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Domino's Pizza Announces First
Quarter 2008 Financial Results
ANN ARBOR, Mich., April 29 /PRNewswire-FirstCall/ -- Domino's Pizza,
Inc. (
NYSE:DPZ
) , the recognized world leader in pizza delivery, today announced results
for the first quarter ended March 23, 2008. Net income was up 68% versus
the prior year, due primarily to recapitalization expenses incurred during
the first quarter of 2007, offset in part by continued challenges in the
domestic environment and resulting domestic supply chain volume decreases.
The International division continued its strong performance, posting its
57th consecutive quarter of same store sales growth, up 8.8% during the
first quarter of 2008.
First Quarter Highlights:
First Quarter First Quarter
(dollars in millions, except per share data) of 2008 of 2007
Net income $14.1 $8.4
Weighted average diluted shares 60,085,730 64,076,179
Diluted earnings per share, as reported $0.23 $0.13
Items affecting comparability (see section
below) $(0.03) $0.25
Diluted earnings per share, as adjusted $0.21 $0.38
-- Diluted EPS was $0.23 on an as-reported basis for the first quarter, up
$0.10 from the as-reported prior year period. However, excluding items
affecting comparability, diluted EPS declined $0.17, primarily due to
increased interest expense as a result of our 2007 recapitalization.
(See the Items Affecting Comparability section and the Comments on
Regulation G section.)
First Quarter First Quarter
of 2008 of 2007
Same store sales growth: (versus prior year
period)
Domestic Company-owned stores (2.4)% +0.6%
Domestic franchise stores (5.5)% (3.4)%
Domestic stores (5.2)% (2.9)%
International stores +8.8% +3.8%
Global retail sales growth: (versus prior year
period)
Domestic stores (4.6)% (1.6)%
International stores +22.1% +14.1%
Total +5.6% +3.8%
Domestic
Company- Domestic Total Inter-
owned Franchise Domestic national
Stores Stores Stores Stores Total
Store counts:
Store count at
December 30, 2007 571 4,584 5,155 3,469 8,624
Openings - 14 14 52 66
Closings - (41) (41) (8) (49)
Transfers (29) 29 - - -
Store count at
March 23, 2008 542 4,586 5,128 3,513 8,641
First quarter 2008 net
growth (29) 2 (27) 44 17
Trailing four quarters
net growth (28) 27 (1) 248 247
David A. Brandon, Domino's Chairman and Chief Executive
Officer, said: "Reversing the negative traffic trends in our domestic
business is our highest priority. We're taking aggressive action to create
a stronger value positioning for our brand, while testing a number of
additions to our menu that will allow us to compete more effectively in
dayparts other than just dinner. We're also implementing pricing
strategies to attract lower ticket customers -- a segment we've left
behind in the recent past as we dramatically increased our prices. And,
we're upgrading our franchisee system by identifying weak operators and
facilitating the sale of their stores to stronger operators. Our activity
level is high...as is our passion for restoring our positive sales trends
in our domestic business."
Brandon added, "We continue to be very pleased with
the growth and expansion of our international business. And, I am also
proud of the work we have done to reduce our G&A spending during this
difficult period of cost inflation and soft domestic sales. The bottom
line: despite numerous negative influences hitting our business all at
once, our ability to produce plentiful free cash flow remains strong --
$16.8 million in the first quarter. We continue to use this cash to fund
an aggressive share repurchase program, which we currently feel provides
the greatest benefit to our shareholders."
Share Repurchases
During the first quarter of 2008, the Company repurchased
and retired approximately 1.4 million shares of its common stock under an
open market share repurchase program for $18.4 million, or an average
price of $13.05 per share. The Company has used approximately 36% 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 first quarter of 2008, the Company completed the
sale of 29 of these stores. The Company recognized a pre-tax gain on the
sale of the related assets of approximately $4.2 million. This pre-tax
gain was recorded in general and administrative expense. The Company
anticipates that the sale of nearly all of the remaining stores will be
completed by the end of the second quarter of 2008.
Restructuring Action
During the first quarter of 2008, the Company announced
and executed a plan to eliminate approximately 55 positions that were
primarily administrative in nature. In connection with this plan, and
other restructuring actions related to the sale of the aforementioned
stores, the Company incurred expenses of approximately $1.4 million during
the first quarter of 2008, which were included in general and
administrative expense.
Items Affecting Comparability
The Company's reported financial results for the first
quarter of 2008 are not comparable to the reported financial results in
the prior year period. 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 first quarter of 2008 as compared to the
same period 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
$0.14 in the first quarter of 2008 versus the first quarter of 2007.
First Quarter
Diluted
EPS
(in thousands, except per share data) Pre-tax After-tax Impact
2008 items affecting comparability:
Gain on the sale of Company-owned
operations (1) $4,228 $2,537 $0.04
Separation expenses (2) (1,445) (867) (0.01)
Total of 2008 items $2,783 $1,670 $0.03
2007 items affecting comparability:
General and administrative
expenses (3) $(455) $(282) $0.00
Additional interest expense (4) (11,965) (7,418) (0.12)
Premium on bond extinguishment (5) (13,294) (8,242) (0.13)
Total of 2007 items $(25,714) $(15,942) $(0.25)
(1) The gain recognized relates to the sale of 29 Company-owned stores in
California and Georgia.
(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 operations in
California.
(3) Primarily includes legal and professional fees incurred in connection
with the stock tender and bond tender offers.
(4) Primarily includes the write-off of deferred financing fees and bond
discount related to extinguished debt and the settlement of interest
rate derivatives.
(5) Represents the premium paid to tender the Domino's, Inc. senior
subordinated notes due 2011.
Liquidity
As of March 23, 2008, the Company had:
-- $1.7 billion in total debt,
-- $3.3 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 $34.0
million.
The Company's cash borrowing rate for the first quarter of 2008 was
6.1%. The Company incurred $3.5 million in capital expenditures during the
first quarter of 2008 versus $3.6 million in the first quarter 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,
was $16.8 million in the first quarter of 2008.
First Quarter of
(in thousands) 2008
Net cash provided by operating activities (as reported) $20,272
Capital expenditures (as reported) (3,479)
Free cash flow $16,793
Comments on Regulation G
In addition to the GAAP financial measures set forth in
this press release, the Company has included a non-GAAP financial measure
within the meaning of Regulation G due to items affecting comparability
between fiscal quarters. Additionally, the Company has included metrics
commonly used in the quick-service restaurant industry that are important
to understanding Company performance.
The Company uses "Diluted EPS, as adjusted,"
which is calculated as reported Diluted EPS less the items that affect
comparability to the prior year periods discussed above. The most directly
comparable financial measure calculated and presented in accordance with
GAAP is Diluted EPS. The Company's management believes that the Diluted
EPS, as adjusted measure is important and useful to investors and other
interested persons and that such persons benefit from having a consistent
basis for comparison between reporting periods.
The Company uses "Global retail sales" to refer
to total worldwide retail sales at Company-owned and franchise stores.
Management believes global retail sales information is useful in analyzing
revenues, because franchisees pay royalties that are based on a percentage
of franchise retail sales. Management reviews comparable industry global
retail sales information to assess business trends and to track the growth
of the Domino's Pizza(R) brand. In addition, 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.
Additionally, 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 8,641 franchised and Company-owned stores in the
United States and more than 55 countries. The Domino's Pizza(R) brand,
named a Megabrand by Advertising Age magazine, had global retail sales of
over $5.4 billion in 2007, comprised of $3.2 billion domestically and $2.2
billion internationally. During the first quarter of 2008, the Domino's
Pizza(R) brand had global retail sales of $1.3 billion, comprised of
approximately $735 million domestically and approximately $575 million
internationally. Domino's Pizza was named "Chain of the Year" by
Pizza Today magazine, the leading publication of the pizza industry and is
the "Official Pizza of NASCAR(R)." Customers can place orders
online in English and Spanish by visiting www.dominos.com or from a
Web-enabled cell phone by visiting mobile.dominos.com. More information on
the Company, in English and Spanish, can be found on the Web at
www.dominos.com
. Domino's Pizza. You Got 30 Minutes(TM).
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Fiscal Quarter Ended
% of % of
March 23, Total March 25, Total
2008 Revenues 2007 Revenues
(In thousands, except per
share data)
Revenues:
Domestic Company-owned stores $93,047 $95,540
Domestic franchise 36,386 37,517
Domestic supply chain 176,189 179,885
International 33,390 26,379
Total revenues 339,012 100.0% 339,321 100.0%
Cost of sales:
Domestic Company-owned stores 75,511 75,643
Domestic supply chain 160,626 161,417
International 14,840 11,191
Total cost of sales 250,977 74.0% 248,251 73.2%
Operating margin 88,035 26.0% 91,070 26.8%
General and administrative 38,685 11.4% 40,338 11.9%
Income from operations 49,350 14.6% 50,732 14.9%
Interest expense, net (25,818) (7.6)% (23,893) (7.0)%
Other - - (13,294) (3.9)%
Income before provision for
income taxes 23,532 6.9% 13,545 4.0%
Provision for income taxes 9,413 2.8% 5,147 1.5%
Net income $14,119 4.2% $8,398 2.5%
Earnings per share:
Common stock - diluted $0.23 $0.13
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 23, December 30,
2008 2007
(In thousands)
Assets
Current assets:
Cash and cash equivalents $3,325 $11,344
Restricted cash 82,754 80,951
Accounts receivable 69,333 68,446
Inventories 22,128 24,931
Advertising fund assets, restricted 20,574 20,683
Other assets 19,855 20,527
Total current assets 217,969 226,882
Property, plant and equipment, net 118,013 122,890
Other assets 116,890 123,392
Total assets $452,872 $473,164
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term debt $319 $15,312
Accounts payable 57,338 60,411
Advertising fund liabilities 20,574 20,683
Other accrued liabilities 81,730 79,102
Total current liabilities 159,961 175,508
Long-term liabilities:
Long-term debt, less current portion 1,704,692 1,704,771
Other accrued liabilities 38,770 43,024
Total long-term liabilities 1,743,462 1,747,795
Total stockholders' deficit (1,450,551) (1,450,139)
Total liabilities and stockholders' deficit $452,872 $473,164
Domino's Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Fiscal Quarter Ended
March 23, March 25,
2008 2007
(In thousands)
Cash flows from operating activities:
Net income $14,119 $8,398
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization 7,071 7,249
(Gains) losses on sale/disposal of assets (4,169) 598
Amortization of deferred financing costs,
debt discount and other 2,255 10,215
Provision (benefit) for deferred income taxes 1,777 (198)
Non-cash compensation expense 2,065 1,511
Other 199 291
Changes in operating assets and liabilities (3,045) (21,156)
Net cash provided by operating activities 20,272 6,908
Cash flows from investing activities:
Capital expenditures (3,479) (3,566)
Proceeds from sale of assets 8,220 335
Change in restricted cash (1,803) -
Other 520 208
Net cash provided by (used in) investing
activities 3,458 (3,023)
Cash flows from financing activities:
Purchase of common stock (18,427) (67)
Proceeds from issuance of long-term debt 3,000 780,000
Repayments of long-term debt and capital
lease obligation (18,075) (736,656)
Cash paid for financing costs - (22,255)
Tax benefit from stock options 97 1,167
Other 1,618 2,823
Net cash provided by (used in) financing
activities (31,787) 25,012
Effect of exchange rate changes on cash and
cash equivalents 38 (13)
Change in cash and cash equivalents (8,019) 28,884
Cash and cash equivalents, at beginning of period 11,344 38,222
Cash and cash equivalents, at end of period $3,325 $67,106
Source: Domino's Pizza, Inc.
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