Excellent 4Q for Domino's Pizza

Domino's Pizza Inc. ( DPZ - Analyst Report ) reported fourth-quarter 2012 adjusted earnings of 64 cents per share, well ahead of the Zacks Consensus Estimate of 59 cents and the year-ago adjusted earnings of 52 cents. In full year 2012, adjusted earnings were $2.02 per share versus $1.69 in the prior year.

The strong quarterly results were attributable to same-store sales (comps) growth in both international and domestic markets along with unit growth, share repurchase activity and margin expansion.

Total revenues nudged up 7.6% year over year in the quarter to $539.7 million and surpassed the Zacks Consensus Estimate of $530 million. The increase in revenues was aided by improved volumes, enhanced comps at domestic and international markets and higher international unit growth. In 2012, the company reported revenues of $1.7 billion, up 1.6% year over year.

Inside the Headline Numbers

During the reported quarter, the company’s overall domestic comparable sales grew 4.7% with company-owned units and franchises rising 2.5% and 4.9%, respectively. However, comps took a higher jump in the overseas markets recording growth of 5.2%. Global retail sales were up 9.7% and 9.4% (excluding the effect of foreign currency translation).

The company’s operating margin expanded 90 basis points (bps) to 29.8% in the reported quarter, driven by the rise in company-owned store’ operating margins and flat commodity basket. Margin also gained from change in revenue mix.

Store Count

During the reported quarter, Domino’s opened and closed a respective of 49 and 18 franchised stores, bringing the total domestic store count to 4,928.

Internationally, the company opened 223 and shut down 40 stores to bring the tally to a total of 5,327 international units.

Liquidity

At the end of the reported quarter, Domino’s Pizza had cash and cash equivalents of $54.8 million versus $34.6 million in the third quarter of 2012. Long-term debt (less current portion) in the quarter was $1,536.4 million as compared with $1,542.5 million in the prior quarter.

Share Repurchase & Dividend

The company bought back as well as retired 1,136,648 and 2,472,863 shares worth $45.5 million and $88.2 million during the fourth quarter and full year 2012, respectively.

The company is scheduled to pay its dividend of 20 cents per share on Mar 29, of record at the close of business on Mar 15, 2013.

Outlook

In the long term, management continues to expect domestic and international same-store sales growth of 1% to 3% and 3% to 5%, respectively.

Our Take

Domino’s Pizza’s store level economics are strong and are driving growth. Additionally, to drive traffic, management continues to focus on menu innovation, promotional activities and improved execution in its corporate and franchise stores. However, unfavorable effect on currency translation remains a huge cause of concern.

Domino’s Pizza currently retains a Zacks Rank #2 (Buy). Another restaurateur Red Robin Gourmet Burgers Inc.’s ( RRGB - Analyst Report ) adjusted earnings in the fourth quarter of 2012 were way ahead of the Zacks Consensus Estimate as well as the year-ago quarter’s earnings. Red Robin Gourmet currently carries a Zacks Rank #1 (Strong Buy).

Other restaurant companies like Krispy Kreme Doughnuts, Inc. ( KKD - Snapshot Report ) and Burger King Worldwide, Inc ( BKW - Snapshot Report ) both with a Zacks Rank #2 (Buy) are expected to perform well, going ahead.