Article

Domino's international momentum continues

Low number of closures in the U.S. is the result of improved store economics.

July 24, 2012 by Alicia Kelso — Editor, QSRWeb.com

Domino's Pizza today reported results for its second quarter ended June 17, which included a global same-store sales increase of 5.7 percent compared to the same period last year. This marks the international division's 74th consecutive quarter of same-store sales growth.

Boosting Domino's international performance was a net store growth of 111 stores.

Domestically, the chain generated a same-store sales increase of 1.7 percent, as well as a net positive store growth of three stores.

The company's net income was up 11.3 percent for the quarter, primarily due to sales growth, store growth and higher company-owned store margins in the U.S.

Europe strong 'despite the noise'

CEO Patrick Doyle said the company's international sales performance was lifted by results from the UK, Domino's largest operation in Europe. Domino's Pizza UK's results from the first six months of 2012 included a 13.2 percent increase in profits to 21.5 million pounds ($33.6 million U.S.). The system experienced a 43.3 percent sales increase in online orders, including more than 1.2 million pounds coming from the Sunday of Wimbledon's finals.

"This just proves that sports, online ordering and pizza delivery is the perfect consumer combination," Doyle said.

Domino's has experienced international openings at a record pace within the past 12 months. During the second quarter, the chain exceeded 5,000 stores internationally.

"One of the great strengths of our international portfolio is that it's not greatly concentrated in any one area. We're diversified in every region of the world and that's why international has been so consistent," Doyle said.

Domino's is outpacing the rest of the pizza category, which is growing at about 5 percent outside of the U.S.

Fewer store closings domestically

In the U.S., same-store sales and store profits remain consistent, Doyle said, and the big story is the positive trend of fewer store closings. During the quarter, Domino's opened three net new stores, closing five and opening eight. This is compared to the closure of 28 in the prior-year quarter.

"Five closures is as low a number as I can remember. We believe this is a result of improved store economics. During the first half of 2012, franchisees reported their profitability was up by about $5,000 per store, or 18 percent," Doyle said.

The company will continue to focus on technology initiatives, as online and mobile demands continue to rise. Domino's iPhone and Android apps are both ranked in the top 10 in their respective online stores, and the company's app is now available for more than 80 percent of all smartphones in the U.S.

"For the first time, we surpassed $1 million in digital sales in the U.S.," Doyle said. "As a company, we remain focused on innovation for consumers and much more will come in the form of new technology and offering convenient and efficient ways to order."

Other highlights

Other topics covered in this morning's earnings call include:

• Order counts were down in the quarter. This was the one disappointment, Doyle said, and the company will address how to remedy the trend. "This is about what we do, as opposed to anything we're experiencing from competition," he said. "Getting transaction counts back up is important to the long-term health of the business and you'll see some changes to get it back that way."
• In reference to the financial effects of the Affordable Care Act, Doyle said it's too early to predict because "the devil's in the details and the details aren't resolved yet. You'll see change between the way it's written today and when it's enacted."
• Sandwiches are being marketed heavily right now, along with the early week carry out specials. Doyle said sandwiches continue to do very well, even without advertising support, and it was "just time to come back and hit them again."
• The gluten-free crust, which rolled out in May, is a small part of Domino's overall business. Doyle said the company is getting exactly what was expected from the introduction.
• Finally, in China, Domino's is making progress with a new partner and team on the ground. A few years ago, the chain tested larger stores but eventually realized consumers wanted more focus on delivery. "We re-set our model over there and now it's where it needs to be. We like our partners, we like our progress and this is an area that will get a lot of focus over the next few years," Doyle said.

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