By Annie Gasparro
NEW YORK--Domino's Pizza Inc.'s (DPZ) third-quarter profit rose,
as the pizza chain's sales momentum at established restaurants,
especially those abroad, surpassed expectations.
Domino's budding international business has been a key driver
for growth recently, after a new core-pizza recipe and other menu
additions in the U.S. have helped spur sales since early 2010. The
company's executives say they are now taking lessons learned from
the U.S. to markets elsewhere.
In the third quarter, which ended Sept. 9, Domino's sales at
restaurants that were open at least a year rose 5% internationally
and 3.3% in the U.S.
Domino's reported a quarterly profit of $26 million, or 44 cents
a share, up from a year-earlier profit of $22.1 million, or 36
cents a share. A lower tax rate benefited earnings by one cent per
share in the recent quarter.
Revenue rose 0.5% to $378.1 million, as stronger pizza sales
were offset by the sale of company-owned stores to franchisees.
Wall Street analysts were looking for a per-share profit of 41
cents on revenue of $375 million, according to a survey conducted
by Thomson Reuters.
Domino's has been trying to boost restaurant margins this year,
hoping that improving profitability will help it expand in the U.S.
by motivating franchisees to invest in more locations. The company
added "parmesan bread bites" to the menu, improved labor efficiency
and has seen more-manageable food costs, all of which have helped
margins.
In the recent quarter, Domino's operating margin continued to
improve, widening to 29.5% from 27.5% a year ago.
However, Chief Executive Patrick Doyle said in July the company
was shifting to promote its sandwiches, after advertising of the
parmesan bread bites led to a decline in the number of customer
orders it received.
While people were adding the new side item to their pizza
orders, the bread bites weren't driving new customers to try
Domino's, he said.
Mr. Doyle said it will take time for the company to return to
significant growth in the U.S. In the latest quarter, Domino's
opened 10 stores but closed 15.
Its rival Pizza Hut--owned by Yum Brands Inc. (YUM)--recently
returned to domestic store count growth by developing a smaller
model that is designed for delivery and carry-out, rather than
full-service dining, and is thus cheaper to build and operate.
With the U.S. fast-food market becoming increasingly
competitive, many U.S. restaurants are looking to emerging
economies for long-term expansion.
Domino's fastest-growing market is India, where it has more than
400 locations. The company added 120 stores abroad in the latest
quarter, marking 5,144 in international markets, compared to 4,896
in the U.S.
Through the Monday close, Domino's stock had risen 35% over the
past 12 months to $38.24.
The company will host a conference call discussing its latest
results at 10 a.m. EDT Tuesday.
Write to Annie Gasparro at annie.gasparro@dowjones.com
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