth of 189 stores in the quarter, comprised of 28 net new domestic stores and 161 net new stores internationally. The Company has added 1,308 net new stores over the trailing four quarters.

Diluted EPS was $1.26 for the first quarter, which was up 41.6% over the Company’s diluted EPS in the prior year quarter. This increase resulted from outstanding operational results as well as the adoption of a new accounting standard.

During the quarter, the Company repurchased 80,360 shares of its common stock for approximately $12.7 million. The Company’s Board of Directors also declared a 46-cent per share quarterly dividend for shareholders of record as of June 15, 2017, to be paid on June 30, 2017.

“It was a great start to 2017, as momentum continued with solid growth in our international business, and our third consecutive quarter of double-digit same store sales growth in the U.S.,” said J. Patrick Doyle, Domino’s President and Chief Executive Officer. “The ultimate measure of customer satisfaction is more customers choosing to do business with you.  The growth we are experiencing – both in store counts and customer visits – is a reflection of great commitment and execution by our franchisees and team members.”

First Quarter Highlights:

(dollars in millions, except per share data) First Quarter
of 2017
First Quarter
of 2016
Net income $ 62.5 $ 45.5
Weighted average diluted shares 49,706,023 51,230,604
Diluted earnings per share* $ 1.26 $ 0.89
*In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09), which required the Company to record excess tax benefits from equity-based compensation as a reduction of the provision for income taxes in the income statement, whereas they were previously recognized in equity. See the “Adoption of New Accounting Guidance” section below for additional information.

 

  • Revenues were up 15.8% for the first quarter versus the prior year period, due primarily to higher supply chain revenues from increased volumes and store growth. Increased domestic franchise and Company-owned store revenues and higher international revenues resulting from both same store sales and store count growth also contributed to this increase.
  • Net Income increased 37.4% for the first quarter versus the prior year period, primarily driven by an increase in same store sales growth and store count as well as higher supply chain volumes and lower food costs. The adoption of the new equity-based compensation accounting standard also positively impacted net income. These increases were partially offset by higher general and administrative expenses from investments in technological initiatives as well as the negative impact of foreign currency exchange rates.
  • Diluted EPS was $1.26 for the first quarter versus 89 cents in the prior year quarter. This represents a 37-cent or 41.6% increase over the prior year quarter. This increase was driven by the increase in net income, as well as lower diluted share count, primarily as a result of the share repurchases made during the trailing four quarters.

The table below outlines certain statistical measures utilized by the Company to analyze its performance.  Refer to the Comments on Regulation G section on page three for additional details.

First

Quarter of

2017

First

Quarter of

2016

Same store sales growth: (versus prior year period)
Domestic Company-owned stores + 14.1 % + 4.0 %
Domestic franchise stores +   9.8 % + 6.6 %
Domestic stores + 10.2 % + 6.4 %
International stores (excluding foreign currency impact) +   4.3 % + 7.9 %
Global retail sales growth: (versus prior year period)
Domestic stores + 13.4 % + 7.9 %
International stores + 13.0 % + 6.7 %
Total + 13.2 % + 7.3 %
Global retail sales growth: (versus prior year period,

excluding foreign currency impact)

Domestic stores + 13.4 % + 7.9 %
International stores + 17.0 % + 15.4 %
Total + 15.2 % + 11.7 %

 

Domestic

Company-

owned Stores

Domestic

Franchise

Stores

Total

Domestic

Stores

International

Stores

Total
Store counts:
Store count at January 1, 2017 392 4,979 5,371 8,440 13,811
Openings 2 27 29 175 204
Closings (1) (1) (14) (15)
Transfers 1 (1)
Store count at March 26, 2017 395 5,004 5,399 8,601 14,000
First quarter 2017 net change 3 25 28 161 189
Trailing four quarters net change 10 173 183 1,125 1,308

Adoption of New Accounting Guidance

The Company adopted ASU 2016-09 in the first quarter of 2017. This standard addresses the accounting for income taxes and forfeitures and the cash flow presentation of share-based compensation. The adoption resulted in a $6.5 million decrease in our first quarter 2017 provision for income taxes, or a 7.2 percentage point decrease in our first quarter 2017 effective tax rate, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards in the first quarter of 2017. This item positively impacted our diluted EPS by approximately 13 cents in the first quarter of 2017. Refer to the Company’s Form 10-Q for the quarter ended March 26, 2017 for additional detailed information regarding the impact of the adoption of ASU 2016-09.

Share Repurchases

During the first quarter of 2017, the Company repurchased and retired 80,360 shares of its common stock under its open market share repurchase program for approximately $12.7 million, or an average price of $158.30 per share. As of March 26, 2017, the end of the first quarter, the Company had a total remaining authorized amount for share repurchases of $136.4 million.

Liquidity

As of March 26, 2017, the Company had approximately:

  • $52.1 million of unrestricted cash and cash equivalents;
  • $2.18 billion in total debt; and
  • $80.7 million of available borrowings under its $125.0 million variable funding notes, net of letters of credit issued of $44.3 million. The Company has collateralized $44.0 million of these letters of credit with restricted cash, and has the ability to access this cash with minimal notice.

The Company invested $12.4 million in capital expenditures during the first quarter of 2017, versus $10.5 million in the first quarter of 2016. Free cash flow, as reconciled below to cash flows from operations as determined under generally accepted accounting principles (GAAP), was approximately $73.2 million in the first quarter of 2017.

(in thousands) First Quarter

of 2017

Net cash provided by operating activities $ 85,693
Capital expenditures (12,444)
Free cash flow $ 73,249

Comments on Regulation G

In addition to the GAAP financial measures set forth in this press release, the Company has included non-GAAP financial measures within the meaning of Regulation G. The Company has also included metrics such as global retail sales growth and same store sales growth, which are commonly used statistical measures 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. The Company believes global retail sales information is useful in analyzing revenues because franchisees pay royalties that are based on a percentage of franchise retail sales. The Company reviews comparable industry global retail sales information to assess business trends and to track the growth of the Domino’s Pizza® brand. In addition, supply chain revenues are directly impacted by changes in 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,” which is calculated by 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 excluding foreign currency impacts, which reflect changes in international local currency sales.

The Company uses “Free cash flow,” which is calculated as cash flows from operations less capital expenditures, both as reported under GAAP. The Company believes that the free cash flow measure is important to investors and other interested persons, and that such persons benefit from having a measure which communicates how much cash flow is available for working capital needs or to be used for repurchasing debt, making acquisitions, repurchasing common stock, paying dividends or other similar uses of cash.

About Domino’s Pizza®

Founded in 1960, Domino’s Pizza is the recognized world leader in pizza delivery, with a significant business in carryout pizza. It ranks among the world’s top public restaurant brands with a global enterprise of 14,000 stores in over 85 international markets. Domino’s had global retail sales of nearly $10.9 billion in 2016, with more than $5.3 billion in the U.S. and more than $5.5 billion internationally. In the first quarter of 2017, Domino’s had global retail sales of nearly $2.7 billion, with over $1.3 billion in the U.S. and nearly $1.4 billion internationally. Its system is comprised of independent franchise owners who accounted for over 97% of Domino’s stores as of the first quarter of 2017. Emphasis on technology innovation helped Domino’s reach an estimated $5.6 billion in global digital sales in 2016, and has produced several innovative ordering platforms, including Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and text message using a pizza emoji. In late 2015, Domino’s announced the design and launch of the DXP®, a purpose-built pizza delivery vehicle, as well as Piece of the Pie Rewards™, its first digital customer loyalty program.

 

Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Fiscal Quarter Ended
March 26,

2017

% of

Total

Revenues

March 27,

2016

% of

Total

Revenues

(In thousands, except per share data)
Revenues:
Domestic Company-owned stores $ 113,545 $ 96,443
Domestic franchise 79,901 68,151
Supply chain 388,553 335,695
International franchise 42,218 38,886
Total revenues 624,217 100.0 % 539,175 100.0 %
Cost of sales:
Domestic Company-owned stores 87,184 72,755
Supply chain 343,217 299,204
Total cost of sales 430,401 69.0 % 371,959 69.0 %
Operating margin 193,816 31.0 % 167,216 31.0 %
General and administrative 77,782 12.4 % 68,504 12.7 %
Income from operations 116,034 18.6 % 98,712 18.3 %
Interest expense, net (25,520) (4.1) % (25,870) (4.8) %
Income before provision for income taxes 90,514 14.5 % 72,842 13.5 %
Provision for income taxes 28,045 4.5 % 27,391 5.1 %
Net income $ 62,469 10.0 % $ 45,451 8.4 %
Earnings per share:
Common stock – diluted $ 1.26 $ 0.89
Dividends declared per share $ 0.46 $ 0.38

 

 

Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 26, 2017 January 1, 2017
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 52,094 $ 42,815
Restricted cash and cash equivalents 165,666 126,496
Accounts receivable 150,931 150,369
Inventories 38,326 40,181
Advertising fund assets, restricted 105,078 118,377
Prepaid expenses and other 16,541 17,635
Total current assets 528,636 495,873
Property, plant and equipment, net 137,824 138,534
Other assets 76,002 81,888
Total assets $ 742,462 $ 716,295
Liabilities and stockholders’ deficit
Current liabilities:
Current portion of long-term debt $ 300 $ 38,887
Accounts payable 110,245 111,510
Dividends payable 22,485 619
Advertising fund liabilities 105,078 118,377
Other accrued liabilities 131,332 134,305
Total current liabilities 369,440 403,698
Long-term liabilities:
Long-term debt, less current portion 2,179,258 2,148,990
Other accrued liabilities 47,455 46,750
Total long-term liabilities 2,226,713 2,195,740
Total stockholders’ deficit (1,853,691) (1,883,143)
Total liabilities and stockholders’ deficit $ 742,462 $ 716,295

 

 

Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Fiscal Quarter Ended
March 26,

2017

March 27,

2016

(In thousands)
Cash flows from operating activities:
Net income $ 62,469 $ 45,451
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 9,498 8,221
Losses on sale/disposal of assets 182 86
Amortization of debt issuance costs 1,400 1,660
Provision for deferred income taxes 6,232 4,397
Non-cash compensation expense 5,220 4,898
Other (52) 135
Excess tax benefits from equity-based compensation (6,498) (31,896)
Changes in operating assets and liabilities 7,242 (15,804)
Net cash provided by operating activities 85,693 17,148
Cash flows from investing activities:
Capital expenditures (12,444) (10,486)
Proceeds from sale of assets 779 1,742
Changes in restricted cash (39,170) 26,817
Other 544 (587)
Net cash provided by (used in) investing activities (50,291) 17,486
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations (9,718) (27,459)
Proceeds from exercise of stock options 1,433 9,182
Excess tax benefits from equity-based compensation 31,896
Purchases of common stock (12,721)
Tax payments for restricted stock upon vesting (4,896) (3,036)
Payments of common stock dividends and equivalents (253) (164)
Net cash provided by (used in) financing activities (26,155) 10,419
Effect of exchange rate changes on cash and cash equivalents 32 (250)
Change in cash and cash equivalents 9,279 44,803
Cash and cash equivalents, at beginning of period 42,815 133,449
Cash and cash equivalents, at end of period $ 52,094 $ 178,252

 

 

 

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