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Domino's Pizza Inc.’s (DPZ - Analyst Report) third-quarter 2013 adjusted earnings of 51 cents per share missed the Zacks Consensus Estimate by a penny but beat the year-ago quarter’s earnings of 43 cents by 18.6%. The company’s higher top line, margin expansion and lower share count boosted earnings per share during the quarter.

Quarterly revenues increased 6.9% year over year to $404.1 million and beat the Zacks Consensus Estimate of $403 million by 0.3%. Higher comparable restaurant sales (comps) growth, increased domestic store revenues (franchised and company-owned units included) as well as international sales, improved supply-chain and unit expansions pushed up Domino's’ top line during the quarter.

Inside the Headline Numbers

During the third quarter, Domino's Pizza’s overall domestic comps were up 5.4% with company-owned units and franchises rising 4.6% and 5.5%, respectively. Domestic comps in the quarter were significantly higher than the year-ago level of 3.3%.

In the overseas markets, comps remained consistent at 5.0%.

Excluding the effect of foreign currency translation, global retail sales (total sales of franchise and company-owned units included) were up 10.2% year over year. However, including the foreign currency translation impact, sales were up 7.4%. Increased order count and higher comps drove the global retail sales during the quarter.

The company’s operating margin expanded 40 basis points (bps) to 29.9% in the reported quarter, gaining from the rise in volumes offsetting higher food costs. Margin in the quarter also benefited from the change in the revenue mix.

In the third quarter, the cheese cost remained flat year over year. With the rise in the cost of meat and boxes, the cost of overall commodity basket increased 1.8%. Higher cheese price adversely impacted the company’s supply-chain margin.

For 2013, commodity cost is expected to be up 2% to 3% year over year. However, the commodity cost in 2014 is expected to be flat with or lower from 2013 levels.

Store Count

During the third quarter, Domino’s Pizza unveiled 12 restaurants while closing five stores, thus bringing the domestic store count to a total of 4,939. The company’s international store count came in at 5,627 at quarter-end with the opening of 124 units and shutting down of five stores. In 2013, the store growth is expected to be moderate.

Balance Sheet

At the end of the quarter, cash and cash equivalents were $32.1 million as compared with $40.8 million in the second quarter. Long-term debt, less current portion at the end of the third quarter, remained flat at $1.5 billion.

Share Repurchase

During the third quarter, the restaurateur repurchased and retired 351,085 shares worth $20.8 million.

Our Take

Though Domino’s Pizza missed the third-quarter earnings by a penny, revenues beat the Zacks Consensus Estimate and also grew year over year.

Store level economics of Domino’s Pizza is relatively strong. Its international operations promise significant growth opportunities. Domino’s Pizza has been posting impressive results for the past few quarters on the back of higher traffic and unit growth. This Zacks Rank #2 (Buy) company’s focus on menu innovation, advertising activities and international expansion promise immense growth prospect.

Some other players in the restaurant industry which look attractive at the current level include AFC Enterprises Inc. , Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report) and Chipotle Mexican Grill, Inc. (CMG - Analyst Report). All these companies carry a Zacks Rank #2.

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