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.
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.