Domino’s Pizza(DPZ) - 2024 Q4 - Annual Report

Competition and Market Challenges - The company faces intense competition in the quick service restaurant (QSR) pizza category, primarily from Pizza Hut, Papa John's, and local competitors, which could adversely affect operating results [100]. - Increased food and labor costs, along with economic conditions, may negatively impact profitability and lead to potential store closures [108]. - The company has experienced labor shortages and increased turnover rates, which could lead to higher operational costs and affect service quality [109]. - The company faces risks from international operations, including political, economic, and regulatory changes that could adversely affect profitability [119]. - An increase in tariffs, such as those announced on February 1, 2025, could disrupt supply chains and increase costs for the company and its franchisees [120]. - The company is subject to extensive regulatory risks, including potential litigation and compliance issues that could divert financial and management resources [155]. Financial Performance and Revenue - Total revenues increased by $227.1 million, or 5.1%, in 2024, reaching$ 4,706.4 million, driven primarily by higher supply chain revenues and global franchise royalties [232]. - U.S. retail sales increased by 5.3% in 2024, totaling $9,500.1 million, compared to$ 9,026.1 million in 2023 [221]. - International retail sales, excluding foreign currency impact, grew by 6.5% in 2024, reaching $9,624.1 million, up from$ 9,249.7 million in 2023 [221]. - The company achieved a global net store growth of 775 stores in 2024, with 160 net openings in the U.S. and 615 internationally [224]. - Income from operations increased by 7.3% in 2024, reflecting improved gross margin dollar performance [224]. - The company reported accruals for casualty insurance reserves of $50.7 million as of December 29, 2024, down from$ 56.3 million in 2023 [214]. Costs and Expenses - Labor and food costs represent approximately 55% to 65% of sales at a typical company-owned store, with cheese alone accounting for about 25% of the food basket [111]. - General and administrative expenses rose by $24.9 million, or 5.7%, primarily due to higher labor costs [247]. - The company anticipates continued increases in payroll expenses due to government-mandated minimum wage increases, which may materially affect financial results [163]. - The company has experienced significant fluctuations in annual and quarterly financial results, which can lead to stock price volatility [170]. Supply Chain and Operational Risks - The company is dependent on a limited number of suppliers for certain ingredients, which poses risks related to price fluctuations and supply disruptions [113]. - The company does not have long-term contracts with certain suppliers, which could lead to significant price increases or delivery failures [116]. - The company operates 22 regional dough manufacturing and supply chain centers in the U.S. and five in Canada, with plans to continue investing in supply chain productivity initiatives [117]. - The company relies on third-party service providers for critical operations, and failures in these systems could have a material adverse effect on business [131]. Cybersecurity and Technology - Cyber incidents pose significant risks, including operational interruptions and potential data breaches, which could harm the company's brand and financial results [129]. - The company has implemented processes and controls to mitigate cybersecurity risks, but these measures may not fully protect against incidents [130]. - The company’s Board of Directors is actively engaged in overseeing cybersecurity risks, with regular updates provided to the Audit Committee [175]. - Domino's maintains a comprehensive cybersecurity program, including annual risk assessments and compliance with PCI DSS standards [180]. Franchise System and Relationships - The company’s success is heavily reliant on maintaining brand goodwill and positive relationships with franchisees and communities [101]. - As of December 29, 2024, the company had 751 independent U.S. franchisees operating 6,722 U.S. stores, with the largest franchisee owning 158 stores [122]. - Franchisees contribute 6.0% of their sales to the Domino's National Advertising Fund (DNAF) for marketing, although a temporary reduction of 0.25% was implemented from March 27, 2023, to March 24, 2024 [124]. - The company is subject to various risks associated with its franchise system, which may impact royalty payments and brand goodwill [141]. Debt and Financial Obligations - As of December 29, 2024, the company's consolidated total indebtedness was approximately$ 4.98 billion [145]. - The company’s senior notes have scheduled principal payments of $1.18 billion in 2025 and$ 1.31 billion in 2027 [152]. - The company may incur additional debt under current securitized debt agreements, which could increase financial vulnerability [145]. - The company faces risks related to the inability to refinance or repay securitized debt, which could restrict cash flow and operational capabilities [154]. Growth and Strategic Initiatives - The company plans to expand its U.S. and international operations, focusing on opening new stores, but faces challenges such as suitable franchisee availability and site selection [105]. - The company’s growth strategy includes participation in third-party order aggregator marketplaces, which may not yield the expected profitability [107]. - The company plans to enhance online ordering and digital marketing capabilities while expanding operations in existing and selected new markets [296]. - The company is exploring the incorporation of traditional and generative AI solutions into its operations, which may expose it to additional risks [138]. Shareholder Returns and Dividends - The company has a share repurchase program authorized for up to $1.14 billion, with$ 814.3 million remaining as of December 29, 2024 [195]. - Domino's declared a quarterly dividend of $1.74 per common share, payable on March 28, 2025 [193]. - Dividends declared in 2024 amounted to$ 210.7 million ( $6.04 per share), an increase from$ 170.4 million ( $4.84 per share) in 2023 and$ 157.5 million ($4.40 per share) in 2022 [284].