Domino's Pizza Announces Second Quarter 2009 Financial Results
Second Quarter Highlights:
(dollars in millions, Second Second First Two First Two
except per share data) Quarter Quarter Quarters Quarters
of 2009 of 2008 of 2009 of 2008
--------- --------- --------- ---------
Net income $14.5 $18.7 $38.3 $32.8
Weighted average
diluted shares 57,737,247 58,789,987 57,524,565 59,443,922
Diluted earnings per
share, as-reported $0.25 $0.32 $0.67 $0.55
Items affecting
comparability (see
section below) $(0.04) $(0.10) $(0.26) $(0.13)
------ ------ ------ ------
Diluted earnings per
share, as adjusted $0.21 $0.22 $0.41 $0.43
===== ===== ===== =====
-- Diluted EPS was $0.25 on an as-reported basis for the second quarter,
down $0.07 from the as-reported diluted EPS in the prior year period,
due primarily to the aforementioned decrease in net income. However,
excluding items affecting comparability, diluted EPS declined $0.01 ,
primarily due to the negative impact of foreign currency exchange
rates on international royalty revenues and lower operating income
from domestic store operations, offset in part by improvements in
operating performance in the Company's international and supply chain
business units. (See the Items Affecting Comparability section and the
Comments on Regulation G section.)
-- Global Retail Sales were down 4.7% in the second quarter, or up 3.8%
when excluding the impact of foreign currency.
Second Second
Quarter Quarter
of 2009 of 2008
--------- ---------
Same store sales growth: (versus prior
year period)
Domestic Company-owned stores (3.3)% (1.1)%
Domestic franchise stores (0.4)% (5.9)%
----- -----
Domestic stores (0.7)% (5.4)%
===== =====
International stores + 4.1% + 7.0%
===== =====
Global retail sales growth: (versus prior
year period)
Domestic stores (2.0)% (5.0)%
International stores (8.0)% +19.6%
----- -----
Total (4.7)% + 4.7%
===== =====
Global retail sales growth:
(versus prior year period and excluding
foreign currency impact)
Domestic stores (2.0)% (5.0)%
International stores +11.0 % +13.9%
----- -----
Total + 3.8% + 2.5%
===== =====
Domestic Domestic Total
Company- Franchise Domestic International
owned Stores Stores Stores Stores(1) Total
------------ --------- -------- ------------- -----
Store counts:
Store count at
March 22, 2009 489 4,498 4,987 3,742 8,729
Openings - 22 22 172 194
Closings (5) (37) (42) (8) (50)
Transfers (1) 1 - - -
-- - - - -
Store count at 483 4,484 4,967 3,906 8,873
June 14, 2009 === ===== ===== ===== =====
Second quarter
2009 net growth (6) (14) (20) 164 144
== === === === ===
Trailing four (32) (108) (140) 342 202
quarters net growth === ==== ==== === ===
(1) The International Stores openings reported in the above table
benefited from the conversion of 86 stores in Spain to Domino's Pizza
stores in the second quarter of 2009.
Brandon added, "Our international business continues to thrive despite the dampening effect of foreign exchange. We are driving positive sales at a robust rate...and we've done so for more than the past fifteen years. We are consistently opening new stores and new markets, driving future growth for Domino's Pizza."
Conference Call Information
The Company plans to file its quarterly report on Form 10-Q this morning.
Additionally, as previously announced,
Debt Repurchases
During the second quarter, the Company repurchased and retired
Subsequent to the second quarter of 2009, the Company repurchased and
retired
Stock Option Plan Changes
As previously announced, the Company's shareholders approved a stock
option exchange program at the 2009 Annual Meeting of Shareholders, held on
Separately and as previously announced, the Company's Board of Directors
authorized management to amend existing stock option agreements to allow for
accelerated vesting and extended exercise periods upon the retirement of
option holders who have achieved specified service and age requirements. The
amended terms of the relevant stock option agreements became effective in the
second quarter of 2009. The incremental value to option holders created as a
result of the modification will be recognized as additional compensation
expense over the remaining service period. This amount has been calculated to
be approximately
Items Affecting Comparability
The Company's reported financial results for the second quarter and first two quarters of 2009 are not comparable to the reported financial results for the prior year comparable periods. The table below presents certain items that affect comparability between our 2009 and 2008 financial results. Management believes that including such information is critical to the understanding of the Company's financial results for the second quarter and first two quarters of 2009 as compared to the same periods in 2008 (See the Comments on Regulation G section).
Second Quarter First Two Quarters
--------------------------- --------------------------
(in thousands, Diluted Diluted
except per share EPS EPS
data) Pre-tax After-tax Impact Pre-tax After-tax Impact
------- --------- ------- ------- --------- ------
2009 items
affecting
comparability:
---------------
Gain on debt
Extinguishment(1) $12,938 $7,763 $0.13 $34,112 $20,467 $0.36
Deferred financing
fee write-off(2) (323) (194) (0.00) (882) (529) (0.01)
Stock option
plan changes(3) (4,937) (2,962) (0.05) (4,937) (2,962) (0.05)
Tax reserves(4) (594) (2,223) (0.04) (594) (2,223) (0.04)
----- ----- ----- ----- ----- -----
Total of 2009 items $7,084 $2,384 $0.04 $27,699 $14,753 $0.26
====== ====== ===== ======= ======= =====
2008 items
affecting
comparability:
--------------
Gain on the
sale of Company-
owned stores (5) $6,932 $4,159 $0.07 $11,160 $6,696 $0.11
Separation
expenses(6) - - - (1,445) (867) (0.01)
Tax reserve
reversals (7) 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
====== ====== ===== ======= ====== =====
(1) Represents the gains recognized in the second quarter and first two
quarters of 2009 on the repurchase and retirement of $25.0 million and
$68.3 million of principal on the fixed rate senior notes for a total
purchase price of $12.3 million and $34.6 million , respectively.
(2) Represents the write-off of deferred financing fees in connection with
the debt extinguishment.
(3) Includes $1.0 million of stock compensation expense and $0.2 million
of legal and professional fees incurred in connection with the stock
option exchange program as well as $0.3 million of incremental
compensation expense and $3.4 million acceleration of compensation expense
for the retirement provision added to existing stock option agreements.
(4) Represents $1.8 million of income tax provision and $0.6 million ($0.4
million after-tax) of interest expense, both relating to required FIN 48
tax reserves for certain state tax matters.
(5) 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.
(6) 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 .
(7) 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.
Liquidity
As of June 14, 2009 , the Company had:
-- approximately $1.65 billion in total debt,
-- $61.7 million of unrestricted cash and cash equivalents,
-- $21.3 million of borrowings under its $60.0 million variable funding
note facility,
-- $6.0 million of available borrowings under its variable funding note
facility, and
-- letters of credit issued under the variable funding note facility of
$32.7 million .
Subsequent to the second quarter of 2009, Domino's
As a result of and concurrent with the L/C Agreement, the Company
terminated substantially all of its pre-existing letters of credit which
provided additional availability under its variable funding notes. Subsequent
to the second quarter of 2009, the Company borrowed an additional
The Company's cash borrowing rate for the second quarter of 2009 was 6.1%.
The Company incurred
The Company's free cash flow, as reconciled below to cash flows from
operations as determined under generally accepted accounting principles
(GAAP), was
(in thousands) First Two
Quarters of 2009
----------------
Net cash provided by operating activities
(as reported) $29,138
Capital expenditures (as reported) (9,407)
-------
Free cash flow $19,731
=======
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 adjusted for 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 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 for working capital needs or to be used for repurchasing debt, making acquisitions, repurchasing shares or similar uses of cash.
About Domino's Pizza
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 locally-owned and operated franchised system, Domino's operates a
network of 8,873 franchised and Company-owned stores in the
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
This press release contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. You can identify
forward-looking statements because they contain words such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "estimates," or "anticipates" or similar expressions that concern our
strategy, plans or intentions. These forward-looking statements relating to
our anticipated profitability, ability to service our indebtedness, operating
performance, trends in our business and other descriptions of future events
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 could cause actual results to differ materially include:
our level of long-term and other indebtedness; the uncertainties relating to
litigation; consumer preferences, spending patterns and demographic trends;
the effectiveness of our advertising, operations and promotional initiatives;
the strength of our brand in the markets in which we compete; our ability to
retain key personnel; new product and concept developments by Domino's and
other food-industry competitors; the ongoing profitability of our franchisees
and the ability of Domino's and our franchisees to open new restaurants and
keep existing restaurants 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; our ability and that of our
franchisees to successfully operate in the current credit environment;
changes in the level of consumer spending given the general economic
conditions including interest rates, energy prices and weakening consumer
confidence; availability of borrowings under our variable funding notes and
changes in accounting policies. Important factors that could cause actual
results to differ materially from our expectations ("cautionary statement")
are more fully described in our other filings with the
TABLES TO FOLLOW
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Fiscal Quarter Ended
----------------------------------------
% of % of
June 14, Total June 15, Total
2009 Revenues 2008 Revenues
------- ---------- ------- --------
(In thousands, except per
share data)
Revenues:
Domestic Company-owned
stores $76,737 $85,009
Domestic franchise 35,686 35,804
Domestic supply chain 172,538 179,569
International 31,671 33,965
------ -------
Total revenues 316,632 100.0% 334,347 100.0%
------- ------ ------- ------
Cost of sales:
Domestic Company-owned
stores 62,564 69,578
Domestic supply chain 154,319 161,682
International 13,790 15,328
------- -------
Total cost of sales 230,673 72.9% 246,588 73.8%
------- ----- ------- -----
Operating margin 85,959 27.1% 87,759 26.2%
General and administrative 45,655 14.4% 34,207 10.2%
------ ---- ------ -----
Income from operations 40,304 12.7% 53,552 16.0%
Interest expense, net (25,919) (8.2)% (24,928) (7.4)%
Other 12,938 4.1% - -
------ ---- ------ ----
Income before provision for
income taxes 27,323 8.6% 28,624 8.6%
Provision for income taxes 12,796 4.0% 9,894 3.0%
------ --- ------ ----
Net income $14,527 4.6% $18,730 5.6%
======= === ======= ====
Earnings per share:
Common stock - diluted $0.25 $0.32
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Two Fiscal Quarters Ended
-----------------------------------
% of % of
June 14, Total June 15, Total
2009 Revenues 2008 Revenues
------- -------- ------- --------
(In thousands, except per
share data)
Revenues:
Domestic Company-owned
stores $157,732 $178,057
Domestic franchise 72,569 72,190
Domestic supply chain 346,041 355,758
International 62,118 67,355
------- -------
Total revenues 638,460 100.0% 673,360 100.0%
------- ----- ------- -----
Cost of sales:
Domestic Company-owned
stores 127,276 145,088
Domestic supply chain 309,301 322,308
International 27,107 30,169
------- -------
Total cost of sales 463,684 72.6% 497,565 73.9%
------- ---- ------- ----
Operating margin 174,776 27.4% 175,795 26.1%
General and administrative 89,554 14.0% 72,893 10.8%
------ ---- ------ ----
Income from operations 85,222 13.3% 102,902 15.3%
Interest expense, net (52,420) (8.2)% (50,746) (7.6)%
Other 34,112 5.3% - 0.0%
------ --- --- ---
Income before provision for
income taxes 66,914 10.5% 52,156 7.7%
Provision for income taxes 28,617 4.5% 19,307 2.8%
------ --- ------ ---
Net income $38,297 6.0% $32,849 4.9%
======= === ======= ===
Earnings per share:
Common stock - diluted $0.67 $0.55
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 14, 2009 December 28, 2008
------------- -----------------
(In thousands) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 61,695 $ 45,372
Restricted cash and cash equivalents 73,161 78,871
Accounts receivable 64,856 69,390
Inventories 25,185 24,342
Advertising fund assets, restricted 26,589 20,377
Other assets 20,424 15,899
------- -------
Total current assets 271,910 254,251
Property, plant and equipment, net 104,825 108,430
Other assets 85,238 101,113
------ -------
Total assets $ 461,973 $ 463,794
=========== ==========
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term debt $ 20,352 $ 340
Accounts payable 39,979 56,906
Advertising fund liabilities 26,589 20,377
Other accrued liabilities 71,972 71,931
------- -------
Total current liabilities 158,892 149,554
Long-term liabilities:
Long-term debt, less current portion 1,637,392 1,704,444
Other accrued liabilities 38,365 34,419
--------- ---------
Total long-term liabilities 1,675,757 1,738,863
Total stockholders' deficit (1,372,676) (1,424,623)
----------- -----------
Total liabilities and
stockholders' deficit $ 461,973 $ 463,794
============== ===========
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Two Fiscal Quarters Ended
-------------------------
June 14, June 15,
2009 2008
---- ----
(In thousands)
Cash flows from operating activities:
Net income $38,297 $32,849
Adjustments to reconcile net
income to net cash flows
provided by operating activities:
Depreciation and amortization 11,277 13,907
Gains on debt extinguishment (34,112) -
(Gains) losses on sale/disposal
of assets 459 (10,979)
Amortization of deferred
financing costs, debt discount and other 4,242 3,534
Provision for deferred income
taxes 10,622 4,457
Non-cash compensation expense 9,838 3,807
Other 1,584 2,379
Changes in operating assets and
liabilities (13,069) (6,339)
------- ------
Net cash provided by operating
activities 29,138 43,615
Cash flows from investing activities:
Capital expenditures (9,407) (6,995)
Proceeds from sale of assets 2,229 20,555
Changes in restricted cash 5,710 8,292
Other (1,040) 494
------ ---
Net cash (used in) provided by
investing activities (2,508) 22,346
Cash flows from financing activities:
Purchase of common stock - (28,271)
Proceeds from issuance of long-term debt 24,348 3,000
Repayments of long-term debt and
capital lease obligation (37,281) (18,127)
Tax benefit from stock options 322 150
Other 2,725 2,818
----- -----
Net cash used in financing activities (9,886) (40,430)
Effect of exchange rate changes
on cash and cash equivalents (421) 167
---- ---
Change in cash and cash equivalents 16,323 25,698
Cash and cash equivalents, at
beginning of period 45,372 11,344
------ ------
Cash and cash equivalents, at
end of period $61,695 $37,042
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SOURCE