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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 10, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32242

Domino’s Pizza, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

38-2511577

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

30 Frank Lloyd Wright Drive

Ann Arbor, Michigan

48105

(Address of Principal Executive Offices)

(Zip Code)

(734) 930-3030

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Domino’s Pizza, Inc. Common Stock, $0.01 par value

DPZ

New York Stock Exchange

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of October 5, 2023, Domino’s Pizza, Inc. had 34,880,983 shares of common stock, par value $0.01 per share, outstanding.

 


 

Domino’s Pizza, Inc.

TABLE OF CONTENTS

Page No.

PART I.

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) – As of September 10, 2023 and January 1, 2023

3

 

 

 

Condensed Consolidated Statements of Income (Unaudited) – Fiscal quarter and three fiscal quarters ended September 10, 2023 and September 11, 2022

4

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Fiscal quarter and three fiscal quarters ended September 10, 2023 and September 11, 2022

5

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Three fiscal quarters ended September 10, 2023 and September 11, 2022

6

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 3.

Defaults Upon Senior Securities

28

 

 

 

Item 4.

Mine Safety Disclosures

28

 

 

 

Item 5.

Other Information

28

 

 

 

Item 6.

Exhibits

29

 

 

SIGNATURES

30

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands)

 

September 10, 2023

 

 

January 1, 2023 (1)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

80,879

 

 

$

60,356

 

Restricted cash and cash equivalents

 

 

202,307

 

 

 

191,289

 

Accounts receivable, net

 

 

249,995

 

 

 

257,492

 

Inventories

 

 

69,683

 

 

 

81,570

 

Prepaid expenses and other

 

 

41,257

 

 

 

37,287

 

Advertising fund assets, restricted

 

 

151,511

 

 

 

162,660

 

Total current assets

 

 

795,632

 

 

 

790,654

 

Property, plant and equipment:

 

 

 

 

 

 

Land and buildings

 

 

105,721

 

 

 

105,659

 

Leasehold and other improvements

 

 

177,350

 

 

 

172,725

 

Equipment

 

 

353,536

 

 

 

333,787

 

Construction in progress

 

 

16,264

 

 

 

22,536

 

 

 

652,871

 

 

 

634,707

 

Accumulated depreciation and amortization

 

 

(362,480

)

 

 

(332,472

)

Property, plant and equipment, net

 

 

290,391

 

 

 

302,235

 

Other assets:

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

209,934

 

 

 

219,202

 

Goodwill

 

 

11,688

 

 

 

11,763

 

Capitalized software, net

 

 

125,235

 

 

 

108,354

 

Investment in DPC Dash

 

 

139,107

 

 

 

125,840

 

Deferred income tax assets, net

 

 

5,858

 

 

 

1,926

 

Other assets

 

 

41,619

 

 

 

42,247

 

Total other assets

 

 

533,441

 

 

 

509,332

 

Total assets

 

$

1,619,464

 

 

$

1,602,221

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

55,847

 

 

$

54,813

 

Accounts payable

 

 

101,058

 

 

 

89,715

 

Operating lease liabilities

 

 

38,645

 

 

 

34,877

 

Insurance reserves

 

 

29,791

 

 

 

31,435

 

Dividends payable

 

 

43,445

 

 

 

866

 

Advertising fund liabilities

 

 

147,335

 

 

 

157,909

 

Other accrued liabilities

 

 

146,820

 

 

 

167,006

 

Total current liabilities

 

 

562,941

 

 

 

536,621

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt, less current portion

 

 

4,931,924

 

 

 

4,967,420

 

Operating lease liabilities

 

 

183,031

 

 

 

195,244

 

Insurance reserves

 

 

37,797

 

 

 

40,179

 

Deferred income tax liabilities

 

 

 

 

 

7,761

 

Other accrued liabilities

 

 

45,313

 

 

 

44,061

 

Total long-term liabilities

 

 

5,198,065

 

 

 

5,254,665

 

Stockholders’ deficit:

 

 

 

 

 

 

Common stock

 

 

349

 

 

 

354

 

Additional paid-in capital

 

 

959

 

 

 

9,693

 

Retained deficit

 

 

(4,137,753

)

 

 

(4,194,418

)

Accumulated other comprehensive loss

 

 

(5,097

)

 

 

(4,694

)

Total stockholders’ deficit

 

 

(4,141,542

)

 

 

(4,189,065

)

Total liabilities and stockholders’ deficit

 

$

1,619,464

 

 

$

1,602,221

 

 

(1) The condensed consolidated balance sheet at January 1, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 

 

 

Fiscal Quarter Ended

 

 

Three Fiscal Quarters Ended

 

 

 

September 10,

 

 

September 11,

 

 

September 10,

 

 

September 11,

 

(In thousands, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Company-owned stores

 

$

86,277

 

 

$

112,388

 

 

$

258,882

 

 

$

328,785

 

U.S. franchise royalties and fees

 

 

138,322

 

 

 

128,878

 

 

 

410,454

 

 

 

379,261

 

Supply chain

 

 

618,086

 

 

 

646,082

 

 

 

1,858,023

 

 

 

1,902,215

 

International franchise royalties and fees

 

 

73,142

 

 

 

67,055

 

 

 

213,308

 

 

 

202,803

 

U.S. franchise advertising

 

 

111,534

 

 

 

114,193

 

 

 

335,719

 

 

 

331,863

 

Total revenues

 

 

1,027,361

 

 

 

1,068,596

 

 

 

3,076,386

 

 

 

3,144,927

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Company-owned stores

 

 

72,614

 

 

 

98,589

 

 

 

214,609

 

 

 

280,029

 

Supply chain

 

 

556,578

 

 

 

588,157

 

 

 

1,673,405

 

 

 

1,728,159

 

Total cost of sales

 

 

629,192

 

 

 

686,746

 

 

 

1,888,014

 

 

 

2,008,188

 

Gross margin

 

 

398,169

 

 

 

381,850

 

 

 

1,188,372

 

 

 

1,136,739

 

General and administrative

 

 

97,203

 

 

 

91,205

 

 

 

290,186

 

 

 

285,769

 

U.S. franchise advertising

 

 

111,534

 

 

 

114,193

 

 

 

335,719

 

 

 

331,863

 

Refranchising loss

 

 

 

 

 

 

 

 

149

 

 

 

 

Income from operations

 

 

189,432

 

 

 

176,452

 

 

 

562,318

 

 

 

519,107

 

Other income

 

 

28,231

 

 

 

 

 

 

13,267

 

 

 

 

Interest income

 

 

2,707

 

 

 

833

 

 

 

7,635

 

 

 

1,101

 

Interest expense

 

 

(44,796

)

 

 

(45,437

)

 

 

(136,275

)

 

 

(137,160

)

Income before provision for income taxes

 

 

175,574

 

 

 

131,848

 

 

 

446,945

 

 

 

383,048

 

Provision for income taxes

 

 

27,898

 

 

 

31,344

 

 

 

85,119

 

 

 

89,087

 

Net income

 

$

147,676

 

 

$

100,504

 

 

$

361,826

 

 

$

293,961

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

$

4.22

 

 

$

2.82

 

 

$

10.28

 

 

$

8.20

 

Common stock - diluted

 

$

4.18

 

 

$

2.79

 

 

$

10.19

 

 

$

8.11

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

4


 

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Fiscal Quarter Ended

 

 

Three Fiscal Quarters Ended

 

 

 

September 10,

 

 

September 11,

 

 

September 10,

 

 

September 11,

 

(In thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

147,676

 

 

$

100,504

 

 

$

361,826

 

 

$

293,961

 

Currency translation adjustment

 

 

(1,330

)

 

 

47

 

 

 

(403

)

 

 

(1,023

)

Comprehensive income

 

$

146,346

 

 

$

100,551

 

 

$

361,423

 

 

$

292,938

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Fiscal Quarters Ended

 

 

 

September 10,

 

 

September 11,

 

(In thousands)

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

361,826

 

 

$

293,961

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

54,999

 

 

 

56,026

 

Refranchising loss

 

 

149

 

 

 

 

Loss on sale/disposal of assets

 

 

547

 

 

 

475

 

Amortization of debt issuance costs

 

 

3,858

 

 

 

3,937

 

(Benefit) provision for deferred income taxes

 

 

(12,191

)

 

 

5,912

 

Non-cash equity-based compensation expense

 

 

26,507

 

 

 

21,590

 

Excess tax benefits from equity-based compensation

 

 

(2,973

)

 

 

(907

)

Provision for losses on accounts and notes receivable

 

 

1,342

 

 

 

2,870

 

Unrealized gain on investments

 

 

(13,267

)

 

 

 

Changes in operating assets and liabilities

 

 

7,682

 

 

 

(49,288

)

Changes in advertising fund assets and liabilities, restricted

 

 

(6,349

)

 

 

(4,422

)

Net cash provided by operating activities

 

 

422,130

 

 

 

330,154

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(59,271

)

 

 

(50,508

)

Purchase of franchise operations and other assets

 

 

 

 

 

(6,814

)

Other

 

 

(743

)

 

 

(1,375

)

Net cash used in investing activities

 

 

(60,014

)

 

 

(58,697

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

 

 

120,000

 

Repayments of long-term debt and finance lease obligations

 

 

(41,349

)

 

 

(41,441

)

Proceeds from exercise of stock options

 

 

5,806

 

 

 

1,296

 

Purchases of common stock

 

 

(210,847

)

 

 

(293,739

)

Tax payments for restricted stock upon vesting

 

 

(5,240

)

 

 

(10,691

)

Payments of common stock dividends and equivalents

 

 

(85,564

)

 

 

(79,689

)

Net cash used in financing activities

 

 

(337,194

)

 

 

(304,264

)

Effect of exchange rate changes on cash

 

 

(304

)

 

 

(611

)

Change in cash and cash equivalents, restricted cash and cash equivalents

 

 

24,618

 

 

 

(33,418

)

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

60,356

 

 

 

148,160

 

Restricted cash and cash equivalents, beginning of period

 

 

191,289

 

 

 

180,579

 

Cash and cash equivalents included in advertising fund assets, restricted,
   beginning of period

 

 

143,559

 

 

 

161,741

 

Cash and cash equivalents, restricted cash and cash equivalents and cash and
   cash equivalents included in advertising fund assets, restricted, beginning of period

 

 

395,204

 

 

 

490,480

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

 

80,879

 

 

 

114,776

 

Restricted cash and cash equivalents, end of period

 

 

202,307

 

 

 

184,564

 

Cash and cash equivalents included in advertising fund assets, restricted,
   end of period

 

 

136,636

 

 

 

157,722

 

Cash and cash equivalents, restricted cash and cash equivalents and cash and
   cash equivalents included in advertising fund assets, restricted, end of period

 

$

419,822

 

 

$

457,062

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

Domino’s Pizza, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited; tabular amounts in thousands, except percentages, share and per share amounts)

September 10, 2023

 

 

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended January 1, 2023 included in the Company’s 2022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2023 (the “2022 Form 10-K”).

In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter and three fiscal quarters ended September 10, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023.

 

2. Segment Information

 

The following tables summarize revenues and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which the Company refers to as Segment Income, for each of its reportable segments. Intersegment revenues are comprised of sales of food, equipment and supplies from the supply chain segment to the Company-owned stores in the U.S. stores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income below primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.

 

 

Fiscal Quarters Ended September 10, 2023 and September 11, 2022

 

 

 

U.S.

 

 

Supply

 

 

International

 

 

Intersegment

 

 

 

 

 

 

 

 

 

Stores

 

 

Chain

 

 

Franchise

 

 

Revenues

 

 

Other

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

$

336,133

 

 

$

643,728

 

 

$

73,142

 

 

$

(25,642

)

 

$

 

 

$

1,027,361

 

2022

 

 

355,459

 

 

 

683,267

 

 

 

67,055

 

 

 

(37,185

)

 

 

 

 

 

1,068,596

 

Segment Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

$

120,351

 

 

$

55,250

 

 

$

61,495

 

 

N/A

 

 

$

(19,809

)

 

$

217,287

 

2022

 

 

100,529

 

 

 

49,892

 

 

 

53,762

 

 

N/A

 

 

 

(2,919

)

 

 

201,264

 

 

 

 

Three Fiscal Quarters Ended September 10, 2023 and September 11, 2022

 

 

 

U.S.

 

 

Supply

 

 

International

 

 

Intersegment

 

 

 

 

 

 

 

 

 

Stores

 

 

Chain

 

 

Franchise

 

 

Revenues

 

 

Other

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

$

1,005,055

 

 

$

1,935,332

 

 

$

213,308

 

 

$

(77,309

)

 

$

 

 

$

3,076,386

 

2022

 

 

1,039,909

 

 

 

2,008,526

 

 

 

202,803

 

 

 

(106,311

)

 

 

 

 

 

3,144,927

 

Segment Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

$

356,626

 

 

$

163,791

 

 

$

178,499

 

 

N/A

 

 

$

(54,396

)

 

$

644,520

 

2022

 

 

301,876

 

 

 

149,874

 

 

 

161,698

 

 

N/A

 

 

 

(16,250

)

 

 

597,198

 

In the first quarter of 2023, the Company changed its allocation methodology for certain costs which support certain internally developed software used across the Company’s franchise system. This allocation methodology change was implemented in order to reflect the way the chief operating decision maker allocates resources to the Company’s reportable segments and evaluates segment profitability, including the costs of internally developed software.

The change in allocation methodology of certain software development costs resulted in an estimated increase in U.S. stores Segment Income of $15.9 million, an estimated increase in international franchise Segment Income of $2.0 million and an estimated decrease in other Segment Income of $17.9 million in the third quarter of 2023. The change in allocation methodology of certain software development costs resulted in an estimated increase in U.S. stores Segment Income of $41.8 million, an estimated increase in international franchise Segment Income of $5.9 million and an estimated decrease in other Segment Income of $47.7 million in the three fiscal quarters of 2023. The change in allocation methodology of certain software development costs had no impact on revenues, supply chain Segment Income or total Segment Income. The change in allocation methodology for certain software development costs is a prospective change and the comparative information has not been restated.

7


 

The following table reconciles total Segment Income to consolidated income before provision for income taxes.

 

 

 

Fiscal Quarter Ended

 

 

Three Fiscal Quarters Ended

 

 

 

September 10,

 

 

September 11,

 

 

September 10,

 

 

September 11,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total Segment Income

 

$

217,287

 

 

$

201,264

 

 

$

644,520

 

 

$

597,198

 

Depreciation and amortization

 

 

(18,268

)

 

 

(18,933

)

 

 

(54,999

)

 

 

(56,026

)

Refranchising loss

 

 

 

 

 

 

 

 

(149

)

 

 

 

Loss on sale/disposal of assets

 

 

(145

)

 

 

(27

)

 

 

(547

)

 

 

(475

)

Non-cash equity-based compensation expense

 

 

(9,442

)

 

 

(5,852

)

 

 

(26,507

)

 

 

(21,590

)

Income from operations

 

 

189,432

 

 

 

176,452

 

 

 

562,318

 

 

 

519,107

 

Other income

 

 

28,231

 

 

 

 

 

 

13,267

 

 

 

 

Interest income

 

 

2,707

 

 

 

833

 

 

 

7,635

 

 

 

1,101

 

Interest expense

 

 

(44,796

)

 

 

(45,437

)

 

 

(136,275

)

 

 

(137,160

)

Income before provision for income taxes

 

$

175,574

 

 

$

131,848

 

 

$

446,945

 

 

$

383,048

 

 

3. Earnings Per Share

 

 

 

Fiscal Quarter Ended

 

 

Three Fiscal Quarters Ended