Ann Arbor / MG. (dp) Domino’s Pizza Inc., the largest pizza company in the world based on global retail sales, announced results for the third quarter. Global retail sales increased 14.4 percent in the third quarter, or 14.8 percent excluding foreign currency impact. U.S. same store sales grew 17.5 percent during the quarter versus the year-ago period and were positively impacted by customer ordering behavior during the Covid-19 pandemic, continuing the positive sales momentum in the Company’s U.S. stores business. The international business also posted positive same store sales results, with growth of 6.2 percent during the quarter. The third quarter marked the 107th consecutive quarter of international same store sales growth and the 38th consecutive quarter of U.S. same store sales growth.
During the quarter, the Company reported 209 gross new stores and 83 net new stores, comprised of 44 net new U.S. stores and 39 net new international stores. The Company’s net store growth reflects the closure of 126 stores, primarily in India. The number of temporary store closures in certain of the Company’s international markets declined during the third quarter of 2020. Based on information reported to the Company by its master franchisees, the Company estimates that as of October 05, 2020, there were fewer than 300 international stores temporarily closed.
Diluted EPS for the third quarter was USD 2.49, up 21.5 percent over the prior year quarter.
On October 06, 2020, the Company’s Board of Directors declared a USD 0.78 per share quarterly dividend for shareholders of record as of December 15, 2020 to be paid on December 30, 2020.
«I am extremely proud of our global franchisees, operators and corporate teams for their relentless passion and energy as we continue to navigate through the pandemic,» said Ritch Allison, Domino’s Chief Executive Officer. «Our strong third quarter results once again demonstrated our focus on value, service, quality and innovation to meet customer needs.»
Third Quarter Highlights – Unaudited
| (USD in millions, except per share data) | Q3/2020 | Q3/2019 | 9M-2020 | 9M-2019 | ||||||||
| Net income | USD | 99.1 | USD | 86.4 | USD | 339.4 | USD | 271.4 | ||||
| Weighted average diluted shares | 39,791,805 | 42,040,291 | 39,724,289 | 42,158,447 | ||||||||
| Diluted EPS | USD | 2.49 | USD | 2.05 | USD | 8.54 | USD | 6.44 | ||||
- Revenues increased USD 146.9 million, or 17.9 percent, in the third quarter of 2020. This increase was primarily due to higher U.S. retail sales resulting from same store sales growth and an increase in store counts during the trailing four quarters, resulting in higher supply chain, U.S. franchise and U.S. Company-owned stores revenues.
- Net Income increased USD 12.8 million, or 14.8 percent, in the third quarter of 2020. This increase was primarily driven by higher income from operations resulting from increased U.S. franchise revenues as well as higher supply chain volumes, partially offset by higher variable performance-based compensation expense as well as Covid-related costs, including additional compensation and enhanced sick pay for frontline workers. A lower effective tax rate as compared to the prior year quarter driven by higher tax benefits from equity-based compensation also resulted in an increase in net income. The increase in net income was partially offset by higher net interest expense resulting from a higher average debt balance and to a lesser extent, borrowings under the Company’s variable funding notes.
- Diluted EPS was USD 2.49 for the third quarter of 2020 versus USD 2.05 in the prior year quarter. This represents a USD 0.44, or 21.5 percent, increase over the prior year quarter. The increase in diluted EPS was driven by higher net income, as well as a lower weighted average 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 (unaudited). Refer to the Comments on Regulation G section below for additional details.
Same store sales growth versus prior year period
| Q3/2020 | Q3/2019 | |||||
| U.S. franchise stores | +17.5 | % | +2.5 | % | ||
| U.S. stores | +17.5 | % | +2.4 | % | ||
| International stores (excluding foreign currency impact) | +6.2 | % | +1.7 | % | ||
| . | ||||||
| Global retail sales growth: (versus prior year period) | ||||||
| U.S. stores | +21.3 | % | +6.0 | % | ||
| International stores | +7.7 | % | +5.7 | % | ||
| Total | +14.4 | % | +5.8 | % | ||
| . | ||||||
| Global retail sales growth: (versus prior year period, excluding foreign currency impact) | ||||||
| U.S. stores | +21.3 | % | +6.0 | % | ||
| International stores | +8.5 | % | +9.1 | % | ||
| Total | +14.8 | % | +7.5 | % | ||
Store Counts
| Kind of counted stores | U.S. Company- owned | U.S. Franchise | Total U.S. | International | Total | |||||||
| Store count at June 14, 2020 | 346 | 5,849 | 6,195 | 10,978 | 17,173 | |||||||
| Openings | 2 | 45 | 47 | 162 | 209 | |||||||
| Closings (1) | – | (3) | (3) | (123) | (126) | |||||||
| Store count at September 6, 2020 | 348 | 5,891 | 6,239 | 11,017 | 17,256 | |||||||
| Third quarter 2020 net store growth | 2 | 42 | 44 | 39 | 83 | |||||||
| Trailing four quarters net store growth | 15 | 239 | 254 | 474 | 728 | |||||||
(1)Temporary store closures are not treated as store closures and affected stores are included in the ending store count.
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Liquidity and Use of Cash Update
As of September 6, 2020, the Company had approximately:
- USD 330.7 million of unrestricted cash and cash equivalents;
- USD 4.11 billion in total debt; and
- USD 160.0 million of available borrowings under its USD 200.0 million variable funding notes, net of letters of credit issued of USD 40.0 million and borrowings outstanding of less than USD 0.1 million.
As previously disclosed, given the market uncertainty arising from Covid-19, the Company took a precautionary measure and borrowed USD 158.0 million under its variable funding notes in the second quarter of 2020. The Company repaid USD 100.0 million of these borrowings in the second quarter of 2020 and approximately USD 58.0 million in the third quarter of 2020.
Net cash provided by operating activities was USD 370.4 million during the three fiscal quarters of 2020. The Company invested USD 51.2 million in capital expenditures during the three fiscal quarters of 2020. 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 319.2 million during the three fiscal quarters of 2020 (refer to the Comments on Regulation G section below for additional details).
| (in thousands) | Three Fiscal Quarters of 2020 | |||
| Net cash provided by operating activities | USD | 370,399 | ||
| Capital expenditures | (51,163) | |||
| Free cash flow | USD | 319,236 | ||
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. 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 for a given period by including only sales from stores that had sales in the comparable weeks of both years. 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 «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.
