2Q sales slide at Domino's Pizza, but profits rise

2Q sales slide at Domino's Pizza, but profits rise
Tags: Domino's Pizza, Public Companies
July 19, 2006

LOUISVILLE, Ky. — A 4.9 percent slip in second quarter domestic comparable-store sales didn't hurt profits at Domino's Pizza during the period ended June 18, 2006.

The same-store sales slide was made up of a 3.2 percent decline at U.S. company-owned stores and 5.2 percent drop at franchised stores. According to a regulatory filing, domestic comps rose 6.9 percent in the same period last year.

International second-quarter comps rose 5.7 percent compared to an increase of 7.8 percent last year. The increase marks the fiftieth-consecutive quarter Domino's has enjoyed international comps growth.

Overall revenue for the period declined 5.5 percent, a decline that Domino's attributed to lower domestic distribution revenues tied to lower food prices and volumes at domestic franchise stores.

Despite Domino's struggles in the quarter, profit rose 6 percent. The bottom line got a boost from lower food prices enjoyed at corporate units and the sale of corporate units in the Netherlands and France to an Australia-based Domino's franchisee. (Read also Domino's Pizza Australia completes European purchase.)

At the end of the period, Domino's had 8,124 units worldwide.

"Our sales comparisons in the first half of 2006 were a significant challenge," said Domino's chairman and chief executive officer David Brandon. "We were lapping extraordinary prior-year sales performance while operating in a much weaker consumer-spending environment. We are not happy with our sales performance during the first half of this year and we are working hard to address this situation."

Brandon added that Domino's ability to produce a profit during tough times shows the resilience of the publicly traded brand.

Buckingham Research analyst Mark Kalinowski remains bullish on the No. 2 pizza chain's 2006 prospects. In a July 20 report he predicted the company's decision to boost domestic national TV advertising by 25 percent should rev up sales headed into the second half of the year. He also believes the company could benefit from share repurchases.

"(G)ross margins could be helped by meaningfully lower year-over-year per-pound cheese costs," Kalinowski added. "Furthermore, we believe the company continues to enjoy favorable relations with its franchisees."