Domino's Pizza Posts Strong First Quarter 2005 Financial Results
ANN ARBOR, Mich., May 10 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced financial results for the first quarter ended March 27, 2005. Diluted earnings per share was $0.35 for the first quarter of 2005, driven primarily by strong global retail sales growth. Global retail sales were up 13.8% for the quarter versus the prior year period, driven by robust domestic and international same store sales and unit growth. Domestic same stores sales increased 11.2% for the quarter, while international same store sales increased 8.5%, on a constant dollar basis, for the same period. The Company added a net 42 stores worldwide during the quarter, and increased worldwide store counts by a net 326 stores over the past four fiscal quarters.
First Quarter Highlights (versus the prior year period):
* Diluted EPS was $0.35, on net income of $25.0 million, compared to pro
forma diluted EPS of $0.28 in the first quarter of 2004.
* Global retail sales, comprised of all retail sales at Company-owned and
franchise stores worldwide, increased 13.8%, driven by higher same store
sales and store counts.
* Domestic same store sales increased 11.2%, comprised of a domestic
Company-owned same store sales increase of 13.8% and a domestic
franchise same store sales increase of 10.8%.
* International same store sales increased 8.5%, on a constant dollar
basis, marking the 45th consecutive quarter of international same store
sales growth.
* Worldwide store counts increased by a net 42 stores during the quarter,
and increased by a net 326 stores over the past four fiscal quarters.
At the end of the quarter, there were 7,799 Domino's Pizza stores in
operation worldwide.
* The Company paid its fourth quarter 2004 dividend of 10 cents per share
on March 30, 2005. The 10 cent dividend was a 54% increase from the 6.5
cent dividend paid in the previous quarter.
During 2004, the Domino's Pizza system voted to shift dollars from local and co-op marketing programs to more efficient national marketing initiatives. This resulted in an increase in the 2005 national marketing contribution rate from 3% to 4% of sales. Based on the success of this strategy, the Company recently completed another nationwide vote to shift an additional one percent of sales, from 4% to 5%, from local and co-op marketing programs to national marketing initiatives in 2006. Management views this move as another important step in maximizing the efficiency and reach of the Company's media spend.
David A. Brandon, Chairman and CEO, said "Our same store sales performance in the first quarter was truly special. Our track record as a brand and company is one of steady, controlled growth, as evidenced by the fact we have not had a negative annual same store sales performance in the past eleven years. We will remember the first quarter of 2005 as a quarter when a number of key factors came together to produce exceptional results."
Brandon continued, "I am proud of the strength of our marketing message, aided by a significant incremental increase in our national advertising spending, which began in January. Our worldwide system of stores executed well during a busy quarter of surging sales. I am pleased to see the progress made by our domestic Company-owned stores during this quarter. And, I continue to be impressed by the consistent growth and development of our international business."
Brandon concluded, "These strong quarterly results contribute to our growing cash flow and put us in a strong position to grow our business, continue our debt reduction, opportunistically repurchase stock from our original investors, and pay a dividend to our shareholders that is among the highest yields in our industry."
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 first quarter 2005 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 simulcast at http://www.dominos.com. If you are unable to participate on the call, a replay will be available through midnight on June 10, 2005 by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International), conference ID 3420951. The web cast will be archived for 30 days on http://www.dominos.com.
Board Declares First Quarter Dividend
The Company's first quarter dividend in the amount of 10 cents per share will be paid on June 30, 2005 to shareholders of record as of the close of business on June 15, 2005. On an annualized basis, this equates to an approximate 2% dividend yield, based on the Company's closing stock price of $18.31 on May 9, 2005.
Company Repurchases 4.4 Million Shares Subsequent to First Quarter
As previously announced on March 29, 2005, the Company repurchased and retired 4,409,171 shares of its Common Stock from shareholder JP Morgan Capital, L.P. and its affiliates (collectively, JPMP), for $75.0 million, or $17.01 per share. The repurchase price of $17.01 per share in this private transaction was based on a negotiated discount between the Company and JPMP. This transaction was completed during the second quarter of 2005. Management estimates that the repurchase transaction will increase its diluted earnings per share by approximately 3 to 4 cents per share in fiscal 2005.
Management believes this repurchase transaction, coupled with its recent increase in dividend payments, clearly demonstrates its commitment to realizing shareholder value through appropriate deployment of free cash flow. Additionally, this effective use of the Company's free cash flow did not impact its public float, because the repurchased shares were not registered. This repurchase will save the Company approximately $1.8 million in annual dividends.
SUMMARY OF FINANCIAL RESULTS
Global Retail Sales Growth
Global retail sales include all retail sales worldwide at Company-owned and franchise stores (see Definitions).
(versus the prior year period) First Quarter
of 2005
Domestic Stores + 11.6%
International stores + 18.8%
Total + 13.8%
The 13.8% increase in global retail sales was driven by increased same store sales and higher store counts as detailed below.
Same Stores Sales Growth
See Definitions.
(versus the prior year period) First Quarter
of 2005
Domestic Company-owned stores + 13.8%
Domestic franchise stores + 10.8%
Total Domestic Stores + 11.2%
International stores + 8.5%
Store Counts and Net Unit Growth
Domestic Domestic Total Inter-
Company-owned Franchise Domestic national
Stores Stores Stores Stores Total
Store count at
January 2, 2005 580 4,428 5,008 2,749 7,757
Openings - 22 22 42 64
Closings (3) (12) (15) (7) (22)
Transfers (9) 9 - - -
Store count at
March 27, 2005 568 4,447 5,015 2,784 7,799
1st quarter net
growth (12) 19 7 35 42
Trailing 4
quarters net
growth (8) 103 95 231 326
Revenues
First Quarter
%
(in thousands) 2005 2004 Change
Domestic Company-owned stores $98,225 $87,964 11.7%
Domestic franchise 39,233 34,637 13.3%
Domestic distribution 201,817 170,850 18.1%
International 30,393 25,303 20.1%
Total revenues (1) $369,668 $318,754 16.0%
(1) Total revenues primarily include retail sales at Company-owned stores,
royalties from franchise stores, and related sales from distribution
operations, which sell food and equipment to all Company-owned stores
and certain franchise stores. Company-owned store and franchise store
revenues may vary significantly from period to period due to changes
in store count mix, while distribution revenues may vary significantly
as a result of fluctuations in food prices, primarily cheese prices.
The increase in first quarter total revenues versus the prior year period was due primarily to increases in distribution revenues, which were driven by higher volumes related to the increase in domestic franchise same store sales and store counts as well as higher commodity costs, including cheese. The published cheese block price-per-pound averaged $1.54 in the first quarter of 2005, up from $1.34 in the prior year period. Total revenues were also positively impacted by increases in revenues from domestic Company-owned stores, domestic franchise and international operations as a result of higher same store sales and store counts.
Operating Margin
First Quarter
% of % of
(in thousands) 2005 Revenues 2004 Revenues
Domestic Company-owned
stores $20,085 20.4% $17,861 20.3%
Domestic franchise (1) 39,233 100.0% 34,637 100.0%
Domestic distribution 19,707 9.8% 16,652 9.7%
International 13,988 46.0% 11,961 47.3%
Total operating
margin $93,013 25.2% $81,111 25.4%
(1) Domestic franchise operations do not have a cost of sales component.
Accordingly, the domestic franchise operating margin equals domestic
franchise revenues.
The increase in the first quarter total operating margin versus the prior year period was due primarily to increases in retail sales from both international and domestic franchise operations, which drove higher royalty revenues. Total operating margin was also positively impacted by increases in retail sales from Company-owned stores and higher distribution volumes related to the increase in domestic franchise same store sales and store counts. These increases in total operating margin were offset in part by margin pressures at Company-owned stores, due primarily to higher food costs.
Total operating margin as a percentage of revenues decreased 0.2 percentage points during the first quarter of 2005 versus the prior year period. Operating margin as a percentage of total revenues was negatively impacted during the quarter as a result of higher food costs, which pressured domestic Company-owned store and distribution operating margins. Additionally, despite continued strong growth in international franchise royalty revenues, the international operating margin as a percentage of revenues decreased as a result of a mix change between the lower margin Company-owned store and distribution operations as compared to the higher margin franchise royalty revenues. These decreases were offset in part by margin improvements resulting from higher same store sales and store counts, which generated increased domestic and international franchise royalty revenues, higher distribution volumes and higher domestic Company-owned store revenues.
As mentioned above, the total operating margin as a percentage of revenues was negatively impacted by higher food costs, primarily cheese. Cheese price changes are a "pass-through" in domestic distribution revenues and cost of sales, and, as such, have no impact on operating margin or income. However, cheese price changes do impact operating margin as a percentage of revenues. Had the 2005 cheese prices been in effect during 2004, the total operating margin as a percentage of total revenues would have been approximately 24.9% for the first quarter of 2004, versus the reported 25.4%. This would have resulted in an operating margin improvement of 0.3 percentage points in the first quarter of 2005, versus the reported decrease of 0.2 percentage points. Similarly, had the 2005 cheese prices been in effect during 2004, the domestic distribution operating margin as a percentage of domestic distribution revenues would have been approximately 9.4% for the first quarter of 2004, versus the reported 9.7%. This would have resulted in an operating margin improvement of 0.4 percentage points in the first quarter of 2005, versus the reported improvement of 0.1 percentage points.
General and Administrative Expenses
General and administrative expenses increased $4.9 million, or 13.0%, during the first quarter of 2005 versus the prior year period, due primarily to increases in variable general and administrative expenses, including higher administrative labor due primarily to higher performance based bonuses and increases in advertising and incentive expenses relating to continued improvement in the financial performance of our domestic store operations. Additionally, insurance and depreciation and amortization expenses also increased during the first quarter of 2005. As a percentage of total revenues, general and administrative expenses decreased 0.3 percentage points to 11.5% in the first quarter of 2005, versus 11.8% in the prior year period.
Income from Operations
Income from operations increased $7.0 million, or 16.2%, during the first quarter of 2005 versus the prior year period. Income from operations was positively impacted by higher royalty revenues from domestic and international franchise stores, increases resulting from higher domestic Company-owned same store sales and higher volumes in our distribution business. These increases in income from operations were offset in part by higher food costs at our Company-owned stores and the aforementioned increases in general and administrative expenses.
Interest Expense, net
Interest expense, net decreased $3.5 million, or 25.2%, during the first quarter of 2005 versus the prior year period. This decrease was due primarily to lower average debt balances and a reduction in our average borrowing rate. The average outstanding debt balance, excluding capital lease obligations, decreased $183.6 million to $752.9 million in the first quarter, from $936.5 million in the prior year period. The Company's effective borrowing rate decreased 0.5 percentage points to 5.3% during the first quarter, from 5.8% in the prior year period. The reduction in average borrowing rate was due to senior credit facility pricing reductions and prepayments of senior subordinated notes, offset in part by higher market interest rates.
Net Income
Net income increased $6.6 million to $25.0 million during the first quarter of 2005 versus the prior year period, due primarily to the aforementioned increase in income from operations and reduction in interest expense, net.
Pro Forma EPS
Diluted earnings per share for the first quarter of 2005 was $0.35. Pro forma diluted earnings per share for the first quarter of 2004 was $0.28. Diluted EPS, as reported for the first quarter of 2004 is disclosed in the accompanying condensed consolidated statement of income.
Management believes it is helpful to investors to be presented with a pro forma EPS number for the first quarter of 2004, which is based on the Company's capital structure following the completion of its initial public offering in the third quarter of 2004. As a result, the Company is providing pro forma EPS amounts for the first quarter of 2004, assuming that the following transactions occurred at the beginning of 2004:
(i) the reclassification of previously outstanding Class A Common Stock
and Class L Common Stock into Common Stock; and
(ii) the issuance of the 9,375,000 shares in the IPO and the redemption of
$109.1 million of senior subordinated notes, resulting in a reduction
of interest expense of approximately $2.1 million ($1.3 million
after-tax) in the first quarter of 2004.
The following table reconciles net income, as reported to pro forma net income for the first quarter of 2004, and also presents the pro forma diluted weighted average shares of common stock outstanding used to determine pro forma diluted earnings per share. The denominator in the pro forma diluted EPS calculations below assumes that the capital structure in place after the IPO was in place for the first quarter of 2004.
First Quarter
of 2004
(In thousands, except per share data)
Net income, as reported $18,408
Adjustments:
Reduction in interest expense from debt
retirement 2,100
Tax impact (793)
Total Adjustments (net of tax) 1,307
Pro forma net income $19,715
Weighted average shares outstanding
- diluted 71,287
Pro forma earnings per share - diluted $0.28
The following table reconciles diluted EPS, as reported to pro forma diluted EPS for the first quarter of 2004.
First Quarter
of 2004
Earnings per share - diluted, as reported $0.26
Impact of pro forma adjustments 0.02
Impact of the reclassification of the Class L
conversion and issuance of common stock
assuming the IPO occurred at the beginning
of the year -
Pro forma earnings per share - diluted $0.28
See Comments on Regulation G.
Liquidity
As of March 27, 2005, the Company had $751.9 million in total debt and $53.2 million of cash and cash equivalents. Approximately 73% of outstanding borrowings were contractually fixed at the end of the first quarter. During the quarter, the Company repaid $25.1 million of outstanding borrowings, of which $25.0 million represented voluntary prepayments of senior secured credit facility borrowings. The Company is currently not required to pay down principal on its senior subordinated notes until 2011. The next scheduled principal amortization payment of $1.2 million on its senior secured credit facility is due on March 31, 2006. As of March 27, 2005, the Company had no borrowings under its $125.0 million revolving credit facility. Letters of credit issued under the revolving credit facility were $25.5 million at March 27, 2005.
Subsequent to the first quarter on March 29, 2005, the Company completed an amendment to its senior credit facility in order to permit the repurchase transaction described below, reduce current cash sweep requirements and provide additional financial flexibility. The Company used $35.0 million of available cash on hand and $40.0 million of borrowings from its revolving credit facility to fund the repurchase of 4,409,171 shares of Company common stock from JP Morgan and its affiliates at a negotiated discount to the then market price of the Company's common stock.
Definitions
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, but excluding sales from certain seasonal locations such as stadiums and concert arenas. 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.
Comments on Regulation G
In addition to the GAAP financial measures set forth in this Press Release, the Company has included certain non-GAAP financial measures within the meaning of Regulation G as a result of the significant changes in the Company's capital structure resulting from the IPO. The Company has included "Pro Forma EPS," calculated based on "Pro Forma Net Income," which are both non-GAAP financial measures. The Company's management believes that these measurements are important to investors and other interested persons and that such persons benefit from having a consistent basis for comparison between quarters and for comparison with other companies in the industry. While management believes that these non-GAAP financial measures will be helpful to investors in understanding and evaluating the Company's performance in the periods immediately following the IPO, management does not expect to continue to provide such non-GAAP financial measures once the effects of the significant changes to the Company's capital structure are able to be fully reflected in the Company's financial statements.
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 franchised system, Domino's operates a network of 7,799 franchised and Company-owned stores in the United States and more than 50 countries. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of more than $4.6 billion in 2004, comprised of nearly $3.2 billion domestically and more than $1.4 billion 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)." More information on the Company, in English and Spanish, can be found on the web at http://www.dominos.com.
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. 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: 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 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; 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 Domino's financial and other results is included in the Company's filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Fiscal Quarter Ended
% of % of
March 27, Total March 21, Total
2005 Revenues 2004 Revenues
(In thousands, except
per share data)
Revenues:
Domestic Company-owned
stores $98,225 $87,964
Domestic franchise 39,233 34,637
Domestic
distribution 201,817 170,850
International 30,393 25,303
Total revenues 369,668 100.0% 318,754 100.0%
Cost of sales:
Domestic Company-owned
stores 78,140 70,103
Domestic
distribution 182,110 154,198
International 16,405 13,342
Total cost of sales 276,655 74.8% 237,643 74.6%
Operating margin 93,013 25.2% 81,111 25.4%
General and
administrative 42,518 11.5% 37,640 11.8%
Income from operations 50,495 13.7% 43,471 13.6%
Interest expense, net 10,402 2.8% 13,899 4.3%
Income before provision
for income taxes 40,093 10.9% 29,572 9.3%
Provision for income
taxes 15,135 4.1% 11,164 3.5%
Net income $24,958 6.8% $18,408 5.8%
Earnings per share:
As reported:
Common stock -
diluted $0.35 $0.26
Class L common stock -
diluted N/A $2.49
Pro forma:
Common stock -
diluted N/A $0.28
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
January 2,
March 27, 2005
2005 (Note)
(In thousands)
Assets
Current assets:
Cash and cash equivalents $53,233 $40,396
Accounts receivable 73,055 73,138
Inventories 21,231 21,505
Advertising fund assets, restricted 29,462 32,817
Other assets 20,664 21,635
Total current assets 197,645 189,491
Property, plant and equipment, net 135,364 136,883
Other assets 117,016 120,973
Total assets $450,025 $447,347
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term debt $291 $25,295
Accounts payable 58,361 55,350
Advertising fund liabilities 29,462 32,817
Other accrued liabilities 83,474 76,205
Total current liabilities 171,588 189,667
Long-term liabilities:
Long-term debt, less current portion 751,582 755,405
Other accrued liabilities 52,417 52,155
Total long-term liabilities 803,999 807,560
Total stockholders' deficit (525,562) (549,880)
Total liabilities and stockholders' deficit $450,025 $447,347
Note: The balance sheet at January 2, 2005 has been derived from the
audited consolidated financial statements at that date but does not
include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete
financial statements.
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Fiscal Quarter Ended
March 27, March 21,
2005 2004
(In thousands)
Cash flows from operating activities:
Net income $24,958 $18,408
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization 7,321 6,945
Amortization of deferred financing costs and
debt discount 844 782
Provision for deferred income taxes 600 2,630
Other 400 30
Changes in operating assets and liabilities 6,548 (11,745)
Net cash provided by operating activities 40,671 17,050
Cash flows from investing activities:
Capital expenditures (6,693) (6,795)
Other 2,143 553
Net cash used in investing activities (4,550) (6,242)
Cash flows from financing activities:
Repayments of long-term debt and capital
lease obligation (25,080) (18,371)
Other 1,899 (230)
Net cash used in financing activities (23,181) (18,601)
Effect of exchange rate changes on cash and
cash equivalents (103) (6)
Increase (decrease) in cash and cash
equivalents 12,837 (7,799)
Cash and cash equivalents, at beginning
of period 40,396 46,391
Cash and cash equivalents, at end of period $53,233 $38,592
SOURCE Domino's Pizza
05/10/2005
CONTACT: Lynn Liddle, Executive Vice President of Communications and
Investor Relations - Domino's Pizza, Inc., +1-734-930-3008
Web site: http://www.dominos.com
(DPZ)