Domino’s Pizza(DPZ) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q1 2024 condensed consolidated financial statements, including balance sheets, income, cash flows, and notes, detail financial performance Condensed Consolidated Balance Sheets | (In thousands) | March 24, 2024 | December 31, 2023 | Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $1,744,742 | $1,674,899 | +$69,843 | +4.2% | | Cash and cash equivalents | $203,894 | $114,098 | +$89,796 | +78.7% | | Restricted cash and cash equivalents | $209,752 | $200,870 | +$8,882 | +4.4% | | Total Current Assets | $894,466 | $817,291 | +$77,175 | +9.4% | | Current portion of long-term debt | $4,866 | $56,366 | -$51,500 | -91.4% | | Long-term debt, less current portion | $4,973,812 | $4,934,062 | +$39,750 | +0.8% | | Total Liabilities and Stockholders' Deficit | $1,744,742 | $1,674,899 | +$69,843 | +4.2% | Condensed Consolidated Statements of Income | (In thousands, except per share data) | Q1 2024 | Q1 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,084,647 | $1,024,398 | +$60,249 | +5.9% | | Gross Margin | $421,870 | $385,547 | +$36,323 | +9.4% | | Income from Operations | $210,413 | $177,483 | +$32,930 | +18.6% | | Net Income | $125,824 | $104,770 | +$21,054 | +20.1% | | Common stock - basic EPS | $3.62 | $2.96 | +$0.66 | +22.3% | | Common stock - diluted EPS | $3.58 | $2.93 | +$0.65 | +22.2% | Condensed Consolidated Statements of Comprehensive Income | (In thousands) | Q1 2024 | Q1 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net income | $125,824 | $104,770 | +$21,054 | +20.1% | | Currency translation adjustment | $(1,125) | $(451) | -$674 | -149.4% | | Comprehensive income | $124,699 | $104,319 | +$20,380 | +19.5% | Condensed Consolidated Statements of Cash Flows | (In thousands) | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $123,464 | $114,682 | +$8,782 | | Net cash used in investing activities | $(21,486) | $(19,603) | -$1,883 | | Net cash used in financing activities | $(34,794) | $(45,281) | +$10,487 | | Change in cash and cash equivalents, restricted cash and cash equivalents | $66,512 | $49,612 | +$16,900 | Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and do not include all footnotes required for complete financial statements[18] - Operating results for Q1 2024 are not necessarily indicative of the results expected for the full fiscal year ending December 29, 2024[19] 2. Segment Information | (In thousands) | Q1 2024 Revenues | Q1 2023 Revenues | YoY Change | Q1 2024 Segment Income | Q1 2023 Segment Income | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Stores | $353,467 | $330,501 | +$22,966 | $136,108 | $112,683 | +$23,425 | | Supply Chain | $686,642 | $650,124 | +$36,518 | $64,576 | $48,515 | +$16,061 | | International Franchise | $71,966 | $69,671 | +$2,295 | $59,332 | $58,139 | +$1,193 | | Total | $1,084,647 | $1,024,398 | +$60,249 | $241,843 | $203,615 | +$38,228 | 3. Earnings Per Share | | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net income available to common stockholders | $125,824 | $104,770 | +$21,054 | | Basic weighted average number of shares | 34,800,310 | 35,391,624 | -591,314 | | Earnings per share – basic | $3.62 | $2.96 | +$0.66 | | Diluted weighted average number of shares | 35,154,232 | 35,708,938 | -554,706 | | Earnings per share – diluted | $3.58 | $2.93 | +$0.65 | 4. Stockholders' Deficit | (In thousands) | Dec 31, 2023 | Mar 24, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Stockholders' Deficit | $(4,070,367) | $(4,008,330) | +$62,037 | | Net income | N/A | $125,824 | N/A | | Dividends declared on common stock and equivalents | N/A | $(52,954) | N/A | | Purchases of common stock (retained deficit impact) | N/A | $(8,099) | N/A | - The Board of Directors declared a $1.51 per share quarterly dividend on April 25, 2024, to be paid on June 28, 2024[25] 5. Leverage Ratio - The Holdco Leverage Ratio was less than or equal to 5.0x total debt to adjusted EBITDA at the end of Q1 2024[29] - Scheduled debt amortization payments on outstanding senior notes were suspended, and all principal amounts were reclassified as long-term debt[29] 6. Fair Value Measurements - An $18.7 million unrealized loss on the investment in DPC Dash was recorded in Q1 2024, with no such adjustment in Q1 2023[33] | (In thousands) | Carrying Amount (Mar 24, 2024) | Fair Value (Mar 24, 2024) | Carrying Amount (Dec 31, 2023) | Fair Value (Dec 31, 2023) | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $147,754 | $147,754 | $50,732 | $50,732 | | Restricted cash equivalents | $156,316 | $156,316 | $133,063 | $133,063 | | Investments in marketable securities | $18,518 | $18,518 | $16,720 | $16,720 | | Advertising fund cash equivalents, restricted | $34,738 | $34,738 | $69,199 | $69,199 | | Investment in DPC Dash | $124,854 | $124,854 | $143,553 | $143,553 | - Fair values of fixed rate notes are classified as Level 2 measurements, estimated using available market information and brokerage quotes[35] 7. Revenue Disclosures - The temporary 0.25% reduction to the standard 6.0% advertising contribution rate expired on March 25, 2024[41] - The U.S. digital per-transaction technology fee will decrease by $0.04 to $0.355 as of March 25, 2025[42] | (In thousands) | Mar 24, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Advertising fund assets, restricted | $77,000 | $106,300 | | Deferred franchise fees and deferred development fees, end of period | $25,161 | $25,195 | 8. Leases | (In thousands) | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Rent expense | $21,200 | $19,300 | +$1,900 | | Operating lease cost | $11,253 | $10,808 | +$445 | | Operating cash flows from operating leases | $10,340 | $10,320 | +$20 | | Right-of-use assets obtained (Operating leases) | $16,706 | $9,305 | +$7,401 | - The company has guaranteed lease payments for certain franchisees, with a maximum potential future payment of $17.0 million as of March 24, 2024[45] 9. Supplemental Disclosures of Cash Flow Information - Non-cash investing activities related to accruals for capital expenditures were $6.1 million at March 24, 2024[46] - Non-cash financing activity related to accruals for excise taxes on share repurchases was $2.7 million at March 24, 2024[46] 10. Company-owned Store Transactions - One U.S. Company-owned store was refranchised in Q1 2024 and Q1 2023, each resulting in an approximate $0.1 million pre-tax refranchising loss[47][48] 11. New Accounting Pronouncements - The company is evaluating ASU 2023-07 (Segment Reporting), effective for fiscal years beginning after December 15, 2024[49][50] - The company is evaluating ASU 2023-09 (Income Taxes), effective for fiscal years beginning after December 15, 2024[51][52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Domino's Q1 2024 financial condition and results, covering sales growth, operational income, and strategic drivers Overview - Domino's is the largest pizza company globally, with over 20,700 locations in more than 90 markets as of March 24, 2024[55] - Approximately 99% of Domino's global stores are owned and operated by independent franchisees[56] - The 'Hungry for MORE' strategy aims to generate MORE sales, MORE stores, and MORE profits through Most Delicious Food, Operational Excellence, Renowned Value, and Enhanced by Best-in-Class Franchisees[60][61] First Quarter of 2024 Highlights - Global retail sales growth (excluding foreign currency impact) increased 7.3% in Q1 2024 compared to Q1 2023[69] - U.S. retail sales increased 7.8%, and international retail sales (excluding foreign currency impact) increased 6.8%[69] - U.S. same store sales increased 5.6%, and international same store sales (excluding foreign currency impact) increased 0.9%[69] - Global net store growth was 164 in Q1 2024[69] - Income from operations increased 18.6% in Q1 2024[69] Statistical Measures Global Retail Sales | (In millions) | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | U.S. stores | $2,212.0 | $2,051.0 | +$161.0 | | International stores | $2,152.1 | $2,062.7 | +$89.4 | | Total Global retail sales | $4,364.1 | $4,113.7 | +$250.4 | Global Retail Sales Growth (excluding foreign currency impact) | | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | U.S. stores | +7.8% | +5.1% | | International stores (excluding foreign currency impact) | +6.8% | +6.5% | | Total (excluding foreign currency impact) | +7.3% | +5.9% | Same Store Sales Growth | | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | U.S. Company-owned stores | +8.5% | +7.3% | | U.S. franchise stores | +5.5% | +3.4% | | U.S. stores | +5.6% | +3.6% | | International stores (excluding foreign currency impact) | +0.9% | +1.2% | - U.S. same store sales growth was driven by higher customer transaction counts in both delivery and carryout, primarily due to the Domino's Rewards loyalty program and national offers[71] - International same store sales growth was attributable to a higher average ticket per transaction across international markets[71] Store Growth Activity | | Store count at Dec 31, 2023 | Openings | Closings | Transfers | Store count at Mar 24, 2024 | Q1 2024 Net Store Growth | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Company owned Stores | 288 | 3 | (1) | (1) | 289 | 2 | | U.S. Franchise Stores | 6,566 | 19 | (1) | 1 | 6,585 | 18 | | Total U.S. Stores | 6,854 | 22 | (2) | — | 6,874 | 20 | | International Stores | 13,737 | 181 | (37) | — | 13,881 | 144 | | Total | 20,591 | 203 | (39) | — | 20,755 | 164 | Russia Market - The remaining 143 net stores in Russia were considered closed as of August 21, 2023, and are excluded from the ending store count and Q1 2024 global retail sales growth calculations[74] Income Statement Data Revenues | (In millions) | Q1 2024 | % of Total | Q1 2023 | % of Total | YoY Change | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Company-owned stores | $92.6 | 8.5% | $84.9 | 8.3% | +$7.7 | +9.1% | | U.S. franchise royalties and fees | $150.5 | 13.9% | $132.9 | 13.0% | +$17.6 | +13.3% | | Supply chain | $659.2 | 60.8% | $624.2 | 60.9% | +$35.0 | +5.6% | | International franchise royalties and fees | $72.0 | 6.6% | $69.7 | 6.8% | +$2.3 | +3.3% | | U.S. franchise advertising | $110.3 | 10.2% | $112.7 | 11.0% | -$2.4 | -2.1% | | Total revenues | $1,084.6 | 100.0% | $1,024.4 | 100.0% | +$60.2 | +5.9% | - Supply chain revenue increase was due to higher order volumes, partially offset by a shift in product mix and a 1.9% decrease in food basket pricing[77][82] - U.S. franchise royalties and fees benefited from increased technology platform fees, higher same store sales, and net store growth[77][80] - U.S. franchise advertising revenue decreased due to increased advertising incentives (Emergency Pizza promotion) and a temporary reduction in the advertising contribution rate[81] Cost of Sales / Gross Margin | (In millions) | Q1 2024 | % of Revenues | Q1 2023 | % of Revenues | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Cost of Sales | $662.8 | 61.1% | $638.9 | 62.4% | +$23.9 | | Gross Margin | $421.9 | 38.9% | $385.5 | 37.6% | +$36.4 | - U.S. Company-owned store gross margin increased 0.6 percentage points to 17.5% of store revenues, driven by lower food costs and sales leverage[87][88] - Supply chain gross margin increased 2.1 percentage points to 11.1% of supply chain revenues, due to lower food costs from procurement productivity and a decrease in food basket cost, as well as slightly lower delivery costs[88] General and Administrative Expenses | (In millions) | Q1 2024 | Q1 2023 | YoY Change | % Change | | :--- | :--- | :--- | :--- | :--- | | General and administrative | $101.0 | $95.2 | +$5.8 | +6.1% | U.S. Franchise Advertising Expenses | (In millions) | Q1 2024 | Q1 2023 | YoY Change | % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. franchise advertising | $110.3 | $112.7 | -$2.4 | -2.1% | Refranchising Loss | (In millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Refranchising loss | $0.1 | $0.1 | Other Expense | (In millions) | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Other expense | $(18.7) | $0.0 | -$18.7 | - The $18.7 million other expense in Q1 2024 was an unrealized loss on the investment in DPC Dash[92] Interest Expense, Net | (In millions) | Q1 2024 | Q1 2023 | YoY Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Interest expense, net | $(42.1) | $(44.2) | +$2.1 | -4.8% | | Weighted average borrowing rate | 3.8% | 3.8% | 0.0 ppts | - The decrease in net interest expense was driven by higher interest income on cash equivalents[93] Provision for Income Taxes | (In millions) | Q1 2024 | Q1 2023 | YoY Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Provision for income taxes | $23.8 | $28.6 | -$4.8 | -16.8% | | Effective tax rate | 15.9% | 21.4% | -5.5 ppts | - The lower effective tax rate was driven by a 5.6 percentage point change in the impact of excess tax benefits from equity-based compensation[94] Segment Income | (In millions) | Q1 2024 | Q1 2023 | YoY Change | % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. stores | $136.1 | $112.7 | +$23.4 | +20.8% | | Supply chain | $64.6 | $48.5 | +$16.1 | +33.1% | | International franchise | $59.3 | $58.1 | +$1.2 | +2.1% | | Other | $(18.2) | $(15.7) | -$2.5 | -15.9% | | Total Segment Income | $241.8 | $203.6 | +$38.2 | +18.8% | U.S. Stores - U.S. stores Segment Income increased by $23.4 million, or 20.8%, primarily due to higher U.S. franchise royalties and fees revenues and an increase in U.S. Company-owned store gross margin[98] Supply Chain - Supply chain Segment Income increased by $16.1 million, or 33.1%, primarily due to the $17.0 million increase in supply chain gross margin[99] International Franchise - International franchise Segment Income increased by $1.2 million, or 2.1%, primarily due to higher international franchise royalties and fees revenues[100] Other - Other Segment Income decreased by $2.5 million, or 15.6%, primarily due to higher labor costs[101] Liquidity and Capital Resources - Working capital was $173.3 million as of March 24, 2024, excluding restricted cash and advertising fund assets/liabilities[103] - Primary sources of liquidity are cash flows from operations and available borrowings under 2022 and 2021 Variable Funding Notes, with $278.9 million available as of March 24, 2024[104] Restricted Cash - Total restricted cash and cash equivalents were $209.8 million as of March 24, 2024, including $158.7 million for debt payments and $50.9 million for interest reserve[107] - An additional $56.0 million of advertising fund restricted cash and cash equivalents can only be used for brand promotion activities[107] Long-Term Debt - Long-term debt was approximately $4.98 billion as of March 24, 2024[108] - All principal amounts of outstanding notes were classified as long-term debt due to the Holdco Leverage Ratio being less than 5.0x, suspending scheduled debt amortization payments[108] Share Repurchase Programs - The Board authorized an additional $1.0 billion for share repurchases on February 21, 2024[110] - As of March 24, 2024, $1.12 billion remained authorized for future share repurchases[111] - The company repurchased approximately $25.0 million of common stock (56,372 shares) in Q1 2024[111] Dividends - A $1.51 per share quarterly dividend was declared on February 21, 2024, and paid on March 29, 2024[112] - Another $1.51 per share quarterly dividend was declared on April 25, 2024, to be paid on June 28, 2024[112] Sources and Uses of Cash | (In millions) | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $123.5 | $114.7 | +$8.8 | | Net cash used in investing activities | $(21.5) | $(19.6) | -$1.9 | | Net cash used in financing activities | $(34.8) | $(45.3) | +$10.5 | Operating Activities - Cash provided by operating activities increased by $8.8 million in Q1 2024, driven by higher net income and non-cash adjustments, partially offset by changes in operating assets/liabilities and advertising fund assets/liabilities[114] Investing Activities - Cash used in investing activities was $21.5 million in Q1 2024, primarily consisting of $20.2 million in capital expenditures for technological initiatives, supply chain centers, and corporate store operations[115] Financing Activities - Cash used in financing activities was $34.8 million in Q1 2024, including $25.0 million for stock repurchases, $13.5 million for debt repayments, and $6.7 million for tax payments on restricted stock, partially offset by $10.8 million from stock option exercises[116] Critical Accounting Estimates - No material changes to critical accounting estimates (long-lived assets, casualty insurance reserves, income taxes) since December 31, 2023[117] Forward-Looking Statements - This section contains forward-looking statements subject to substantial risks and uncertainties that could cause actual results to differ materially from expectations[118] - Key risk factors include indebtedness, competition, labor shortages, commodity price fluctuations, and general economic conditions[118] Item 3. Quantitative and Qualitative Disclosures About Market Risk Details market risks from interest rate and commodity price fluctuations, with no speculative transactions or foreign currency hedging Market Risk - The company is exposed to interest rate risk on its variable funding notes, which bear interest at fluctuating rates based on Term SOFR[119][120] - The company is exposed to market risks from changes in commodity prices for cheese, other food, cardboard, and paper products[122] - The company does not engage in speculative transactions or hold/issue financial instruments for trading purposes[119][122] Foreign Currency Exchange Risk - Approximately 6.6% of total revenues in Q1 2024 were derived from the international franchise segment, with a majority denominated in foreign currencies[123] - A hypothetical 10% adverse change in foreign currency rates would have resulted in a negative impact of approximately $6.4 million on royalty revenues in Q1 2024[123] - The company does not enter into financial instruments to manage foreign currency exchange risk[123] Item 4. Controls and Procedures Confirms effective disclosure controls and procedures as of March 24, 2024, with no material changes to internal financial reporting controls - The company's disclosure controls and procedures were effective as of March 24, 2024[124] - There were no material changes in the company's internal control over financial reporting during the quarterly period ended March 24, 2024[125] PART II. OTHER INFORMATION Item 1. Legal Proceedings Details ongoing legal and administrative proceedings, which management believes will not materially affect the business or financial condition - The company is a party to lawsuits, revenue agent reviews by taxing authorities, and administrative proceedings in the ordinary course of business[127] - Management does not believe these matters will have a material adverse effect on the business or financial condition, and established accruals are considered adequate[128] Item 1A. Risk Factors Reports no material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - No material changes to the risk factors previously disclosed in Item 1A 'Risk Factors' in Part I of the 2023 Form 10-K[129] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details Q1 2024 share repurchases of 56,372 shares for $25.0 million, with $1.12 billion authorized for future repurchases | Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (2) (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Period 1 (Jan 1 - Jan 28, 2024) | 1,276 | $412.44 | — | $1,141,333 | | Period 2 (Jan 29 - Feb 25, 2024) | 1,201 | $429.31 | — | $1,141,333 | | Period 3 (Feb 26 - Mar 24, 2024) | 58,936 | $443.65 | 56,372 | $1,116,333 | | Total | 61,413 | $442.72 | 56,372 | $1,116,333 | - As of March 24, 2024, $1.12 billion remained available for future purchases under the share repurchase program[132] Item 3. Defaults Upon Senior Securities Reports no defaults upon senior securities during the reported period - No defaults upon senior securities[134] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[135] Item 5. Other Information Confirms no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2024 - None of the company's directors or officers adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement' during Q1 2024[136] Item 6. Exhibits Lists exhibits filed with the 10-Q report, including CEO/CFO certifications and various XBRL documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and various XBRL documents[137] SIGNATURES Provides the official signatures for the report, confirming its submission - The report was signed on April 29, 2024, by Sandeep Reddy, Executive Vice President and Chief Financial Officer[140]