Domino's Pizza Inc. ( DPZ - Analyst Report ) reported first quarter 2012 adjusted earnings of 47 cents per share, lagging the Zacks Consensus Estimate of 49 cents but surpassing the year-ago adjusted earnings of 42 cents. On a reported basis, earnings per share (EPS) were 35 cents compared with 43 cents recorded in the year-ago quarter.

While the quarterly earnings per share benefited from lower diluted share count mainly due to share buyback activity in 2011, currency translation and higher interest expense had a negative impact on EPS.

Inside the Headline Numbers

Total revenue dropped 1.2% year over year in the reported quarter to $384.6 million hurt by lower company-owned store and domestic supply chain revenues partly due to lower order counts at the store level.

During the quarter, the company’s overall domestic same-store sales moved up 2.0% with company-owned units and franchises rising 1.6% and 2.1%, respectively. Same-store sales grew 4.7% in the international market. Global retail sales were up 6.1% or 7.2% excluding a foreign currency impact.

The company’s operating margin expanded 110 basis points (bps) to 29.8% in the reported quarter. The average cheese block price in the first quarter decreased to $1.52 per pound from year-earlier quarter’s $1.69. The check in one of the main food ingredients’ price helped contain the overall increase in commodity basket during the quarter.

Store Count

During the first quarter, Domino’s opened 13 franchise units and closed 21 franchised stores and one company-owned store, bringing the total domestic store count to 4,898.

Internationally, the company opened 86 stores and closed 9. The company currently operates 4,912 international stores.

Financials

At quarter-end, Domino’s Pizza had cash and cash equivalents of $214.7 million with long-term debt, less current portion of $1,554.7 million.

Our Take

Store level economics of Domino’s Pizza are strong and keep on fueling growth. Moreover, the company’s growth model does not involve substantial investments as it concentrates on the master franchise structure. Domino’s Pizza remains optimistic about its international operations both in terms of sales and store growth.

On the food cost front, Domino’s will likely witness some moderation in the quarters ahead with market basket for 2012 to increase 1% to 2% year over year. However, the company will likely experience a higher normalized tax rate going forward.

Domino’s which competes with the likes of Texas Roadhouse Inc. ( TXRH - Snapshot Report ) holds a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.