Ann Arbor / MG. (dp) Domino’s Pizza Inc., the recognized world leader in pizza delivery, announced results for the third quarter of 2017, comprised of strong growth in same store sales, global store counts and earnings per share. Domestic same store sales grew 8.4 percent during the quarter versus the year-ago period, which represents the 26th consecutive quarter of positive sales momentum in the Company’s domestic business. International same store sales grew 5.1 percent during the quarter, marking the 95th consecutive quarter of positive international same store sales growth. The Company had global net store growth of 217 stores in the quarter, comprised of 53 net new domestic stores and 164 net new stores internationally, and has added 1’182 net new stores over the trailing four quarters.
Diluted EPS was USD 1.18 for the third quarter, which was up 22.9 percent over the Company’s diluted EPS in the prior year quarter. Management noted that the as-reported diluted EPS for the third quarter was negatively impacted by expenses related to the Company’s recapitalization. Diluted EPS, as adjusted, was USD 1.27 for the third quarter, which was up 32.3 percent over the Company’s diluted EPS in the prior year quarter.
In connection with the Company’s recapitalization, as further discussed below, the Company borrowed USD 1.9 billion, and used a portion of the proceeds to repay its remaining debt under its 2012 fixed rate notes. The Company also entered into a USD 1.0 billion accelerated share repurchase (ASR) agreement with a counterparty, which was completed subsequent to the quarter. In connection with the ASR agreement, the Company will receive and retire a total of 5’218’670 shares of its common stock at an average price of USD 191.62, including 4’558’863 shares of its common stock received and retired during the third quarter.
The Company’s Board of Directors declared a 46-cent per share quarterly dividend for shareholders of record as of September 15, 2017 that was paid on September 29, 2017. The Company’s Board of Directors also declared a 46-cent per share quarterly dividend for shareholders of record as of December 15, 2017, to be paid on December 29, 2017.
«The third quarter was an excellent example of us simply continuing to do what we do best: executing on our long-term strategy, relying upon our strong fundamentals and aligning with our outstanding U.S. and international operators to turn in another quarter of phenomenal results», said J. Patrick Doyle, Domino’s President and Chief Executive Officer. «The momentum behind this business continues to amaze me, proving once again that our domestic and international franchisees are second to none».
Third Quarter Highlights
(USD in millions, except per share data) | Q3/2017 | Q3/2016 | 9M-2017 | 9M-2016 | ||||
Net income | USD | 56.4 | USD | 47.2 | USD | 184.6 | USD | 141.9 |
Weighted average diluted shares | 47’715’788 | 49’242’182 | 49’066’610 | 50’309’217 | ||||
Diluted earnings per share, as reported (1) | USD | 1.18 | USD | 0.96 | USD | 3.76 | USD | 2.82 |
Items affecting comparability (2) | 0.08 | – | 0.08 | – | ||||
Diluted earnings per share, as adjusted (1) (2) | USD | 1.27 | USD | 0.96 | USD | 3.84 | USD | 2.82 |
(1) | In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09), which requires the Company to record excess tax benefits from equity-based compensation as a reduction of the provision for income taxes in the income statement, whereas they were previously recognized in equity. |
(2) | Diluted earnings per share, as adjusted figures may not sum to the total due to the rounding of each individual calculation. |
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- Revenues were up 13.6 percent for the third quarter versus the prior year period, due primarily to higher supply chain revenues from increased volumes. Higher same store sales and store count growth in both our domestic and international markets also contributed to the increase in revenues.
- Net Income increased 19.3 percent for the third quarter versus the prior year period, primarily driven by an increase in same store sales growth and store count as well as higher supply chain volumes. The adoption of the new equity-based compensation accounting standard also positively impacted net income. These increases were partially offset by higher general and administrative expenses, primarily from investments in technological initiatives. Net income was also negatively impacted by expenses related to the Company’s recapitalization.
- Diluted EPS was USD 1.18 for the third quarter versus USD 0.96 in the prior year quarter, which represents a 22-cent or 22.9 percent increase over the prior year quarter. Diluted EPS, as adjusted, was USD 1.27 for the third quarter versus USD 0.96 in the prior year quarter, which represents a 31-cent or 32.3 percent increase over the prior year quarter. These increases were driven by higher net income, as well as lower diluted share count, primarily as a result of the share repurchases made during the trailing four quarters.
The table below outlines certain statistical measures utilized by the Company to analyze its performance.
Q3/2017 | Q3/2016 | |||||
Same store sales growth: (versus prior year period) | ||||||
Domestic Company-owned stores | + 8.4 | % | + 13.8 | % | ||
Domestic franchise stores | + 8.4 | % | + 12.9 | % | ||
Domestic stores | + 8.4 | % | + 13.0 | % | ||
International stores (excluding foreign currency impact) | + 5.1 | % | + 6.6 | % | ||
Global retail sales growth: (versus prior year period) | ||||||
Domestic stores | + 12.0 | % | + 16.2 | % | ||
International stores | + 16.8 | % | + 13.6 | % | ||
Total | + 14.5 | % | + 14.9 | % | ||
Global retail sales growth: (versus prior year period, excluding foreign currency impact) | ||||||
Domestic stores | + 12.0 | % | + 16.2 | % | ||
International stores | + 16.3 | % | + 18.1 | % | ||
Total | + 14.2 | % | + 17.2 | % |
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Domestic Company- owned Stores | Domestic Franchise Stores | Total Domestic Stores | International Stores | Total | ||||||||||||
Store counts: | ||||||||||||||||
Store count at June 18, 2017 | 396 | 5’042 | 5’438 | 8’779 | 14’217 | |||||||||||
Openings | 3 | 52 | 55 | 176 | 231 | |||||||||||
Closings | — | (2) | (2) | (12) | (14) | |||||||||||
Store count at September 10, 2017 | 399 | 5’092 | 5’491 | 8’943 | 14’434 | |||||||||||
Third quarter 2017 net change | 3 | 50 | 53 | 164 | 217 | |||||||||||
Trailing four quarters net change | 12 | 206 | 218 | 964 | 1’182 |
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2017 Recapitalization
On July 24, 2017, the Company completed its recapitalization with the receipt of USD 1.9 billion of gross proceeds. The Company borrowed USD 1.6 billion of fixed rate senior secured notes and USD 300.0 million of floating rate senior secured notes and entered into a new USD 175.0 million variable funding note facility, which replaced its previous USD 125.0 million variable funding note facility. The Company used a portion of the proceeds from the recapitalization to repay the remaining USD 910.5 million in outstanding principal and interest under its 2012 fixed rate notes on July 27, 2017.
Additionally, the Board of Directors authorized a new share repurchase program that allows the Company to repurchase up to USD 1.25 billion of its common stock. This repurchase program replaced the remaining availability of approximately USD 136.4 million under the Company’s previously approved USD 250.0 million share repurchase program. As part of this USD 1.25 billion share repurchase program, the Company entered into a USD 1.0 billion ASR agreement with a counterparty, which was completed subsequent to the quarter. In connection with the ASR agreement, the Company will receive and retire a total of 5’218’670 shares of its common stock at an average price of USD 191.62, including 4’558’863 shares of its common stock received and retired during the third quarter. As of October 12, 2017, the Company had authorization for repurchases of USD 250.0 million remaining under its open market share repurchase program.
The Company incurred certain expenses in connection with the recapitalization that are outlined in the items affecting comparability table below. Separately, the Company also recorded USD 16.8 million of debt issuance costs, which are included as a reduction of long-term debt on the consolidated balance sheet at September 10, 2017 and are expected be amortized into interest expense over the terms of its fixed and floating rate notes.
Adoption of New Accounting Guidance
The Company adopted ASU 2016-09 in the first quarter of 2017. This standard addresses the accounting for income taxes and forfeitures and the cash flow presentation of share-based compensation. The adoption resulted in a USD 3.5 million decrease in our third quarter 2017 provision for income taxes, or a 4.2 percentage point decrease in our third quarter 2017 effective tax rate, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. This item positively impacted our diluted EPS by approximately seven cents in the third quarter of 2017. Refer to the Company’s Form 10-Q for the quarter ended September 10, 2017 for additional detailed information regarding the impact of the adoption of ASU 2016-09.
About Domino’s Pizza
Founded in 1960, Domino’s Pizza is the recognized world leader in pizza delivery, with a significant business in carryout pizza. It ranks among the world’s top public restaurant brands with a global enterprise of more than 14’400 stores in over 85 international markets. Domino’s had global retail sales of nearly USD 10.9 billion in 2016, with more than USD 5.3 billion in the U.S. and more than USD 5.5 billion internationally. In the third quarter of 2017, Domino’s had global retail sales of more than USD 2.8 billion, with nearly USD 1.4 billion in the U.S. and over USD 1.4 billion internationally. Its system is comprised of independent franchise owners who accounted for over 97 percent of Domino’s stores as of the third quarter of 2017. Emphasis on technology innovation helped Domino’s reach an estimated USD 5.6 billion in global digital sales in 2016, and has produced several innovative ordering platforms, including Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and text message using a pizza emoji. In late 2017, as part of an industry-first collaboration with Ford Motor Company, Domino’s began a meaningful test of delivery using self-driving vehicles.