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Domino's Pizza Inc. (DPZ - Analyst Report) posted solid fourth-quarter 2013 results. Domino's fourth-quarter 2013 adjusted earnings of 78 cents per share beat the Zacks Consensus Estimate of 76 cents by 2.6% and the year-ago quarter’s earnings of 64 cents by 21.9%. The upside in the earnings was driven by higher top line, margin expansion and lower share count.

Quarterly revenues increased 5% year over year to $566.5 million and also surpassed the Zacks Consensus Estimate of $563 million by 0.6%. Increased domestic store revenues (franchised and company-owned units included), strong international sales and higher supply-chain revenues aided Domino's top line during the quarter.

Inside the Headline Numbers

During the fourth quarter, Domino's Pizza’s domestic stores (company-owned and franchise stores included) comps were up 3.7% with company-owned and franchise comps rising 1.2% and 4%, respectively. However, the company’s domestic comps were lower than the third quarter comps of 5.4% and the year-ago level of 4.7%.

Comps took a higher jump in the international stores recording 7% growth (foreign currency translation excluded). The international comps were also better than the third-quarter comps of 5% and the year-ago level of 5.2%.

Excluding the impact of foreign currency translation, global retail sales (total sales of franchise and company-owned units included) were up 9.9% year over year. However, including the foreign currency translation impact, sales were up 7.2%. Increased order count and higher comps drove the global retail sales during the quarter.

The company’s operating margin expanded 70 basis points (bps) to 30.5% in the reported quarter, gaining from the change in the revenue mix and higher franchise royalties.

In the fourth quarter, cheese cost declined 5.2% year over year to $1.83 per pound. However, the cost of the company’s overall commodity basket increased 1.6%. Higher commodity price adversely impacted the company’s supply-chain margin.

Full-Year 2013 Highlights

Adjusted earnings per share in full-year 2013 were up 21.3% year over year to $2.45 per share, beating the Zacks Consensus Estimate of $2.43 by 0.8%. Revenues were $1.80 billion, up 7.4% year over year, but in line with the Zacks Consensus Estimate.

Store Count

During the fourth quarter, Domino’s Pizza unveiled 62 restaurants while closing 15 stores, thus bringing the domestic store count to 4,986 at the end of the quarter. The company’s international store count came in at 5,900 at quarter-end with the opening of 286 units and shutting down of 13 stores.

Balance Sheet

At quarter-end, cash and cash equivalents were $14.4 million as compared with $32.1 million at the end of the third quarter. Long-term debt, less current portion at the end of the third quarter, remained flat at $1.5 billion.

Share Repurchase & Dividend

During the third quarter, the restaurateur repurchased 297,203 shares worth $20.2 million. Currently, shares worth nearly $200 million are remaining under the existing share repurchase program.

During fourth quarter, Domino’s hiked its quarterly dividend by 25% from 20 cents to 25 cents per share. The new dividend will be paid on Mar 28, 2014 to shareholders of record on Mar 14.

Outlook

In the long term, management continues to expect domestic and international same-store sales growth of 2–4% and 3–6%, respectively. The company expects net unit growth within the long term target range of 4–6% .

For 2014, commodity cost is expected to be flat to down 2% from 2013 levels.

Our Take

Domino’s Pizza has been posting impressive results for the past few quarters on the back of higher traffic and unit growth.

We believe the company has compelling growth drivers like digital ordering and expansion into the Pan Pizza category, which will sustain the revenue momentum in future quarters. Store level economics of Domino’s Pizza is relatively strong. This Zacks Rank #2 (Buy) company’s international operations also promise immense growth prospect.

Other Stocks to Consider

Some other stocks that are currently performing well in the restaurant industry include Fiesta Restaurant Group, Inc. (FRGI - Snapshot Report), Brinker International, Inc. (EAT - Analyst Report) and Buffalo Wild Wings Inc. (BWLD - Analyst Report). While Fiesta Restaurant sports a Zacks Rank #1 (Strong Buy), Brinker and Buffalo Wild Wings have a Zacks Rank #2 (Buy).

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