UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 19,18, 20222023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-32242
Domino’s Pizza, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 38-2511577 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
30 Frank Lloyd Wright Drive Ann Arbor, Michigan | 48105 | |
(Address of Principal Executive Offices) | (Zip Code) |
(734) 930-3030
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Domino’s Pizza, Inc. Common Stock, $0.01 par value | DPZ | New York Stock Exchange |
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 14, 2022,17, 2023, Domino’s Pizza, Inc. had 35,885,10535,094,304 shares of common stock, par value $0.01 per share, outstanding.
Domino’s Pizza, Inc.
TABLE OF CONTENTS
Page No. | ||||
PART I. | ||||
Item 1. | 3 | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||
Item 3. |
| |||
Item 4. |
| |||
PART II. | ||||
Item 1. |
| |||
Item 1A. |
| |||
Item 2. |
| |||
Item 3. |
| |||
Item 4. |
| |||
Item 5. |
| |||
Item 6. |
| |||
|
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) |
| June 19, 2022 |
|
| January 2, 2022 (1) |
|
| June 18, 2023 |
|
| January 1, 2023 (1) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 114,353 |
|
| $ | 148,160 |
|
| $ | 77,020 |
|
| $ | 60,356 |
|
Restricted cash and cash equivalents |
|
| 158,215 |
|
|
| 180,579 |
|
|
| 189,694 |
|
|
| 191,289 |
|
Accounts receivable, net |
|
| 274,957 |
|
|
| 255,327 |
|
|
| 260,024 |
|
|
| 257,492 |
|
Inventories |
|
| 70,201 |
|
|
| 68,328 |
|
|
| 65,627 |
|
|
| 81,570 |
|
Prepaid expenses and other |
|
| 45,645 |
|
|
| 27,242 |
|
|
| 53,201 |
|
|
| 37,287 |
|
Advertising fund assets, restricted |
|
| 182,499 |
|
|
| 180,904 |
|
|
| 154,052 |
|
|
| 162,660 |
|
Total current assets |
|
| 845,870 |
|
|
| 860,540 |
|
|
| 799,618 |
|
|
| 790,654 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Land and buildings |
|
| 108,245 |
|
|
| 108,372 |
|
|
| 105,847 |
|
|
| 105,659 |
|
Leasehold and other improvements |
|
| 195,834 |
|
|
| 193,572 |
|
|
| 175,944 |
|
|
| 172,725 |
|
Equipment |
|
| 322,079 |
|
|
| 312,772 |
|
|
| 351,927 |
|
|
| 333,787 |
|
Construction in progress |
|
| 27,161 |
|
|
| 27,815 |
|
|
| 15,089 |
|
|
| 22,536 |
|
|
|
| 653,319 |
|
|
| 642,531 |
|
|
| 648,807 |
|
|
| 634,707 |
|
Accumulated depreciation and amortization |
|
| (339,507 | ) |
|
| (318,466 | ) |
|
| (352,872 | ) |
|
| (332,472 | ) |
Property, plant and equipment, net |
|
| 313,812 |
|
|
| 324,065 |
|
|
| 295,935 |
|
|
| 302,235 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease right-of-use assets |
|
| 222,780 |
|
|
| 210,702 |
|
|
| 213,817 |
|
|
| 219,202 |
|
Goodwill |
|
| 16,153 |
|
|
| 15,034 |
|
|
| 11,688 |
|
|
| 11,763 |
|
Capitalized software, net |
|
| 103,137 |
|
|
| 95,558 |
|
|
| 119,299 |
|
|
| 108,354 |
|
Investments |
|
| 125,840 |
|
|
| 125,840 |
| ||||||||
Investment in DPC Dash |
|
| 110,876 |
|
|
| 125,840 |
| ||||||||
Deferred income tax assets, net |
|
| 2,492 |
|
|
| 1,926 |
| ||||||||
Other assets |
|
| 40,652 |
|
|
| 37,968 |
|
|
| 42,445 |
|
|
| 42,247 |
|
Deferred income taxes |
|
| 2,386 |
|
|
| 2,109 |
| ||||||||
Total other assets |
|
| 510,948 |
|
|
| 487,211 |
|
|
| 500,617 |
|
|
| 509,332 |
|
Total assets |
| $ | 1,670,630 |
|
| $ | 1,671,816 |
|
| $ | 1,596,170 |
|
| $ | 1,602,221 |
|
Liabilities and stockholders' deficit |
|
|
|
|
|
| ||||||||||
Liabilities and stockholders’ deficit |
|
|
|
|
|
| ||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of long-term debt |
| $ | 55,654 |
|
| $ | 55,588 |
|
| $ | 55,745 |
|
| $ | 54,813 |
|
Accounts payable |
|
| 99,465 |
|
|
| 91,547 |
|
|
| 90,688 |
|
|
| 89,715 |
|
Operating lease liabilities |
|
| 41,682 |
|
|
| 37,155 |
|
|
| 37,611 |
|
|
| 34,877 |
|
Insurance reserves |
|
| 32,157 |
|
|
| 32,588 |
|
|
| 30,197 |
|
|
| 31,435 |
|
Dividends payable |
|
| 40,624 |
|
|
| 918 |
|
|
| 43,586 |
|
|
| 866 |
|
Advertising fund liabilities |
|
| 175,069 |
|
|
| 173,737 |
|
|
| 150,365 |
|
|
| 157,909 |
|
Other accrued liabilities |
|
| 130,798 |
|
|
| 199,208 |
|
|
| 139,336 |
|
|
| 167,006 |
|
Total current liabilities |
|
| 575,449 |
|
|
| 590,741 |
|
|
| 547,528 |
|
|
| 536,621 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, less current portion |
|
| 4,989,578 |
|
|
| 5,014,638 |
|
|
| 4,944,678 |
|
|
| 4,967,420 |
|
Operating lease liabilities |
|
| 194,674 |
|
|
| 184,471 |
|
|
| 188,694 |
|
|
| 195,244 |
|
Insurance reserves |
|
| 36,213 |
|
|
| 36,913 |
|
|
| 36,507 |
|
|
| 40,179 |
|
Deferred income tax liabilities |
|
| 1,242 |
|
|
| 7,761 |
| ||||||||
Other accrued liabilities |
|
| 48,724 |
|
|
| 50,667 |
|
|
| 44,087 |
|
|
| 44,061 |
|
Deferred income taxes |
|
| 6,301 |
|
|
| 3,922 |
| ||||||||
Total long-term liabilities |
|
| 5,275,490 |
|
|
| 5,290,611 |
|
|
| 5,215,208 |
|
|
| 5,254,665 |
|
Stockholders' deficit: |
|
|
|
|
|
| ||||||||||
Stockholders’ deficit: |
|
|
|
|
|
| ||||||||||
Common stock |
|
| 359 |
|
|
| 361 |
|
|
| 351 |
|
|
| 354 |
|
Additional paid-in capital |
|
| 3,589 |
|
|
| 840 |
|
|
| 3,370 |
|
|
| 9,693 |
|
Retained deficit |
|
| (4,180,367 | ) |
|
| (4,207,917 | ) |
|
| (4,166,520 | ) |
|
| (4,194,418 | ) |
Accumulated other comprehensive loss |
|
| (3,890 | ) |
|
| (2,820 | ) |
|
| (3,767 | ) |
|
| (4,694 | ) |
Total stockholders' deficit |
|
| (4,180,309 | ) |
|
| (4,209,536 | ) | ||||||||
Total liabilities and stockholders' deficit |
| $ | 1,670,630 |
|
| $ | 1,671,816 |
| ||||||||
Total stockholders’ deficit |
|
| (4,166,566 | ) |
|
| (4,189,065 | ) | ||||||||
Total liabilities and stockholders’ deficit |
| $ | 1,596,170 |
|
| $ | 1,602,221 |
|
(1) The condensed consolidated balance sheet at January 2, 20221, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||||||||||||
|
| June 19, |
| June 20, |
| June 19, |
| June 20, |
|
| June 18, |
| June 19, |
| June 18, |
| June 19, |
| ||||||||||||||
(In thousands, except per share data) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
U.S. Company-owned stores |
| $ | 112,502 |
|
| $ | 116,589 |
|
| $ | 216,397 |
|
| $ | 229,333 |
|
| $ | 87,694 |
|
| $ | 112,502 |
|
| $ | 172,605 |
|
| $ | 216,397 |
|
U.S. franchise royalties and fees |
|
| 128,098 |
|
|
| 126,836 |
|
|
| 250,383 |
|
|
| 251,322 |
|
|
| 139,268 |
|
|
| 128,098 |
|
|
| 272,132 |
|
|
| 250,383 |
|
Supply chain |
|
| 646,586 |
|
|
| 602,962 |
|
|
| 1,256,133 |
|
|
| 1,171,300 |
|
|
| 615,711 |
|
|
| 646,586 |
|
|
| 1,239,937 |
|
|
| 1,256,133 |
|
International franchise royalties and fees |
|
| 66,915 |
|
|
| 69,745 |
|
|
| 135,748 |
|
|
| 136,515 |
|
|
| 70,495 |
|
|
| 66,915 |
|
|
| 140,166 |
|
|
| 135,748 |
|
U.S. franchise advertising |
|
| 111,081 |
|
|
| 116,340 |
|
|
| 217,670 |
|
|
| 227,700 |
|
|
| 111,459 |
|
|
| 111,081 |
|
|
| 224,185 |
|
|
| 217,670 |
|
Total revenues |
|
| 1,065,182 |
|
|
| 1,032,472 |
|
|
| 2,076,331 |
|
|
| 2,016,170 |
|
|
| 1,024,627 |
|
|
| 1,065,182 |
|
|
| 2,049,025 |
|
|
| 2,076,331 |
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
U.S. Company-owned stores |
|
| 94,065 |
|
|
| 88,019 |
|
|
| 181,440 |
|
|
| 173,761 |
|
|
| 71,423 |
|
|
| 94,065 |
|
|
| 141,995 |
|
|
| 181,440 |
|
Supply chain |
|
| 584,852 |
|
|
| 536,763 |
|
|
| 1,140,002 |
|
|
| 1,045,568 |
|
|
| 548,548 |
|
|
| 584,852 |
|
|
| 1,116,827 |
|
|
| 1,140,002 |
|
Total cost of sales |
|
| 678,917 |
|
|
| 624,782 |
|
|
| 1,321,442 |
|
|
| 1,219,329 |
|
|
| 619,971 |
|
|
| 678,917 |
|
|
| 1,258,822 |
|
|
| 1,321,442 |
|
Gross margin |
|
| 386,265 |
|
|
| 407,690 |
|
|
| 754,889 |
|
|
| 796,841 |
|
|
| 404,656 |
|
|
| 386,265 |
|
|
| 790,203 |
|
|
| 754,889 |
|
General and administrative |
|
| 97,070 |
|
|
| 100,448 |
|
|
| 194,564 |
|
|
| 191,701 |
|
|
| 97,794 |
|
|
| 97,070 |
|
|
| 192,983 |
|
|
| 194,564 |
|
U.S. franchise advertising |
|
| 111,081 |
|
|
| 116,340 |
|
|
| 217,670 |
|
|
| 227,700 |
|
|
| 111,459 |
|
|
| 111,081 |
|
|
| 224,185 |
|
|
| 217,670 |
|
Refranchising loss |
|
| — |
|
|
| — |
|
|
| 149 |
|
|
| — |
| ||||||||||||||||
Income from operations |
|
| 178,114 |
|
|
| 190,902 |
|
|
| 342,655 |
|
|
| 377,440 |
|
|
| 195,403 |
|
|
| 178,114 |
|
|
| 372,886 |
|
|
| 342,655 |
|
Other income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,500 |
| ||||||||||||||||
Other expense |
|
| (14,964 | ) |
|
| — |
|
|
| (14,964 | ) |
|
| — |
| ||||||||||||||||
Interest income |
|
| 219 |
|
|
| 68 |
|
|
| 268 |
|
|
| 90 |
|
|
| 2,537 |
|
|
| 219 |
|
|
| 4,928 |
|
|
| 268 |
|
Interest expense |
|
| (44,851 | ) |
|
| (45,877 | ) |
|
| (91,723 | ) |
|
| (85,299 | ) |
|
| (44,932 | ) |
|
| (44,851 | ) |
|
| (91,479 | ) |
|
| (91,723 | ) |
Income before provision for income taxes |
|
| 133,482 |
|
|
| 145,093 |
|
|
| 251,200 |
|
|
| 294,731 |
|
|
| 138,044 |
|
|
| 133,482 |
|
|
| 271,371 |
|
|
| 251,200 |
|
Provision for income taxes |
|
| 30,989 |
|
|
| 28,474 |
|
|
| 57,743 |
|
|
| 60,351 |
|
|
| 28,664 |
|
|
| 30,989 |
|
|
| 57,221 |
|
|
| 57,743 |
|
Net income |
| $ | 102,493 |
|
| $ | 116,619 |
|
| $ | 193,457 |
|
| $ | 234,380 |
|
| $ | 109,380 |
|
| $ | 102,493 |
|
| $ | 214,150 |
|
| $ | 193,457 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock - basic |
| $ | 2.85 |
|
| $ | 3.10 |
|
| $ | 5.38 |
|
| $ | 6.14 |
|
| $ | 3.11 |
|
| $ | 2.85 |
|
| $ | 6.07 |
|
| $ | 5.38 |
|
Common stock - diluted |
|
| 2.82 |
|
|
| 3.06 |
|
|
| 5.32 |
|
|
| 6.06 |
|
| $ | 3.08 |
|
| $ | 2.82 |
|
| $ | 6.02 |
|
| $ | 5.32 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||||||||||||
|
| June 19, |
| June 20, |
| June 19, |
| June 20, |
|
| June 18, |
| June 19, |
| June 18, |
| June 19, |
| ||||||||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net income |
| $ | 102,493 |
|
| $ | 116,619 |
|
| $ | 193,457 |
|
| $ | 234,380 |
|
| $ | 109,380 |
|
| $ | 102,493 |
|
| $ | 214,150 |
|
| $ | 193,457 |
|
Currency translation adjustment |
|
| (1,684 | ) |
|
| 230 |
|
|
| (1,070 | ) |
|
| 416 |
|
|
| 1,378 |
|
|
| (1,684 | ) |
|
| 927 |
|
|
| (1,070 | ) |
Comprehensive income |
| $ | 100,809 |
|
| $ | 116,849 |
|
| $ | 192,387 |
|
| $ | 234,796 |
|
| $ | 110,758 |
|
| $ | 100,809 |
|
| $ | 215,077 |
|
| $ | 192,387 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Two Fiscal Quarters Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||
|
| June 19, |
|
| June 20, |
|
| June 18, |
|
| June 19, |
| ||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 193,457 |
|
| $ | 234,380 |
|
| $ | 214,150 |
|
| $ | 193,457 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
| 37,093 |
|
|
| 33,641 |
|
|
| 36,731 |
|
|
| 37,093 |
|
Refranchising loss |
|
| 149 |
|
|
| — |
| ||||||||
Loss on sale/disposal of assets |
|
| 448 |
|
|
| 456 |
|
|
| 402 |
|
|
| 448 |
|
Amortization of debt issuance costs |
|
| 2,631 |
|
|
| 4,438 |
|
|
| 2,578 |
|
|
| 2,631 |
|
Provision for deferred income taxes |
|
| 2,490 |
|
|
| 2,561 |
| ||||||||
(Benefit) provision for deferred income taxes |
|
| (7,596 | ) |
|
| 2,490 |
| ||||||||
Non-cash equity-based compensation expense |
|
| 15,738 |
|
|
| 13,500 |
|
|
| 17,065 |
|
|
| 15,738 |
|
Excess tax benefits from equity-based compensation |
|
| (174 | ) |
|
| (4,264 | ) |
|
| (133 | ) |
|
| (174 | ) |
Provision for losses on accounts and notes receivable |
|
| 2,326 |
|
|
| 296 |
|
|
| 1,166 |
|
|
| 2,326 |
|
Unrealized gain on investments |
|
| 0 |
|
|
| (2,500 | ) | ||||||||
Unrealized loss on investments |
|
| 14,964 |
|
|
| — |
| ||||||||
Changes in operating assets and liabilities |
|
| (102,935 | ) |
|
| (17,098 | ) |
|
| (33,794 | ) |
|
| (102,935 | ) |
Changes in advertising fund assets and liabilities, restricted |
|
| 2,341 |
|
|
| 30,005 |
|
|
| (3,391 | ) |
|
| 2,341 |
|
Net cash provided by operating activities |
|
| 153,415 |
|
|
| 295,415 |
|
|
| 242,291 |
|
|
| 153,415 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capital expenditures |
|
| (32,664 | ) |
|
| (33,163 | ) |
|
| (37,980 | ) |
|
| (32,664 | ) |
Purchase of investments |
|
| 0 |
|
|
| (40,000 | ) | ||||||||
Purchase of franchise operations and other assets |
|
| (6,814 | ) |
|
| 0 |
|
|
| — |
|
|
| (6,814 | ) |
Other |
|
| (435 | ) |
|
| 293 |
|
|
| (1,211 | ) |
|
| (435 | ) |
Net cash used in investing activities |
|
| (39,913 | ) |
|
| (72,870 | ) |
|
| (39,191 | ) |
|
| (39,913 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from issuance of long-term debt |
|
| 0 |
|
|
| 1,850,000 |
| ||||||||
Repayments of long-term debt and finance lease obligations |
|
| (27,528 | ) |
|
| (882,547 | ) |
|
| (27,186 | ) |
|
| (27,528 | ) |
Proceeds from exercise of stock options |
|
| 526 |
|
|
| 9,025 |
|
|
| 1,051 |
|
|
| 526 |
|
Purchases of common stock |
|
| (97,661 | ) |
|
| (1,025,000 | ) |
|
| (120,847 | ) |
|
| (97,661 | ) |
Tax payments for restricted stock upon vesting |
|
| (2,395 | ) |
|
| (1,087 | ) |
|
| (3,068 | ) |
|
| (2,395 | ) |
Payments of common stock dividends and equivalents |
|
| (39,662 | ) |
|
| (36,432 | ) |
|
| (42,930 | ) |
|
| (39,662 | ) |
Cash paid for financing costs |
|
| 0 |
|
|
| (14,938 | ) | ||||||||
Other |
|
| 0 |
|
|
| (244 | ) | ||||||||
Net cash used in financing activities |
|
| (166,720 | ) |
|
| (101,223 | ) |
|
| (192,980 | ) |
|
| (166,720 | ) |
Effect of exchange rate changes on cash |
|
| (635 | ) |
|
| 302 |
|
|
| 494 |
|
|
| (635 | ) |
Change in cash and cash equivalents, restricted cash and cash equivalents |
|
| (53,853 | ) |
|
| 121,624 |
|
|
| 10,614 |
|
|
| (53,853 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents, beginning of period |
|
| 148,160 |
|
|
| 168,821 |
|
|
| 60,356 |
|
|
| 148,160 |
|
Restricted cash and cash equivalents, beginning of period |
|
| 180,579 |
|
|
| 217,453 |
|
|
| 191,289 |
|
|
| 180,579 |
|
Cash and cash equivalents included in advertising fund assets, restricted, |
|
| 161,741 |
|
|
| 115,872 |
|
|
| 143,559 |
|
|
| 161,741 |
|
Cash and cash equivalents, restricted cash and cash equivalents and cash and |
|
| 490,480 |
|
|
| 502,146 |
|
|
| 395,204 |
|
|
| 490,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents, end of period |
|
| 114,353 |
|
|
| 292,095 |
|
|
| 77,020 |
|
|
| 114,353 |
|
Restricted cash and cash equivalents, end of period |
|
| 158,215 |
|
|
| 184,695 |
|
|
| 189,694 |
|
|
| 158,215 |
|
Cash and cash equivalents included in advertising fund assets, restricted, |
|
| 164,059 |
|
|
| 146,980 |
|
|
| 139,104 |
|
|
| 164,059 |
|
Cash and cash equivalents, restricted cash and cash equivalents and cash and |
| $ | 436,627 |
|
| $ | 623,770 |
|
| $ | 405,818 |
|
| $ | 436,627 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Domino’s Pizza, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands, except percentages, share and per share amounts)
June 19, 202218, 2023
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended January 2, 20221, 2023 included in the Company’s 20212022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 1, 2022February 23, 2023 (the “2021“2022 Form 10-K”).
In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter and two fiscal quarters ended June 19, 202218, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending January 1,December 31, 2023.
2. Segment Information
The following tables summarize revenues and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which the Company refers to as Segment Income, for each of its reportable segments. Intersegment revenues are comprised of sales of food, equipment and supplies from the supply chain segment to the Company-owned stores in the U.S. stores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income below primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.
|
| Fiscal Quarters Ended June 19, 2022 and June 20, 2021 |
|
| Fiscal Quarters Ended June 18, 2023 and June 19, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| U.S. |
| Supply |
| International |
| Intersegment |
|
|
|
|
|
| U.S. |
| Supply |
| International |
| Intersegment |
|
|
|
|
| ||||||||||||||||||||||
|
| Stores |
|
| Chain |
|
| Franchise |
|
| Revenues |
|
| Other |
|
| Total |
|
| Stores |
|
| Chain |
|
| Franchise |
|
| Revenues |
|
| Other |
|
| Total |
| ||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
2023 |
| $ | 338,421 |
|
| $ | 641,481 |
|
| $ | 70,495 |
|
| $ | (25,770 | ) |
| $ | — |
|
| $ | 1,024,627 |
| ||||||||||||||||||||||||
2022 |
| $ | 351,681 |
|
| $ | 683,298 |
|
| $ | 66,915 |
|
| $ | (36,712 | ) |
| $ | — |
|
| $ | 1,065,182 |
|
|
| 351,681 |
|
|
| 683,298 |
|
|
| 66,915 |
|
|
| (36,712 | ) |
|
| — |
|
|
| 1,065,182 |
|
2021 |
|
| 359,765 |
|
|
| 635,592 |
|
|
| 69,745 |
|
|
| (32,630 | ) |
|
| — |
|
|
| 1,032,472 |
| ||||||||||||||||||||||||
Segment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
2023 |
| $ | 123,592 |
|
| $ | 60,026 |
|
| $ | 58,865 |
|
| N/A |
|
| $ | (18,865 | ) |
| $ | 223,618 |
| |||||||||||||||||||||||||
2022 |
| $ | 104,055 |
|
| $ | 53,633 |
|
| $ | 52,890 |
|
| N/A |
|
| $ | (5,621 | ) |
| $ | 204,957 |
|
|
| 104,055 |
|
|
| 53,633 |
|
|
| 52,890 |
|
| N/A |
|
|
| (5,621 | ) |
|
| 204,957 |
| ||
2021 |
|
| 111,847 |
|
|
| 58,593 |
|
|
| 56,365 |
|
| N/A |
|
|
| (9,627 | ) |
|
| 217,178 |
|
|
| Two Fiscal Quarters Ended June 19, 2022 and June 20, 2021 |
|
| Two Fiscal Quarters Ended June 18, 2023 and June 19, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| U.S. |
| Supply |
| International |
| Intersegment |
|
|
|
|
|
| U.S. |
| Supply |
| International |
| Intersegment |
|
|
|
|
| ||||||||||||||||||||||
|
| Stores |
|
| Chain |
|
| Franchise |
|
| Revenues |
|
| Other |
|
| Total |
|
| Stores |
|
| Chain |
|
| Franchise |
|
| Revenues |
|
| Other |
|
| Total |
| ||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
2023 |
| $ | 668,922 |
|
| $ | 1,291,605 |
|
| $ | 140,166 |
|
| $ | (51,668 | ) |
| $ | — |
|
| $ | 2,049,025 |
| ||||||||||||||||||||||||
2022 |
| $ | 684,450 |
|
| $ | 1,325,260 |
|
| $ | 135,748 |
|
| $ | (69,127 | ) |
| $ | — |
|
| $ | 2,076,331 |
|
|
| 684,450 |
|
|
| 1,325,260 |
|
|
| 135,748 |
|
|
| (69,127 | ) |
|
| — |
|
|
| 2,076,331 |
|
2021 |
|
| 708,355 |
|
|
| 1,234,769 |
|
|
| 136,515 |
|
|
| (63,469 | ) |
|
| — |
|
|
| 2,016,170 |
| ||||||||||||||||||||||||
Segment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
2023 |
| $ | 236,275 |
|
| $ | 108,541 |
|
| $ | 117,004 |
|
| N/A |
|
| $ | (34,587 | ) |
| $ | 427,233 |
| |||||||||||||||||||||||||
2022 |
| $ | 201,347 |
|
| $ | 99,982 |
|
| $ | 107,936 |
|
| N/A |
|
| $ | (13,331 | ) |
| $ | 395,934 |
|
|
| 201,347 |
|
|
| 99,982 |
|
|
| 107,936 |
|
| N/A |
|
|
| (13,331 | ) |
|
| 395,934 |
| ||
2021 |
|
| 219,283 |
|
|
| 111,145 |
|
|
| 110,833 |
|
| N/A |
|
|
| (15,715 | ) |
|
| 425,546 |
|
In the first quarter of 2023, the Company changed its allocation methodology for certain costs which support certain internally developed software used across the Company’s franchise system. This allocation methodology change was implemented in order to reflect the way the chief operating decision maker allocates resources to the Company’s reportable segments and evaluates segment profitability, including the costs of internally developed software.
The change in allocation methodology of certain software development costs resulted in an estimated increase in U.S. stores Segment Income of $15.8 million, an estimated increase in international franchise Segment Income of $1.9 million and an estimated decrease in other Segment Income of $17.7 million in the second quarter of 2023. The change in allocation methodology of certain software development costs resulted in an estimated increase in U.S. stores Segment Income of $25.9 million, an estimated increase in international franchise Segment Income of $3.8 million and an estimated decrease in other Segment Income of $29.7 million in the two fiscal quarters of 2023. The change in allocation methodology of certain software development costs had no impact on revenues, supply chain Segment Income or total Segment Income. The change in allocation methodology for certain software development costs is a prospective change and the comparative information has not been restated.
7
The following table reconciles total Segment Income to consolidated income before provision for income taxes.
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||||||||||||
|
| June 19, |
| June 20, |
| June 19, |
| June 20, |
|
| June 18, |
| June 19, |
| June 18, |
| June 19, |
| ||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Total Segment Income |
| $ | 204,957 |
|
| $ | 217,178 |
|
| $ | 395,934 |
|
| $ | 425,546 |
|
| $ | 223,618 |
|
| $ | 204,957 |
|
| $ | 427,233 |
|
| $ | 395,934 |
|
Depreciation and amortization |
|
| (18,117 | ) |
|
| (17,176 | ) |
|
| (37,093 | ) |
|
| (33,641 | ) |
|
| (18,561 | ) |
|
| (18,117 | ) |
|
| (36,731 | ) |
|
| (37,093 | ) |
Refranchising loss |
|
| — |
|
|
| — |
|
|
| (149 | ) |
|
| — |
| ||||||||||||||||
Loss on sale/disposal of assets |
|
| (253 | ) |
|
| (295 | ) |
|
| (448 | ) |
|
| (456 | ) |
|
| (127 | ) |
|
| (253 | ) |
|
| (402 | ) |
|
| (448 | ) |
Non-cash equity-based compensation expense |
|
| (8,473 | ) |
|
| (8,296 | ) |
|
| (15,738 | ) |
|
| (13,500 | ) |
|
| (9,527 | ) |
|
| (8,473 | ) |
|
| (17,065 | ) |
|
| (15,738 | ) |
Recapitalization-related expenses |
|
| — |
|
|
| (509 | ) |
|
| — |
|
|
| (509 | ) | ||||||||||||||||
Income from operations |
|
| 178,114 |
|
|
| 190,902 |
|
|
| 342,655 |
|
|
| 377,440 |
|
|
| 195,403 |
|
|
| 178,114 |
|
|
| 372,886 |
|
|
| 342,655 |
|
Other income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,500 |
| ||||||||||||||||
Other expense |
|
| (14,964 | ) |
|
| — |
|
|
| (14,964 | ) |
|
| — |
| ||||||||||||||||
Interest income |
|
| 219 |
|
|
| 68 |
|
|
| 268 |
|
|
| 90 |
|
|
| 2,537 |
|
|
| 219 |
|
|
| 4,928 |
|
|
| 268 |
|
Interest expense |
|
| (44,851 | ) |
|
| (45,877 | ) |
|
| (91,723 | ) |
|
| (85,299 | ) |
|
| (44,932 | ) |
|
| (44,851 | ) |
|
| (91,479 | ) |
|
| (91,723 | ) |
Income before provision for income taxes |
| $ | 133,482 |
|
| $ | 145,093 |
|
| $ | 251,200 |
|
| $ | 294,731 |
|
| $ | 138,044 |
|
| $ | 133,482 |
|
| $ | 271,371 |
|
| $ | 251,200 |
|
7
3. Earnings Per Share
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||||||||||||
|
| June 19, |
| June 20, |
| June 19, |
| June 20, |
|
| June 18, |
| June 19, |
| June 18, |
| June 19, |
| ||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net income available to common stockholders - basic and diluted |
| $ | 102,493 |
|
| $ | 116,619 |
|
| $ | 193,457 |
|
| $ | 234,380 |
|
| $ | 109,380 |
|
| $ | 102,493 |
|
| $ | 214,150 |
|
| $ | 193,457 |
|
Basic weighted average number of shares |
|
| 35,915,102 |
|
|
| 37,590,369 |
|
|
| 35,957,999 |
|
|
| 38,145,297 |
|
|
| 35,199,067 |
|
|
| 35,915,102 |
|
|
| 35,295,346 |
|
|
| 35,957,999 |
|
Earnings per share – basic |
| $ | 2.85 |
|
| $ | 3.10 |
|
| $ | 5.38 |
|
| $ | 6.14 |
|
| $ | 3.11 |
|
| $ | 2.85 |
|
| $ | 6.07 |
|
| $ | 5.38 |
|
Diluted weighted average number of shares |
|
| 36,296,277 |
|
|
| 38,122,515 |
|
|
| 36,368,297 |
|
|
| 38,665,325 |
|
|
| 35,492,423 |
|
|
| 36,296,277 |
|
|
| 35,601,335 |
|
|
| 36,368,297 |
|
Earnings per share – diluted |
| $ | 2.82 |
|
| $ | 3.06 |
|
| $ | 5.32 |
|
| $ | 6.06 |
|
| $ | 3.08 |
|
| $ | 2.82 |
|
| $ | 6.02 |
|
| $ | 5.32 |
|
The denominators used in calculating diluted earnings per share for common stock for the fiscal quarters and two fiscal quarters each ended June 19, 202218, 2023 and June 20, 202119, 2022 do not include the following because the effect of including these shares would be anti-dilutive or because the performance conditiontargets for these awards had not yet been met:
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||||||||||||
|
| June 19, |
| June 20, |
| June 19, |
| June 20, |
|
| June 18, |
| June 19, |
| June 18, |
| June 19, |
| ||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Anti-dilutive shares underlying stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock options |
|
| 120,540 |
|
|
| 84,955 |
|
|
| 120,540 |
|
|
| 92,689 |
|
|
| 227,276 |
|
|
| 120,540 |
|
|
| 229,156 |
|
|
| 120,540 |
|
Restricted stock awards and units |
|
| 67,677 |
|
|
| — |
|
|
| 346 |
|
|
| — |
|
|
| 35,064 |
|
|
| 67,677 |
|
|
| 36,378 |
|
|
| 346 |
|
Performance condition not met |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Restricted stock awards and units |
|
| 42,710 |
|
|
| 64,110 |
|
|
| 42,710 |
|
|
| 64,110 |
|
|
| 59,675 |
|
|
| 42,710 |
|
|
| 59,675 |
|
|
| 42,710 |
|
4. Stockholders’ Deficit
The following table summarizes the changes in stockholders’ deficit for the second quarter of 2022.2023.
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||||||||||||||||||
|
|
|
|
|
| Additional |
|
|
| Other |
|
|
|
|
|
| Additional |
|
|
| Other |
| ||||||||||||||||||
|
| Common Stock |
|
| Paid-in |
| Retained |
| Comprehensive |
|
| Common Stock |
|
| Paid-in |
| Retained |
| Comprehensive |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| ||||||||||
Balance at March 27, 2022 |
|
| 36,037,373 |
|
| $ | 360 |
|
| $ | 3,545 |
|
| $ | (4,200,341 | ) |
| $ | (2,206 | ) | ||||||||||||||||||||
Balance at March 26, 2023 |
|
| 35,330,133 |
|
| $ | 353 |
|
| $ | 1,474 |
|
| $ | (4,148,455 | ) |
| $ | (5,145 | ) | ||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 102,493 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 109,380 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (39,603 | ) |
|
| — |
| ||||||||||||||||||||
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (42,645 | ) |
|
| — |
| ||||||||||||||||||||
Issuance and cancellation of stock awards, net |
|
| 13,866 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,078 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (3,950 | ) |
|
| — |
|
|
| (1,606 | ) |
|
| — |
|
|
| — |
|
|
| (4,596 | ) |
|
| — |
|
|
| (1,515 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (148,248 | ) |
|
| (1 | ) |
|
| (7,083 | ) |
|
| (42,916 | ) |
|
| — |
|
|
| (292,030 | ) |
|
| (2 | ) |
|
| (6,824 | ) |
|
| (84,800 | ) |
|
| — |
|
Exercise of stock options |
|
| 605 |
|
|
| — |
|
|
| 260 |
|
|
| — |
|
|
| — |
|
|
| 10,000 |
|
|
| — |
|
|
| 708 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 8,473 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,527 |
|
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,684 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,378 |
|
Balance at June 19, 2022 |
|
| 35,899,646 |
|
| $ | 359 |
|
| $ | 3,589 |
|
| $ | (4,180,367 | ) |
| $ | (3,890 | ) | ||||||||||||||||||||
Balance at June 18, 2023 |
|
| 35,057,585 |
|
| $ | 351 |
|
| $ | 3,370 |
|
| $ | (4,166,520 | ) |
| $ | (3,767 | ) |
8
The following table summarizes the changes in stockholders’ deficit for the two fiscal quarters of 2022.2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| |||||
Balance at January 2, 2022 |
|
| 36,138,273 |
|
| $ | 361 |
|
| $ | 840 |
|
| $ | (4,207,917 | ) |
| $ | (2,820 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 193,457 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (79,368 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| 14,206 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (5,825 | ) |
|
| — |
|
|
| (2,395 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (249,058 | ) |
|
| (2 | ) |
|
| (11,120 | ) |
|
| (86,539 | ) |
|
| — |
|
Exercise of stock options |
|
| 2,050 |
|
|
| — |
|
|
| 526 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 15,738 |
|
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,070 | ) |
Balance at June 19, 2022 |
|
| 35,899,646 |
|
| $ | 359 |
|
| $ | 3,589 |
|
| $ | (4,180,367 | ) |
| $ | (3,890 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| |||||
Balance at January 1, 2023 |
|
| 35,419,718 |
|
| $ | 354 |
|
| $ | 9,693 |
|
| $ | (4,194,418 | ) |
| $ | (4,694 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 214,150 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (85,650 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| 28,573 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (9,669 | ) |
|
| — |
|
|
| (3,068 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (392,545 | ) |
|
| (3 | ) |
|
| (21,371 | ) |
|
| (100,602 | ) |
|
| — |
|
Exercise of stock options |
|
| 11,508 |
|
|
| — |
|
|
| 1,051 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 17,065 |
|
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 927 |
|
Balance at June 18, 2023 |
|
| 35,057,585 |
|
| $ | 351 |
|
| $ | 3,370 |
|
| $ | (4,166,520 | ) |
| $ | (3,767 | ) |
Subsequent to the end of the second quarter of 2022,2023, on July 19, 202220, 2023, the Company’s Board of Directors declared a $1.101.21 per share quarterly dividend on its outstanding common stock for shareholders of record as of September 15, 20222023 to be paid on September 30, 202229, 2023.
The following table summarizes the changes in stockholders’ deficit for the second quarter of 2021.2022.
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||||||||||||||||||
|
|
|
|
|
| Additional |
|
|
| Other |
|
|
|
|
|
| Additional |
|
|
| Other |
| ||||||||||||||||||
|
| Common Stock |
|
| Paid-in |
| Retained |
| Comprehensive |
|
| Common Stock |
|
| Paid-in |
| Retained |
| Comprehensive |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| ||||||||||
Balance at March 28, 2021 |
|
| 38,818,197 |
|
| $ | 388 |
|
| $ | 6,612 |
|
| $ | (3,240,842 | ) |
| $ | (2,238 | ) | ||||||||||||||||||||
Balance at March 27, 2022 |
|
| 36,037,373 |
|
| $ | 360 |
|
| $ | 3,545 |
|
| $ | (4,200,341 | ) |
| $ | (2,206 | ) | ||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 116,619 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 102,493 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,680 | ) |
|
| — |
| ||||||||||||||||||||
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (39,603 | ) |
|
| — |
| ||||||||||||||||||||
Issuance and cancellation of stock awards, net |
|
| 837 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,866 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (110 | ) |
|
| — |
|
|
| (43 | ) |
|
| — |
|
|
| — |
|
|
| (3,950 | ) |
|
| — |
|
|
| (1,606 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (2,012,596 | ) |
|
| (20 | ) |
|
| (12,181 | ) |
|
| (987,799 | ) |
|
| — |
|
|
| (148,248 | ) |
|
| (1 | ) |
|
| (7,083 | ) |
|
| (42,916 | ) |
|
| — |
|
Exercise of stock options |
|
| 47,243 |
|
|
| 1 |
|
|
| 5,331 |
|
|
| — |
|
|
| — |
|
|
| 605 |
|
|
| — |
|
|
| 260 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 8,296 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,473 |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 230 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,684 | ) |
Balance at June 20, 2021 |
|
| 36,853,571 |
|
| $ | 369 |
|
| $ | 7,771 |
|
| $ | (4,146,702 | ) |
| $ | (2,008 | ) | ||||||||||||||||||||
Balance at June 19, 2022 |
|
| 35,899,646 |
|
| $ | 359 |
|
| $ | 3,589 |
|
| $ | (4,180,367 | ) |
| $ | (3,890 | ) |
The following table summarizes the changes in stockholders’ deficit for the two fiscal quarters of 2021.2022.
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||||||||||||||||||
|
|
|
|
|
| Additional |
|
|
| Other |
|
|
|
|
|
| Additional |
|
|
| Other |
| ||||||||||||||||||
|
| Common Stock |
|
| Paid-in |
| Retained |
| Comprehensive |
|
| Common Stock |
|
| Paid-in |
| Retained |
| Comprehensive |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| ||||||||||
Balance at January 3, 2021 |
|
| 38,868,350 |
|
| $ | 389 |
|
| $ | 5,122 |
|
| $ | (3,303,492 | ) |
| $ | (2,424 | ) | ||||||||||||||||||||
Balance at January 2, 2022 |
|
| 36,138,273 |
|
| $ | 361 |
|
| $ | 840 |
|
| $ | (4,207,917 | ) |
| $ | (2,820 | ) | ||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 234,380 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 193,457 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (71,155 | ) |
|
| — |
| ||||||||||||||||||||
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (79,368 | ) |
|
| — |
| ||||||||||||||||||||
Issuance and cancellation of stock awards, net |
|
| (1,918 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,206 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (2,901 | ) |
|
| — |
|
|
| (1,087 | ) |
|
| — |
|
|
| — |
|
|
| (5,825 | ) |
|
| — |
|
|
| (2,395 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (2,078,466 | ) |
|
| (21 | ) |
|
| (18,544 | ) |
|
| (1,006,435 | ) |
|
| — |
|
|
| (249,058 | ) |
|
| (2 | ) |
|
| (11,120 | ) |
|
| (86,539 | ) |
|
| — |
|
Exercise of stock options |
|
| 68,506 |
|
|
| 1 |
|
|
| 9,024 |
|
|
| — |
|
|
| — |
|
|
| 2,050 |
|
|
| — |
|
|
| 526 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 13,500 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,738 |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 416 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,070 | ) |
Balance at June 20, 2021 |
|
| 36,853,571 |
|
| $ | 369 |
|
| $ | 7,771 |
|
| $ | (4,146,702 | ) |
| $ | (2,008 | ) | ||||||||||||||||||||
Balance at June 19, 2022 |
|
| 35,899,646 |
|
| $ | 359 |
|
| $ | 3,589 |
|
| $ | (4,180,367 | ) |
| $ | (3,890 | ) |
9
5.5. Fair Value Measurements
Fair value measurements enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Fair Value of Cash Equivalents and InvestmentsMarketable Securities
The fair values of the Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets.
Fair Value of Investments
The Company holds a non-controlling interest in DPC Dash Ltd (“DPC Dash”), the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. Prior to March 28, 2023, the Company’s investment in DPC Dash’s senior ordinary shares, which were not in-substance common stock, represented an equity investment without a readily determinable fair value of the Company’s Level 3 investment is not readily determinable. The fair value represents itsand was recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments.
On March 28, 2023, DPC Dash completed its initial public offering on the Hong Kong Exchange (HK: 1405), at which point the Company’s 18,101,019 DPC Dash senior ordinary shares automatically converted to DPC Dash ordinary shares pursuant to the terms of the investment. The Company is required to hold the DPC Dash ordinary shares for at least 360 days from the date of the initial public offering. Beginning in the second quarter of 2023, the Company accounts for its investment in DPC Dash as a trading security and records it at fair value at the end of each reporting period, with gains and losses recorded in other income or expense in its condensed consolidated statements of income.
As of June 18, 2023, the fair value of the Company’s investment in DPC Dash is based on the active exchange quoted price for the equity security of HK$47.90 per share. The Company recorded an adjustment to the carrying amount of its investment in DPC Dash of $15.0 million in the second quarter of 2023, with the loss recorded in other expense in its condensed consolidated statements of income. As of January 1, 2023, the fair value of the Company’s investment in DPC Dash was not readily determinable and was categorized in Level 3 of the fair value hierarchy. The Company did not record any adjustments to the carrying amount of its investment in the first quarter of 2023 or the two fiscal quarters of 2022. The Company transferred its investment from Level 3 to Level 1 on March 28, 2023, concurrent with DPC Dash’s initial public offering.
10
The following tables summarize the carrying amounts and fair values of certain assets at June 19, 202218, 2023 and January 2, 2022:1, 2023:
|
| At June 19, 2022 |
|
| At June 18, 2023 |
| ||||||||||||||||||||||||||
|
|
|
|
| Fair Value Estimated Using |
|
|
|
|
| Fair Value Estimated Using |
| ||||||||||||||||||||
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
| ||||||||
Cash equivalents |
| $ | 76,381 |
|
| $ | 76,381 |
|
| $ | — |
|
| $ | — |
|
| $ | 32,110 |
|
| $ | 32,110 |
|
| $ | — |
|
| $ | — |
|
Restricted cash equivalents |
|
| 117,426 |
|
|
| 117,426 |
|
|
| — |
|
|
| — |
|
|
| 119,501 |
|
|
| 119,501 |
|
|
| — |
|
|
| — |
|
Investments in marketable securities |
|
| 13,740 |
|
|
| 13,740 |
|
|
| — |
|
|
| — |
|
|
| 14,742 |
|
|
| 14,742 |
|
|
| — |
|
|
| — |
|
Advertising fund cash equivalents, restricted |
|
| 150,752 |
|
|
| 150,752 |
|
|
| — |
|
|
| — |
|
|
| 118,505 |
|
|
| 118,505 |
|
|
| — |
|
|
| — |
|
Investments |
|
| 125,840 |
|
|
| — |
|
|
| — |
|
|
| 125,840 |
| ||||||||||||||||
Investment in DPC Dash |
|
| 110,876 |
|
|
| 110,876 |
|
|
| — |
|
|
| — |
|
|
| At January 2, 2022 |
|
| At January 1, 2023 |
| ||||||||||||||||||||||||||
|
|
|
|
| Fair Value Estimated Using |
|
|
|
|
| Fair Value Estimated Using |
| ||||||||||||||||||||
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
| ||||||||
Cash equivalents |
| $ | 87,384 |
|
| $ | 87,384 |
|
| $ | — |
|
| $ | — |
|
| $ | 23,779 |
|
| $ | 23,779 |
|
| $ | — |
|
| $ | — |
|
Restricted cash equivalents |
|
| 115,185 |
|
|
| 115,185 |
|
|
| — |
|
|
| — |
|
|
| 117,212 |
|
|
| 117,212 |
|
|
| — |
|
|
| — |
|
Investments in marketable securities |
|
| 15,433 |
|
|
| 15,433 |
|
|
| — |
|
|
| — |
|
|
| 13,395 |
|
|
| 13,395 |
|
|
| — |
|
|
| — |
|
Advertising fund cash equivalents, restricted |
|
| 140,115 |
|
|
| 140,115 |
|
|
| — |
|
|
| — |
|
|
| 124,496 |
|
|
| 124,496 |
|
|
| — |
|
|
| — |
|
Investments |
|
| 125,840 |
|
|
| — |
|
|
| — |
|
|
| 125,840 |
| ||||||||||||||||
Investment in DPC Dash |
|
| 125,840 |
|
|
| — |
|
|
| — |
|
|
| 125,840 |
|
The Company holds a non-controlling interest in DPC Dash Ltd, a privately-held business company limited by shares incorporated with limited liability under the laws of the British Virgin Islands (“DPC Dash”). Through its subsidiaries, DPC Dash serves as the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. The Company’s investment in DPC Dash’s senior ordinary shares, which are not in-substance common stock, represents an equity investment without a readily determinable fair value and is recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments.
The Company did not record any adjustments to the carrying amount of $125.8 million in the second quarter or two fiscal quarters of 2022. The following table summarizes the reconciliation of the carrying amount of the Company’s investment in DPC Dash from the opening balance at January 3, 2021 to the closing balance at June 20, 2021 as a result of the additional investment made in the first quarter of 2021.
|
| Two Fiscal Quarters Ended June 20, 2021 |
| |||||||||||||
|
| Carrying Amount |
|
|
|
|
|
|
|
| Carrying Amount |
| ||||
|
| January 3, |
|
|
|
|
| Unrealized |
|
| June 20, |
| ||||
|
| 2021 |
|
| Purchases |
|
| Gain |
|
| 2021 |
| ||||
Investments |
| $ | 40,000 |
|
| $ | 40,000 |
|
| $ | 2,500 |
|
| $ | 82,500 |
|
10
FairFair Value of Debt
The estimated fair values of the Company’s fixed rate notes are classified as Level 2 measurements, as the Company estimates the fair value amount by using available market information. The Company obtained quotes from two separate brokerage firms that are knowledgeable about the Company’s fixed rate notes and, at times, trade these notes. The Company also performed its own internal analysis based on the information gathered from public markets, including information on notes that are similar to those of the Company. However, considerable judgment is required to interpret market data to estimate fair value. Accordingly, the fair value estimates presented are not necessarily indicative of the amount that the Company or the debtholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values stated below.
ManagementManagement estimated the approximate fair values of the Company'sCompany’s 2015, 2017, 2018, 2019 and 2021 notes as follows:
|
| June 19, 2022 |
|
| January 2, 2022 |
|
| June 18, 2023 |
|
| January 1, 2023 |
| ||||||||||||||||||||
|
| Principal Amount |
|
| Fair Value |
|
| Principal Amount |
|
| Fair Value |
|
| Principal Amount |
|
| Fair Value |
|
| Principal Amount |
|
| Fair Value |
| ||||||||
2015 Ten-Year Notes |
| $ | 756,000 |
|
| $ | 737,856 |
|
| $ | 760,000 |
|
| $ | 777,480 |
|
| $ | 748,000 |
|
| $ | 715,088 |
|
| $ | 752,000 |
|
| $ | 717,408 |
|
2017 Ten-Year Notes |
|
| 957,500 |
|
|
| 901,008 |
|
|
| 962,500 |
|
|
| 1,000,038 |
|
|
| 947,500 |
|
|
| 878,333 |
|
|
| 952,500 |
|
|
| 875,348 |
|
2018 7.5-Year Notes |
|
| 410,125 |
|
|
| 395,361 |
|
|
| 412,250 |
|
|
| 420,907 |
|
|
| 405,875 |
|
|
| 384,770 |
|
|
| 408,000 |
|
|
| 385,968 |
|
2018 9.25-Year Notes |
|
| 386,000 |
|
|
| 368,244 |
|
|
| 388,000 |
|
|
| 407,788 |
|
|
| 382,000 |
|
|
| 357,170 |
|
|
| 384,000 |
|
|
| 355,584 |
|
2019 Ten-Year Notes |
|
| 659,813 |
|
|
| 589,872 |
|
|
| 663,188 |
|
|
| 693,031 |
|
|
| 653,063 |
|
|
| 572,736 |
|
|
| 656,438 |
|
|
| 564,536 |
|
2021 7.5-Year Notes |
|
| 841,500 |
|
|
| 720,324 |
|
|
| 845,750 |
|
|
| 849,133 |
|
|
| 833,000 |
|
|
| 706,384 |
|
|
| 837,250 |
|
|
| 695,755 |
|
2021 Ten-Year Notes |
|
| 990,000 |
|
|
| 832,590 |
|
|
| 995,000 |
|
|
| 1,017,885 |
|
|
| 980,000 |
|
|
| 803,600 |
|
|
| 985,000 |
|
|
| 792,925 |
|
The Company did not have any outstanding borrowings under its variable funding notes at June 19, 202218, 2023 or January 2, 2022.1, 2023.
11
6. Revenue Disclosures
Contract Liabilities
Contract liabilities primarily consist of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of $5.5 million and $5.45.5 million were included in current other accrued liabilities as of June 19, 202218, 2023 and January 2, 2022,1, 2023, respectively. Deferred franchise fees and deferred development fees of $23.821.4 million and $24.322.7 million were included in long-term other accrued liabilities as of June 19, 202218, 2023 and January 2, 2022,1, 2023, respectively.
Changes in deferred franchise fees and deferred development fees for the two fiscal quarters of 20222023 and the two fiscal quarters of 20212022 were as follows:
|
| Two Fiscal Quarters Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||
|
| June 19, |
| June 20, |
|
| June 18, |
| June 19, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Deferred franchise fees and deferred development fees at beginning of period |
| $ | 29,694 |
|
| $ | 19,090 |
| ||||||||
Deferred franchise fees and deferred development fees, beginning of period |
| $ | 28,225 |
|
| $ | 29,694 |
| ||||||||
Revenue recognized during the period |
|
| (2,855 | ) |
|
| (2,691 | ) |
|
| (2,716 | ) |
|
| (2,855 | ) |
New deferrals due to cash received and other |
|
| 2,448 |
|
|
| 3,805 |
|
|
| 1,400 |
|
|
| 2,448 |
|
Deferred franchise fees and deferred development fees at end of period |
| $ | 29,287 |
|
| $ | 20,204 |
| ||||||||
Deferred franchise fees and deferred development fees, end of period |
| $ | 26,909 |
|
| $ | 29,287 |
|
Advertising Fund Assets
As of June 19, 2022,18, 2023, advertising fund assets, restricted of $182.5154.1 million consisted of $164.1139.1 million of cash and cash equivalents, $13.510.0 million of accounts receivable and $4.95.0 million of prepaid expenses. As of June 19, 2022,18, 2023, advertising fund cash and cash equivalents included $7.43.7 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
As of January 2, 2022,1, 2023, advertising fund assets, restricted of $180.9162.7 million consisted of $161.7143.6 million of cash and cash equivalents, $14.513.1 million of accounts receivable and $4.76.0 million of prepaid expenses. As of January 2, 2022,1, 2023, advertising fund cash and cash equivalents included $7.24.8 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
11
Change in Advertising Fund Contributions and Technology Fees
Beginning in the second quarter of 2023, as of March 27, 2023, Domino's National Advertising Fund Inc., the Company’s consolidated not-for-profit advertising subsidiary, effectuated a temporary reduction of 0.25% to its standard 6.0% advertising contribution, which is anticipated to be in effect for at least one year from the effective date. Concurrently, the Company also increased the U.S. digital per-transaction technology fees that are recognized as the related U.S. franchise retail sales occur by $0.08 to $0.395 for the same time period.
Subsequent Events
Subsequent to the end of the second quarter of 2023, the Company entered into a new global agreement with Uber (NYSE:UBER) to allow customers to order Domino’s products through the Uber Eats and Postmates apps with delivery by the Company and its franchisees’ delivery experts. The Company expects the U.S. rollout of this agreement to be enabled by the end of fiscal 2023.
7. Leases
The Company leases certain retail store and supply chain center locations, supply chain vehicles, equipment and its corporate headquarters with expiration dates through 2041.
The components of operating and finance lease cost for the second quarter and two fiscal quarters of 20222023, and the second quarter and two fiscal quarters of 20212022 were as follows:
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||||||||||||
|
| June 19, |
| June 20, |
| June 19, |
| June 20, |
|
| June 18, |
| June 19, |
| June 18, |
| June 19, |
| ||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Operating lease cost |
| $ | 10,789 |
|
| $ | 10,326 |
|
| $ | 21,064 |
|
| $ | 20,750 |
|
| $ | 10,867 |
|
| $ | 10,789 |
|
| $ | 21,675 |
|
| $ | 21,064 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Amortization of right-of-use assets |
|
| 1,195 |
|
|
| 1,003 |
|
|
| 2,403 |
|
|
| 1,922 |
|
|
| 1,313 |
|
|
| 1,195 |
|
|
| 2,512 |
|
|
| 2,403 |
|
Interest on lease liabilities |
|
| 732 |
|
|
| 722 |
|
|
| 1,836 |
|
|
| 1,748 |
|
|
| 1,015 |
|
|
| 732 |
|
|
| 1,998 |
|
|
| 1,836 |
|
Total finance lease cost |
| $ | 1,927 |
|
| $ | 1,725 |
|
| $ | 4,239 |
|
| $ | 3,670 |
|
| $ | 2,328 |
|
| $ | 1,927 |
|
| $ | 4,510 |
|
| $ | 4,239 |
|
12
Rent expense totaled $
19.7 million and $39.0 million in the second quarter and two fiscal quarters of 2023, respectively. Rent expense totaled $19.0 million and $37.9 million in the second quarter and two fiscal quarters of 2022, respectively. Rent expense totaled $17.9 million and $36.1 million in the second quarter and two fiscal quarters of 2021, respectively. Rent expense includes operating lease cost, as well as expense for non-lease components including common area maintenance, real estate taxes and other costsinsurance for the Company’s real estate leases. Rent expense also includes the variable rate per mile driven and fixed maintenance charges for the Company’s supply chain center tractors and trailers and expense for short-term rentals. Rent expense for certain short-term supply chain center tractor and trailer rentals was $1.3 million and $2.7 million in the second quarter and two fiscal quarters of 2023, respectively. Rent expense for certain short-term supply chain center tractor and trailer rentals was $1.6 million and $3.8 million in the second quarter and two fiscal quarters of 2022, respectively. Rent expense for short-term supply chain center tractor and trailer rentals was $2.0 million and $3.8 million in the second quarter and two fiscal quarters of 2021, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in both the second quarter and two fiscal quarters of 20222023 and 2021.2022.
Supplemental balance sheet information related to the Company’s finance leases as of June 19, 202218, 2023 and January 2, 20221, 2023 was as follows:
|
| June 19, |
| January 2, |
|
| June 18, |
| January 1, |
| ||||||
|
| 2022 |
|
| 2022 |
|
| 2023 |
|
| 2023 |
| ||||
Land and buildings |
| $ | 86,839 |
|
| $ | 86,965 |
|
| $ | 83,982 |
|
| $ | 83,902 |
|
Equipment |
|
| 3,951 |
|
|
| 1,606 |
| ||||||||
Finance lease assets |
|
| 87,933 |
|
|
| 85,508 |
| ||||||||
Accumulated depreciation and amortization |
|
| (16,804 | ) |
|
| (14,423 | ) |
|
| (21,468 | ) |
|
| (19,405 | ) |
Finance lease assets, net |
| $ | 70,035 |
|
| $ | 72,542 |
|
| $ | 66,465 |
|
| $ | 66,103 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current portion of long-term debt |
| $ | 4,154 |
|
| $ | 4,088 |
|
| $ | 4,245 |
|
| $ | 3,313 |
|
Long-term debt, less current portion |
|
| 70,309 |
|
|
| 72,250 |
|
|
| 71,316 |
|
|
| 70,886 |
|
Total principal payable on finance leases |
| $ | 74,463 |
|
| $ | 76,338 |
|
| $ | 75,561 |
|
| $ | 74,199 |
|
As of June 19, 202218, 2023 and January 2, 2022,1, 2023, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:
|
| June 19, 2022 |
| January 2, 2022 |
| June 18, 2023 |
| January 1, 2023 | ||||||||
|
| Operating |
| Finance |
| Operating |
| Finance |
| Operating |
| Finance |
| Operating |
| Finance |
|
| Leases |
| Leases |
| Leases |
| Leases |
| Leases |
| Leases |
| Leases |
| Leases |
Weighted average remaining lease term |
| 7 years |
| 15 years |
| 7 years |
| 15 years |
| 7 years |
| 14 years |
| 7 years |
| 14 years |
Weighted average discount rate |
| 3.6% |
| 5.8% |
| 3.5% |
| 5.8% |
| 4.0% |
| 6.0% |
| 3.9% |
| 6.0% |
Supplemental cash flow information related to leases for the second quarter and two fiscal quarters of 20222023 and the second quarter and two fiscal quarters of 20212022 were as follows:
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
|
| Fiscal Quarter Ended |
|
| Two Fiscal Quarters Ended |
| ||||||||||||||||||||
|
| June 19, |
|
| June 20, |
| June 19, |
|
| June 20, |
|
| June 18, |
|
| June 19, |
| June 18, |
|
| June 19, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating cash flows from operating leases |
| $ | 7,858 |
|
| $ | 9,105 |
|
| $ | 18,495 |
|
| $ | 19,292 |
|
| $ | 9,771 |
|
| $ | 7,858 |
|
| $ | 20,092 |
|
| $ | 18,495 |
|
Operating cash flows from finance leases |
|
| 732 |
|
|
| 722 |
|
|
| 1,836 |
|
|
| 1,748 |
|
|
| 1,015 |
|
|
| 732 |
|
|
| 1,998 |
|
|
| 1,836 |
|
Financing cash flows from finance leases |
|
| 792 |
|
|
| 593 |
|
|
| 1,778 |
|
|
| 1,297 |
|
|
| 412 |
|
|
| 792 |
|
|
| 1,436 |
|
|
| 1,778 |
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Operating leases |
|
| 23,407 |
|
|
| 6,681 |
|
|
| 31,164 |
|
|
| 11,353 |
|
|
| 2,870 |
|
|
| 23,407 |
|
|
| 12,175 |
|
|
| 31,164 |
|
Finance leases |
|
| 0 |
|
|
| 5,261 |
|
|
| 0 |
|
|
| 5,660 |
|
|
| 2,183 |
|
|
| — |
|
|
| 3,054 |
|
|
| — |
|
12
Maturities of lease liabilities as of June 19, 202218, 2023 were as follows:
|
| Operating |
|
| Finance |
| ||
|
| Leases |
|
| Leases |
| ||
2022 |
| $ | 29,410 |
|
| $ | 4,722 |
|
2023 |
|
| 43,207 |
|
|
| 7,523 |
|
2024 |
|
| 42,579 |
|
|
| 8,100 |
|
2025 |
|
| 37,063 |
|
|
| 7,919 |
|
2026 |
|
| 34,410 |
|
|
| 8,615 |
|
Thereafter |
|
| 79,923 |
|
|
| 77,842 |
|
Total future minimum rental commitments |
|
| 266,592 |
|
|
| 114,721 |
|
Less – amounts representing interest |
|
| (30,236 | ) |
|
| (40,258 | ) |
Total lease liabilities |
| $ | 236,356 |
|
| $ | 74,463 |
|
|
| Operating |
|
| Finance |
| ||
|
| Leases |
|
| Leases |
| ||
2023 |
| $ | 25,474 |
|
| $ | 4,485 |
|
2024 |
|
| 44,198 |
|
|
| 8,670 |
|
2025 |
|
| 39,406 |
|
|
| 8,749 |
|
2026 |
|
| 37,763 |
|
|
| 9,350 |
|
2027 |
|
| 30,955 |
|
|
| 8,181 |
|
Thereafter |
|
| 86,873 |
|
|
| 68,816 |
|
Total future minimum rental commitments |
|
| 264,669 |
|
|
| 108,251 |
|
Less, amounts representing interest |
|
| (38,364 | ) |
|
| (32,690 | ) |
Total lease liabilities |
| $ | 226,305 |
|
| $ | 75,561 |
|
13
As of June 19, 2022,18, 2023, the Company had additional leases for onecertain supply chain center, one storage warehouse facilityreal estate and certain supply chain tractors and trailersU.S. Company-owned store vehicles that had not yet commenced with estimated future minimum rental commitments of approximately $61.143.1 million. These leases are expected to commence in 20222023 and 20232024 with lease terms of up to 1611 years. These undiscounted amounts are not included in the table above.
The Company has guaranteed lease payments related to certain franchisees’ and others' lease arrangements. The maximum amount of potential future payments under these guarantees was $7.921.6 million and $9.124.5 million as of June 19, 202218, 2023 and January 2, 2022,1, 2023, respectively. The Company does not believe these arrangements have or are likely to have a material effect on its results of operations, financial condition, revenues, expenses or liquidity.
8. Supplemental Disclosures of Cash Flow Information
The Company had non-cash investing activities related to accruals for capital expenditures of $5.87.2 million at June 19, 202218, 2023 and $5.46.9 million at January 2, 2022. The1, 2023. As of June 18, 2023, the Company also had less than $0.11.1 million ofin non-cash investing activitiesfinancing activity related to lease incentives in the two fiscal quarters of both 2022 and 2021.accruals for excise taxes on share repurchases.
9. Company-owned Store Transactions
During the first quarter of 2023, the Company refranchised one U.S. Company-owned store for proceeds of less than $0.1 million. The pre-tax refranchising loss associated with the sale of the related assets and liabilities, including goodwill, was approximately $0.1 million and was recorded in refranchising loss in the Company’s condensed consolidated statements of income.
During the first quarter of 2022, the Company purchased 23 U.S. franchised stores in Michigan from certain of the Company’sCompany’s existing U.S. franchisees for $6.8 million, which included $4.0 million of intangibles, $1.7 million of equipment and leasehold improvements and $1.1 million of goodwill.
10
10.. New Accounting Pronouncements
Accounting Standards Not Yet Adopted
The Company has considered all new accounting standards issued by the Financial Accounting Standards Board (“FASB”). The Company has not yet and adopted the following standard.accounting standards during the second quarter of 2023.
Recently Adopted Accounting Standards
Accounting Standards Update (“ASU”) 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, updated by ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”)
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. TheOn May 15, 2023, certain of the Company’s subsidiaries executed an amendment to the Company’s 2021 variable funding notes bear interest at fluctuating interest rates based on LIBOR. However,to affect the associated loan documents contemplate a transition from LIBOR to secured overnight financing ratethe Secured Overnight Financing Rate (“Term SOFR”), plus a spread adjustment. In connection with this contract amendment, the Company adopted ASU 2020-04 (as updated by ASU 2022-06) in the event that LIBOR ceasessecond quarter of 2023. The amendment to exist. ASU 2020-04 may currently be adoptedthe Company’s 2021 variable funding notes and may be applied prospectively to contract modifications made on or before December 31, 2022. The Company does not expect the adoption of this guidance toaccounting standard did not have a material impact on itsthe Company’s condensed consolidated financial statements.
ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual sale restrictions. ASU 2022-03 also requires disclosure of the fair value of equity securities subject to contractual sale restrictions, the nature and remaining duration of the restrictions and the circumstances that could cause a lapse in the restrictions. The Company’s investment in DPC Dash (Note 5) is subject to contractual restrictions that prohibit the Company from selling the security for 360 days following DPC Dash’s initial public offering. The Company early adopted ASU 2022-03 in the second quarter of 2023 and the adoption of this accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.
1314
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Unaudited; tabular amounts in millions, except percentages and store data)
The 20222023 and 20212022 second quarters referenced herein represent the twelve-week periods ended June 18, 2023 and June 19, 2022, and June 20, 2021, respectively. The 20222023 and 20212022 two fiscal quarters referenced herein represent the twenty-four-week periods ended June 19, 202218, 2023 and June 20, 2021,19, 2022, respectively. In this section, we discuss the results of our operations for the second quarter and two fiscal quarters of 20222023 as compared to the second quarter and two fiscal quarters of 2021.2022.
Overview
Domino’s is the largest pizza company in the world, with more than 19,20020,000 locations in over 90 markets around the world as of June 19, 2022,18, 2023, and operates two distinct service models within its stores with a significant business in both delivery and carryout. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Wewe are a highly recognized global brand, and we focus on value while serving neighborhoods locally through our large worldwide network of franchise owners and U.S. Company-owned stores.stores through both the delivery and carryout service models. We are primarily a franchisor, with approximately 98%99% of Domino’s global stores currently owned and operated by our independent franchisees. Franchising enables an individual to be his or her own employer and maintain control over all employment-related matters and pricing decisions, while also benefiting from the strengthfranchisees as of the Domino’s global brand and operating system with limited capital investment by us.June 18, 2023.
The Domino’s business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees.
Domino’s generates revenues and earnings by charging royalties and fees to our independent franchisees. Royalties are ongoing percent-of-sales fees for use of the Domino’s® brand marks. We also generate revenues and earnings by selling food, equipment and supplies to franchisees through our supply chain operations, primarily in the U.S. and Canada and by operating a number of U.S. Company-owned stores in the United States.stores. 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 may profit by sub-franchising and selling food and equipment to those sub-franchisees, as well as by running pizza stores.stores directly. We believe that everyone in the system can benefit, including the end consumer, who can purchase Domino’s menu items for themselves and their family conveniently and economically.
Our financial results are driven largely by retail sales at our franchised 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.
The Domino’s business model can yield strong returns for our franchise owners and our Company-owned stores. It can also yield significant cash flowsflow to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures. We have historically returned cash to shareholders through dividend payments and share repurchases. repurchases since becoming a publicly-traded company in 2004.We believe we have a proven business model for success, which includes leading with technology, service and product innovation and leveraging our global scale, which has historically drivenprovided strong returns for our shareholders.
15
Second Quarter of 20222023 Highlights
Two Fiscal Quarters of 20222023 Highlights
14
Excluding the negative impact of foreign currency, Domino’sDomino’s experienced global retail sales growth during the second quarter and two fiscal quarters of 2022. We believe our commitment to value, convenience, quality2023, driven by both same store sales growth and new products continues to keep consumers engaged with the brand.net store count growth. U.S. same store sales declinedincreased 0.1% and 1.8% in the second quarter and two fiscal quarters of 2023, respectively, rolling over a decline in U.S. same store sales of 2.9% and 3.3% in the second quarter and two fiscal quarters of 2022, respectively, rolling over increases in U.S. same store sales of 3.5% and 8.1% in the second quarter and two fiscal quarters of 2021, respectively. The declineincreases in U.S. same store sales in the second quarter and two fiscal quarters of 2022 was2023 were attributable to lower order counts duea higher average ticket per transaction resulting from increases in part to labor shortages affecting store hoursmenu and staffing levels in manynational offer pricing. In the two fiscal quarters of our markets and economic stimulus activity2023 in the U.SU.S., we also launched our newest menu item, Domino’s Loaded Tots. International same store sales (excluding foreign currency impact) increased 3.6% and 2.3% in the second quarter and two fiscal quarters of 20212023, respectively, rolling over a decline in response to the COVID-19 pandemic which did not recur in the respective periods of 2022. These decreases were partially offset by a higher average ticket per transaction resulting from higher menu and national offer pricing, as well as more items purchased per transaction and increases to our average delivery fee. Internationalinternational same store sales (excluding foreign currency impact) declinedof 2.2% and 0.5% in the second quarter and two fiscal quarters of 2022, respectively, rolling over increases in international same store sales (excluding foreign currency impact) of 13.9% and 12.8% in the second quarter and two fiscal quarters of 2021, respectively. The decline in same store sales (excluding foreign currency impact) in the second quarter and two fiscal quarters of 2022 in our international business was driven in part by a value added tax holiday in the United Kingdom in the second quarter of 2021 that did not recur in the second quarter of 2022. Our U.S. and international same store sales (excluding foreign currency impact) continue to be pressured by our fortressing strategy, which includes increasing store concentration in certain markets where we compete, as well as from aggressive competitive activity.changes in consumer behavior.
During the second quarter and two fiscal quarters of 2022, we experienced significant inflationary pressures in our commodity, labor and fuel costs resulting from the macroeconomic environment in the U.S., which had a significant impact on our overall operating results as compared to the respective periods of fiscal 2021.
We continued our global expansion with the opening of 233197 net stores in the second quarter of 2022,2023, bringing our year-to-date total to 446.325. We had 2227 net stores open in the U.S. and 211170 net stores open internationally during the second quarter of 2022.2023.
Overall, we believe our continued global store growth, along with our global retail sales growth (excluding foreign currency impact), emphasis on technology, operations and marketing initiatives, have combined to strengthen our brand.
1516
Statistical Measures
The tables below outline certain statistical measures we utilize to analyze our performance. This historical data is not necessarily indicative of results to be expected for any future period.
Global Retail Sales Growth (excluding foreign currency impact)
Global retail sales growth (excluding foreign currency impact) is a commonly used statistical measure in the quick-service restaurant industry that is important to understanding performance. Global retail sales refers to total worldwide retail sales at Company-owned and franchisefranchised stores. We believe global retail sales information is useful in analyzing revenues because franchisees pay royalties and, in the U.S., advertising fees that are based on a percentage of franchise retail sales. We review comparable industry global retail sales information to assess business trends and to track the growth of the Domino’s Pizza brand. In addition, supply chain revenues are directly impacted by changes in franchise retail sales in the U.S. and Canada. Retail sales for franchisefranchised stores are reported to us by our franchisees and are not included in our revenues. Global retail sales growth, excluding foreign currency impact, is calculated as the change of international local currency global retail sales against the comparable period of the prior year.
|
| Second Quarter |
| Second Quarter |
| Two Fiscal Quarters |
| Two Fiscal Quarters |
| Second Quarter |
| Second Quarter |
| Two Fiscal Quarters |
| Two Fiscal Quarters |
U.S. stores |
| (0.6)% |
| +7.4% |
| (1.0)% |
| +11.1% |
| + 1.7% |
| (0.6)% |
| + 3.4% |
| (1.0)% |
International stores (excluding foreign currency impact) |
| +3.7% |
| +29.5% |
| +6.0% |
| +20.6% |
| + 10.1% |
| + 3.7% |
| + 8.3% |
| + 6.0% |
Total (excluding foreign currency impact) |
| +1.5% |
| +17.1% |
| +2.5% |
| +15.6% |
| + 5.8% |
| + 1.5% |
| + 5.8% |
| + 2.5% |
Same Store Sales Growth
Same store sales growth is a commonly used statistical measure in the quick-service restaurant industry that is important to understanding performance. Same store sales growth is calculated for a given period by including only sales from stores that also had sales in the comparable weeks of both years.periods. 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,on a constant dollar basis, which reflectreflects changes in international local currency sales.
|
| Second Quarter |
| Second Quarter |
| Two Fiscal Quarters |
| Two Fiscal Quarters |
U.S. Company-owned stores (1) |
| (9.2)% |
| (2.6)% |
| (9.8)% |
| +1.6% |
U.S. franchise stores (1) |
| (2.5)% |
| +3.9% |
| (2.9)% |
| +8.5% |
U.S. stores |
| (2.9)% |
| +3.5% |
| (3.3)% |
| +8.1% |
International stores (excluding foreign currency impact) |
| (2.2)% |
| +13.9% |
| (0.5)% |
| +12.8% |
(1) During the first quarter of 2022, we purchased 23 U.S. franchised stores from certain of our existing U.S. franchisees (the “2022 Store Purchase”). The same Same store sales growth for thesetransferred stores is reflected in U.S. Company-owned stores in the second quarter and two fiscal quarters of 2022.their current classification.
|
| Second Quarter |
| Second Quarter |
| Two Fiscal Quarters |
| Two Fiscal Quarters |
U.S. Company-owned stores |
| + 5.5% |
| (9.2)% |
| + 6.4% |
| (9.8)% |
U.S. franchise stores |
| (0.1)% |
| (2.5)% |
| + 1.6% |
| (2.9)% |
U.S. stores |
| + 0.1% |
| (2.9)% |
| + 1.8% |
| (3.3)% |
International stores (excluding foreign currency impact) |
| + 3.6% |
| (2.2)% |
| + 2.3% |
| (0.5)% |
Store Growth Activity
Store counts and netNet store growth areis a commonly used statistical measuresmeasure in the quick-service restaurant industry that areis important to understanding performance. Net store growth is calculated by netting gross store openings with gross store closures during the period. Transfers between Company-owned stores and franchised stores are excluded from the calculation of net store growth.
|
| U.S. |
|
| U.S. |
|
| Total |
|
| International Stores |
|
| Total |
|
| U.S. |
|
| U.S. |
|
| Total |
|
| International Stores |
|
| Total |
| ||||||||||
Store count at March 27, 2022 |
|
| 400 |
|
|
| 6,197 |
|
|
| 6,597 |
|
|
| 12,464 |
|
|
| 19,061 |
| ||||||||||||||||||||
Store count at March 26, 2023 |
|
| 285 |
|
|
| 6,423 |
|
|
| 6,708 |
|
|
| 13,300 |
|
|
| 20,008 |
| ||||||||||||||||||||
Openings |
|
| 1 |
|
|
| 23 |
|
|
| 24 |
|
|
| 249 |
|
|
| 273 |
|
|
| 1 |
|
|
| 29 |
|
|
| 30 |
|
|
| 223 |
|
|
| 253 |
|
Closings |
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
|
| (38 | ) |
|
| (40 | ) |
|
| — |
|
|
| (3 | ) |
|
| (3 | ) |
|
| (53 | ) |
|
| (56 | ) |
Store count at June 19, 2022 |
|
| 401 |
|
|
| 6,218 |
|
|
| 6,619 |
|
|
| 12,675 |
|
|
| 19,294 |
| ||||||||||||||||||||
Second quarter 2022 net store growth |
|
| 1 |
|
|
| 21 |
|
|
| 22 |
|
|
| 211 |
|
|
| 233 |
| ||||||||||||||||||||
Store count at June 18, 2023 |
|
| 286 |
|
|
| 6,449 |
|
|
| 6,735 |
|
|
| 13,470 |
|
|
| 20,205 |
| ||||||||||||||||||||
Second quarter 2023 net store growth |
|
| 1 |
|
|
| 26 |
|
|
| 27 |
|
|
| 170 |
|
|
| 197 |
| ||||||||||||||||||||
Trailing four quarters net store growth |
|
| 12 |
|
|
| 181 |
|
|
| 193 |
|
|
| 1,044 |
|
|
| 1,237 |
|
|
| — |
|
|
| 116 |
|
|
| 116 |
|
|
| 795 |
|
|
| 911 |
|
(1) Temporary store closures are not treated as store closures and affected stores are included in the ending store count. Based on information reported to us by our master franchisees, we estimate that as of June 19, 2022, there were fewer than 150 international stores temporarily closed.
(2) Trailing four quarters net store growth does not include the effect of transfers associated with the 2022 Store Purchase.
1617
Income Statement Data
|
| Second Quarter |
| Second Quarter |
| Two Fiscal Quarters |
| Two Fiscal Quarters |
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
U.S. Company-owned stores |
| $112.5 |
|
|
| $116.6 |
|
|
| $216.4 |
|
|
| $229.3 |
|
|
| $ | 87.7 |
|
|
|
|
| $ | 112.5 |
|
|
|
|
| $ | 172.6 |
|
|
|
|
| $ | 216.4 |
|
|
|
| ||||
U.S. franchise royalties and fees |
| 128.1 |
|
|
| 126.8 |
|
|
| 250.4 |
|
|
| 251.3 |
|
|
|
| 139.3 |
|
|
|
|
|
| 128.1 |
|
|
|
|
|
| 272.1 |
|
|
|
|
|
| 250.4 |
|
|
|
| ||||
Supply chain |
| 646.6 |
|
|
| 603.0 |
|
|
| 1,256.1 |
|
|
| 1,171.3 |
|
|
|
| 615.7 |
|
|
|
|
|
| 646.6 |
|
|
|
|
|
| 1,239.9 |
|
|
|
|
|
| 1,256.1 |
|
|
|
| ||||
International franchise royalties and fees |
| 66.9 |
|
|
| 69.7 |
|
|
| 135.7 |
|
|
| 136.5 |
|
|
|
| 70.5 |
|
|
|
|
|
| 66.9 |
|
|
|
|
|
| 140.2 |
|
|
|
|
|
| 135.7 |
|
|
|
| ||||
U.S. franchise advertising |
| 111.1 |
|
|
| 116.3 |
|
|
| 217.7 |
|
|
| 227.7 |
|
|
|
| 111.5 |
|
|
|
|
|
| 111.1 |
|
|
|
|
|
| 224.2 |
|
|
|
|
|
| 217.7 |
|
|
|
| ||||
Total revenues |
| 1,065.2 |
| 100.0% |
| 1,032.5 |
| 100.0% |
| 2,076.3 |
| 100.0% |
| 2,016.2 |
| 100.0% |
|
| 1,024.6 |
|
|
| 100.0 | % |
|
| 1,065.2 |
|
|
| 100.0 | % |
|
| 2,049.0 |
|
|
| 100.0 | % |
|
| 2,076.3 |
|
|
| 100.0 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
U.S. Company-owned stores |
| 94.1 |
|
|
| 88.0 |
|
|
| 181.4 |
|
|
| 173.8 |
|
|
|
| 71.4 |
|
|
|
|
|
| 94.1 |
|
|
|
|
|
| 142.0 |
|
|
|
|
|
| 181.4 |
|
|
|
| ||||
Supply chain |
| 584.9 |
|
|
| 536.8 |
|
|
| 1,140.0 |
|
|
| 1,045.6 |
|
|
|
| 548.5 |
|
|
|
|
|
| 584.9 |
|
|
|
|
|
| 1,116.8 |
|
|
|
|
|
| 1,140.0 |
|
|
|
| ||||
Total cost of sales |
| 678.9 |
| 63.7% |
| 624.8 |
| 60.5% |
| 1,321.4 |
| 63.6% |
| 1,219.3 |
| 60.5% |
|
| 620.0 |
|
|
| 60.5 | % |
|
| 678.9 |
|
|
| 63.7 | % |
|
| 1,258.8 |
|
|
| 61.4 | % |
|
| 1,321.4 |
|
|
| 63.6 | % |
Gross margin |
| 386.3 |
| 36.3% |
| 407.7 |
| 39.5% |
| 754.9 |
| 36.4% |
| 796.8 |
| 39.5% |
|
| 404.7 |
|
|
| 39.5 | % |
|
| 386.3 |
|
|
| 36.3 | % |
|
| 790.2 |
|
|
| 38.6 | % |
|
| 754.9 |
|
|
| 36.4 | % |
General and administrative |
| 97.1 |
| 9.2% |
| 100.4 |
| 9.7% |
| 194.6 |
| 9.4% |
| 191.7 |
| 9.5% |
|
| 97.8 |
|
|
| 9.5 | % |
|
| 97.1 |
|
|
| 9.2 | % |
|
| 193.0 |
|
|
| 9.4 | % |
|
| 194.6 |
|
|
| 9.4 | % |
U.S. franchise advertising |
| 111.1 |
| 10.4% |
| 116.3 |
| 11.3% |
| 217.7 |
| 10.5% |
| 227.7 |
| 11.3% |
|
| 111.5 |
|
|
| 10.9 | % |
|
| 111.1 |
|
|
| 10.4 | % |
|
| 224.2 |
|
|
| 11.0 | % |
|
| 217.7 |
|
|
| 10.5 | % |
Refranchising loss |
|
| — |
|
|
| 0.0 | % |
|
| — |
|
|
| 0.0 | % |
|
| 0.1 |
|
|
| 0.0 | % |
|
| — |
|
|
| 0.0 | % | ||||||||||||||||
Income from operations |
| 178.1 |
| 16.7% |
| 190.9 |
| 18.5% |
| 342.7 |
| 16.5% |
| 377.4 |
| 18.7% |
|
| 195.4 |
|
|
| 19.1 | % |
|
| 178.1 |
|
|
| 16.7 | % |
|
| 372.9 |
|
|
| 18.2 | % |
|
| 342.7 |
|
|
| 16.5 | % |
Other income |
| — |
| 0.0% |
| — |
| 0.0% |
| — |
| 0.0% |
| 2.5 |
| 0.1% | ||||||||||||||||||||||||||||||||
Other expense |
|
| (15.0 | ) |
|
| (1.5 | )% |
|
| — |
|
|
| 0.0 | % |
|
| (15.0 | ) |
|
| (0.7 | )% |
|
| — |
|
|
| 0.0 | % | ||||||||||||||||
Interest expense, net |
| (44.6) |
| (4.2)% |
| (45.8) |
| (4.4)% |
| (91.5) |
| (4.4)% |
| (85.2) |
| (4.2)% |
|
| (42.4 | ) |
|
| (4.1 | )% |
|
| (44.6 | ) |
|
| (4.2 | )% |
|
| (86.6 | ) |
|
| (4.2 | )% |
|
| (91.5 | ) |
|
| (4.4 | )% |
Income before provision for income taxes |
| 133.5 |
| 12.5% |
| 145.1 |
| 14.1% |
| 251.2 |
| 12.1% |
| 294.7 |
| 14.6% |
|
| 138.0 |
|
|
| 13.5 | % |
|
| 133.5 |
|
|
| 12.5 | % |
|
| 271.4 |
|
|
| 13.3 | % |
|
| 251.2 |
|
|
| 12.1 | % |
Provision for income taxes |
| 31.0 |
| 2.9% |
| 28.5 |
| 2.8% |
| 57.7 |
| 2.8% |
| 60.4 |
| 3.0% |
|
| 28.7 |
|
|
| 2.8 | % |
|
| 31.0 |
|
|
| 2.9 | % |
|
| 57.2 |
|
|
| 2.8 | % |
|
| 57.7 |
|
|
| 2.8 | % |
Net income |
| $102.5 |
| 9.6% |
| $116.6 |
| 11.3% |
| $193.50 |
| 9.3% |
| $234.4 |
| 11.6% |
| $ | 109.4 |
|
|
| 10.7 | % |
| $ | 102.5 |
|
|
| 9.6 | % |
| $ | 214.2 |
|
|
| 10.5 | % |
| $ | 193.5 |
|
|
| 9.3 | % |
Revenues
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||||||||||||||||||||||
U.S. Company-owned stores |
| $ | 112.5 |
|
|
| 10.6 | % |
| $ | 116.6 |
|
|
| 11.3 | % |
| $ | 216.4 |
|
|
| 10.4 | % |
| $ | 229.3 |
|
|
| 11.3 | % |
| $ | 87.7 |
|
|
| 8.5 | % |
| $ | 112.5 |
|
|
| 10.6 | % |
| $ | 172.6 |
|
|
| 8.4 | % |
| $ | 216.4 |
|
|
| 10.4 | % |
U.S. franchise royalties and fees |
|
| 128.1 |
|
|
| 12.0 | % |
|
| 126.8 |
|
|
| 12.3 | % |
|
| 250.4 |
|
|
| 12.1 | % |
|
| 251.3 |
|
|
| 12.5 | % |
|
| 139.3 |
|
|
| 13.6 | % |
|
| 128.1 |
|
|
| 12.0 | % |
|
| 272.1 |
|
|
| 13.3 | % |
|
| 250.4 |
|
|
| 12.1 | % |
Supply chain |
|
| 646.6 |
|
|
| 60.7 | % |
|
| 603.0 |
|
|
| 58.4 | % |
|
| 1,256.1 |
|
|
| 60.5 | % |
|
| 1,171.3 |
|
|
| 58.1 | % |
|
| 615.7 |
|
|
| 60.1 | % |
|
| 646.6 |
|
|
| 60.7 | % |
|
| 1,239.9 |
|
|
| 60.5 | % |
|
| 1,256.1 |
|
|
| 60.5 | % |
International franchise royalties and fees |
|
| 66.9 |
|
|
| 6.3 | % |
|
| 69.7 |
|
|
| 6.7 | % |
|
| 135.7 |
|
|
| 6.5 | % |
|
| 136.5 |
|
|
| 6.8 | % |
|
| 70.5 |
|
|
| 6.9 | % |
|
| 66.9 |
|
|
| 6.3 | % |
|
| 140.2 |
|
|
| 6.8 | % |
|
| 135.7 |
|
|
| 6.5 | % |
U.S. franchise advertising |
|
| 111.1 |
|
|
| 10.4 | % |
|
| 116.3 |
|
|
| 11.3 | % |
|
| 217.7 |
|
|
| 10.5 | % |
|
| 227.7 |
|
|
| 11.3 | % |
|
| 111.5 |
|
|
| 10.9 | % |
|
| 111.1 |
|
|
| 10.4 | % |
|
| 224.2 |
|
|
| 11.0 | % |
|
| 217.7 |
|
|
| 10.5 | % |
Total revenues |
| $ | 1,065.2 |
|
|
| 100.0 | % |
| $ | 1,032.5 |
|
|
| 100.0 | % |
| $ | 2,076.3 |
|
|
| 100.0 | % |
| $ | 2,016.2 |
|
|
| 100.0 | % |
| $ | 1,024.6 |
|
|
| 100.0 | % |
| $ | 1,065.2 |
|
|
| 100.0 | % |
| $ | 2,049.0 |
|
|
| 100.0 | % |
| $ | 2,076.3 |
|
|
| 100.0 | % |
Revenues primarily consist of retail sales from our Company-owned stores, royalties and fees and advertising contributions 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
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||||||||||||||||||||||
U.S. Company-owned stores |
| $ | 112.5 |
|
|
| 32.0 | % |
| $ | 116.6 |
|
|
| 32.4 | % |
| $ | 216.4 |
|
|
| 31.6 | % |
| $ | 229.3 |
|
|
| 32.4 | % |
| $ | 87.7 |
|
|
| 25.9 | % |
| $ | 112.5 |
|
|
| 32.0 | % |
| $ | 172.6 |
|
|
| 25.8 | % |
| $ | 216.4 |
|
|
| 31.6 | % |
U.S. franchise royalties and fees |
|
| 128.1 |
|
|
| 36.4 | % |
|
| 126.8 |
|
|
| 35.3 | % |
|
| 250.4 |
|
|
| 36.6 | % |
|
| 251.3 |
|
|
| 35.5 | % |
|
| 139.3 |
|
|
| 41.2 | % |
|
| 128.1 |
|
|
| 36.4 | % |
|
| 272.1 |
|
|
| 40.7 | % |
|
| 250.4 |
|
|
| 36.6 | % |
U.S. franchise advertising |
|
| 111.1 |
|
|
| 31.6 | % |
|
| 116.3 |
|
|
| 32.3 | % |
|
| 217.7 |
|
|
| 31.8 | % |
|
| 227.7 |
|
|
| 32.1 | % |
|
| 111.5 |
|
|
| 32.9 | % |
|
| 111.1 |
|
|
| 31.6 | % |
|
| 224.2 |
|
|
| 33.5 | % |
|
| 217.7 |
|
|
| 31.8 | % |
U.S. stores |
| $ | 351.7 |
|
|
| 100.0 | % |
| $ | 359.8 |
|
|
| 100.0 | % |
| $ | 684.5 |
|
|
| 100.0 | % |
| $ | 708.4 |
|
|
| 100.0 | % | ||||||||||||||||||||||||||||||||
Total U.S. Stores |
| $ | 338.4 |
|
|
| 100.0 | % |
| $ | 351.7 |
|
|
| 100.0 | % |
| $ | 668.9 |
|
|
| 100.0 | % |
| $ | 684.5 |
|
|
| 100.0 | % |
17
U.S. Company-owned Stores
Revenues from U.S. Company-owned store operations decreased $4.1$24.8 million, or 3.5%22.1%, in the second quarter of 2022,2023, and decreased $12.9$43.8 million, or 5.6%20.2%, in the two fiscal quarters of 20222023 primarily due to a decline in U.S. Company-owned same store sales. These decreases were partially offset by an increasedecrease in the average number of U.S. Company-owned stores open during the period resulting from netthe refranchising of 114 U.S. Company-owned stores in Arizona and Utah in the fourth quarter of 2022 to certain of our U.S. franchisees (the “2022 Store Sale”). This decrease was partially offset by higher same store growthsales, and, to a lesser extent in the 2022 Store Purchase.two fiscal quarters of 2023, our purchase of 23 U.S. franchise stores in Michigan in the first quarter of 2022.
U.S. Company-owned same store sales increased 5.5% in the second quarter of 2023 and increased 6.4% in the two fiscal quarters of 2023. U.S. Company-owned same store sales declined 9.2% and 9.8% in the second quarter and two fiscal quarters of 2022, respectively. U.S. Company-owned same store sales declined 2.6% in the second quarter of 20212022 and increased 1.6%declined 9.8% in the two fiscal quarters of 2021.2022.
18
U.S. Franchise Royalties and Fees
Revenues from U.S. franchise royalties and fees increased $1.3$11.2 million, or 1.0%8.7%, in the second quarter of 20222023, and increased $21.7 million, or 8.7%, in the two fiscal quarters of 2023 primarily due to an increase in revenues from fees paid by our franchisees for the use of our technology platforms as well asand an increase in the average number of U.S. franchised stores open during the period resulting from net store growth. These increases in revenues were partially offset by a decline in U.S. franchise same store sales. Revenues from U.S. franchise royaltiesgrowth and fees decreased $0.9 million, or 0.4%, in the two fiscal quarters of 2022 due primarily to a decline in U.S. franchise same store sales, and was partially offset by an increase in revenues from fees paid by franchisees for the use of our technology platforms, as well as an increase in the average number of U.S. franchised stores open during the period resulting from net store growth.Store Sale. Revenues from U.S. franchise royalties and fees were negatively impactedalso benefited by higher same store sales in the 2022 Store Purchasetwo fiscal quarters of 2023.
U.S. franchise same store sales declined 0.1% and increased 1.6% in both the second quarter and two fiscal quarters of 2022.
2023, respectively. U.S. franchise same store sales declined 2.5% and 2.9% in the second quarter and two fiscal quarters of 2022, respectively. U.S. franchise same store sales increased 3.9% and 8.5% in the second quarter and two fiscal quarters of 2021, respectively.
U.S. Franchise Advertising
Revenues from U.S. franchise advertising decreased $5.3increased $0.4 million, or 4.5%0.3%, in the second quarter of 2022,2023, and decreased $10.0increased $6.5 million, or 4.4%3.0%, in the two fiscal quarters of 20222023 due primarily to a decline in U.S. franchise same store sales and to a lesser extent, the 2022 Store Purchase. Approximately $2.6 million and $5.1 million in advertising incentives related to certain brand promotions in the second quarter and two fiscal quarters of 2022, respectively, also contributed to the decreases in U.S. franchise advertising revenues. These decreases were partially offset by an increase in the average number of U.S. franchised stores open during the period resulting from net store growth.growth and the 2022 Store Sale. Revenues from U.S. franchise advertising also benefited from higher same store sales in the two fiscal quarters of 2023. These increases were partially offset by a reduction of 0.25% to the standard 6.0% advertising contribution which was effectuated at the beginning of the second quarter of 2023.
Supply Chain
Supply chain revenues increased $43.6decreased $30.9 million, or 7.2%4.8%, in the second quarter of 2022, and increased $84.82023 due to lower order volumes at our U.S. franchised stores as well as a decrease in our market basket pricing to stores of 2.4% in the second quarter of 2023, which resulted in an estimated $13.4 million decrease in supply chain revenues. Supply chain revenues decreased $16.2 million, or 7.2%1.3%, in the two fiscal quarters of 20222023 due primarily to higher market basket pricing to stores, partially offset by lower order volumes at our U.S. franchisefranchised stores, during the respective periods.but this decrease was partially offset by an increase in our market basket pricing to stores. Our market basket pricing to stores increased 15.2%1.1% during the second quartertwo fiscal quarters of 2022,2023 which resulted in an estimated $77.1$11.7 million increase in supply chain revenues. OurThe market basket pricing to stores increased 13.6% duringchange, a statistical measure utilized by management, is calculated as the two fiscal quarterspercentage change of 2022 which resulted inthe market basket purchased by an estimated $133.2 million increase inaverage U.S. store (based on average weekly unit sales) from our U.S. supply chain revenues.centers against the comparable period of the prior year. We believe this measure is important to understanding Company performance because as our market basket prices fluctuate, our revenues, cost of sales and gross margin percentages in our supply chain segment also fluctuate.
International Franchise Royalties and Fee Revenues
Revenues from international franchise royalties and fees decreased $2.8increased $3.6 million, or 4.1%5.4%, in the second quarter of 2022,2023, and decreased $0.8increased $4.4 million, or 0.6%3.3%, in the two fiscal quarters of 20222023 due primarily to same store sales growth (excluding foreign currency impact) and an increase in the average number of international franchised stores open during the period, resulting from net store growth. The negative impact of changes in foreign currency exchange rates of $5.9 million and $10.1$2.0 million in the second quarter of 2023 and $6.3 million in the two fiscal quarters of 2022, respectively. A decline2023 partially offset the increases in international franchise royalties and fees revenues. The impact of changes in foreign currency exchange rates on international franchise royalty revenues, a statistical measure utilized by management, is calculated as the difference in international franchise royalty revenues resulting from translating current year local currency results to U.S. dollars at current year exchange rates as compared to prior year exchange rates. We believe this measure is important to understanding Company performance given the significant variability in international franchise royalty revenues that can be driven by changes in foreign currency exchange rates.
Excluding the impact of foreign currency exchange rates, international franchise same store sales (excluding foreign currency impact)increased 3.6% in the second quarter of 2023 and increased 2.3% in the two fiscal quarters of 2022 also contributed to the decreases in international franchise revenues in the respective periods. An increase in the average number of international franchise stores open during the respective periods, resulting from net store growth, partially offset the declines in revenues.
2023. Excluding the impact of foreign currency exchange rates, international franchise same store sales declined 2.2% and 0.5% in the second quarter and two fiscal quarters of 2022, respectively. Excluding the impact of foreign currency exchange rates, international franchise same store sales increased 13.9% and 12.8% in the second quarter and two fiscal quarters of 2021, respectively.
1819
Cost of Sales / Gross Margin
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||
Consolidated revenues |
| $ | 1,065.2 |
|
|
| 100.0 | % |
| $ | 1,032.5 |
|
|
| 100.0 | % |
| $ | 2,076.3 |
|
|
| 100.0 | % |
| $ | 2,016.2 |
|
|
| 100.0 | % |
Consolidated cost of sales |
|
| 678.9 |
|
|
| 63.7 | % |
|
| 624.8 |
|
|
| 60.5 | % |
|
| 1,321.4 |
|
|
| 63.6 | % |
|
| 1,219.3 |
|
|
| 60.5 | % |
Consolidated gross margin |
| $ | 386.3 |
|
|
| 36.3 | % |
| $ | 407.7 |
|
|
| 39.5 | % |
| $ | 754.9 |
|
|
| 36.4 | % |
| $ | 796.8 |
|
|
| 39.5 | % |
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||
Total revenues |
| $ | 1,024.6 |
|
|
| 100.0 | % |
| $ | 1,065.2 |
|
|
| 100.0 | % |
| $ | 2,049.0 |
|
|
| 100.0 | % |
| $ | 2,076.3 |
|
|
| 100.0 | % |
Total cost of sales |
|
| 620.0 |
|
|
| 60.5 | % |
|
| 678.9 |
|
|
| 63.7 | % |
|
| 1,258.8 |
|
|
| 61.4 | % |
|
| 1,321.4 |
|
|
| 63.6 | % |
Gross margin |
| $ | 404.7 |
|
|
| 39.5 | % |
| $ | 386.3 |
|
|
| 36.3 | % |
| $ | 790.2 |
|
|
| 38.6 | % |
| $ | 754.9 |
|
|
| 36.4 | % |
Consolidated cost of sales consists of U.S. Company-owned store and supply chain costs incurred to generate related revenues. Components of consolidated cost of sales primarily include food, labor, delivery and occupancy costs. Consolidated gross margin (which we define as revenues less cost of sales) decreased $21.4increased $18.4 million, or 5.3%4.8%, in the second quarter of 2022,2023, and decreased $42.0increased $35.3 million, or 5.3%4.7%, in the two fiscal quarters of 20222023 due primarily to lower U.S. Company-owned store revenues, as well as higher food, labor and delivery costs and lower global franchise revenues. Franchise revenues do not have a cost of sales component, so changes in these revenues have a disproportionate effect on gross margin. Additionally, as our market basket prices fluctuate, our revenues and gross margin percentages in our supply chain segment also fluctuate; however, actual product-level dollar gross margins remain unchanged.
As a percentage of revenues, the consolidated gross margin decreasedincreased 3.2 percentage points in the second quarter of 2022,2023 and decreased 3.1increased 2.2 percentage points in the two fiscal quarters of 2022.2023. U.S. Company-owned store gross margin decreased 8.1increased 2.2 percentage points in the second quarter of 2022,2023 and decreased 8.0increased 1.5 percentage points in the two fiscal quarters of 2022.2023. Supply chain gross margin decreased 1.5increased 1.4 percentage points in both the second quarter of 2023 and increased 0.7 percentage points in the two fiscal quarters of 2022.2023. These changes in gross margin are described in more detail below.
U.S. Company-Owned Store Gross Margin
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||
Revenues |
| $ | 112.5 |
|
|
| 100.0 | % |
| $ | 116.6 |
|
|
| 100.0 | % |
| $ | 216.4 |
|
|
| 100.0 | % |
| $ | 229.3 |
|
|
| 100.0 | % |
Cost of sales |
|
| 94.1 |
|
|
| 83.6 | % |
|
| 88.0 |
|
|
| 75.5 | % |
|
| 181.4 |
|
|
| 83.8 | % |
|
| 173.8 |
|
|
| 75.8 | % |
Store gross margin |
| $ | 18.4 |
|
|
| 16.4 | % |
| $ | 28.6 |
|
|
| 24.5 | % |
| $ | 35.0 |
|
|
| 16.2 | % |
| $ | 55.6 |
|
|
| 24.2 | % |
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||
Revenues |
| $ | 87.7 |
|
|
| 100.0 | % |
| $ | 112.5 |
|
|
| 100.0 | % |
| $ | 172.6 |
|
|
| 100.0 | % |
| $ | 216.4 |
|
|
| 100.0 | % |
Cost of sales |
|
| 71.4 |
|
|
| 81.4 | % |
|
| 94.1 |
|
|
| 83.6 | % |
|
| 142.0 |
|
|
| 82.3 | % |
|
| 181.4 |
|
|
| 83.8 | % |
Store gross margin |
| $ | 16.3 |
|
|
| 18.6 | % |
| $ | 18.4 |
|
|
| 16.4 | % |
| $ | 30.6 |
|
|
| 17.7 | % |
| $ | 35.0 |
|
|
| 16.2 | % |
U.S. Company-owned store gross margin (which does not include certain store-level costs such as royalties and advertising) decreased $10.1$2.1 million, or 35.5%11.7%, in the second quarter of 2022,2023 and decreased $20.6$4.4 million, or 37.1%12.4%, in the two fiscal quarters of 20222023 due primarily to lower same store sales, as well as higher food costs.the 2022 Store Sale. As a percentage of store revenues, the U.S. Company-owned store gross margin decreased 8.1increased 2.2 percentage points in the second quarter of 2022,2023 and decreased 8.0increased 1.5 percentage points in the two fiscal quarters of 2022.2023. These changes in gross margin as a percentage of revenues are discussed in additional detail below.
Supply Chain Gross Margin
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||
Revenues |
| $ | 646.6 |
|
|
| 100.0 | % |
| $ | 603.0 |
|
|
| 100.0 | % |
| $ | 1,256.1 |
|
|
| 100.0 | % |
| $ | 1,171.3 |
|
|
| 100.0 | % |
Cost of sales |
|
| 584.9 |
|
|
| 90.5 | % |
|
| 536.8 |
|
|
| 89.0 | % |
|
| 1,140.0 |
|
|
| 90.8 | % |
|
| 1,045.6 |
|
|
| 89.3 | % |
Supply chain gross margin |
| $ | 61.7 |
|
|
| 9.5 | % |
| $ | 66.2 |
|
|
| 11.0 | % |
| $ | 116.1 |
|
|
| 9.2 | % |
| $ | 125.7 |
|
|
| 10.7 | % |
Supply chain gross margin decreased $4.5 million, or 6.7%, in the second quarter of 2022, and decreased $9.6 million, or 7.6%, in the two fiscal quarters of 2022 due primarily to higher labor and delivery costs. As a percentage of supply chain revenues, supply chain gross margin decreased 1.5 percentage points in both the second quarter and two fiscal quarters of 20222023.
Supply Chain Gross Margin
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||||||||||||
Revenues |
| $ | 615.7 |
|
|
| 100.0 | % |
| $ | 646.6 |
|
|
| 100.0 | % |
| $ | 1,239.9 |
|
|
| 100.0 | % |
| $ | 1,256.1 |
|
|
| 100.0 | % |
Cost of sales |
|
| 548.5 |
|
|
| 89.1 | % |
|
| 584.9 |
|
|
| 90.5 | % |
|
| 1,116.8 |
|
|
| 90.1 | % |
|
| 1,140.0 |
|
|
| 90.8 | % |
Supply chain gross margin |
| $ | 67.2 |
|
|
| 10.9 | % |
| $ | 61.7 |
|
|
| 9.5 | % |
| $ | 123.1 |
|
|
| 9.9 | % |
| $ | 116.1 |
|
|
| 9.2 | % |
Supply chain gross margin increased $5.5 million, or 8.8%, in the second quarter of 2023, and increased $7.0 million, or 6.0%, in the two fiscal quarters of 2023. As a percentage of supply chain revenues, the supply chain gross margin increased 1.4 percentage points in the second quarter of 2023 due primarily to higherlower food and delivery costs. The increases in food and delivery costs as a percentage of supply chain revenues, resulted from macroeconomic inflationary pressures in the U.S., as well as lower sales leverage. Lower insurance expense resulting from favorable claims experienceprocurement productivity. As a percentage of supply chain revenues, the supply chain gross margin increased 0.7 percentage points in the two fiscal quarters of 2023 due primarily to procurement productivity but was partially offset the decreasesby higher food cost as a percentage of supply chain revenues. The improvements in supply chain gross margin as a percentage of supply chain revenues were partially offset in both the second quarter and two fiscal quarters of 2022.2023 by higher labor costs.
1920
General and Administrative Expenses
General and administrative expenses decreased $3.4increased $0.7 million, or 3.4%0.7%, in the second quarter of 20222023, driven primarily by lowerhigher labor costs, partially offset by higher professional fees and travel expenses.costs. General and administrative expenses increased $2.9decreased $1.6 million, or 1.5%0.8%, in the two fiscal quarters of 20222023, driven primarily by higherlower professional fees and travel expenses, non-cash equity-based compensation expense and amortization expense for capitalized software. These increases werecosts, partially offset by lowerhigher labor costs.
U.S. Franchise Advertising Expenses
U.S. franchise advertising expenses decreased $5.3increased $0.4 million, or 4.5%0.3%, in the second quarter of 2022,2023, and decreased $10.0increased $6.5 million, or 4.4%3.0%, in the two fiscal quarters of 20222023 consistent with the decreasesincrease in U.S. franchise advertising revenues. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized, as our consolidated not-for-profit advertising fund is obligated to expend such revenues on advertising and other activities that promote the Domino’s brand, and these revenues cannot be used for general corporate purposes.
Other Expense
Other Income
During the firstsecond quarter of 2021,2023, we recorded a $2.5$15.0 million unrealized gainloss on our investment in DPC Dash (Note 5) resulting frombased on the observable change inactive exchange quoted price fromfor the valuation of our additional $40.0 million investment.equity security. We did not record any adjustments to the carrying amount in the secondfirst quarter of 2023 or two fiscal quarters of 2022, or the second quarter of 2021.2022.
Interest Expense, Net
Interest expense, net decreased $1.2$2.2 million, or 2.6%5.0%, in the second quarter of 2022 driven primarily by approximately $2.3 million of incremental interest expense recorded in the second quarter of 2021 in connection with our recapitalization transaction completed on April 16, 2021 (the “2021 Recapitalization”), partially offset by higher average borrowings resulting from the 2021 Recapitalization. Interest expense, net increased $6.22023, and decreased $4.9 million, or 7.3%5.4%, in the two fiscal quarters of 20222023 each driven by higher average borrowings resulting from the 2021 Recapitalization.interest income on our cash equivalents.
The Company’sOur weighted average borrowing rate was 3.8% in both the second quarter and two fiscal quarters of 20222023 and 2021.2022.
Provision for Income Taxes
Income tax expense increased $2.5Provision for income taxes decreased $2.3 million, or 8.8%7.5%, in the second quarter of 20222023 due to a higherlower effective tax rate, and was partially offset by a decrease inhigher income before provision for income taxes. The effective tax rate increaseddecreased to 23.2%20.8% during the second quarter of 20222023 as compared to 19.6%23.2% in the second quarter of 2021. Income2022, driven in part by higher foreign tax expensecredits and a higher foreign derived intangible income deduction. Provision for income taxes decreased $2.6$0.5 million, or 4.3%0.9%, in the two fiscal quarters of 20222023 due to a decrease inlower effective tax rate, partially offset by higher income before provision for income taxes, but was partially offset by a higher effective tax rate.taxes. The effective tax rate increaseddecreased to 23.0%21.1% during the two fiscal quarters of 20222023 as compared to 20.5%23.0% in the two fiscal quarters of 2021. The higher effective tax rate in the second quarter and two fiscal quarters of 2022, was driven in part by a 2.2 and 1.4 percentage point change in excess tax benefits from equity-based compensation, which are recorded as a reduction to the income tax provision, in the second quarter and two fiscal quarters of 2022, respectively. The decreases in excess tax benefits from equity-based compensation were a result of fewer stock option exercises in the second quarter and two fiscal quarters of 2022 as compared to the respective periods in 2021. The increase in the effective tax rate was also a result of lowerhigher foreign tax credits.credits and a higher foreign derived intangible income deduction.
21
Segment Income
We evaluate the performance of our reportable segments and allocate resources to them based on earnings before interest, taxes, depreciation, amortization and other, referred to as Segment Income. Segment Income for each of our reportable segments is summarized in the table below. Other Segment Income primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.
In the first quarter of 2023, we changed our allocation methodology for certain costs which support certain internally developed software used across our franchise system. The change in allocation methodology of certain software development costs resulted in an estimated increase in U.S. stores Segment Income of $15.8 million, an estimated increase in international franchise Segment Income of $1.9 million and an estimated decrease in other Segment Income of $17.7 million in the second quarter of 2023. The change in allocation methodology of certain software development costs resulted in an estimated increase in U.S. stores Segment Income of $25.9 million, an estimated increase in international franchise Segment Income of $3.8 million and an estimated decrease in other Segment Income of $29.7 million in the two fiscal quarters of 2023.
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||
U.S. stores |
| $ | 104.1 |
|
| $ | 111.8 |
|
| $ | 201.3 |
|
| $ | 219.3 |
|
Supply chain |
|
| 53.6 |
|
|
| 58.6 |
|
|
| 100.0 |
|
|
| 111.1 |
|
International franchise |
|
| 52.9 |
|
|
| 56.4 |
|
|
| 107.9 |
|
|
| 110.8 |
|
Other |
|
| (5.6 | ) |
|
| (9.6 | ) |
|
| (13.3 | ) |
|
| (15.7 | ) |
20
|
| Second Quarter |
|
| Second Quarter |
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||
U.S. stores |
| $ | 123.6 |
|
| $ | 104.1 |
|
| $ | 236.3 |
|
| $ | 201.3 |
|
Supply chain |
|
| 60.0 |
|
|
| 53.6 |
|
|
| 108.5 |
|
|
| 100.0 |
|
International franchise |
|
| 58.9 |
|
|
| 52.9 |
|
|
| 117.0 |
|
|
| 107.9 |
|
Other |
|
| (18.9 | ) |
|
| (5.6 | ) |
|
| (34.6 | ) |
|
| (13.3 | ) |
U.S. Stores
U.S. stores Segment Income decreased $7.8increased $19.5 million, or 7.0%18.8%, in the second quarter of 2022,2023, primarily due to the $10.1 million decreasechange in U.S. Company-owned store gross margin, and was partially offset by the $1.3 million increase inallocation methodology for certain software development costs, as well as higher U.S. franchise royalties and fees revenues, each as discussed above. U.S. stores Segment Income decreased $17.9 million, or 8.2%, inThese increases were partially offset by the two fiscal quarters of 2022, primarily due to the $20.6$2.1 million decrease in U.S. Company-owned store gross margin, as discussed above. U.S. stores Segment Income increased $34.9 million, or 17.3%, in the two fiscal quarters of 2023, primarily due to the change in allocation methodology for certain software development costs, as well as the $0.9 million decrease inhigher U.S. franchise royalties and fees revenues, each as discussed above. These increases were partially offset by the $4.4 million decrease in U.S. Company-owned store gross margin, as discussed above. U.S. franchise revenues do not have a cost of sales component, thereforeso changes in these revenues have a disproportionate effect on U.S. stores Segment Income. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized and had no impact on U.S. stores Segment Income.
Supply Chain
Supply chain Segment Income decreased $5.0increased $6.4 million, or 8.5%11.9%, in the second quarter of 2022,2023, primarily due to the $4.5$5.5 million decreaseincrease in supply chain gross margin discusseddescribed above. Supply chain Segment Income decreased $11.2increased $8.6 million, or 10.0%8.6%, in the two fiscal quarters of 2022,2023, primarily due to the $9.6$7.0 million decreaseincrease in supply chain gross margin discusseddescribed above.
International Franchise
International franchise Segment Income decreased $3.5increased $6.0 million, or 6.2%11.3%, in the second quarter of 2022,2023, primarily due to the $2.8 million decrease inhigher international franchise royalties and fees revenues as well as the change in allocation methodology for certain software development costs, each as discussed above. International franchise Segment Income decreased $2.9increased $9.1 million, or 2.6%8.4%, in the two fiscal quarters of 2022,2023, primarily due to the $0.8 million decrease inhigher international franchise royalties and fees revenues as well as the change in allocation methodology for certain software development costs, each as discussed above. International franchise revenues do not have a cost of sales component, thereforeso changes in these revenues have a disproportionate effect on international franchise Segment Income.
Other
Other Segment Income increased $4.0decreased $13.2 million, or 41.6%235.6%, in the second quarter of 2022,2023, and increased $2.4decreased $21.3 million, or 15.2%159.4%, in the two fiscal quarters of 2022,2023 due primarily due to lowerthe change in allocation methodology for certain software development costs as discussed above, as well as higher labor costscosts. These decreases were partially offset by higherlower professional fees and travel expensescosts in the respective periods.two fiscal quarters of 2023.
22
Liquidity and Capital Resources
Historically, our receivable collection periods and inventory turn rates are faster than the normal payment terms on our current liabilities resulting in efficient deployment of working capital. We generally collect our receivables within three weeks from the date of the related sale and we generally experience multiple inventory turns per month. In addition, our sales are not typically seasonal, which further limits variations in our working capital requirements. These factors allow us to manage our working capital and our ongoing cash flows from operations to invest in our business and other strategic opportunities, pay dividends and repurchase and retire shares of our common stock. As of June 19, 2022,18, 2023, we had working capital of $104.8$58.7 million, excluding restricted cash and cash equivalents of $158.2$189.7 million, advertising fund assets, restricted, of $182.5$154.1 million and advertising fund liabilities of $175.1$150.4 million. Working capital includes total unrestricted cash and cash equivalents of $114.4$77.0 million.
Our primary sourcesources of liquidity isare cash flows from operations and availability of borrowings under our variable funding notes.2022 and 2021 Variable Funding Notes (as defined below). During the second quarter and two fiscal quarters of 2022,2023, we continued toexperienced an increase global retailin both U.S. and international same store sales (excluding foreign currency impact), which versus the comparable periods in the prior year. Additionally, both our U.S. and international businesses grew store counts during the second quarter and two fiscal quarters of 2023. These factors contributed to our continued our ability to generate positive operating cash flows. As of June 19, 2022,In addition to our cash flows from operations, we had ahave two variable funding note facilityfacilities. These facilities include our Series 2022-1 Variable Funding Senior Secured Notes, Class A-1 Notes (the “2022 Variable Funding Notes”), which allowedallows for advances of up to $200.0$120.0 million, ofas well as our Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 Notes (the “2021 Variable Funding Notes,” and, together with the 2022 Variable Funding Notes, the “2022 and 2021 Variable Funding Notes”), which allows for advances of up to $200.0 million and certain other credit instruments, including letters of credit (the “2021 Variable Funding Notes”).credit. The letters of credit are primarily relatedrelate to our casualty insurance programs and certain supply chain center leases.programs. As of June 19, 2022,18, 2023, we had no outstanding borrowings and $155.8$277.8 million of available borrowing capacity under our 2022 and 2021 Variable Funding Notes, net of letters of credit issued of $44.2$42.2 million.
We expect to continue to use our unrestricted cash and cash equivalents, cash flows from operations, any excess cash from our recapitalization transactions and available borrowings under our variable funding notes2022 and 2021 Variable Funding Notes to, among other things, fund working capital requirements, invest in our core business and other strategic opportunities, service our indebtedness, pay dividends and repurchase shares of our common stock.
Our ability to continue to fund these items and continue to service our debt could be adversely affected by the occurrence of any of the events described under “Risk Factors” in our 20212022 Form 10-K. There can be no assurance that our business will generate sufficient cash flows from operations or that future borrowings will be available under our variable funding notes2022 and 2021 Variable Funding Notes or otherwise to enable us to service our indebtedness, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance our outstanding senior notes and to service, extend or refinance our variable funding notes2022 and 2021 Variable Funding Notes will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
21
Restricted Cash
As of June 19, 2022,18, 2023, we had $110.6$138.5 million of restricted cash held for future principal and interest payments and other working capital requirements of our asset-backed securitization structure, $47.4$51.0 million of restricted cash held in a three-month interest reserve as required by the related debt agreements and $0.2 million of other restricted cash for a total of $158.2$189.7 million of restricted cash and cash equivalents. As of June 19, 2022,18, 2023, we also held $164.1$139.1 million of advertising fund restricted cash and cash equivalents, which can only be used for activities that promote the Domino’s brand.
Long-Term Debt
As of June 19, 2022,18, 2023, we had approximately $5.05$5.0 billion of long-term debt, of which $55.7 million was classified as a current liability. As of June 19, 2022,18, 2023, our fixed rate notes from the recapitalizations we completed in 2021, 2019, 2018, 2017 and 2015 had original scheduled principal payments of $25.8 million in the remainder of 2022,2023, $51.5 million in each of 2023 and 2024, $1.17 billion in 2025, $39.3 million in 2026, $1.31 billion in 2027, $811.5 million in 2028, $625.9 million in 2029, $10.0 million in 2030 and $905.0 million in 2031.
In accordance with our debt agreements, the payment of principal on the outstanding senior notes may be suspended if our leverage ratio is less than or equal to 5.0x total debt to adjusted EBITDA, as defined in the related agreements, and no catch-up provisions are applicable. As of the fourth quarter of 2020, we had a leverage ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payment on our then-outstanding notes in the first quarter of 2021. Subsequent to the closing of the 2021 Recapitalization, we had a leverage ratio of greater than 5.0x, and accordingly, resumed making the previously scheduled debt amortization payment on our notes beginning in the second quarter of 2021.
The notes are subject to certain financial and non-financial covenants, including a debt service coverage ratio calculation. The covenant requires a minimum coverage ratio of 1.75x total debt service to securitized net cash flow, as defined in the related agreements. In the event that certain covenants are not met, the notes may become due and payable on an accelerated schedule.
23
Share Repurchase Programs
Our share repurchase programs have historically been funded by excess operating cash flows, excess proceeds from our recapitalization transactions and borrowings under our variable funding notes.2022 and 2021 Variable Funding Notes. On July 20, 2021, our Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of our common stock.
During the second quarter of 2022,2023, we repurchased and retired 148,248292,030 shares of our common stock under our Board of Directors-approved share repurchase program for a total of approximately $50.0$90.8 million. During the two fiscal quarters of 2022,2023, we repurchased and retired 249,058392,545 shares of our common stock under our Board of Directors-approved share repurchase program for a total of approximately $97.7 million.$120.8 million As of June 19, 2022,18, 2023, we had a total remaining authorized amount for share repurchases of approximately $606.4$289.5 million.
Dividends
On April 26, 2022,25, 2023, our Board of Directors declared a $1.10$1.21 per share quarterly dividend on our outstanding common stock for shareholders of record as of June 15, 2022,2023, which was paid on June 30, 2022.2023. We had approximately $40.6$43.6 million accrued for common stock dividends at June 19, 2022.18, 2023. Subsequent to the end of the second quarter, on July 19, 2022,20, 2023, our Board of Directors declared a $1.10$1.21 per share quarterly dividend on our outstanding common stock for shareholders of record as of September 15, 20222023, to be paid on September 30, 2022.29, 2023.
Sources and Uses of Cash
The following table illustrates the main components of our cash flows:
(In millions) |
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||
|
| Two Fiscal Quarters |
|
| Two Fiscal Quarters |
| ||||||||||
Cash flows provided by (used in) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net cash provided by operating activities |
| $ | 153.4 |
|
| $ | 295.4 |
|
| $ | 242.3 |
|
| $ | 153.4 |
|
Net cash used in investing activities |
|
| (39.9 | ) |
|
| (72.9 | ) |
|
| (39.2 | ) |
|
| (39.9 | ) |
Net cash used in financing activities |
|
| (166.7 | ) |
|
| (101.2 | ) |
|
| (193.0 | ) |
|
| (166.7 | ) |
Effect of exchange rate changes on cash |
|
| (0.6 | ) |
|
| 0.3 |
|
|
| 0.5 |
|
|
| (0.6 | ) |
Change in cash and cash equivalents, restricted cash and cash equivalents |
| $ | (53.9 | ) |
| $ | 121.6 |
|
| $ | 10.6 |
|
| $ | (53.9 | ) |
22
Operating Activities
Cash provided by operating activities decreased $142.0increased $88.9 million in the two fiscal quarters of 2022,2023, primarily due to the negativepositive impact of changes in operating assets and liabilities of $81.7$69.2 million. The negativepositive impact of changes in operating assets and liabilities primarily related to the timing of payments on accrued liabilities income taxes and prepaid expenses,inventory as well as changes in inventory pricing and the timing of collectionsreceipts on accounts receivable in the two fiscal quarters of 20222023 as compared to the two fiscal quarters of 2021. The decrease2022. Additionally, net income increased $20.7 million and non-cash adjustments increased $4.7 million, resulting in an overall increase to cash provided by operating activities in the two fiscal quarters of 2023 as compared to the two fiscal quarters of 2022 of $25.4 million. These increases in cash provided by operating activities was also due towere partially offset by a $27.7$5.7 million negative impact of changes in advertising fund assets and liabilities, restricted, in the two fiscal quarters of 20222023 as compared to the two fiscal quarters of 20212022 due to payments for advertising activities outpacing receipts for advertising contributions. Additionally, net income decreased $40.9 million. However, this decrease in net income included an $8.3 million increase in non-cash adjustments, resulting in an overall decrease to cash provided by operating activities in the two fiscal quarters of 2022 as compared to the two fiscal quarters of 2021 of $32.6 million.
Investing Activities
Cash used in investing activities was $39.9$39.2 million in the two fiscal quarters of 2022,2023, which primarily consisted of $32.7$38.0 million of capital expenditures (driven primarily by investments in technological initiatives, supply chain centers and corporate store operations). As a result of the 2022 Store Purchase, we also acquired 23 U.S. franchise stores from certain of our existing U.S. franchisees in the first quarter of 2022 for $6.8 million.
Financing Activities
Cash used in financing activities was $166.7$193.0 million in the two fiscal quarters of 2022,2023, which primarily consisted ofincluded the repurchase of approximately $97.7$120.8 million in common stock under our Board of Directors-approved share repurchase program, dividend payments of $39.7$42.9 million, repayments of long-term debt and finance lease obligations of $27.5$27.2 million and tax payments for the vesting of restricted stock of $2.4$3.1 million. These uses of cash were partially offset by proceeds from the exercise of stock options of $0.5$1.1 million.
Critical Accounting Estimates
For a description of the Company’s critical accounting estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 20212022 Form 10-K. The Company considers its most significant accounting policies and estimates to be long-lived assets, casualty insurance reserves and income taxes. There have been no material changes to the Company’s critical accounting estimates since January 2, 2022.1, 2023.
2324
Forward-Looking Statements
This filing contains various forward-looking statements about the Company within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”) that are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. You can identify forward-looking statements by the use of words such as “anticipates,” “believes,” “could,” “should,” “estimates,” “expects,” “intends,” “may,” “will,” “plans,” “predicts,” “projects,” “seeks,” “approximately,” “potential,” “outlook” and similar terms and phrases that concern our strategy, plans or intentions, including references to assumptions. These forward-looking statements address various matters including information concerning future results of operations and business strategy, our anticipated profitability, estimates in same store sales growth, store growth and the growth of our U.S. and international business in general, our ability to service our indebtedness, our future cash flows, our operating performance, trends in our business and other descriptions of future events reflect the Company’s expectations based upon currently available information and data. While we believe these expectations and projections are based on reasonable assumptions, such forward-looking statements are inherently subject to risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from our expectations are more fully described under the section headed “Risk Factors” in this filing and in our other filings with the Securities and Exchange Commission, including under the section headed “Risk Factors” in our 20212022 Form 10-K.10-K for the fiscal year ended January 1, 2023. Actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors, including but not limited to: our substantial increased indebtedness as a result of our recapitalization transactions and our ability to incur additional indebtedness or refinance or renegotiate key terms of that indebtedness in the future; the impact a downgrade in our credit rating may have on our business, financial condition and results of operations; our future financial performance and our ability to pay principal and interest on our indebtedness; our ability to manage difficulties associated with or related to the ongoing COVID-19 pandemic and the effects of COVID-19 and related regulations and policies on our business and supply chain, including impacts on the availability of labor; labor shortages or changes in operating expenses resulting from changes in prices of food (particularly cheese), fuel and other commodity costs, labor, utilities, insurance, employee benefits and other operating costs; the effectiveness of our advertising, operations and promotional initiatives; shortages, interruptions or disruptions in the supply or delivery of fresh food products and store equipment; the strength of our brand, including our ability to compete in the U.S. and internationally in our intensely competitive industry, including the food service and food delivery markets; our ability to successfully implement our growth strategy; labor shortages or changes in operating expenses resulting from increases in prices of food (particularly cheese), fuel and other commodity costs, labor, utilities, insurance, employee benefits and other operating costs or negative economic conditions; our ability to manage difficulties associated with or related to the COVID-19 pandemic and the effects of COVID-19 and related regulations and policies on our business and supply chain, including impacts on the availability of labor; the effectiveness of our advertising, operations and promotional initiatives; shortages, interruptions or disruptions in the supply or delivery of fresh food products and store equipment; the impact of social media and other consumer-oriented technologies on our business, brand and reputation; the impact of new or improved technologies and alternative methods of delivery on consumer behavior; new product, digital ordering and concept developments by us, and other food-industry competitors; our ability to maintain good relationships with and attract new franchisees, and franchisees’ ability to successfully manage their operations without negatively impacting our royalty payments and fees or our brand’s reputation; our ability to successfully implement cost-saving strategies; our ability and that of our franchisees to successfully operate in the current and future credit environment; changes in the level of consumer spending given general economic conditions, including interest rates, energy prices and consumer confidence;confidence or negative economic conditions in general; our ability and that of our franchisees to open new restaurants and keep existing restaurants in operation;operation and maintain demand for new stores; the impact that widespread illness, health epidemics or general health concerns, severe weather conditions and natural disasters may have on our business and the economies of the countries where we operate; changes in foreign currency exchange rates; changes in income tax rates; our ability to retain or replace our executive officers and other key members of management and our ability to adequately staff our stores and supply chain centers with qualified personnel; our ability to find and/or retain suitable real estate for our stores and supply chain centers; changes in government legislation and regulations, including changes in laws and regulations regarding information privacy, payment methods and consumer protection and social media; adverse legal judgments or settlements; food-borne illness or contamination of products or food tampering;tampering or other events that may impact our reputation; data breaches, power loss, technological failures, user error or other cyber risks threatening us or our franchisees; the impact that environmental, social and governance matters may have on our business and reputation; the effect of war, terrorism, catastrophic events or climate change; our ability to pay dividends and repurchase shares; changes in consumer tastes, spending and traffic patterns and demographic trends; actions by activist investors; changes in accounting policies; and adequacy of our insurance coverage. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this filing might not occur. All forward-looking statements speak only as of the date of this filing and should be evaluated with an understanding of their inherent uncertainty. Except as required under federal securities laws and the rules and regulations of the Securities and Exchange Commission, or other applicable law, we will not undertake, and specifically disclaim, any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances arising after the date of this filing, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on the forward-looking statements included in this filing or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
2425
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. In connection with the recapitalizations of our business, we have issued fixed rate notes and entered into variable funding notesour 2022 and 2021 Variable Funding Notes and, at June 19, 2022,18, 2023, we are exposed to interest rate risk on borrowings under our variable funding notes.2022 and 2021 Variable Funding Notes. As of June 19, 2022,18, 2023, we had no outstanding borrowings under our 2022 and 2021 Variable Funding Notes.
Our 2022 and 2021 Variable Funding Notes bear interest at fluctuating interest rates based on LIBOR. There is currently uncertainty around whether LIBOR will continue to exist after 2023. Ourthe Secured Overnight Financing Rate (“Term SOFR”), plus a spread adjustment. Accordingly, a rising interest rate environment could result in higher interest expense due on borrowings under our 2022 and 2021 Variable Funding Notes, loan documents contemplate a transition from LIBOR to secured overnight financing rate (“SOFR”) in the event that LIBOR ceases to exist. Because the composition and characteristics of SOFR are not the same as those of LIBOR, in such event, there can be no assurance that SOFR will perform the same way LIBOR would have at any given time or for any applicable period. As a result, our interest expense could increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected.
Our fixed ratefixed-rate debt exposes the Company to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate. Our existing fixed rate notes have various maturities such that we would not be required to refinance all of our debt at one time. Refer to the original scheduled principal payments disclosed within the Liquidity and Capital Resources section.
We are exposed to market risks from changes in commodity prices. During the normal course of business, we purchase cheese and certain other food products that are affected by changes in commodity prices and, as a result, we are subject to volatility in our food costs. Severe increases in commodity prices or food costs, including as a result of inflation, could affect the global and U.S. economies and could also adversely impact our business, financial condition or results of operations. We may periodically enter into financial instruments to manage this risk, although we have not done so historically. We do not engage in speculative transactions or hold or issue financial instruments for trading purposes. In instances when we use fixed pricing agreements with our suppliers, these agreements cover our physical commodity needs, are not net-settled and are accounted for as normal purchases.
Foreign Currency Exchange Risk
We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside the U.S., which can adversely impact our net income and cash flows. Approximately 6.9% of our total revenues in the second quarter of 2023, approximately 6.8% of our total revenues in the two fiscal quarters of 2023, approximately 6.3% of our total revenues in the second quarter of 2022 and approximately 6.5% of our total revenues in the two fiscal quarters of 2022 approximately 6.7% of our total revenues in the second quarter of 2021 and approximately 6.8% of our total revenues in the two fiscal quarters of 2021 were derived from our international franchise segment, a majority of which were denominated in foreign currencies. We also operate dough manufacturing and distribution facilities in Canada, which generate revenues denominated in Canadian dollars. We do not enter into financial instruments to manage this foreign currency exchange risk. AWe estimate that a hypothetical 10% adverse change in the foreign currency rates for our international markets would have resulted in a negative impact on royalty revenues of approximately $12.1$12.4 million in the two fiscal quarters of 2022.2023.
Item 4. Controls and Procedures.
Management, with the participation of the Company’s Chief Executive Officer, Russell J. Weiner, and Executive Vice President and Chief Financial Officer, Sandeep Reddy, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, Mr. Weiner and Mr. Reddy concluded that the Company’s disclosure controls and procedures were effective.
During the quarterly period ended June 19, 2022,18, 2023, there were no changes in the Company’s internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
2526
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are a party to lawsuits, revenue agent reviews by taxing authorities and administrative proceedings in the ordinary course of business which include, without limitation, workers’ compensation, general liability, automobile and franchisee claims. We are also subject to suits related to employment practices.
While we may occasionally be party to large claims, including class action suits, we do not believe that any existing matters, individually or in the aggregate, will materially affect our financial position, results of operations or cash flows.
Item 1A. Risk Factors.
There have been no material changes with respect to those risk factors previously disclosed in Item 1A “Risk Factors” in Part I of our 20212022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
|
|
|
|
|
|
|
|
|
|
| Maximum |
| ||||
|
|
|
|
|
|
|
| Total Number of Shares |
|
| Value of Shares that |
| ||||
|
| Total Number |
|
|
|
|
| Purchased as Part of |
|
| May Yet Be Purchased |
| ||||
|
| of Shares |
|
| Average Price Paid |
|
| Publicly Announced |
|
| Under the Program (2) |
| ||||
Period |
| Purchased (1) |
|
| Per Share |
|
| Program (2) |
|
| (in thousands) |
| ||||
Period #4 (March 28, 2022 |
|
| 1,250 |
|
| $ | 397.58 |
|
|
| — |
|
| $ | 656,437 |
|
Period #5 (April 25, 2022 |
|
| 149,858 |
|
|
| 337.36 |
|
|
| 148,248 |
|
|
| 606,437 |
|
Period #6 (May 23, 2022 |
|
| 1,089 |
|
|
| 361.36 |
|
|
| — |
|
|
| 606,437 |
|
Total |
|
| 152,197 |
|
| $ | 338.03 |
|
|
| 148,248 |
|
| $ | 606,437 |
|
|
|
|
|
|
|
|
|
|
|
| Maximum |
| ||||
|
|
|
|
|
|
|
| Total Number of Shares |
|
| Value of Shares that |
| ||||
|
| Total Number |
|
|
|
|
| Purchased as Part of |
|
| May Yet Be Purchased |
| ||||
|
| of Shares |
|
| Average Price Paid |
|
| Publicly Announced |
|
| Under the Program (2) |
| ||||
Period |
| Purchased (1) |
|
| Per Share |
|
| Program (2) |
|
| (in thousands) |
| ||||
Period #4 (March 27, 2023 |
|
| 1,575 |
|
| $ | 331.34 |
|
|
| — |
|
| $ | 380,275 |
|
Period #5 (April 24, 2023 |
|
| 293,122 |
|
|
| 310.83 |
|
|
| 291,723 |
|
|
| 289,604 |
|
Period #6 (May 22, 2023 |
|
| 1,762 |
|
|
| 301.45 |
|
|
| 307 |
|
|
| 289,511 |
|
Total |
|
| 296,459 |
|
| $ | 310.88 |
|
|
| 292,030 |
|
| $ | 289,511 |
|
(1) |
|
(2) | On July 20, 2021, the Company’s Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company’s common stock. As of June |
Authorization for the repurchase program may be modified, suspended, or discontinued at any time. The repurchase of shares in any particular period and the actual amount of such purchases remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
2627
Item 6. Exhibits.
Exhibit Number | Description | |
10.1 | ||
| ||
| ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
104 | Cover page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101). |
2728
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DOMINO’S PIZZA, INC. (Registrant) | ||||||||
Date: July | /s/ Sandeep Reddy | |||||||
Sandeep Reddy | ||||||||
Executive Vice President, Chief Financial Officer (Principal Financial Officer) |
2829