Domino’s Pizza: Announces Q4 and FY-2019 Financial Results

Ann Arbor / MG. (dp) Domino’s Pizza Inc., the largest pizza company in the world based on global retail sales, announced results for the fourth quarter and fiscal 2019, comprised of growth in global retail sales, same store sales and earnings per share. Global retail sales increased 6.9 percent in the fourth quarter, or 7.6 percent excluding foreign currency impact. Global retail sales increased 5.7 percent in fiscal 2019, or 8.0 percent excluding foreign currency impact. U.S. same store sales grew 3.4 percent during the quarter and 3.2 percent for the full year, continuing the positive sales momentum in the Company’s U.S. stores business. The international business also posted positive results, with same store sales growth of 1.7 percent during the quarter and 1.9 percent for the full year. The fourth quarter marked the 104th consecutive quarter of international same store sales growth and the 35th consecutive quarter of U.S. same store sales growth.

The Company had fourth quarter global net store growth of 492 stores, comprised of 141 net new U.S. stores and 351 net new international stores. In fiscal 2019, the Company opened 1,106 net new stores, comprised of 250 net new U.S. stores and 856 net new international stores.

Fourth quarter diluted EPS was USD 3.12, up 19.1 percent over the prior year quarter. Fourth quarter diluted EPS, as adjusted, was USD 3.13, up 19.5 percent over the prior year quarter. Fiscal 2019 diluted EPS was USD 9.56, up 14.5 percent over the prior year. Fiscal 2019 diluted EPS, as adjusted, was USD 9.57, up 13.7 percent over the prior year diluted EPS, as adjusted, of USD 8.42.

In connection with the Company’s November 2019 recapitalization transaction discussed below, certain of the Company’s subsidiaries borrowed USD 675.0 million and used a portion of the proceeds to pre-fund a portion of the principal and interest payable on the 2019 Notes, pay transaction fees and expenses and repurchase and retire shares of the Company’s common stock. During the fourth quarter of 2019, the Company repurchased and retired 2,063,378 shares of its common stock in open market repurchases under its Board of Directors-approved share repurchase program for approximately USD 593.9 million.

On February 19, 2020, the Board of Directors declared a USD 0.78 per share quarterly dividend for shareholders of record as of March 13, 2020 to be paid on March 30, 2020. This represents an increase of 20.0 percent over the previous quarterly dividend amount.

«I am extremely proud of the accomplishments of our franchisees and our team members from around the world, not just in the fourth quarter, but throughout all of 2019,» said Ritch Allison, Domino’s Chief Executive Officer. «Our relentless focus on our customers, our franchisees and the long-term growth and profitability of the Domino’s business model helped us deliver a solid 2019 in the face of unique competitive headwinds.»

Fourth Quarter and Fiscal 2019 Highlights

(USD in millions, except per share data)		Q4/2019				Q4/2018				FY-2019				FY-2018
Net income		USD	129.3			USD	111.6			USD	400.7			USD	362.0
Weighted average diluted shares			41,422,831				42,591,025				41,923,062				43,331,278
Diluted EPS		USD	3.12			USD	2.62			USD	9.56			USD	8.35
Items affecting comparability (1)			0.01				—				0.01				0.07
Diluted EPS, as adjusted (1)		USD	3.13			USD	2.62			USD	9.57			USD	8.42

(1)	Refer to the Financial Results Comparability section on page four for additional details. See also the Comments on Regulation G section.

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• Revenues increased USD 68.2 million, or 6.3 percent, in the fourth quarter of 2019. This increase was primarily due to an increase in global store counts during the trailing four quarters as well as U.S. and international same store sales growth, resulting in higher supply chain and U.S. and international franchise revenues. The increase in international franchise revenues was partially offset by the negative impact of changes in foreign currency exchange rates. These increases in revenues were also partially offset by lower U.S. Company-owned store revenues resulting from the previously disclosed sale of 59 U.S. Company-owned stores to certain of our existing U.S. franchisees during the second quarter of 2019.
• Net Income increased USD 17.7 million, or 15.8 percent, in the fourth quarter of 2019. This increase was primarily driven by higher royalty revenues from U.S. and international franchised stores and higher supply chain volumes as well as lower general and administrative expenses. Higher tax benefits from equity-based compensation as compared to the prior year quarter also benefited net income. The increase in net income was partially offset by a higher fourth quarter effective tax rate and higher net interest expense as a result of the Company’s November 2019 recapitalization transaction discussed below.
• Diluted EPS was USD 3.12 for the fourth quarter versus USD 2.62 in the prior year quarter. This represents a USD 0.50, or 19.1 percent, increase over the prior year quarter. Diluted EPS, as adjusted, was USD 3.13 for the fourth quarter. This represents a USD 0.51, or 19.5 percent, increase over the prior year quarter. The increase in diluted EPS was driven by higher net income, as well as lower diluted share count, primarily resulting from the Company’s share repurchases during the trailing four quarters.

The table below outlines certain statistical measures utilized by the Company to analyze its performance. Refer to the Comments on Regulation G section for additional details.

Q4/2019

Q4/2018

FY-2019

FY-2018

Same store sales growth: (versus prior year period)

U.S. Company-owned stores (1)

+ 3.9

%

+ 3.6

%

+ 2.8

%

+ 4.8

%

U.S. franchise stores (1)

+ 3.3

%

+ 5.7

%

+ 3.2

%

+ 6.8

%

U.S. stores

+ 3.4

%

+ 5.6

%

+ 3.2

%

+ 6.6

%

International stores (excluding foreign currency impact)

+ 1.7

%

+ 2.4

%

+ 1.9

%

+ 3.5

%

Global retail sales growth: (versus prior year period)

U.S. stores

+ 6.8

%

+10.2

%

+6.9

%

+11.2

%

International stores

+ 7.0

%

+3.3

%

+ 4.6

%

+9.9

%

Total

+ 6.9

%

+6.5

%

+ 5.7

%

+10.6

%

Global retail sales growth: (versus prior year period, excluding foreign currency impact)

U.S. stores

+ 6.8

%

+10.2

%

+6.9

%

+11.2

%

International stores

+ 8.4

%

+8.9

%

+ 9.0

%

+10.4

%

Total

+ 7.6

%

+9.5

%

+8.0

%

+10.8

%

(1)	As previously disclosed, during the second quarter of 2019, the Company sold 59 U.S. Company-owned stores to certain of its existing U.S. franchisees. The same store sales growth for these stores is reflected in U.S. franchise stores in fiscal 2019.

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		U.S. Company- owned Stores				U.S. Franchise Stores				Total U.S. Stores				International Stores				Total
Store counts:
Store count at September 8, 2019			333				5,652				5,985				10,543				16,528
Openings			9				137				146				382				528
Closings			—				(5)				(5)				(31)				(36)
Store count at December 29, 2019			342				5,784				6,126				10,894				17,020
Fourth quarter 2019 net store growth			9				132				141				351				492
Fiscal 2019 net store growth (1)			11				239				250				856				1,106

(1)	Fiscal 2019 net store growth does not include the effect of transfers. In the second quarter of 2019, the Company sold a total of 59 U.S. Company-owned stores to certain of its existing U.S. franchisees.

.

Two- to Three-Year Outlook

The Company does not provide quarterly or annual earnings guidance or estimates. The following two- to three-year outlook does not constitute specific earnings guidance. In January 2020, the Company reaffirmed its two- to three-year outlook as follows:

	Current Outlook
Global retail sales growth (1)	7% – 10%
U.S. same store sales growth	2% – 5%
International same store sales growth (1)	1% – 4%
Global net unit growth	6% – 8%
(1) Excluding foreign currency impact.

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2019 Recapitalization

On November 19, 2019, the Company completed a recapitalization transaction in which certain of the Company’s subsidiaries issued new notes pursuant to an asset-backed securitization. The new notes consist of USD 675.0 million Series 2019-1 3.668 percent Fixed Rate Senior Secured Notes, Class A-2 with an anticipated term of 10 years. The Company also entered into a new USD 200.0 million variable funding note facility, which replaced its previous USD 175.0 million variable funding note facility.

A portion of the proceeds from the 2019 Recapitalization was used to pre-fund a portion of the principal and interest payable on the 2019 Notes, pay transaction fees and expenses and repurchase and retire shares of the Company’s common stock. In connection with the 2019 Recapitalization, the Company incurred certain expenses that are outlined in the items affecting comparability table on page four. Additionally, the Company capitalized USD 8.1 million of debt issuance costs, which are being amortized into interest expense over the expected term of the 2019 Notes.

Financial Results Comparability

Financial results for the Company can be significantly affected by changes in our capital structure, our effective tax rate, adoption of new accounting pronouncements, store portfolio changes and other factors. Our recapitalization transactions have historically resulted in higher net interest expense due primarily to higher net debt levels, as well as the amortization of debt issuance costs associated with the repayment of certain of the Company’s notes. Additionally, repurchases and retirements of the Company’s common stock pursuant to our share repurchase programs have reduced our weighted average diluted shares outstanding.

In addition to the above factors impacting comparability, the table below presents certain other items that affect comparability between the Company’s 2019 and 2018 financial results. Management believes that including such information is critical to an understanding of the Company’s financial results for the fourth quarter of 2019 and fiscal 2019 as compared to the same periods in 2018.

Fourth Quarter Ended December 29, 2019

Fiscal Year Ended December 29, 2019

(in thousands, except per share data)

Pre-tax

After-tax

Diluted EPS Impact

Pre-tax

After-tax

Diluted EPS Impact

2019 items affecting comparability:

Recapitalization expenses:

General and administrative expenses (1)

USD

(509)

USD

(396)

USD

(0.01)

USD

(509)

USD

(396)

USD

(0.01)

Total of 2019 items

USD

(509)

USD

(396)

USD

(0.01)

USD

(509)

USD

(396)

USD

(0.01)

.

		Fourth Quarter Ended December 30, 2018												Fiscal Year Ended December 30, 2018
(in thousands, except per share data)		Pre-tax				After-tax				Diluted EPS Impact				Pre-tax				After-tax				Diluted EPS Impact
2018 items affecting comparability:
Recapitalization expenses:
General and administrative expenses (2)		USD	—			USD	—			USD	—			USD	(532)			USD	(411)			USD	(0.01)
Interest expense (3)			—				—				—				(142)				(110)				(0.00)
Debt issuance cost write-off (4)			—				—				—				(3,164)				(2,446)				(0.06)
Total of 2018 items		USD	—			USD	—			USD	—			USD	(3,838)			USD	(2,967)			USD	(0.07)

(1)	Represents legal, professional and administrative fees incurred in connection with the Company’s 2019 Recapitalization.
(2)	Represents legal, professional and administrative fees incurred in connection with the Company’s 2018 recapitalization transaction in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consisted of USD 425.0 million of Series 2018-1 4.116 percent Fixed Rate Senior Secured Notes, Class A-2-I and USD 400.0 million of Series 2018-1 4.328 percent Fixed Rate Senior Secured Notes, Class A-2-II (collectively, the «2018 Notes»).
(3)	Represents interest expense the Company incurred on its 2015 five-year fixed rate notes subsequent to the closing of the 2018 Recapitalization but prior to the repayment of the 2015 five-year fixed rate notes, resulting in the payment of interest on both the 2015 five-year fixed rate notes and 2018 Notes for a short period of time.
(4)	Represents the write-off of debt issuance costs related to the extinguishment of the 2015 five-year fixed rate notes in connection with the 2018 Recapitalization.

.

Share Repurchases

During the fourth quarter of 2019, the Company repurchased and retired 2,063,378 shares of its common stock in open market repurchases under its Board of Directors-approved share repurchase program for approximately USD 593.9 million. As of December 29, 2019, the Company’s total remaining authorized amount for share repurchases under such program was approximately USD 406.1 million. Subsequent to the fourth quarter and through February 13, 2020, the Company repurchased and retired an additional 271,064 shares of common stock for a total of approximately USD 79.6 million.

Liquidity

As of December 29, 2019, the Company had approximately:

• USD 190.6 million of unrestricted cash and cash equivalents;
• USD 4.11 billion in total debt; and
• USD 158.6 million of available borrowings under its USD 200.0 million variable funding note facility, net of letters of credit issued of USD 41.4 million.

Net cash provided by operating activities was USD 497.0 million during fiscal 2019. The Company invested USD 85.6 million in capital expenditures during fiscal 2019. Free cash flow, as reconciled below to net cash provided by operating activities, as determined under accounting principles generally accepted in the United States of America (GAAP), was approximately USD 411.4 million during fiscal 2019 (refer to Comments on Regulation G section below for additional details).

(in thousands)		Fiscal Year Ended December 29, 2019
Net cash provided by operating activities		USD	496,950
Capital expenditures			(85,565)
Free cash flow		USD	411,385

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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, including free cash flow metrics and measures related to items affecting comparability between fiscal quarters and other fiscal periods such as diluted EPS, as adjusted. The Company has also included metrics such as global retail sales, global retail sales growth, global retail sales growth, excluding foreign currency impact 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 «Global retail sales» to refer to total worldwide retail sales at Company-owned and franchise stores. The Company believes global retail sales information is useful in analyzing revenues because franchisees pay royalties and advertising fees that are based on a percentage of franchise retail sales. The Company reviews comparable industry global retail sales information to assess business trends and to track the growth of the Domino’s Pizza® brand. In addition, supply chain revenues are directly impacted by changes in franchise retail sales. Retail sales for franchise stores are reported to the Company by its franchisees and are not included in Company revenues. «Global retail sales growth» is calculated as the change of U.S. Dollar global retail sales against the comparable period of the prior year. «Global retail sales growth, excluding foreign currency impact» is calculated as the change of international local currency global retail sales against the comparable period of the prior year.

The Company uses «Same store sales growth», which is 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 U.S. same store sales growth. Changes in international same store sales are reported excluding foreign currency impacts, which reflect changes in international local currency sales.

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. The most directly comparable financial measure calculated and presented in accordance with GAAP is diluted EPS. The Company 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 diluted EPS, as adjusted, to internally evaluate operating performance, to evaluate itself against its peers and in 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 «Free cash flow», which is calculated as net cash provided by operating activities, less capital expenditures, both as reported under GAAP. The Company 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 or paying dividends.