Domino's Pizza, Inc. (NYSE:DPZ) Q3 2019 Earnings Conference Call - Final Transcript

Oct 08, 2019 • 10:00 am ET


Domino's Pizza, Inc. (NYSE:DPZ) Q3 2019 Earnings Conference Call - Final Transcript


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Jeffrey D. Lawrence

continues to grow at an impressive rate.

On the international front, our comp for the quarter was also driven primarily by ticket growth. On the unit count front, we opened 40 net US stores in the third quarter, consisting of 43 store openings and three closures. Our international division added 174 net new stores during Q3, comprised of 203 store openings and 29 closures. We have opened 1,174 units over the past 12 months, which we believe demonstrates the broad and enduring strength of our four-wall economics, combined with the efforts of the best franchise partners in the restaurant industry.

Turning to revenues, total revenues for the third quarter were up 4.4% from the prior year, resulting primarily from the following. First, higher US franchise retail sales, resulting from both store count and same-store sales growth, drove increased supply chain in US franchise revenues. Higher international retail sales resulted in increased international royalty revenues, but were partially offset by the negative impact of changes in foreign currency exchange rates.

FX negatively impacted international royalty revenues by $1.5 million versus the prior year quarter due to the dollar strengthening against certain currencies. These increases were partially offset by lower Company-owned store revenues resulting from the previously disclosed sale of the 59 corporate stores in our New York market to existing franchisees during the second quarter.

Moving on to operating margin. As a percentage of revenues, consolidated operating margin for the quarter increased to 38.5% from 37.6% in the prior year quarter, and was positively impacted by the New York sale and higher revenues from our global franchise business. Supply chain operating margin was up 0.1 percentage points year-over-year, while our Company-owned store operating margin was up 2.8 percentage points year-over-year, driven primarily by the New York sale.

G&A costs increased $3.4 million as compared to the prior year quarter. G&A was benefited by the New York sale. As a reminder, we recorded a pre-tax gain of approximately $6 million on the sale of 12 Company-owned stores in the prior year, which was recorded in G&A.

Our reported effective tax rate was 21.7% for the quarter, up 6.4 percentage points from the prior year quarter due to lower tax benefits on equity-based compensation. The reported effective tax rate included a 1.1 percentage point positive impact from tax benefits on equity-based compensation in 2019. We expect to see continued volatility in our effective tax rate related to equity-based compensation for the foreseeable future. When you add it all up, our third quarter net income was up $2.3 million, or 2.7% over the prior year quarter.

Our third quarter diluted EPS was $2.05 versus $1.95 in the prior year, which was a 5.1% increase. Here is how that $0.10 increase breaks down. Lower diluted share count resulting primarily from share purchases over the past 12 months benefited us by $0.05. Foreign currency negatively impacted royalty revenues by $0.03. Our higher effective tax rate negatively impacted us by $0.14. And most importantly, our improved operating