Domino’s Pizza Inc. (DPZ) reported fourth quarter 2011 earnings of 52 cents per share, surpassing both the Zacks Consensus Estimate of 48 cents and the year-ago quarter adjusted earnings of 40 cents. In fiscal 2011, adjusted earnings were $1.69 per share versus $1.35 in the prior year.

The upbeat quarterly result was attributable to same-store sales (comps) growth in both international and domestic market and margin expansion.

Inside the Headline Numbers

Total revenue climbed 4.5% year over year in the reported quarter to $501.7 million. The growth was mainly driven by higher international and domestic comps and expansion in the international market, partially offset by lower revenues resulting from the sale of company-owned stores to several franchisees in 2011. In fiscal 2011, revenue increased 5.2% to $1.65 billion year over year.

During the quarter, the company’s overall domestic same-store sales jumped 6.8% with company-owned units and franchises rising 8.7% and 6.6%, respectively, due to unit growth and higher traffic. In 2011, the company witnessed domestic same-store sales growth of 3.5%.

Same-store sales grew 4.7% in the international market. Global retail sales were up 8.8% or 9.9% excluding a foreign currency impact, while international stores registered a jump of 10.7% and domestic stores spiked 6.9%. In 2011, global retail sales rose 11% or 8.8% excluding foreign currency impact.

The company’s operating margin expanded 50 basis points (bps) to 28.9% in the reported quarter, as cost of sales declined by the same magnitude to 71.1%. In 2011, operating margin enhanced 60 bps to 28.5%, as cost of sales declined by the same magnitude to 71.5%

Store Count

During the fourth quarter, Domino’s opened 33 and closed 17 domestic stores, bringing the total store count to 4,907.

At quarter end, the company opened 200 stores and closed 15 stores in the international market. The company currently operates 4,835 international stores.

Domino’s Pizza remains optimistic about its international operations both in terms of sales and store growth. In the long term, company expects to open 350 to 450 units as compared with the previous projection of 250 to 300 units.


At the end of 2011, Domino’s Pizza had cash and cash equivalents of $50.3 million with long-term debt, less current portion of $1,450.4 million.

During the quarter, the company repurchased 1.1 million shares for $35.8 million and has approximately $82.3 million shares remaining under its current share repurchase program.


In the long term, management continues to expect domestic same-store sales growth of 1% to 3%, but slightly raised the international same-store sales growth range from 3% to 5% to 3% to 6%.

Our Take

Based on better-than-expected fourth quarter results and positive outlook, we expect estimates to go up in the coming days. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $1.66 and $1.90, respectively.

Domino’s Pizza’s store level economics are strong and are driving growth. Moreover, the company’s growth model does not involve substantial investments as it utilizes the master franchise structure. Additionally, to drive traffic, management continues to focus on menu innovation, promotional activities and improved execution in its corporate and franchise stores.

One of Domino’s primary competitors, Texas Roadhouse Inc (TXRH) recently posted third quarter 2011 earnings of 22 cents, which surpassed the Zacks Consensus Estimate of 19 cents and grew 15% year over year. The higher-than-expected results were attributable to lower-than-anticipated workers compensation expense, property tax expense and income tax rate.

Domino’s holds a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.

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