Domino’s Pizza Inc. (DPZ) reported fourth quarter 2010 adjusted earnings of 40 cents per share, which surpassed the Zacks Consensus Estimate by a penny. The company had earned 30 cents in the year-earlier quarter. The increase can mainly be credited to strong sales combined with lower interest expense and a lower effective tax rate.
Total revenue in the reported quarter increased 3.7% year over year to $480.0 million, but was below the Zacks Consensus Estimate of $485.0 million. The growth was mainly volume-driven. In addition, overall revenue benefited from higher same-store sales both within the U.S. and oversees as well as store count growth in international markets.
The company’s full-year adjusted earnings per share were $1.35 versus 87 cents in full fiscal 2009. Revenues were $1,570.9 million in full fiscal 2010, representing a year-over-year leap of 11.9%.
During the quarter, company’s overall domestic same-store sales registered a robust growth of 6.3% with company-owned units increasing 5.4% and franchises stepping up 6.4%. The improvement was aided by reformulated pizza and effective advertising.
Same-store sales growth in the international market was 9.0%. Global retail sales were up 6.1% in the fourth quarter, or up 13.6% excluding foreign currency impact and the 53rd week in 2009.
The operating margin at Domino’s expanded 50 basis points (bps) to 28.4% in the reported quarter, as cost of sales plunged 50 bps to 71.6%.
Store Count
During the fourth quarter, Domino’s opened 41 domestic franchise stores and closed 16, bringing the total number to 4,475. At year-end, the company had 454 company-owned restaurants in the domestic market, with 1 closing during the quarter while its international store count was 4,422 with 171 openings and 13 closings during the quarter.
The company remains optimistic on its international operations both in terms of sales and store growth and seeks to open stores in new markets. Domino’s Pizza remains committed to opening 10,000 stores worldwide.
Financials
At the end of 2010, Domino’s Pizza had cash and cash equivalents of $133.5 million with long-term debt of $1,451.3 million.
During the quarter, the company repurchased 343,884 shares at an average price of $15.92 per share and retired $23.5 million of its debt.
Outlook
Over the long term, the company expects domestic same-store sales to grow in the range of 1% to 3%, international same-store sales to be up 3% to 5% and global retail sales to jump 4% to 7%.
Our Take
As the economy is showing signs of improvement, we believe Domino’s will be able to generate improved earnings. We expect estimates to go up in the coming days based on better than expected fourth quarter results. The Zacks Consensus Estimate for 2011 is pegged at $1.45.
One of Domino’s primary competitors, Brinker International Inc. (EAT) reported second quarter 2011 adjusted earnings per share of 38 cents, surpassing the Zacks Consensus Estimate of 32 cents. The upside in earnings was driven by continued margin expansion at Chili’s and top-line growth at Maggiano’s.
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