Domino's Pizza Announces Second Quarter 2008 Financial Results

ANN ARBOR, Mich., July 22 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the second quarter ended June 15, 2008. Net income was up $16.4 million versus the prior year, due primarily to recapitalization expenses incurred during the second quarter of 2007 and gains on the sale of Company- owned stores in 2008, offset in part by continued challenges in the domestic environment and resulting domestic same store sales and supply chain volume decreases. The International division continued its strong performance, posting its 58th consecutive quarter of same store sales growth, up 7.0% during the second quarter of 2008.


    Second Quarter Highlights:

                                                            First      First
                                      Second     Second      Two        Two
                                     Quarter    Quarter    Quarters   Quarters
    (dollars in millions, except        of         of         of         of
     per share data)                   2008       2007       2008       2007

    Net income                         $18.7       $2.3      $32.8      $10.7

    Weighted average diluted
     shares                       58,789,987 64,717,208 59,443,922 64,798,109

    Diluted earnings per share, as
     reported                          $0.32      $0.04      $0.55      $0.17
    Items affecting comparability
     (see section below)              $(0.10)     $0.24     $(0.13)     $0.49
    Diluted earnings per share, as
     adjusted                          $0.22      $0.28      $0.43      $0.65

-- Diluted EPS was $0.32 on an as-reported basis for the second quarter, up $0.28 from the as-reported prior year period. However, excluding items affecting comparability, diluted EPS declined $0.06, primarily due to increased interest expense as a result of our 2007 recapitalization and lower operating income from domestic operations. (See the Items Affecting Comparability section and the Comments on Regulation G section.)



                                           Second        Second
                                         Quarter of    Quarter of
                                            2008          2007
    Same store sales growth:
     (versus prior year period)
      Domestic Company-owned stores         (1.1)%       + 4.4%
      Domestic franchise stores             (5.9)%       + 1.8%
      Domestic stores                       (5.4)%       + 2.1%
      International stores                 + 7.0 %       + 3.9%

    Global retail sales growth:
     (versus prior year period)
      Domestic stores                       (5.0)%       + 3.2%
      International stores                 +19.6 %       +15.3%
      Total                                + 4.7 %       + 7.7%




                             Domestic
                             Company-  Domestic    Total     Inter-
                              owned    Franchise  Domestic  national
                              Stores    Stores     Stores    Stores   Total

    Store counts:
     Store count at March
      23, 2008                   542     4,586     5,128     3,513    8,641
     Openings                      -        22        22        60       82
     Closings                      -       (43)      (43)       (9)     (52)
     Transfers                   (27)       27         -         -        -
     Store count at June 15,
      2008                       515     4,592     5,107     3,564    8,671
     Second quarter 2008 net
      growth                     (27)        6       (21)       51       30
     Trailing four quarters
      net growth                 (52)       31       (21)      243      222

David A. Brandon, Domino's Chairman and Chief Executive Officer, said: "Returning to positive sales comps in the U.S. has proven difficult, as the external environment continues to make it tough to regain lost sales momentum. However, I am excited about our growth initiatives and the way we are transforming our business to better position ourselves for future expansion. I like our new product platforms, our technology innovations and the cost savings we are identifying in our supply chain division. We are driving significant change in our business and our focus on improving our franchisee base -- along with all of these initiatives -- will help to us regain positive momentum. We are in a turnaround mode, which is not fun. However, we see a light at the end of the tunnel and we plan to be growing our domestic business again soon."

Brandon continued, "We continue to achieve excellent results in our international division, along with strong store growth in all regions of the world. Our international division is celebrating its 25th anniversary this year; and we're proud of the impact this growth engine has had on our Company's results." He added, "The current domestic environment continues to be difficult and challenging. However our results show the resiliency of our business model as we have produced $36.6 million in free cash flow year-to- date, which we continue to deploy in ways that provide value to our shareholders."

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 second quarter 2008 financial results. The call can be accessed by dialing (888) 306-6182 (U.S./Canada) or (706) 634-4947 (International). Ask for the Domino's Pizza conference call. The call will also be web cast at www.dominos.com. If you are unable to participate on the call, a replay will be available for thirty days by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International), Conference ID 20162698. The web cast will also be archived for 30 days on www.dominosbiz.com.

Share Repurchases

During the second quarter of 2008, the Company repurchased and retired 752,748 shares of its common stock under an open market share repurchase program for $9.8 million, or an average price of $13.06 per share.

Subsequent to the second quarter, the Company repurchased and retired 750,000 additional shares of common stock on June 24, 2008 in a block trade for $8.6 million, or $11.50 per share. Including this transaction, the Company has used approximately 46% of the total amount authorized under its open market share repurchase program.

Sale of Certain Company-Owned Stores

During the first quarter of 2008, the Company announced it had agreements in place to sell approximately 60 Company-owned stores in California and Georgia in a series of transactions primarily with current franchisees. During the second quarter of 2008, the Company completed the sale of 27 of these stores bringing the year-to-date total to 56 stores. The Company recognized a pre-tax gain on the sale of the related assets of approximately $6.9 million in the second quarter of 2008. This pre-tax gain was recorded in general and administrative expense. The Company anticipates that the sale of all the remaining stores will be completed by the end of the third quarter of 2008.

Items Affecting Comparability

The Company's reported financial results for the second quarter and first two quarters of 2008 are not comparable to the reported financial results in the prior year periods. The table below presents certain items that affect comparability between our 2008 and 2007 financial results. Management believes that including such information is critical to the understanding of our financial results for the second quarter and first two quarters of 2008 as compared to the same periods in 2007 (See the Comments on Regulation G section).

In addition to the items noted in the table below, the Company's 2007 recapitalization had a significant impact on ongoing interest expense as a result of higher debt levels. This impacts comparability to periods in the prior year. The increase in ongoing interest expense resulted in a decrease in diluted EPS of approximately $0.03 and $0.17 in the second quarter and first two quarters of 2008, respectively, versus the same periods in 2007. Additionally, share repurchases have positively impacted diluted EPS in the second quarter and first two quarters of 2008 versus the comparable periods in 2007.



                           Second Quarter             First Two Quarters
                                         Diluted                      Diluted
                                           EPS                          EPS
    (in thousands)  Pre-tax  After-tax   Impact   Pre-tax  After-tax  Impact

    2008 items
     affecting
     comparability:

    Gain on the
     sale of
     Company-owned
     stores (1)      $6,932    $4,159    $0.07  $ 11,160    $6,696   $ 0.11
    Separation
     expenses (2)         -         -        -    (1,445)     (867)   (0.01)
    Tax reserve
     reversals (3)      626     1,736     0.03       626     1,736     0.03
    Total of 2008
     items           $7,558    $5,895    $0.10  $ 10,341    $7,565    $0.13

    2007 items
     affecting
     comparability:

    Recapital-
     ization
     expenses:
    General and
     administrative
     expenses (4)   $(2,418)  $(1,499)  $(0.02)  $(2,873)  $(1,781)  $(0.03)
    Additional
     interest
     income on
     recapital-
     ization
     funds (5)        2,632     2,632     0.04     2,632     2,632     0.04
    Additional
     interest
     expense (6)    (21,913)  (13,586)   (0.21)  (33,878)  (21,005)   (0.32)
    Premium on
     bond
     extinguish-
     ment (7)             -         -        -   (13,294)   (8,242)   (0.13)
    Total recap-
     italization
     expenses       (21,699)  (12,453)   (0.19)  (47,413)  (28,396)   (0.44)

    Legal expenses
     (8)             (5,000)   (3,100)   (0.05)   (5,000)   (3,100)   (0.05)
    Total of 2007
     items         $(26,699) $(15,553)  $(0.24) $(52,413) $(31,496)  $(0.49)

    (1) The gain recognized relates to the sale of 27 Company-owned stores in
        California in the second quarter of 2008 and 56 stores in California
        and Georgia in the first two quarters of 2008.
    (2) Represents separation and related expenses incurred in connection with
        a previously announced restructuring action and other staffing
        reduction costs related to the sale of Company-owned stores in
        California.
    (3) Represents $1.3 million of income tax benefit and $0.6 million ($0.4
        million after-tax) of contra interest expense, both relating to
        required FIN 48 tax reserve reversals due to outcomes of related state
        tax matters.
    (4) 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.
    (5) Includes estimated tax-exempt interest income that was earned on funds
        received in connection with the recapitalization prior to disbursement
        of the funds.
    (6) 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.
    (7) Represents the premium paid to bond holders in the tender offer for
        the Domino's, Inc. senior subordinated notes due 2011.
    (8) Represents expenses incurred in connection with certain legal matters
        in California.



    Liquidity
    As of June 15, 2008, the Company had:
    -- $1.7 billion in total debt,
    -- $37.0 million of unrestricted cash and cash equivalents,
    -- no borrowings under its $150.0 million of variable funding notes, and
    -- letters of credit issued under the variable funding notes of
       $35.6 million.

The Company's cash borrowing rate for the second quarter of 2008 was 6.1%. The Company incurred $7.0 million in capital expenditures during the first two quarters of 2008 versus $8.7 million in the first two quarters of the prior year.

The Company's free cash flow, as reconciled below to cash flows from operations as determined under generally accepted accounting principles (GAAP), was $36.6 million in the first two quarters of 2008.


                                                                First Two
    (in thousands)                                          Quarters of 2008
    Net cash provided by operating activities (as reported)      $43,615
    Capital expenditures (as reported)                            (6,995)

    Free cash flow                                               $36,620

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 due to items affecting comparability between fiscal quarters. Additionally, the Company has included metrics such as global retail sales and same store sales growth, which are commonly used in the quick-service restaurant industry and 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, domestic supply chain 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 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 on a constant dollar basis, which reflects changes in international local currency sales.

The Company uses "Free cash flow," calculated as cash flows from operations less capital expenditures, both as reported. The Company's management 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 flows are available to be used for de-levering, making acquisitions, repurchasing shares or similar uses of cash.

About Domino's Pizza(R)

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 8,671 franchised and Company-owned stores in the United States and 60 international markets. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of over $5.4 billion in 2007, comprised of $3.2 billion domestically and $2.2 billion internationally. During the second quarter of 2008, the Domino's Pizza(R) brand had global retail sales of $1.3 billion, comprised of approximately $717 million domestically and approximately $589 million internationally. Domino's Pizza was named "Chain of the Year" by Pizza Today magazine, the leading publication of the pizza industry. 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. Domino's Pizza. You Got 30 Minutes(TM).

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 stores and keep existing stores in operation; 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 30, 2007. 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.



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

                                             Fiscal Quarter Ended
                                               % of                    % of
                                   June 15,   Total        June 17,   Total
                                     2008    Revenues        2007    Revenues
    (In thousands, except per
     share data)
    Revenues:
       Domestic Company-owned
        stores                       $85,009                $92,821
       Domestic franchise             35,804                 37,130
       Domestic supply chain         179,569                182,517
       International                  33,965                 27,821
    Total revenues                   334,347  100.0%        340,289  100.0%

    Cost of sales:
       Domestic Company-owned
        stores                        69,578                 72,304
       Domestic supply chain         161,682                164,170
       International                  15,328                 11,948
    Total cost of sales              246,588   73.8%        248,422   73.0%
    Operating margin                  87,759   26.2%         91,867   27.0%

    General and administrative        34,207   10.2%         48,568   14.3%
    Income from operations            53,552   16.0%         43,299   12.7%

    Interest expense, net            (24,928)  (7.4)%       (41,056) (12.0)%
    Income before provision
     (benefit) for                    28,624    8.6%          2,243    0.7%
      income taxes

    Provision (benefit) for income
     taxes                             9,894    3.0%            (74)   0.0%
    Net income                       $18,730    5.6%         $2,317    0.7%

    Earnings per share:
       Common stock - diluted          $0.32                  $0.04



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

                                           Two Fiscal Quarters Ended
                                              % of                    % of
                                   June 15,   Total        June 17,   Total
                                     2008    Revenues        2007    Revenues
    (In thousands, except per
     share data)
    Revenues:
       Domestic Company-owned
        stores                      $178,057               $188,361
       Domestic franchise             72,190                 74,647
       Domestic supply chain         355,758                362,402
       International                  67,355                 54,200
    Total revenues                   673,360  100.0%        679,610  100.0%

    Cost of sales:
       Domestic Company-owned
        stores                       145,088                147,947
       Domestic supply chain         322,308                325,587
       International                  30,169                 23,139
    Total cost of sales              497,565   73.9%        496,673   73.1%
    Operating margin                 175,795   26.1%        182,937   26.9%

    General and administrative        72,893   10.8%         88,906   13.1%
    Income from operations           102,902   15.3%         94,031   13.8%

    Interest expense, net            (50,746)  (7.6)%       (64,950)  (9.5)%
    Other                                  -    0.0%        (13,294)  (2.0)%
    Income before provision for
     income taxes                     52,156    7.7%         15,787    2.3%

    Provision for income taxes        19,307    2.8%          5,073    0.7%
    Net income                       $32,849    4.9%        $10,714    1.6%

    Earnings per share:
       Common stock - diluted          $0.55                  $0.17



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

                                                    June 15,     December 30,
                                                      2008           2007

    (In thousands)
    Assets
    Current assets:
       Cash and cash equivalents                     $37,042        $11,344
       Restricted cash                                72,659         80,951
       Accounts receivable                            72,111         68,446
       Inventories                                    22,243         24,931
       Advertising fund assets, restricted            27,023         20,683
       Other assets                                   12,534         20,527
    Total current assets                             243,612        226,882

    Property, plant and equipment, net               113,465        122,890

    Other assets                                     108,678        123,392

    Total assets                                    $465,755       $473,164

    Liabilities and stockholders' deficit
    Current liabilities:
       Current portion of long-term debt                $324        $15,312
       Accounts payable                               58,878         60,411
       Advertising fund liabilities                   27,023         20,683
       Other accrued liabilities                      79,226         79,102
    Total current liabilities                        165,451        175,508

    Long-term liabilities:
       Long-term debt, less current portion        1,704,638      1,704,771
       Other accrued liabilities                      33,921         43,024
    Total long-term liabilities                    1,738,559      1,747,795

    Total stockholders' deficit                   (1,438,255)    (1,450,139)

    Total liabilities and stockholders' deficit     $465,755       $473,164



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

                                                     Two Fiscal Quarters Ended
                                                      June 15,      June 17,
                                                        2008          2007
    (In thousands)
    Cash flows from operating activities:
      Net income                                       $32,849       $10,714
      Adjustments to reconcile net income to net
       cash flows provided by operating activities:
          Depreciation and amortization                 13,907        14,583
          (Gains) losses on sale/disposal of assets    (10,979)          340
          Amortization and write-off of deferred
           financing costs, debt discount and other      3,534        33,099
          Provision (benefit) for deferred income
           taxes                                         4,457        (1,422)
          Non-cash compensation expense                  3,807         4,587
          Other                                          2,379           868
          Changes in operating assets and
           liabilities                                  (6,339)      (38,550)
    Net cash provided by operating activities           43,615        24,219

    Cash flows from investing activities:
      Capital expenditures                              (6,995)       (8,728)
      Proceeds from sale of assets                      20,555           891
      Change in restricted cash                          8,292       (82,852)
      Other                                                494          (118)
    Net cash provided by (used in) investing
     activities                                         22,346       (90,807)

    Cash flows from financing activities:
      Purchase of common stock                         (28,271)          (67)
      Common stock dividends and equivalents                 -      (896,971)
      Proceeds from issuance of long-term debt           3,000     2,509,938
      Repayments of long-term debt and capital lease
       obligation                                      (18,127)   (1,541,993)
      Cash paid for financing costs                       (102)      (57,959)
      Tax benefit from stock options                       150        20,774
      Other                                              2,920         5,051
    Net cash (used in) provided by financing
     activities                                        (40,430)       38,773

    Effect of exchange rate changes on cash and cash
     equivalents                                           167            41

    Change in cash and cash equivalents                 25,698       (27,774)

    Cash and cash equivalents, at beginning of
     period                                             11,344        38,222

    Cash and cash equivalents, at end of period        $37,042       $10,448

SOURCE Domino's Pizza, Inc.

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