Domino’s Pizza Stock Soars on Q2 Earnings and Buyback Program

Ubiquitous pizza chain Domino’s Pizza (NYSE: DPZ) reported second quarter results on Thursday, delivering a strong earnings beat for investors as new menu items resonated with consumers. The company also initiated a new share repurchase program to return cash to shareholders. 

As of 11:30 a.m. on Thursday, Domino’s stock was up 11%.

Delivering a strong quarter

Total revenue in the second quarter came in at $1.03 billion, topping the consensus estimate of $972 million in sales.

Same store sales in the U.S. grew by 3.5%, while international comps jumped by an impressive 13.9% (when excluding the impact of foreign currency fluctuations).

Like many national restaurant chains, Domino’s saw a surge in demand during the pandemic as people ordered food from the safety of their homes.

Domino’s had already spent many years investing heavily in its technology infrastructure, which ended up positioning it well for the shift towards online ordering that was accelerated by the crisis. Additionally, Domino’s has been introducing new offerings such as taco or cheeseburger specialty pizzas.

Domino’s has also been expanding its retail footprint, opening 238 new stores worldwide during the quarter. That included 35 new locations in the United States and another 203 in international markets.

Due to unprecedented conditions in 2020, the company believes that it is more useful to compare its performance to pre-pandemic levels.

“Given our current operating environment, we are watching our two-year sales trends anchored to pre-COVID fiscal 2019 results,” CEO Ritch Allison commented in a release. “I am pleased that in the second quarter our cumulative two-year same stores sales were up 19.6% domestically and 15.2% internationally, signifying meaningful and sustained growth.”

That all resulted in adjusted earnings per share of $3.12, easily beating the $2.88 per share in adjusted profits for which Wall Street analysts were modeling. 

Strengthening the capital structure

During the quarter, Domino’s had kicked off a $1.85 billion recapitalization transaction to effectively refinance some debt while adding some cash to the balance sheet.

The company used some of the money to enter into a $1 billion accelerated share repurchase (ASR) program, where an investment bank assists in buying back stock in the open market over time. Domino’s completed the ASR and also issued a special dividend of $13.50 per share.

With that ASR in the rearview mirror, the company’s board of directors has now authorized a new $1 billion share repurchase program, as the previous $1 billion buyback authorization has now been fully utilized. The company notes that the changes to its capital structure can impact comparability of historical results.

Domino’s finished the fiscal quarter with $292.1 million in unrestricted cash and $5.1 billion total debt. The company’s cash flow—Domino’s generated $262.3 million in free cash flow during the quarter—is sufficient to service that debt while the recapitalization will also help reduce interest expense.

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