10-Q 1 dpz-10q_20150322.htm 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended March 22, 2015

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)

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

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

As of April 16, 2015, Domino’s Pizza, Inc. had 55,192,823 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 March 22, 2015 and December 28, 2014

  

3

 

 

 

 

 

Condensed Consolidated Statements of Income (Unaudited) – Fiscal quarters ended March 22, 2015 and March 23, 2014

  

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) – Fiscal quarters ended March 22, 2015 and March 23, 2014

  

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Fiscal quarters ended March 22, 2015 and March 23, 2014

  

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

  

7

 

 

 

Item 2.

 

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

  

11

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

17

 

 

 

Item 4.

 

Controls and Procedures

  

17

 

 

 

PART II.

 

OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

18

 

 

 

Item 1A.

 

Risk Factors

  

18

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

18

 

 

 

Item 3.

 

Defaults Upon Senior Securities

  

18

 

 

 

Item 4.

 

Mine Safety Disclosures

  

18

 

 

 

Item 5.

 

Other Information

  

18

 

 

 

Item 6.

 

Exhibits

  

19

 

 

SIGNATURES

  

20

 

 

 

2


PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

December 28, 2014

 

(In thousands)

 

March 22, 2015

 

 

(Note)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

74,991

 

 

$

30,855

 

Restricted cash and cash equivalents

 

 

121,533

 

 

 

120,954

 

Accounts receivable

 

 

118,085

 

 

 

118,395

 

Inventories

 

 

37,899

 

 

 

37,944

 

Prepaid expenses and other

 

 

13,267

 

 

 

32,569

 

Advertising fund assets, restricted

 

 

72,555

 

 

 

72,055

 

Deferred income taxes

 

 

7,711

 

 

 

9,857

 

Asset held for sale

 

 

 

 

 

5,732

 

Total current assets

 

 

446,041

 

 

 

428,361

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Land and buildings

 

 

28,759

 

 

 

25,859

 

Leasehold and other improvements

 

 

100,917

 

 

 

99,804

 

Equipment

 

 

181,573

 

 

 

178,378

 

Construction in progress

 

 

3,296

 

 

 

6,179

 

 

 

 

314,545

 

 

 

310,220

 

Accumulated depreciation and amortization

 

 

(199,801

)

 

 

(196,174

)

Property, plant and equipment, net

 

 

114,744

 

 

 

114,046

 

Other assets:

 

 

 

 

 

 

 

 

Deferred financing costs

 

 

21,673

 

 

 

22,947

 

Goodwill

 

 

16,297

 

 

 

16,297

 

Capitalized software

 

 

20,805

 

 

 

20,562

 

Other assets

 

 

15,072

 

 

 

14,592

 

Deferred income taxes

 

 

2,349

 

 

 

2,475

 

Total other assets

 

 

76,196

 

 

 

76,873

 

Total assets

 

$

636,981

 

 

$

619,280

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

234

 

 

$

565

 

Accounts payable

 

 

88,323

 

 

 

86,552

 

Dividends payable

 

 

17,579

 

 

 

14,351

 

Insurance reserves

 

 

14,307

 

 

 

14,465

 

Advertising fund liabilities

 

 

72,555

 

 

 

72,055

 

Other accrued liabilities

 

 

82,315

 

 

 

77,620

 

Total current liabilities

 

 

275,313

 

 

 

265,608

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,527,202

 

 

 

1,523,546

 

Insurance reserves

 

 

26,621

 

 

 

26,951

 

Deferred income taxes

 

 

3,201

 

 

 

5,588

 

Other accrued liabilities

 

 

18,222

 

 

 

17,052

 

Total long-term liabilities

 

 

1,575,246

 

 

 

1,573,137

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock

 

 

554

 

 

 

556

 

Additional paid-in capital

 

 

6,758

 

 

 

29,561

 

Retained deficit

 

 

(1,217,800

)

 

 

(1,246,921

)

Accumulated other comprehensive loss

 

 

(3,090

)

 

 

(2,661

)

Total stockholders' deficit

 

 

(1,213,578

)

 

 

(1,219,465

)

Total liabilities and stockholders' deficit

 

$

636,981

 

 

$

619,280

 

 

Note: The balance sheet at December 28, 2014 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.

See accompanying notes.

3


Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 

 

 

Fiscal Quarter Ended

 

 

 

 

March 22,

 

 

 

March 23,

 

(In thousands, except per share data)

 

 

2015

 

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

Domestic Company-owned stores

 

$

92,375

 

 

$

82,457

 

Domestic franchise

 

 

61,774

 

 

 

53,421

 

Supply chain

 

 

311,656

 

 

 

284,334

 

International franchise

 

 

36,222

 

 

 

33,640

 

Total revenues

 

 

502,027

 

 

 

453,852

 

Cost of sales:

 

 

 

 

 

 

 

 

Domestic Company-owned stores

 

 

68,152

 

 

 

62,791

 

Supply chain

 

 

276,809

 

 

 

254,019

 

Total cost of sales

 

 

344,961

 

 

 

316,810

 

Operating margin

 

 

157,066

 

 

 

137,042

 

General and administrative

 

 

62,813

 

 

 

52,867

 

Income from operations

 

 

94,253

 

 

 

84,175

 

Interest income

 

 

82

 

 

 

31

 

Interest expense

 

 

(20,153

)

 

 

(20,326

)

Income before provision for income taxes

 

 

74,182

 

 

 

63,880

 

Provision for income taxes

 

 

27,893

 

 

 

23,406

 

Net income

 

$

46,289

 

 

$

40,474

 

Earnings per share:

 

 

 

 

 

 

 

 

Common stock - basic

 

$

0.84

 

 

$

0.73

 

Common stock - diluted

 

 

0.81

 

 

 

0.71

 

Dividends declared per share

 

$

0.31

 

 

$

0.25

 

 

See accompanying notes.

 

 

 

4


Domino’s Pizza, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Fiscal Quarter Ended

 

 

 

 

March 22,

 

 

 

March 23,

 

(In thousands)

 

 

2015

 

 

 

2014

 

Net income

 

$

46,289

 

 

$

40,474

 

Other comprehensive loss, before tax:

 

 

 

 

 

 

 

 

Currency translation adjustment

 

 

(810

)

 

 

(1,026

)

Tax attributes of items in other comprehensive loss:

 

 

 

 

 

 

 

 

Currency translation adjustment

 

 

381

 

 

 

442

 

Other comprehensive loss, net of tax

 

 

(429

)

 

 

(584

)

Comprehensive income

 

$

45,860

 

 

$

39,890

 

 

See accompanying notes.

 

 

5


Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Fiscal Quarter Ended

 

 

 

 

March 22,

 

 

 

March 23,

 

(In thousands)

 

 

2015

 

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

46,289

 

 

$

40,474

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,347

 

 

 

6,421

 

(Gains) losses on sale/disposal of assets

 

 

150

 

 

 

(1,556

)

Amortization of deferred financing costs

 

 

1,274

 

 

 

1,390

 

Provision for deferred income taxes

 

 

198

 

 

 

700

 

Non-cash compensation expense

 

 

4,466

 

 

 

4,455

 

Tax impact from equity-based compensation

 

 

(4,677

)

 

 

(7,834

)

Other

 

 

74

 

 

 

45

 

Changes in operating assets and liabilities

 

 

29,624

 

 

 

(7,891

)

Net cash provided by operating activities

 

 

84,745

 

 

 

36,204

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(7,600

)

 

 

(6,561

)

Proceeds from sale of assets

 

 

6,789

 

 

 

3,906

 

Changes in restricted cash

 

 

(579

)

 

 

16,827

 

Other

 

 

1,556

 

 

 

(279

)

Net cash provided by investing activities

 

 

166

 

 

 

13,893

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of long-term debt and capital lease obligations

 

 

(103

)

 

 

(6,032

)

Proceeds from exercise of stock options

 

 

1,196

 

 

 

2,458

 

Tax impact from equity-based compensation

 

 

4,677

 

 

 

7,834

 

Purchases of common stock

 

 

(29,512

)

 

 

(15,131

)

Tax payments for restricted stock upon vesting

 

 

(3,632

)

 

 

(4,308

)

Payments of common stock dividends and equivalents

 

 

(13,965

)

 

 

(11,053

)

Net cash used in financing activities

 

 

(41,339

)

 

 

(26,232

)

Effect of exchange rate changes on cash and cash equivalents

 

 

564

 

 

 

128

 

Change in cash and cash equivalents

 

 

44,136

 

 

 

23,993

 

Cash and cash equivalents, at beginning of period

 

 

30,855

 

 

 

14,383

 

Cash and cash equivalents, at end of period

 

$

74,991

 

 

$

38,376

 

 

See accompanying notes.

 

 

 

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)

March 22, 2015

 

 

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 December 28, 2014 included in our annual report on Form 10-K.

In the opinion of the Company, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter ended March 22, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending January 3, 2016.

 

 

2. Segment Information

The following table summarizes revenues, income from operations and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which we refer to as Segment Income, for each of our reportable segments.

 

 

 

Fiscal Quarters Ended March 22, 2015 and March 23, 2014

 

 

 

Domestic

 

 

Supply

 

 

International

 

 

Intersegment

 

 

 

 

 

 

 

 

 

 

 

Stores

 

 

Chain

 

 

Franchise

 

 

Revenues

 

 

Other

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

$

154,149

 

 

$

337,756

 

 

$

36,222

 

 

$

(26,100

)

 

$

 

 

$

502,027

 

2014

 

 

135,878

 

 

 

309,052

 

 

 

33,640

 

 

 

(24,718

)

 

 

 

 

 

453,852

 

Income from operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

$

55,527

 

 

$

27,195

 

 

$

28,715

 

 

N/A

 

 

$

(17,184

)

 

$

94,253

 

2014

 

 

48,091

 

 

 

23,967

 

 

 

27,423

 

 

N/A

 

 

 

(15,306

)

 

 

84,175

 

Segment Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

$

57,273

 

 

$

29,455

 

 

$

28,748

 

 

N/A

 

 

$

(9,260

)

 

$

106,216

 

2014

 

 

47,979

 

 

 

26,025

 

 

 

27,463

 

 

N/A

 

 

 

(7,972

)

 

 

93,495

 

 

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

 

 

 

Fiscal Quarter Ended

 

 

 

March 22,

 

 

March 23,

 

 

 

 

2015

 

 

 

2014

 

Total Segment Income

 

$

106,216

 

 

$

93,495

 

Depreciation and amortization

 

 

(7,347

)

 

 

(6,421

)

Gains (losses) on sale/disposal of assets

 

 

(150

)

 

 

1,556

 

Non-cash compensation expense

 

 

(4,466

)

 

 

(4,455

)

Income from operations

 

 

94,253

 

 

 

84,175

 

Interest income

 

 

82

 

 

 

31

 

Interest expense

 

 

(20,153

)

 

 

(20,326

)

Income before provision for income taxes

 

$

74,182

 

 

$

63,880

 

 


7


 

3. Earnings Per Share

 

 

 

Fiscal Quarter Ended

 

 

 

March 22,

 

 

March 23,

 

 

 

 

2015

 

 

 

2014

 

Net income available to common stockholders - basic and diluted

 

$

46,289

 

 

$

40,474

 

Basic weighted average number of shares

 

 

55,207,646

 

 

 

55,211,837

 

Earnings per share - basic

 

$

0.84

 

 

$

0.73

 

Diluted weighted average number of shares

 

 

57,013,552

 

 

 

57,372,471

 

Earnings per share - diluted

 

$

0.81

 

 

$

0.71

 

 

The denominator used in calculating diluted earnings per share for common stock for the first quarter of 2015 does not include 70,910 options to purchase common stock, as the effect of including these options would have been anti-dilutive. The denominator used in calculating diluted earnings per share for common stock for the first quarter of 2014 does not include 199,040 options to purchase common stock, as the effect of including these options would have been anti-dilutive.

 

 

4. Stockholders’ Deficit

The following table summarizes changes in Stockholders’ Deficit for the first quarter of 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

Balance at December 28, 2014

 

 

55,553,149

 

 

$

556

 

 

$

29,561

 

 

$

(1,246,921

)

 

$

(2,661

)

Net income

 

 

 

 

 

 

 

 

 

 

 

46,289

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(17,168

)

 

 

 

Issuance of common stock, net

 

 

23,155

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax payments for restricted stock upon vesting

 

 

(36,154

)

 

 

 

 

 

(3,632

)

 

 

 

 

 

 

Purchases of common stock

 

 

(290,877

)

 

 

(3

)

 

 

(29,509

)

 

 

 

 

 

 

Exercise of stock options

 

 

111,585

 

 

 

1

 

 

 

1,195

 

 

 

 

 

 

 

Tax impact from equity-based compensation

 

 

 

 

 

 

 

 

4,677

 

 

 

 

 

 

 

Non-cash compensation expense

 

 

 

 

 

 

 

 

4,466

 

 

 

 

 

 

 

Currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(429

)

Balance at March 22, 2015

 

 

55,360,858

 

 

$

554

 

 

$

6,758

 

 

$

(1,217,800

)

 

$

(3,090

)

 

 

5. Dividends

During the first quarter of 2015, the Company paid approximately $14.0 million of common stock dividends. Additionally, during the first quarter of 2015, the Company’s Board of Directors declared a $0.31 per share quarterly dividend on its outstanding common stock for shareholders of record as of March 13, 2015 which was paid on March 30, 2015. The Company had approximately $17.6 million accrued for common stock dividends at March 22, 2015.

Subsequent to the first quarter, on April 21, 2015, the Company’s Board of Directors declared a $0.31 per share quarterly dividend on its outstanding common stock for shareholders of record as of June 15, 2015 to be paid on June 30, 2015.

 

 

6. Accumulated Other Comprehensive Loss

The approximately $3.1 million of accumulated other comprehensive loss at March 22, 2015 and the approximately $2.7 million of accumulated other comprehensive loss at December 28, 2014 represent currency translation adjustments, net of tax. There were no reclassifications out of accumulated other comprehensive loss to net income in the first quarter of 2015 or the first quarter of 2014.

 


8


7. Open Market Share Repurchase Program

During the first quarter of 2015, the Company repurchased and retired 290,877 shares of common stock for a total of approximately $29.5 million. As of March 22, 2015, the Company had $103.2 million remaining for future share repurchases under its Board of Directors approved $200.0 million open market share repurchase program. Subsequent to the first quarter, and through April 16, 2015, the Company repurchased and retired an additional 177,695 shares of common stock for a total of approximately $18.0 million.

During the first quarter of 2014, the Company repurchased and retired 221,481 shares of common stock for a total of approximately $15.1 million.

 

 

8. Fair Value Measurements

Fair value measurements enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The fair values of the Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets. The following tables summarize the carrying amounts and fair values of certain assets at March 22, 2015 and December 28, 2014:

 

 

 

At March 22, 2015

 

 

 

 

 

 

 

Fair Value Estimated Using

 

 

 

Carrying

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

Amount

 

 

Inputs

 

 

Inputs

 

 

Inputs

 

Cash equivalents

 

$

59,822

 

 

$

59,822

 

 

$

 

 

$

 

Restricted cash equivalents

 

 

97,733

 

 

 

97,733

 

 

 

 

 

 

 

Investments in marketable securities

 

 

5,128

 

 

 

5,128

 

 

 

 

 

 

 

 

 

 

At December 28, 2014

 

 

 

 

 

 

 

Fair Value Estimated Using

 

 

 

Carrying

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

Amount

 

 

Inputs

 

 

Inputs

 

 

Inputs

 

Cash equivalents

 

$

16,290

 

 

$

16,290

 

 

$

 

 

$

 

Restricted cash equivalents

 

 

93,121

 

 

 

93,121

 

 

 

 

 

 

 

Investments in marketable securities

 

 

4,586

 

 

 

4,586

 

 

 

 

 

 

 

 

At March 22, 2015, the Company estimated that the $1.522 billion in principal amount of outstanding fixed rate notes had a fair value of approximately $1.592 billion; and at December 28, 2014 the $1.522 billion in principal amount of outstanding fixed rate notes had a fair value of approximately $1.597 billion. The fixed rate notes are classified as a Level 2 measurement, as the Company estimated the fair value amount by using available market information. The Company obtained quotes from two separate brokerage firms that are knowledgeable about the Company’s fixed rate notes and, at times, trade these notes. Further, the Company performed its own internal analysis based on the information gathered from public markets, including information on notes that are similar to that of the Company. However, considerable judgment is required to interpret market data to estimate fair value. Accordingly, the fair value estimates presented herein are not necessarily indicative of the amount that the Company or the debtholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values stated above.

 

 

9. Sale of Company-Owned Stores

During the first quarter of 2014, the Company sold 14 Company-owned stores to a franchisee. In connection with the sale of these 14 stores, the Company recorded a $1.7 million pre-tax gain on the sale of the related assets, which was net of a $0.5 million reduction in goodwill. The gain was recorded in general and administrative expense in the Company’s condensed consolidated statements of income. As a result of this capital gain, the Company also released $0.3 million of a deferred tax valuation allowance.

 

 

9


10. Legal Matters

In 2013, the Company was named as a defendant in a lawsuit along with a large franchisee and the franchisee’s delivery driver.  The jury delivered a $32.0 million judgment for the plaintiff where the Company was found to be 60% liable. The Company denied liability and filed an appeal of the verdict on a variety of grounds.  In the first quarter of 2015, the appellate court reversed the trial court’s decision and dismissed the claims against the Company. The plaintiff’s right to request an appeal with the Texas Supreme Court has not yet expired. The Company continues to deny liability in this matter.

 

 

11. Supplemental Disclosures of Cash Flow Information

At March 22, 2015, the Company had $0.7 million of non-cash investing activities related to accruals for capital expenditures.

During the first quarter of 2015, the Company renewed the capital lease of a supply chain center building and extended the term of the lease through August 2028. As a result of the new lease, the Company recorded non-cash financing activities of $3.4 million for the increase in capital lease assets and liabilities during the first quarter of 2015.

 

 

 

10


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Unaudited; tabular amounts in millions, except percentages and store data)

The 2015 and 2014 first quarters referenced herein represent the twelve-week periods ended March 22, 2015 and March 23, 2014, respectively.

Overview

Domino’s is the second largest pizza restaurant chain in the world, with more than 11,600 locations in over 75 markets. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Domino’s generates revenues and earnings by charging royalties to its franchisees. The Company also generates revenues and earnings by selling food, equipment and supplies to franchisees primarily in the U.S. and Canada, and by operating a number of our own stores. Everyone in the system can benefit, including the end consumer, who can feed their family Domino’s menu items conveniently and economically.

Our financial results are driven largely by retail sales at our franchise and Company-owned stores. Changes in retail sales are driven by changes in same store sales and store counts. We monitor both of these metrics very closely, as they directly impact our revenues and profits, and strive to consistently increase both metrics. Retail sales drive royalty payments from franchisees as well as Company-owned store and supply chain revenues. Retail sales are primarily impacted by the strength of the Domino's Pizza® brand, the results of our extensive advertising through various media channels, the impact of technological innovation and digital ordering, our ability to execute our strong and proven business model and the overall global economic environment.

 

 

 

First Quarter

 

 

First Quarter

 

 

 

of 2015

 

 

of 2014

 

Global retail sales growth

 

+10.4%

 

 

 

 

 

 

+9.1%

 

 

 

 

 

Same store sales growth:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic Company-owned stores

 

+15.9%

 

 

 

 

 

 

+1.5%

 

 

 

 

 

Domestic franchise stores

 

+14.4%

 

 

 

 

 

 

+5.2%

 

 

 

 

 

Domestic stores

 

+14.5%

 

 

 

 

 

 

+4.9%

 

 

 

 

 

International stores (excluding foreign currency impact)

 

+7.8%

 

 

 

 

 

 

+7.4%

 

 

 

 

 

Store counts (at end of period):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic Company-owned stores

 

 

379

 

 

 

 

 

 

 

376

 

 

 

 

 

Domestic franchise stores

 

 

4,705

 

 

 

 

 

 

 

4,615

 

 

 

 

 

Domestic stores

 

 

5,084

 

 

 

 

 

 

 

4,991

 

 

 

 

 

International stores

 

 

6,655

 

 

 

 

 

 

 

5,997

 

 

 

 

 

Total stores

 

 

11,739

 

 

 

 

 

 

 

10,988

 

 

 

 

 

Income statement data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

502.0

 

 

 

100.0

%

 

$

453.9

 

 

 

100.0

%

Cost of sales

 

 

345.0

 

 

 

68.7

%

 

 

316.8

 

 

 

69.8

%

General and administrative

 

 

62.8

 

 

 

12.5

%

 

 

52.9

 

 

 

11.6

%

Income from operations

 

 

94.3

 

 

 

18.8

%

 

 

84.2

 

 

 

18.5

%

Interest expense, net

 

 

(20.1

)

 

 

(4.0

)%

 

 

(20.3

)

 

 

(4.5

)%

Income before provision for income taxes

 

 

74.2

 

 

 

14.8

%

 

 

63.9

 

 

 

14.1

%

Provision for income taxes

 

 

27.9

 

 

 

5.6

%

 

 

23.4

 

 

 

5.2

%

Net income

 

$

46.3

 

 

 

9.2

%

 

$

40.5

 

 

 

8.9

%

 

During the first quarter of 2015, we continued our global expansion with the opening of 110 net new stores. Our international segment led the way with 93 net new store openings. We continued our focus on growing online ordering and the digital customer experience through our digital platforms and technology. Our emphasis on technology innovation helped us generate over 45% of U.S. sales from digital channels in the first quarter of 2015. Overall, we believe our focus on global growth and technology has strengthened our brand.

Global retail sales, which are total retail sales at franchise and Company-owned stores worldwide, increased 10.4% in the first quarter of 2015. This increase was driven primarily by domestic and international same store sales growth, as well as an increase in our worldwide store counts during the trailing four quarters. The impact of foreign currency exchange rates partially offset these increases, resulting from a generally stronger U.S. dollar when compared to the currencies in the international markets in which we compete. Domestic same store sales growth reflected the sustained positive sales trends and the continued success of our products and marketing. International same store sales growth also reflected continued strong performance.

11


Revenues increased $48.1 million, up 10.6% in the first quarter of 2015. This increase was due primarily to higher supply chain revenues from increased food volumes as well as increased sales of equipment to stores in connection with the Company’s store reimaging program. Higher Company-owned store, domestic franchise and international franchise revenues resulting from same store sales and store count growth also contributed to the increase. These increases were offset in part by the negative impact of changes in foreign currency exchange rates on international franchise and international supply chain revenues and lower commodity prices, specifically cheese. These changes in revenues are described in more detail below.

Income from operations increased $10.1 million, up 12.0% in the first quarter of 2015. This increase was driven by higher royalty revenues from domestic franchise stores as well as increased supply chain volumes. Higher Company-owned store and international franchise revenues also contributed to the increase in income from operations. The negative impact of changes in foreign currency exchange rates partially offset these increases. Additionally, in the comparable quarter of 2014, we recognized a non-recurring pre-tax gain of $1.7 million from the sale of 14 Company-owned stores.

Net income increased $5.8 million, up 14.4% in the first quarter of 2015. This increase was driven by domestic same store sales growth and higher supply chain volumes. International same store sales and store count growth also contributed to the increase in net income. The negative impact of changes in foreign currency exchange rates partially offset these increases. Additionally, in the comparable quarter of 2014, we recognized a non-recurring gain of $1.4 million from the sale of 14 Company-owned stores and the associated reversal of a deferred tax asset valuation allowance.

Revenues

 

 

 

First Quarter

 

 

First Quarter

 

 

 

of 2015

 

 

of 2014

 

Domestic Company-owned stores

 

$

92.4

 

 

 

18.4

%

 

$

82.5

 

 

 

18.2

%

Domestic franchise

 

 

61.8

 

 

 

12.3

%

 

 

53.4

 

 

 

11.8

%

Supply chain

 

 

311.7

 

 

 

62.1

%

 

 

284.3

 

 

 

62.6

%

International franchise

 

 

36.2

 

 

 

7.2

%

 

 

33.6

 

 

 

7.4

%

Total revenues

 

$

502.0

 

 

 

100.0

%

 

$

453.9

 

 

 

100.0

%

 

Revenues primarily consist of retail sales from our Company-owned stores, royalties and fees from our domestic and international franchised stores and sales of food, equipment and supplies from our supply chain centers to substantially all of our domestic franchised stores and certain international franchised stores. Company-owned store and franchised store revenues may vary from period to period due to changes in store count mix. Supply chain revenues may vary significantly as a result of fluctuations in commodity prices as well as the mix of products we sell.

Domestic Stores Revenues

 

 

 

First Quarter

 

 

First Quarter

 

 

 

of 2015

 

 

of 2014

 

Domestic Company-owned stores

 

$

92.4