(Unaudited; tabular amounts in millions, except percentages and store data)
The 2020 and 2019 third quarters referenced herein represent the twelve-week
periods ended September 6, 2020 and September 8, 2019, respectively. The 2020
and 2019 three fiscal quarters referenced herein represent the
thirty-six-week
periods ended September 6, 2020 and September 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 the U.S. and Canada, and by operating a number of our
own stores in the U.S. Franchisees profit by selling pizza and other
complementary items to their local customers. In our international markets, we
generally grant geographical rights to the Domino'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 the Domino'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 % U.S. franchise advertising

                 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 U.S. same

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 and U.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 the U.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 in U.S. same store sales. We did
not experience significant temporary closures in our U.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. Our U.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 the U.S. during the third quarter
of 2020. Although 162 gross new stores opened internationally, 123 stores
closed, primarily in India. 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 by U.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 stronger U.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 of September 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 higher U.S. retail sales, which resulted
in higher supply chain and U.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 existing U.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 our
U.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 on November 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 % $ 329.8 11.9 % $ 323.0 13.1 % U.S. franchise royalties and fees 118.1 12.2 % 97.0

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 % U.S. franchise advertising

             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 our U.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 our
U.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 % $ 329.8 33.8 % $ 323.0 36.7 % U.S. franchise royalties and fees 118.1 34.8 % 97.0

34.5 % 335.9 34.5 % 289.3 32.9 % U.S. franchise advertising

             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 from U.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 from U.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 of U.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 from U.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 of U.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 from U.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

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses