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Although domestic same store sales were weakened by lighter consumer traffic, international same store sales grew 3% from the prior year period. This marked the Company's 51st consecutive quarter of international same store sales growth.
Third Quarter Highlights:
(dollars in millions, except per share data) Third Quarter Third Quarter
of 2006 of 2005
Revenues $326.7 $337.6
Net income $24.5 $20.3
Weighted average diluted shares 63,405,773 68,226,744
Diluted earnings per share $0.39 $0.30
* Revenues were down 3.2% for the third quarter compared to the prior year period, due primarily to lower domestic distribution revenues. Distribution revenues decreased 3.6% because of lower food prices, primarily cheese, and lower volumes due to a decrease in domestic franchise same store sales. The average cheese block price per pound was $1.19 in the third quarter of 2006, down 19.6% from $1.48 in the third quarter of 2005. Revenues from international operations decreased 8.4% due primarily to the sale of Company-owned operations in France and the Netherlands to an existing master franchisee.
* Net income was up 20.9% for the third quarter compared to the prior year period, driven primarily by strong performance in the Company's international business and gains recognized on the sale of certain Company- owned operations.
* Diluted EPS was $0.39 for the third quarter, up 30% from the prior year period, driven by both an increase in net income and a reduction in diluted shares outstanding. The reduction in diluted share count was due primarily to the Company's previously reported $145.0 million share repurchase which occurred in the first quarter of 2006.
David A. Brandon, Domino's Chairman and Chief Executive Officer, commented on the Company's third quarter performance: "This quarter is another example of the resiliency of our business model and the way we perform during sluggish sales cycles. Our domestic business operated in a significantly weaker sales environment than expected. We experienced negative traffic counts for most of the quarter and we did not achieve consistent positive sales results across our domestic system of stores."
Brandon continued, "Our goal will always be to grow our sales regardless of external factors, but we were not able to accomplish this during the third quarter. However, we were able to maintain strong earnings growth despite our weaker-than-expected same store sales. We continue to benefit from the growth of our international business, and the cost-management programs we have implemented throughout our business units."
Brandon concluded, "Overall, our company is strong and continues to grow. Our consistent earnings growth and strong cash flows are the best measures of the health of our business. Our global retail sales were up during the quarter as compared to a very strong quarter a year ago. We believe the current sluggish domestic sales environment will improve ... and when it does, we are in a very strong position to take advantage of the opportunities it will create for Domino's Pizza."
Third Third
Quarter Quarter
of 2006 of 2005
Same store sales growth (versus prior year period)
Domestic Company-owned stores (2.3)% +4.2%
Domestic franchise stores (3.2)% +0.7%
Domestic stores (3.1)% +1.1%
International stores +3.0% +4.5%
Global retail sales growth (versus prior year period)
Domestic stores (1.3)% +3.3%
International stores +11.5% +17.7%
Total +3.1% +7.8%
* The decrease in domestic same store sales was due primarily to stronger promotion performance and related higher same store sales in the prior year.
* The 3.0% increase in international same store sales marks the 51st consecutive quarter of positive international same store sales growth.
* Global retail sales increases were driven primarily by increases in international same store sales and worldwide store counts.
Domestic Domestic Total
Company-owned Franchise Domestic International
Stores Stores Stores Stores Total
Store counts
Store count at
June 18, 2006 577 4,526 5,103 3,087 8,190
Openings - 21 21 65 86
Closings - (24) (24) (14) (38)
Transfers (12) 12 - - -
Store count at
September 10,
2006 565 4,535 5,100 3,138 8,238
Third quarter
net growth (12) 9 (3) 51 48
First three
quarters net
growth (16) 24 8 151 159
Trailing four
quarters net
growth (9) 83 74 219 293
Company Sells Operations in France and the Netherlands
During the second quarter of 2006, the Company signed a stock purchase agreement to sell its Company-owned operations in France and the Netherlands to its master franchisee for Australia and New Zealand. The sale closed in the third quarter. During the third quarter, the Company recognized a gain of approximately $2.8 million (or approximately 4 cents per share) related to the sale. The gain was included in general and administrative expenses. During the second quarter of 2006, the Company recorded a $2.9 million tax benefit as it was apparent that it would realize a benefit resulting from tax losses to be realized upon the sale of these operations.
Company Sells 11 Domestic Company-owned Stores
During the third quarter of 2006, the Company sold 11 domestic Company- owned stores to an existing franchisee. The sale resulted in a pre-tax gain of approximately $0.7 million.
Liquidity
As of September 10, 2006, the Company had:
* $740.9 million in total debt,
* $11.0 million of cash and cash equivalents, and
* borrowings of $92.9 million available under its $125.0 million
revolving credit facility (net of letters of credit issued of $32.1
million.)
The Company has repaid $95.2 million of debt year-to-date, including $50.1 million in the third quarter. The Company also borrowed $100.0 million in the first quarter which, along with cash from operations, was used to repurchase and retire $145.0 million of common stock from its largest shareholder.
The Company's average borrowing rate for the third quarter of 2006 was 6.6%. The Company is not required to make the next scheduled senior credit facility principal payment of $1.2 million until September 30, 2007 and is not required to make principal payments on its senior subordinated notes until 2011.
The Company incurred $14.8 million in capital expenditures during the first three quarters of 2006 versus $20.7 million during the first three quarters of 2005. The decrease was due primarily to increased spending in 2005 related to the renovation of the Company's headquarters.
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