Domino’s Pizza Announces Second Quarter 2012 Financial Results

Strong Earnings on Same Store Sales and Store Growth Worldwide

Domino’s Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the second quarter ended June 17, 2012. The international division continued to generate strong results with net store growth of 111 stores in the quarter and same store sales growth of 5.7% versus the year ago period, marking this division’s 74th consecutive quarter of same store sales growth. Domestic stores also performed well with a same store sales increase of 1.7% versus the year-ago period, as well as net positive store growth of 3 stores. Diluted EPS was 47 cents for the quarter, a 17.5% increase over the second quarter of 2011. During the quarter, the Company also repurchased and retired 1,146,497 shares of its common stock, at a total cost of $36.9 million.

J. Patrick Doyle, Domino’s President and Chief Executive Officer, said: “We’ve posted another solid quarter, with robust international store growth. First half 2012 domestic store economics improved markedly versus last year, which we think contributed to a decrease in U.S. store closures. With a diversified base of nearly 10,000 locations around the globe, we drove steady demand for our brand and sales for our products worldwide.”

Doyle added, “We focused our free cash flow on share repurchases during and subsequent to the second quarter, reaching nearly 80% of our open market repurchase authorization. As a result, our Board recently approved its third authorization, replenishing the program back up to its previous $200 million level. We believe this demonstrates our flexible and consistent approach of deploying cash to benefit shareholders.”

Second Quarter Highlights:
(dollars in millions, except per share data)	Second Quarter of 2012		Second Quarter of 2011		First Two Quarters of 2012		First Two Quarters of 2011
Net income	$ ?28.1		$ ?25.2		$ ?48.8		$ ?52.4
Weighted average diluted shares	59,449,449		63,226,096		59,565,656		62,808,625
Diluted earnings per share, as reported	$ ?0.47		$ ?0.40		$ ?0.82		$ ?0.83
Items affecting comparability (see section below)	$ ? ?-		$ ? ?-		$ ?0.12		$ (0.02)
Diluted earnings per share, as adjusted	$ ?0.47		$ ?0.40		$ ?0.94		$ ?0.82
?Note: Diluted earnings per share figures may not sum to the total due to the rounding of each individual calculation.

• Revenues were down 2.3% for the quarter versus the prior-year period, due primarily to lower domestic supply chain volumes, lower Company-owned store revenues resulting from the sale of Company-owned stores in 2011 and the negative impact on international royalties of changes in foreign currency exchange rates. These decreases were partially offset by higher same store sales in domestic and international stores and store count growth in international markets, which produced incremental royalty revenues.
• Net Income was up 11.3% for the quarter versus the prior-year period, primarily due to domestic and international same store sales growth, international store growth and higher domestic Company-owned store margins. Partially offsetting these increases was the negative impact on international royalties of changes in foreign currency exchange rates. Management noted that net income was down for the first two quarters of 2012 primarily due to expenses incurred in connection with the Company’s 2012 recapitalization.
• Diluted EPS was 47 cents for the quarter versus 40 cents in the prior-year quarter. The seven cent, or 17.5% increase, was primarily due to both domestic and international same store sales growth, international store growth, higher domestic Company-owned store margins and lower weighted average diluted shares outstanding as a result of share repurchases over the trailing four quarters. (See the Items Affecting Comparability section and the Comments on Regulation G section.)
• Global Retail Sales were up 4.3% in the second quarter, or up 7.9% when excluding the impact of foreign currency.

Conference Call Information

The Company will file its quarterly report on Form 10-Q this morning. As previously announced, Domino’s Pizza, Inc. will hold a conference call today at 10 a.m. (Eastern) to review its second quarter 2012 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 webcast at www.dominosbiz.com. If you are unable to participate on the call, a replay will be available for 30 days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International), Conference ID 41247537. The webcast will also be archived for 30 days on www.dominosbiz.com.

Share Repurchases

During the second quarter of 2012, the Company repurchased and retired 1,146,497 shares of its common stock under its Board of Directors-approved open market share repurchase program, at a total cost of approximately $36.9 million, or an average price of $32.15 per share. Subsequent to the second quarter of 2012, the Company repurchased and retired an additional 129,218 shares of its common stock at a total cost of approximately $3.7 million, or an average price of $29.01 per share.

On July 20, 2012, the Board of Directors approved an increase to the Company’s open market share repurchase program (OMR), resulting in a total remaining authorized amount for additional share repurchases of $200.0 million. This marked the third authorization by the Board for the Company’s OMR.

Items Affecting Comparability

The Company’s reported financial results for the first two quarters of 2012 are not comparable to the reported financial results for the equivalent prior-year period. The table below presents certain items affecting comparability between 2012 and 2011 financial results. There were no significant items identified by management that affected comparability between the second quarter of 2012 and the second quarter of 2011. Management believes including such information is critical to the understanding of its financial results for the first two quarters of 2012 as compared to the same period in 2011 (See the Comments on Regulation G section).

In addition to the items noted in the table below, the Company had lower weighted average diluted shares outstanding that resulted in an increase in diluted EPS of approximately three cents in the second quarter of 2012 and five cents in the first two quarters of 2012.

		First Two Quarters
(in thousands, except per share data)		Pre-tax		After-tax		Diluted EPS Impact
2012 items affecting comparability:
Recapitalization expenses:
?? General and administrative expenses (1)		$ ? ? (293)		$ ? (182)		$(0.00)
?? Additional interest expense (2)		(10,222)		(6,348)		(0.11)
????? Subtotal		(10,515)		(6,530)		(0.11)
Deferred tax asset valuation allowance (3)		–		(868)		(0.01)
Total of 2012 items		$(10,515)		$(7,398)		$(0.12)
2011 items affecting comparability:
Gain on the sale of Company-owned stores (4)		$ ? 1,054		$ ? ?648		$ 0.01
Gain on Netherlands operations (5)		678		417		0.01
Total of 2011 items		$ ? 1,732		$ 1,065		$ 0.02
(1) 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 Company’s 2012 recapitalization. (2) Primarily includes the write-off of deferred financing fees related to the extinguishment of the 2007 debt in connection with the Company’s 2012 recapitalization. Additionally, the Company incurred $2.1 million of interest expense on the 2007 borrowings subsequent to the closing of the 2012 recapitalization but prior to the repayment of the 2007 borrowings, essentially paying interest on both the 2007 and 2012 facilities for a short period of time. (3) Represents a valuation allowance recorded on a deferred tax asset related to a capital loss that resulted from a write-off of the tax basis goodwill associated with the sale of the six remaining Company-owned stores in a certain market in the first quarter of 2012. (4) Relates to the sale of 26 Company-owned stores to a franchisee. The gain is net of a reduction in goodwill of approximately $0.4 million. (5) Relates to the recognition of a contingent gain in connection with the previous sale of the Netherlands operations to the current master franchisee. The amount was received by the Company during the first quarter of 2011 as a portion of the contingency was finalized.

Liquidity

As of June 17, 2012, the Company had approximately:

• $10.8 million of unrestricted cash and cash equivalents,
• $1.57 billion in total debt,
• $60.3 million of available borrowings under its $100.0 million variable funding notes, net of letters of credits issued of $39.7 million.

The Company’s cash borrowing rate averaged 5.4% in the second quarter of 2012, versus 5.9% in the second quarter of 2011. The Company invested $8.0 million in capital expenditures during the first two quarters of 2012 versus $8.4 million in the first two quarters of 2011.

During the second quarter of 2012, the Company paid approximately $184.9 million related to the $3.00 per share special dividend and equivalents declared by the Company’s Board of Directors in connection with the 2012 recapitalization.

The Company’s free cash flow, as reconciled below to cash flows from operations as determined under generally accepted accounting principles (GAAP), was approximately $50.1 million in the first two quarters of 2012.

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. The Company has also included metrics such as global retail sales growth and same store sales growth, which are commonly used statistical measures 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 adjusted for the items that affect comparability to the prior year period discussed above. The most directly comparable financial measure calculated and presented in accordance with GAAP is Diluted EPS. 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. Management uses Diluted EPS, as adjusted to internally evaluate operating performance, to evaluate itself against its peers and to determine future performance targets and long-range planning. Additionally, the Company believes that analysts covering the Company’s stock performance generally eliminate these items affecting comparability when preparing their financial models, when determining their published EPS estimates and when benchmarking the Company against its competitors.

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 under GAAP. 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 flow is available for working capital needs or to be used for repurchasing debt, making acquisitions, repurchasing common stock, paying dividends or other similar uses of cash.

Source: Domino’s Pizza