(Unaudited; tabular amounts in millions, except percentages and store data) The 2020 and 2019 third quarters referenced herein represent the twelve-week periods endedSeptember 6, 2020 andSeptember 8, 2019 , respectively. The 2020 and 2019 three fiscal quarters referenced herein represent the thirty-six-week periods endedSeptember 6, 2020 andSeptember 8, 2019 , respectively. Overview Domino's is the largest pizza company in the world based on global retail sales, with more than 17,200 locations in over 90 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 and fees to our independent franchisees. The Company also generates revenues and earnings by selling food, equipment and supplies to franchisees primarily in theU.S. andCanada , and by operating a number of our own stores in theU.S. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to theDomino's Pizza ® brand to master franchisees. These master franchisees are charged with developing their geographical area, and they can profit by sub-franchising and selling ingredients and equipment to those sub-franchisees, as well as by running pizza stores directly. We believe that 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 we 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 theDomino'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. Third Quarter Third Quarter Three Fiscal Three Fiscal of 2020 of 2019 Quarters of 2020 Quarters of 2019 Global retail sales growth (versus prior year period, excluding foreign currency impact) +14.8 % +7.5 % +9.6 % +8.1 % Same store sales growth (1): U.S. Company-owned stores +16.6 % +1.7 % +12.4 % +2.3 % U.S. franchise stores +17.5 % +2.5 % +11.6 % +3.2 % U.S. stores +17.5 % +2.4 % +11.7 % +3.1 % International stores (excluding foreign currency impact) +6.2 % +1.7 % +3.0 % +2.0 % Store counts (at end of period): U.S. Company-owned stores 348 333 U.S. franchise stores 5,891 5,652 U.S. stores 6,239 5,985 International stores 11,017 10,543 Total stores (2) 17,256 16,528 Income statement data: Total revenues$ 967.7 100.0 %$ 820.8 100.0 %$ 2,760.8 100.0 %$ 2,468.4 100.0 % Cost of sales 605.7 62.6 %
504.6 61.5 % 1,701.6 61.7 % 1,513.2 61.3 % General and administrative
91.7 9.4 %
83.7 10.2 % 268.2 9.7 % 262.6 10.7 %
108.1 11.2 % 89.5 10.9 % 309.4 11.2 % 267.1 10.8 % Income from operations 162.2 16.8 % 143.0 17.4 % 481.6 17.4 % 425.5 17.2 % Interest expense, net (38.4 ) (4.0 )% (32.8 ) (4.0 )% (116.0 ) (4.2 )% (100.1 ) (4.0 )% Income before provision for income taxes 123.8 12.8 %
110.2 13.4 % 365.6 13.2 % 325.4 13.2 % Provision for income taxes
24.6 2.6 % 23.9 2.9 % 26.2 0.9 % 54.0 2.2 % Net income$ 99.1 10.2 %$ 86.4 10.5 %$ 339.4 12.3 %$ 271.4 11.0 %
(1) Same store sales growth is calculated for a given period by including only
sales from stores that had sales in the comparable weeks of both years.
International same store sales growth is calculated similarly to
store sales growth. Changes in international same store sales are reported
excluding foreign currency impacts, which reflect changes in international
local currency sales.
(2) Temporary store closures are not treated as store closures and affected
stores are included in the ending store count. 16
-------------------------------------------------------------------------------- Table of Contents During the third quarter and three fiscal quarters of 2020, we experienced global retail sales growth andU.S. and international same store sales growth. Our commitment to value, convenience, quality and new products continues to keep consumers engaged with the brand. During the third quarter, we launched three new products in theU.S. , including chicken wings and two new specialty pizzas, each of which have been positively received by consumers. Beginning at the end of the first quarter of 2020 and through the date of this filing, customer ordering behavior during the COVID-19 pandemic has resulted in a significant increase inU.S. same store sales. We did not experience significant temporary closures in ourU.S. business. Additionally, our supply chain experienced minimal disruptions due to COVID-19 and experienced higher volumes from the increases in store sales. The COVID-19 pandemic negatively impacted our international franchise revenues during the second quarter of 2020 due to temporary store closures in certain markets as well as changes in operating procedures and store hours resulting from actions taken to increase social distancing across our international franchise markets. In the third quarter of 2020, these negative impacts lessened due to the reopening and resumption of normal store hours at the majority of our international franchised stores that had been temporarily closed for portions of the prior quarter. OurU.S. and international same store sales growth was also partially offset by our current strategy to increase store concentration in certain markets where we compete. We also continued our global expansion with the opening of 83 net new stores in the third quarter of 2020, bringing our year-to-date total to 236. We had 44 net new stores open in theU.S. during the third quarter of 2020. Although 162 gross new stores opened internationally, 123 stores closed, primarily inIndia . The COVID-19 pandemic has had a negative impact on anticipated store openings in our international business to-date due to delays in approvals and government restrictions in certain of the markets that our master franchisees operate. Overall, we believe this global store growth, along with our strong sales, emphasis on technology, operations, and marketing initiatives, have combined to strengthen our brand. Global retail sales, excluding foreign currency impact, which includes total retail sales at franchise and Company-owned stores worldwide, increased 14.8% in the third quarter of 2020 and increased 9.6% in the three fiscal quarters of 2020. These increases were driven byU.S. and international same store sales growth as well as an increase in store counts during the trailing four quarters. The negative impact of changes in foreign currency exchange rates partially offset this increase, resulting from a generally strongerU.S. dollar when compared to the currencies in the international markets in which we compete.U.S. same store sales growth reflected the sustained positive sales trends and the continued success of our products, marketing and technology platforms, as well as shifts in consumer behavior across the restaurant industry toward delivery and larger order sizes throughout the COVID-19 pandemic. International same store sales growth also reflected continued positive performance but has been adversely affected by temporary store closures in certain of our international markets as discussed above. Based on information reported to us by our master franchisees, we estimate that as ofSeptember 6, 2020 , there were fewer than 400 international stores temporarily closed. Total revenues increased$146.9 million , or 17.9%, in the third quarter of 2020 and increased$292.4 million , or 11.8%, in the three fiscal quarters of 2020. These increases were due primarily to higherU.S. retail sales, which resulted in higher supply chain andU.S. franchise revenues.U.S. Company -owned stores revenues increased in the third quarter of 2020 and three fiscal quarters of 2020 due to same store sales growth, but were partially offset in the three fiscal quarters of 2020 due to the sale of 59 Company-owned stores to certain of our existingU.S. franchisees during the second quarter of 2019 (the "2019 Store Sale"). International franchise revenues in the third quarter and three fiscal quarters of 2020 were pressured by the negative impact of changes in foreign currency exchange rates and targeted financial relief provided to certain of our master franchisees. These changes in revenues are described in more detail below. Income from operations increased$19.2 million , or 13.4%, in the third quarter of 2020 and increased$56.1 million , or 13.2%, in the three fiscal quarters of 2020. These increases were primarily driven by higher royalty revenues from ourU.S. franchised stores, as well as higher supply chain margins. Higher general and administrative expenses partially offset these increases. Net income increased$12.8 million , or 14.8%, in the third quarter of 2020 and increased$68.0 million , or 25.1%, in the three fiscal quarters of 2020, driven by higher income from operations, partially offset by higher interest expense resulting from a higher average debt balance following our recapitalization transaction completed onNovember 19, 2019 (the "2019 Recapitalization") and, to a lesser extent, borrowings under our variable funding notes in 2020. Net income in the three fiscal quarters of 2020 also benefited from lower tax expense resulting primarily from higher excess tax benefits from equity-based compensation. Revenues Third Quarter Third Quarter Three Fiscal Three Fiscal of 2020 of 2019 Quarters of 2020 Quarters of 2019 U.S. Company-owned stores$ 113.3 11.7 %$ 94.6
11.5 %
11.8 % 335.9 12.2 % 289.3 11.7 % Supply chain
573.7 59.3 % 485.1
59.1 % 1,625.5 58.9 % 1,424.8 57.8 % International franchise royalties and fees
54.6 5.6 % 54.6
6.7 % 160.2 5.8 % 164.1 6.6 %
108.1 11.2 % 89.5 10.9 % 309.4 11.2 % 267.1 10.8 % Total revenues$ 967.7 100.0 %$ 820.8 100.0 %$ 2,760.8 100.0 %$ 2,468.4 100.0 % 17
-------------------------------------------------------------------------------- Table of Contents Revenues primarily consist of retail sales from our Company-owned stores, advertising contributions, royalties and fees from ourU.S. franchised stores, royalties and fees from our international franchised stores and sales of food, equipment and supplies from our supply chain centers to substantially all of ourU.S. 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 from period to period as a result of fluctuations in commodity prices as well as the mix of products we sell.U.S. Stores Revenues Third Quarter Third Quarter Three Fiscal Three Fiscal of 2020 of 2019 Quarters of 2020 Quarters of 2019 U.S. Company-owned stores$ 113.3 33.4 %$ 94.6
33.6 %
34.5 % 335.9 34.5 % 289.3 32.9 %
108.1 31.8 % 89.5 31.9 % 309.4 31.7 % 267.1 30.4 % U.S. stores$ 339.5 100.0 %$ 281.1 100.0 %$ 975.1 100.0 %$ 879.5 100.0 %U.S. Company-Owned Stores Revenues fromU.S. Company -owned store operations increased$18.7 million , or 19.8%, in the third quarter of 2020 and increased$6.8 million , or 2.1%, in the three fiscal quarters of 2020 due primarily to same store sales growth. The increase in revenues in the three fiscal quarters of 2020 was partially offset by lower revenues resulting from the 2019 Store Sale. Company-owned same store sales increased 16.6% in the third quarter of 2020 and increased 12.4% in the three fiscal quarters of 2020. Company-owned same store sales increased 1.7% in the third quarter of 2019 and increased 2.3% in the three fiscal quarters of 2019.U.S. Franchise Royalties and Fees Revenues fromU.S. franchise royalties and fees increased$21.1 million , or 21.6%, in the third quarter of 2020 and increased$46.6 million , or 16.1%, in the three fiscal quarters of 2020 due primarily to higher same store sales and an increase in the average number ofU.S. franchised stores open during the period due to net store growth.U.S. franchise royalties were negatively impacted by$3.0 million in the three fiscal quarters of 2020 related to funding we provided to our franchisees for an effort to donate 10 million slices of pizza to people and organizations at the frontlines of the COVID-19 pandemic in the franchisees' local communities.U.S. franchise same store sales increased 17.5% in the third quarter of 2020 and increased 11.6% in the three fiscal quarters of 2020.U.S. franchise same store sales increased 2.5% in the third quarter of 2019 and increased 3.2% in the three fiscal quarters of 2019.U.S. franchise royalties and fees further benefited in both the third quarter and the three fiscal quarters of 2020 from an increase in revenues from fees paid by franchisees for the use of our technology platforms.U.S. Franchise Advertising Revenues fromU.S. franchise advertising increased$18.6 million , or 20.8%, in the third quarter of 2020 and increased$42.3 million , or 15.8%, in the three fiscal quarters of 2020 due primarily to higher same store sales and an increase in the average number ofU.S. franchised stores open during the period due to net store growth. Supply Chain Supply chain revenues increased$88.6 million , or 18.3%, in the third quarter of 2020 and increased$200.7 million , or 14.1%, in the three fiscal quarters of 2020. These increases were primarily due to higher volumes from increased orders resulting fromU.S. franchise retail sales growth. Our market basket pricing to stores increased 3.8% during the third quarter of 2020, which resulted in an estimated$19.7 million increase in supply chain revenues. Our market basket pricing to stores increased 1.9% during the three fiscal quarters of 2020, which resulted in an estimated$28.1 million increase in supply chain revenues. International Franchise Royalties and Fee Revenues Revenues from international franchise royalties and fees were flat in the third quarter of 2020 and decreased$3.9 million , or 2.4%, in the three fiscal quarters of 2020. The impact of changes in foreign currency exchange rates negatively impacted revenue from international royalties and fees by$0.7 million in the third quarter of 2020 and$4.3 million in the three fiscal quarters of 2020. Temporary store closures in certain markets and changes in operating procedures and store hours resulting from actions taken to increase social distancing across certain of the markets in which we operate, as well as targeted financial relief provided to certain of our master franchisees due to the COVID-19 pandemic, also had a negative impact on international franchise revenues in the third quarter and three fiscal quarters of 2020. These pressures were partially offset by same store sales growth. Excluding the impact of changes in foreign currency exchange rates, international franchise same store sales increased 6.2% in the third quarter of 2020 and increased 3.0% in the three fiscal quarters of 2020. Excluding the impact of changes in foreign currency exchange rates, international franchise same store sales increased 1.7% in the third quarter of 2019 and increased 2.0% in the three fiscal quarters of 2019. 18
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