Domino's Pizza Announces Third Quarter 2007 Financial Results

ANN ARBOR, Mich., Oct. 16 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE:DPZ), the recognized world leader in pizza delivery, today announced results for the third quarter ended September 9, 2007. Net income was negatively impacted versus the prior year by increased interest expense as a result of higher borrowings under the Company's new debt facility and a continued challenging domestic environment. The International same store sales growth of 8.3% during the quarter, its highest in nearly three years, marked the 55th consecutive quarter of International same store sales growth.

    Highlights:
                              Third       Third      First Three   First Three
                            Quarter of  Quarter of   Quarters of   Quarters of
    (dollars in millions,     2007        2006          2007           2006
    except per share data)
    Net income                $11.0       $24.5        $21.7           $75.2

    Weighted average     63,971,505  63,405,773   64,534,801      64,856,318
     diluted shares

    Diluted earnings per      $0.17       $0.39        $0.34           $1.16
     share, as reported
    Items affecting              $-      $(0.04)       $0.49          $(0.09)
     comparability
     (see section below)
    Diluted earnings per      $0.17       $0.34        $0.82           $1.07
     share, as adjusted

    -- Net income was down 55.2% for the third quarter, driven primarily by
       increased interest expense from higher borrowings under the Company's
       new debt facility and, to a lesser extent, higher food costs and a
       decrease in distribution profits resulting from lower volumes.  This
       was offset in part by continued strong performance in international
       operations.

    -- Diluted EPS was $0.17 on an as-reported basis for the third quarter,
       down $0.22 from the as-reported amount in the prior year period.
       However, excluding items affecting comparability, diluted EPS declined
       $0.17, driven primarily by lower net income as described in more detail
       above.  The increase in ongoing interest expense under the Company's
       new debt facility resulted in a decrease in diluted EPS of
       approximately $0.13 in the third quarter and $0.23 in the first three
       quarters of 2007.  (See the Items Affecting Comparability section and
       the Comments on Regulation G section.)

                                              Third         Third
                                             Quarter       Quarter
                                             of 2007       of 2006
    Same store sales growth: (versus
     the prior year period)
      Domestic Company-owned stores          +  0.8 %       (2.3)%
      Domestic franchise stores                (2.0)%       (3.2)%
      Domestic stores                          (1.6)%       (3.1)%
      International stores                   +  8.3 %     +  3.0 %

    Global retail sales growth:
     (versus the prior year period)
      Domestic stores                          (0.4)%       (1.3)%
      International stores                   + 20.4 %     + 11.5 %
      Total                                  +  7.2 %     +  3.1 %


                         Domestic     Domestic    Total
                         Company-    Franchise   Domestic  International
                       owned Stores    Stores     Stores      Stores    Total

    Store counts:
      Store count at       567        4,561      5,128       3,321      8,449
       June 17, 2007
      Openings               1           32         33          67        100
      Closings              (2)         (23)       (25)        (14)       (39)
      Transfers             (1)           1          -           -          -
      Store count at       565        4,571      5,136       3,374      8,510
       September 9, 2007
      Third quarter         (2)          10          8          53         61
       2007 net growth
      Trailing four          -           36         36         236        272
       quarters net growth

David A. Brandon, Domino's Chairman and Chief Executive Officer, said: "Unprecedented cost pressures and a weak consumer environment negatively impacted our domestic results in the quarter, which made striking the right balance between increasing prices, while operating in a period of declining traffic, very difficult. Our Team USA stores did the best job of managing this challenge, and we continue to share our results and tactics with our franchise organization to assist and support them. We are not standing idly by while we face these challenges, as our recently-announced management changes and selection of a new creative agency demonstrate. The elevation of Patrick Doyle to President of Domino's U.S.A. is a great help to me as we bring intense focus to our domestic sales challenges. We're also very excited that our new creative agency, Crispin Porter + Bogusky, will bring some fresh advertising and unique perspective to our brand message going forward."

Brandon continued: "We are proud of our International division for leading the way with tremendous results and their best sales showing since the first quarter of 2005. We are clearly navigating through a very challenging period for our company. However, I believe the inherent strength of our highly- resilient business model; our new leadership structure; our new advertising agency; our strong international growth and expansion; and our culture of perseverance and doing what it takes to WIN will bode well for the future growth and success of our company."

The Company reported that its Board of Directors has approved moving forward on a three-year employment agreement for Dave Brandon through 2010 at its October 11th meeting. The Company and Mr. Brandon are in the process of negotiating the terms of that agreement.

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 11 a.m. (Eastern) to review its third quarter 2007 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 webcast at www.dominos.com. If you are unable to participate on the call, a replay will be available through midnight November 16, 2007 by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International), Conference ID 2474410. The webcast will be archived for 30 days on www.dominos.com.

Share Repurchases

As previously communicated, the Board of Directors approved an open market share repurchase program for up to $200 million of the Company's common stock. During the third quarter of 2007, the Company repurchased and retired approximately 1.1 million shares of its common stock under the open market share repurchase program for approximately $18.0 million, or an average price of $17.08 per share.

Items Affecting Comparability

The Company's reported financial results for the first three quarters of 2007 as well as the third quarter and first three quarters of 2006, included several items that affect the comparability to the reported financial results in the same periods in the prior year, including:

    (i)   the impact of the Company's re-capitalization, which was completed
          in April 2007,
    (ii)  the 2007 impact of the reserve recorded in the second quarter in
          connection with legal matters in California, and
    (iii) the 2006 impact of the sale of Company-owned France and Netherlands
          operations.

The table below presents the items that affect comparability between the 2007 and 2006 financial results. Management believes that disclosing the following information is critical to the understanding of our financial results for the third quarter and first three quarters of 2007 as compared to similar periods in 2006 (See the Comments on Regulation G section). In addition to the items noted in the table below, the Company's recapitalization had a significant impact on ongoing interest expense as a result of higher debt levels. This impacts comparability to prior year periods. The increase in ongoing interest expense resulted in a decrease in diluted EPS of approximately $0.13 in the third quarter and approximately $0.23 in the first three quarters of 2007.

                            Third Quarter            First Three Quarters
                                         Diluted                      Diluted
                                           EPS                          EPS
    (in thousands)    Pre-tax  After-tax  Impact   Pre-tax  After-tax  Impact

    2007 items
     affecting
     comparability:
    Recapitalization
     expenses:
    General and            -       -       -     $(2,873)  $(1,781)  $(0.03)
     administrative
     expenses (1)
    Additional interest    -       -       -       2,632     2,632     0.04
     income on
     recapitalization
     funds (2)
    Additional interest    -       -       -     (33,878)  (21,005)   (0.32)
     expense (3)
    Premium on bond        -       -       -     (13,294)   (8,242)   (0.13)
     extinguishment (4)
       Subtotal            -       -       -     (47,413)  (28,396)   (0.44)

    Legal expenses (5)     -       -       -      (5,000)   (3,100)   (0.05)
    2007 items affecting   -       -       -    $(52,413) $(31,496)  $(0.49)
      comparability

    2006 items affecting
     comparability:
    Gain on the sale of
     France and
     Netherlands operations
     and related
     tax effects (6)     $2,825   $2,682  $0.04   $2,825    $5,571    $0.09

    (1) Primarily includes stock compensation expenses, payroll taxes related
        to the payments made to certain stock option holders and legal and
        professional fees incurred in connection with the recapitalization,
        including the tender offers for Domino's Pizza, Inc. common stock and
        Domino's, Inc. senior subordinated notes due 2011.
    (2) Includes tax-exempt interest income that was earned on funds received
        in connection with the recapitalization prior to disbursement of the
        funds.
    (3) Includes the write-off of deferred financing fees and bond discount
        related to extinguished debt as well as net expense incurred in
        connection with the settlement of interest rate derivatives.
    (4) Represents the premium paid to bond holders in the tender offer for
        the Domino's, Inc. senior subordinated notes due 2011.
    (5) Represents expenses incurred in connection with certain legal matters
        in California.
    (6) Represents the gain recognized in the third quarter of 2006 on the
        sale of our Company-owned France and Netherlands operations of
        approximately $2.8 million and the related tax benefit recognized in
        the second quarter of 2006.

    Liquidity
    As of September 9, 2007, the Company had:

    -- $1.7 billion in total debt,
    -- $114.9 million of cash and cash equivalents,
    -- no borrowings under its $150.0 million revolving credit facility and,
    -- letters of credit issued under its revolving credit facility of $30.7
       million.

The Company's cash borrowing rate for the third quarter of 2007 was 6.1%. The Company incurred $12.7 million in capital expenditures during the first three quarters of 2007 versus $14.8 million in the first three quarters of the prior year.

Comments on Regulation G

In addition to the GAAP financial measures set forth in this press release, the Company has included a non-GAAP financial measure within the meaning of Regulation G due to items affecting comparability between fiscal quarters. Additionally, the Company has included metrics commonly used in the quick-service restaurant industry that are important to understanding Company performance.

The Company uses "Diluted EPS, as adjusted," which is calculated as reported Diluted EPS less the items that affect comparability to the prior year periods discussed above. The most directly comparable financial measure calculated and presented in accordance with GAAP is Diluted EPS. The Company's management believes that the Diluted EPS, as adjusted measure is important and useful to investors and other interested persons and that such persons benefit from having a consistent basis for comparison between reporting periods.

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 8,510 franchised and Company-owned stores in the United States and more than 55 countries. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of nearly $5.1 billion in 2006, comprised of $3.2 billion domestically and nearly $1.9 billion internationally. During the third quarter of 2007, the Domino's Pizza(R) brand had global retail sales of more than $1.2 billion, comprised of approximately $725.7 million domestically and approximately $510.7 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)." Customers can place orders online in English and Spanish by visiting www.dominos.com or from a Web-enabled cell phone by visiting mobile.dominos.com. More information on the Company, in English and Spanish, can be found on the Web at www.dominos.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

This press release contains forward-looking statements. 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: our increased leverage as a result of the borrowings under our asset-backed securitization facility; 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 us and other food- industry competitors; the ongoing profitability of our franchisees and the ability of Domino's Pizza 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 our financial and other results is included in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended December 31, 2006. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

                               TABLES TO FOLLOW



                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income

                                        Fiscal Quarter Ended

                             September 9,  % of    September 10,   % of
                                2007       Total       2006        Total
                                          Revenues                Revenues
    (In thousands, except
      per share data)
    Revenues:
     Domestic Company-owned   $89,264                 $89,284
      stores
     Domestic franchise        35,832                  35,696
     Domestic distribution    183,670                 175,531
     International             28,552                  26,158
    Total revenues            337,318      100.0%     326,669      100.0%

    Cost of sales:
     Domestic Company-
      owned stores             73,818                  71,785
     Domestic distribution    167,360                 157,070
     International             12,212                  12,035
    Total cost of sales       253,390       75.1%     240,890       73.7%
    Operating margin           83,928       24.9%      85,779       26.3%

    General and
     administrative            40,167       11.9%      35,066       10.7%
    Income from operations     43,761       13.0%      50,713       15.6%

    Interest expense, net      25,514        7.6%      13,219        4.1%
    Income before provision
     for income taxes          18,247        5.4%      37,494       11.5%

    Provision for income taxes  7,256        2.1%      12,970        4.0%
    Net income                $10,991        3.3%     $24,524        7.5%

    Earnings per share:
     Common stock - diluted     $0.17                   $0.39



                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income

                                     Three Fiscal Quarters Ended
                          September 9,    % of      September 10,   % of
                             2007         Total         2006        Total
                                         Revenues                  Revenues
    (In thousands,
     except per share data)
    Revenues:
     Domestic Company-
      owned stores          $277,625                  $275,987
     Domestic franchise      110,479                   109,588
     Domestic distribution   546,072                   527,967
     International            82,752                    88,523
    Total revenues         1,016,928      100.0%     1,002,065      100.0 %

    Cost of sales:
     Domestic Company-
      owned stores           221,766                   218,221
     Domestic distribution   492,947                   471,317
     International            35,350                    43,688
    Total cost of sales      750,063       73.8%       733,226       73.2%
    Operating margin         266,865       26.2%       268,839       26.8%

    General and
     administrative          129,073       12.7%       117,836       11.8%
    Income from
     operations              137,792       13.5%       151,003       15.0%

    Interest expense, net     90,464        8.9%        37,704        3.7%
    Other                     13,294        1.3%             -          -
    Income before
     provision for
     income taxes             34,034        3.3%       113,299       11.3%

    Provision for income      12,329        1.2%        38,117        3.8%
     taxes
    Net income               $21,705        2.1%       $75,182        7.5%

    Earnings per share:
     Common stock - diluted    $0.34                     $1.16



                    Domino's Pizza, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets


                                           September 9, 2007 December 31, 2006
    (In thousands)
    Assets
    Current assets:
      Cash and cash equivalents                   $114,917         $38,222
      Accounts receivable                           68,035          65,697
      Inventories                                   23,513          22,803
      Advertising fund assets, restricted           24,490          18,880
      Other assets                                  29,193          20,703
    Total current assets                           260,148         166,305

    Property, plant and equipment, net             108,834         117,144

    Other assets                                   128,185          96,754

    Total assets                                  $497,167        $380,203

    Liabilities and stockholders' deficit
    Current liabilities:
      Current portion of long-term debt               $304          $1,477
      Accounts payable                              48,683          55,036
      Accrued interest                              41,273          19,499
      Advertising fund liabilities                  24,490          18,880
      Other accrued liabilities                     63,184          60,309
    Total current liabilities                      177,934         155,201

    Long-term liabilities:
      Long-term debt, less current portion       1,704,874         740,120
      Other accrued liabilities                     48,618          49,775
    Total long-term liabilities                  1,753,492         789,895

    Total stockholders' deficit                 (1,434,259)       (564,893)

    Total liabilities and stockholders' deficit   $497,167        $380,203



                    Domino's Pizza, Inc. and Subsidiaries
               Condensed Consolidated Statements of Cash Flows

                                                 Three Fiscal Quarters Ended
                                                September 9,     September 10,
                                                    2007             2006
    (In thousands)
    Cash flows from operating activities:
      Net income                                   $21,705          $75,182
      Adjustments to reconcile net income
       to net cash flows provided by
       operating activities:
         Depreciation and amortization              21,740           22,390
         Amortization and write-off of
          deferred financing costs
          and debt discount                         34,773            2,568
         Benefit for deferred income taxes          (4,530)          (2,570)
         Non-cash compensation expense               6,069            3,412
         Other                                       2,531           (3,832)
         Changes in operating assets and
          liabilities                              (16,069)          (7,034)
    Net cash provided by operating activities       66,219           90,116

    Cash flows from investing activities:
      Capital expenditures                         (12,676)         (14,794)
      Proceeds from sale of property,
       plant and equipment                           3,317           12,974
      Other                                            (58)              73
    Net cash used in investing activities           (9,417)          (1,747)

    Cash flows from financing activities:
      Repurchase of common stock                   (18,078)        (145,000)
      Common stock dividends and equivalents      (896,972)         (14,875)
      Proceeds from issuance of long-term debt   2,509,938          100,000
      Cash paid for financing costs                (58,876)            (250)
      Repayments of long-term debt and
       capital lease obligation                 (1,547,102)         (95,194)
      Tax benefit from stock options                21,907            4,112
      Other                                          9,071            6,907
    Net cash provided by (used in)
     financing activities                           19,888         (144,300)

    Effect of exchange rate changes on
     cash and cash equivalents                           5               55

    Increase (decrease) in cash and cash
     equivalents                                    76,695          (55,876)

    Cash and cash equivalents, at
     beginning of period                            38,222           66,919

    Cash and cash equivalents, at end of
     period                                       $114,917          $11,043

Source: Domino's Pizza, Inc.

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