Domino's Pizza® Announces First Quarter 2021 Financial Results

By: Domino's Pizza | 1 Shares 441 Reads

Global retail sales growth (excluding foreign currency impact) of 14.0%
U.S. same store sales growth of 13.4%
International same store sales growth of 11.8%
Global net store growth of 175
Diluted EPS down 2.3% to $3.00
Completed recapitalization transaction in April 2021

ANN ARBOR, Mich., April 29, 2021 // PRNewswire // - Domino's Pizza, Inc. (NYSE: DPZ), the largest pizza company in the world based on global retail sales, announced results for the first quarter. Global retail sales increased 16.7% in the first quarter, or 14.0% excluding foreign currency impact. U.S. same store sales grew 13.4% during the quarter versus the year-ago period, continuing the positive sales momentum in the Company's U.S. stores business. The international business also posted strong results, with same store sales growth of 11.8% during the quarter. The first quarter marked the 109th consecutive quarter of international same store sales growth and the 40th consecutive quarter of U.S. same store sales growth.

The Company had first quarter global net store growth of 175 stores, comprised of 36 net U.S. store openings and 139 net international store openings.

First quarter diluted EPS was $3.00, down 2.3% over the prior year quarter.

Subsequent to the first quarter, on April 27, 2021, the Company's Board of Directors declared a $0.94 per share quarterly dividend on its outstanding common stock for shareholders of record as of June 15, 2021, to be paid on June 30, 2021.

"It was a strong first quarter for the Domino's brand, with balanced growth across all areas of our global business," said Ritch Allison, Domino's Chief Executive Officer. "I applaud our franchisees and operators all across the globe, who once again demonstrated why they are the best in the restaurant business."

First Quarter Highlights (Unaudited):

(dollars in millions, except per share data)	First Quarter of 2021		First Quarter of 2020
Net income	$	117.8	$	121.6
Weighted average diluted shares		39,208,383		39,633,404
Diluted EPS	$	3.00	$	3.07

Revenues increased $110.6 million, or 12.7%, in the first quarter of 2021. This increase was primarily due to U.S. and international same store sales growth and increases in global store counts during the trailing four quarters, resulting in higher supply chain, U.S. stores and international franchise revenues.
Net Income decreased $3.8 million, or 3.2%, in the first quarter of 2021. This decrease was driven by a significantly higher provision for income taxes resulting from lower tax benefits from equity-based compensation due to fewer stock option exercises in the first quarter of 2021 as compared to the first quarter of 2020. Income before provision (benefit) for income taxes increased $32.3 million in the first quarter of 2021 due to higher income from operations resulting from the increases in revenues described above.
Diluted EPS was $3.00 for the first quarter of 2021 versus $3.07 in the prior year quarter. This represents a $0.07, or 2.3%, decrease from the prior year quarter. The decrease in diluted EPS was driven by lower net income and was partially offset by a lower weighted average diluted share count 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 Comments on Regulation G below for additional details.

	First Quarter of 2021			First Quarter of 2020
Same store sales growth: (versus prior year period)
U.S. Company-owned stores		+ 6.3	%		+ 3.9	%
U.S. franchise stores		+ 13.9	%		+ 1.5	%
U.S. stores		+ 13.4	%		+ 1.6	%
International stores (excluding foreign currency impact)		+ 11.8	%		+ 1.5	%

Global retail sales growth: (versus prior year period)
U.S. stores		+ 15.3	%		+ 4.9	%
International stores		+ 18.0	%		+ 3.9	%
Total		+ 16.7	%		+ 4.4	%

Global retail sales growth: (versus prior year period, excluding foreign currency impact)
U.S. stores		+ 15.3	%		+ 4.9	%
International stores		+ 12.8	%		+ 6.8	%
Total		+ 14.0	%		+ 5.9	%

	U.S. Company- owned Stores		U.S. Franchise Stores		Total U.S. Stores		International Stores		Total
Store counts:
Store count at January 3, 2021		363		5,992		6,355		11,289		17,644
Openings		2		35		37		160		197
Closings		(1)		—		(1)		(21)		(22)
Store count at March 28, 2021		364		6,027		6,391		11,428		17,819
First quarter 2021 net store growth		1		35		36		139		175
Trailing four quarters net store growth		19		216		235		495		730

Share Repurchases

During the first quarter of 2021, the Company repurchased and retired 65,870 shares of its common stock in open market repurchases under its Board of Directors-approved share repurchase program for approximately $25.0 million. As of March 28, 2021, the Company had a total remaining authorized amount for share repurchases of $1.0 billion.

Liquidity

As of March 28, 2021, the Company had approximately:

$267.7 million of unrestricted cash and cash equivalents;
$4.12 billion in total debt; and
$157.5 million of available borrowing capacity under its 2019 variable funding notes, net of letters of credit issued of $42.5 million.

Net cash provided by operating activities was $152.9 million during the first quarter of 2021. The Company invested $16.6 million in capital expenditures during the first quarter of 2021. 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 $136.3 million during the first quarter of 2021 (refer to Comments on Regulation G below for additional details).

(in thousands)	First Quarter of 2021
Net cash provided by operating activities	$	152,851
Capital expenditures		(16,561)
Free cash flow	$	136,290

2021 Recapitalization

Subsequent to the end of the first quarter of 2021, on April 16, 2021 (the "closing date"), the Company completed a previously announced $1.85 billion recapitalization transaction, including the issuance by certain of its subsidiaries of $850.0 million of 2.662% fixed rate senior secured notes with an anticipated term of 7.5 years and $1.0 billion of 3.151% fixed rate senior secured notes with an anticipated term of 10 years (collectively, the "2021 Notes").

The Company used a portion of the proceeds from the recapitalization transaction to repay the remaining $291.0 million in outstanding principal under its 2017 five-year floating rate notes and to repay the remaining $582.0 million in outstanding principal under its 2017 five-year fixed rate notes. The proceeds were also used to prefund a portion of the interest payable on the 2021 Notes and pay transaction fees and expenses. The Company expects to use the remaining proceeds for general corporate purposes, which may include distributions to holders of the Company's common stock, other equivalent payments and/or stock repurchases. Certain of the Company's subsidiaries also issued a new $200.0 million variable funding note facility, which was undrawn on the closing date, and the Company's previous variable funding note facility was canceled. For additional information related to this recapitalization transaction, refer to the Company's Current Report on Form 8-K filed on April 20, 2021 and the Company's Form 10-Q for the quarter ended March 28, 2021.

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 by including only sales from stores that also 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.

TABLES TO FOLLOW

Domino's Pizza, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited)

	Fiscal Quarter Ended
	March 28, 2021		% of Total Revenues			March 22, 2020		% of Total Revenues
(In thousands, except per share data)
Revenues:
U.S. Company-owned stores	$	112,744				$	102,326
U.S. franchise royalties and fees		124,486					104,746
Supply chain		568,338					512,700
International franchise royalties and fees		66,770					57,496
U.S. franchise advertising		111,360					95,834
Total revenues		983,698		100.0	%		873,102		100.0	%
Cost of sales:
U.S. Company-owned stores		85,742					79,388
Supply chain		508,805					453,557
Total cost of sales		594,547		60.4	%		532,945		61.0	%
Operating margin		389,151		39.6	%		340,157		39.0	%
General and administrative		91,253		9.3	%		88,489		10.2	%
U.S. franchise advertising		111,360		11.3	%		95,834		11.0	%
Income from operations		186,538		19.0	%		155,834		17.8	%
Other income		2,500		0.2	%		—		0.0	%
Interest expense, net		(39,400)		(4.0)	%		(38,538)		(4.4)	%
Income before provision (benefit) for income taxes		149,638		15.2	%		117,296		13.4	%
Provision (benefit) for income taxes		31,877		3.2	%		(4,306)		(0.5)	%
Net income	$	117,761		12.0	%	$	121,602		13.9	%
Earnings per share:
Common stock – diluted	$	3.00				$	3.07

Domino's Pizza, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)

	March 28, 2021		January 3, 2021
(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	267,719	$	168,821
Restricted cash and cash equivalents		176,029		217,453
Accounts receivable, net		235,789		244,560
Inventories		63,775		66,683
Prepaid expenses and other		20,372		24,169
Advertising fund assets, restricted		162,118		147,698
Total current assets		925,802		869,384
Property, plant and equipment, net		293,369		297,364
Operating lease right-of-use assets		224,359		228,268
Investments		82,500		40,000
Other assets		136,802		132,152
Total assets	$	1,662,832	$	1,567,168
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term debt	$	2,931	$	2,855
Accounts payable		95,042		94,499
Operating lease liabilities		36,058		35,861
Advertising fund liabilities		154,963		141,175
Other accrued liabilities		212,841		196,429
Total current liabilities		501,835		470,819
Long-term liabilities:
Long-term debt, less current portion		4,116,858		4,116,018
Operating lease liabilities		198,640		202,268
Other accrued liabilities		81,579		78,468
Total long-term liabilities		4,397,077		4,396,754
Total stockholders' deficit		(3,236,080)		(3,300,405)
Total liabilities and stockholders' deficit	$	1,662,832	$	1,567,168

Domino's Pizza, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)

	Fiscal Quarter Ended
	March 28, 2021		March 22, 2020
(In thousands)
Cash flows from operating activities:
Net income	$	117,761	$	121,602
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,465		14,032
Loss on sale/disposal of assets		161		306
Amortization of debt issuance costs		1,203		1,291
Provision for deferred income taxes		1,578		702
Non-cash equity-based compensation expense		5,204		4,914
Excess tax benefits from equity-based compensation		(914)		(30,449)
Provision for losses and accounts and notes receivable		180		1,589
Unrealized gain on investments		(2,500)		—
Changes in operating assets and liabilities		(1,634)		(23,119)
Changes in advertising fund assets and liabilities, restricted		15,347		4,490
Net cash provided by operating activities		152,851		95,358
Cash flows from investing activities:
Capital expenditures		(16,561)		(17,467)
Purchase of investments		(40,000)		—
Other		121		(426)
Net cash used in investing activities		(56,440)		(17,893)
Cash flows from financing activities:
Repayments of long-term debt and finance lease obligations		(704)		(10,849)
Proceeds from exercise of stock options		3,693		10,105
Purchases of common stock		(25,000)		(79,590)
Tax payments for restricted stock upon vesting		(1,044)		(1,796)
Payments of common stock dividends and equivalents		(64)		(80)
Other		—		152
Net cash used in financing activities		(23,119)		(82,058)
Effect of exchange rate changes on cash		161		(961)
Change in cash and cash equivalents, restricted cash and cash equivalents		73,453		(5,554)

Cash and cash equivalents, beginning of period		168,821		190,615
Restricted cash and cash equivalents, beginning of period		217,453		209,269
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period		115,872		84,040
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period		502,146		483,924

Cash and cash equivalents, end of period		267,719		200,801
Restricted cash and cash equivalents, end of period		176,029		189,370
Cash and cash equivalents included in advertising fund assets, restricted, end of period		131,851		88,199
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period	$	575,599	$	478,370