Domino’s Pizza, Inc. Fiscal 2022 Form 10-K Summary
Business context and reporting period
Domino’s is a global pizza delivery and carryout franchisor with more than 19,800 stores in over 90 markets as of January 1, 2023. Approximately 99% of stores were operated by independent franchisees. The Company reports three segments: U.S. stores, international franchise and supply chain.
This filing covers the 52-week fiscal year ended January 1, 2023, compared primarily with the 52-week fiscal year ended January 2, 2022. The filing is an annual Form 10-K; it does not provide a separate fourth-quarter financial summary in the supplied text.
Financial performance and key metrics
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Total revenues | $4.537 billion | $4.357 billion | +4.1% |
| Gross margin | $1.649 billion; 36.3% | $1.688 billion; 38.7% | Margin down 2.4 points |
| Income from operations | $767.9 million; 16.9% | $780.4 million; 17.9% | -1.6% |
| Net income | $452.3 million; 10.0% | $510.5 million; 11.7% | -11.4% |
| Diluted EPS | $12.53 | $13.54 | -7.5% |
| Net cash from operating activities | $475.3 million | $654.2 million | -$178.9 million |
| Capital expenditures | $87.2 million | $94.2 million | Decrease |
- Supply chain revenue was $2.755 billion, or approximately 61% of consolidated revenue, and increased 7.6%, primarily due to a 13.2% increase in market-basket pricing to stores.
- U.S. stores revenue was $1.487 billion, or approximately 33% of consolidated revenue. International franchise revenue was $295.0 million, or approximately 6%.
- U.S. same-store sales declined 0.8%; international same-store sales increased 0.1% excluding foreign currency effects. Global retail sales increased 3.9% excluding foreign currency effects.
- The Company opened 1,276 stores and closed 244, for 1,032 net new stores. The year-end store count was 19,880, including 6,686 U.S. stores and 13,194 international stores.
- Unrestricted cash and cash equivalents were $60.4 million. Total restricted cash and cash equivalents were $191.3 million, including amounts reserved for the asset-backed securitization structure. Working capital was $58.0 million excluding restricted balances.
- Total debt was $5.022 billion, including $54.8 million classified as current. Net interest expense was $195.1 million, compared with $191.5 million in 2021.
- Cash used in financing activities was $515.9 million, including $293.7 million of share repurchases, $157.5 million of dividends and $55.7 million of debt and finance-lease repayments.
- The Company declared $4.40 per share of dividends during 2022 and declared a further quarterly dividend of $1.21 per share on February 21, 2023.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by higher supply chain pricing, net store growth, technology fees and the refranchising of 114 U.S. Company-owned stores.
- Profitability weakened despite revenue growth. Higher food, labor, delivery, fuel and occupancy costs reduced consolidated gross margin from 38.7% to 36.3%.
- U.S. Company-owned store gross margin declined to 15.2% from 21.9%, while supply chain gross margin declined to 8.9% from 10.4%.
- Net income declined partly because 2021 included $36.8 million of unrealized gains on the DPC Dash investment; no corresponding gain was recorded in 2022.
- The effective tax rate increased to 21.0% from 18.4%, primarily reflecting lower excess tax benefits from equity compensation and lower foreign tax credits.
- Operating cash flow declined due to lower net income, timing of payments on accrued liabilities, higher income-tax payments and a negative change in restricted advertising-fund assets and liabilities.
- The Company purchased 23 U.S. franchised stores for $6.8 million and refranchised 114 Company-owned stores for $41.1 million, recording a $21.2 million pretax gain.
- Share count declined to approximately 35.4 million shares outstanding at year-end from approximately 36.1 million, reflecting ongoing repurchases.
Guidance, outlook, commentary and risks
Management expects to continue generating positive operating cash flow and to use cash flow, unrestricted cash and available variable-funding capacity to fund working capital, capital investment, dividends, share repurchases and debt service. The filing does not provide specific fiscal 2023 revenue, earnings or same-store-sales guidance.
- Management plans continued U.S. and international store expansion, fortressing, technology investment and supply-chain productivity initiatives.
- Approximately two-thirds of global retail sales came through digital channels in 2022; more than 80% of U.S. retail sales were digital.
- Inflation, food and cheese costs, wage increases, fuel and utility costs, labor shortages and competitive discounting remain significant pressures.
- Debt maturities include approximately $1.18 billion in 2025 and $1.31 billion in 2027. Debt agreements contain financial covenants, including a minimum 1.75x debt-service-coverage ratio.
- Variable-rate exposure includes the 2021 and 2022 variable funding notes. The 2021 facility references LIBOR and is expected to transition to Term SOFR; rising interest rates could increase interest expense.
- The Company relies on certain suppliers, including a single U.S. pizza-cheese supplier and limited sources for some meat products. The cheese agreement expires in September 2024, and the meat-supplier extension was set to expire at the end of February 2023.
- Other material risks include franchisee performance and concentration, labor and joint-employer regulation, cybersecurity and privacy incidents, food safety, foreign exchange, economic weakness, litigation, geopolitical events, supply-chain disruptions and the DPC Dash investment in China.
- Management stated that existing legal proceedings are ordinary-course matters and are not expected to have a significant adverse effect, although litigation outcomes remain uncertain.
Most important facts for investors to verify
- Whether same-store sales recover from the 2022 declines and whether labor availability improves without further wage or service-cost inflation.
- Whether supply-chain and Company-owned-store margins stabilize as commodity, delivery, labor and occupancy costs change.
- Liquidity relative to the substantial debt balance and the scheduled 2025 and 2027 maturities, including compliance with securitized-debt covenants.
- The effect of LIBOR-to-Term-SOFR transition and higher interest rates on future interest expense and cash flow.
- Progress on store openings, closures, fortressing and the financial impact of future refranchising or store acquisitions.
- Performance and valuation support for the $125.8 million DPC Dash investment.
- Supplier-contract renewals, especially for meat and cheese, and the potential effect of disruptions or less favorable pricing.
- Future dividend and repurchase capacity given leverage, cash balances, capital expenditures and debt-service requirements.