Domino's Pizza 10-Q 2024-06-16

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 16, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32242

Domino’s Pizza, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		38-2511577
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
30 Frank Lloyd Wright Drive Ann Arbor**,** Michigan		48105
(Address of Principal Executive Offices)		(Zip Code)

(734) 930-3030

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Domino’s Pizza, Inc. Common Stock, $0.01 par value	DPZ	New York Stock Exchange

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 11, 2024, Domino’s Pizza, Inc. had 34,973,166 shares of common stock, par value $0.01 per share, outstanding.

Domino’s Pizza, Inc.

TABLE OF CONTENTS

				Page No.
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements		3
		Condensed Consolidated Balance Sheets (Unaudited) – As of June 16, 2024 and December 31, 2023		3
		Condensed Consolidated Statements of Income (Unaudited) – Fiscal quarters and two fiscal quarters ended June 16, 2024 and June 18, 2023		4
		Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Fiscal quarters and two fiscal quarters ended June 16, 2024 and June 18, 2023		5
		Condensed Consolidated Statements of Cash Flows (Unaudited) – Two fiscal quarters ended June 16, 2024 and June 18, 2023		6
		Notes to Condensed Consolidated Financial Statements (Unaudited)		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.		Controls and Procedures		26
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings		27
Item 1A.		Risk Factors		27
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3.		Defaults Upon Senior Securities		27
Item 4.		Mine Safety Disclosures		27
Item 5.		Other Information		28
Item 6.		Exhibits		29
SIGNATURES				30

PA****RT I. FINANCIAL INFORMATION

Domino’s Pizza, Inc. and Subsidiaries

Conden****sed Consolidated Balance Sheets

(Unaudited)

(In thousands)		June 16, 2024				December 31, 2023 (1)
Assets
Current assets:
Cash and cash equivalents		$	283,699			$	114,098
Restricted cash and cash equivalents			197,019				200,870
Accounts receivable, net			285,961				282,809
Inventories			69,279				82,964
Prepaid expenses and other			50,291				30,215
Advertising fund assets, restricted			99,849				106,335
Total current assets			986,098				817,291
Property, plant and equipment:
Land and buildings			108,653				108,791
Leasehold and other improvements			183,647				176,817
Equipment			381,036				364,620
Construction in progress			14,188				24,505
			687,524				674,733
Accumulated depreciation and amortization			(391,121	)			(370,368	)
Property, plant and equipment, net			296,403				304,365
Other assets:
Operating lease right-of-use assets			210,919				207,323
Goodwill			11,578				11,688
Capitalized software, net			147,677				134,105
Investment in DPC Dash			136,252				143,553
Deferred income tax assets, net			19,940				13,680
Other assets			47,139				42,894
Total other assets			573,505				553,243
Total assets		$	1,856,006			$	1,674,899
Liabilities and stockholders’ deficit
Current liabilities:
Current portion of long-term debt		$	4,938			$	56,366
Accounts payable			110,556				106,267
Operating lease liabilities			39,955				39,330
Insurance reserves			27,574				28,135
Dividends payable			54,478				1,514
Advertising fund liabilities			97,845				104,246
Other accrued liabilities			172,482				211,492
Total current liabilities			507,828				547,350
Long-term liabilities:
Long-term debt, less current portion			4,973,676				4,934,062
Operating lease liabilities			183,429				179,548
Insurance reserves			35,707				38,559
Other accrued liabilities			46,491				45,747
Total long-term liabilities			5,239,303				5,197,916
Stockholders’ deficit:
Common stock			350				347
Additional paid-in capital			30,008				2,801
Retained deficit			(3,916,008	)			(4,069,648	)
Accumulated other comprehensive loss			(5,475	)			(3,867	)
Total stockholders’ deficit			(3,891,125	)			(4,070,367	)
Total liabilities and stockholders’ deficit		$	1,856,006			$	1,674,899

(1) The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Domino’s Pizza, Inc. and Subsidiaries

Condense****d Consolidated Statements of Income

(Unaudited)

		Fiscal Quarter Ended								Two Fiscal Quarters Ended
		June 16,				June 18,				June 16,				June 18,
(In thousands, except per share data)		2024				2023				2024				2023
Revenues:
U.S. Company-owned stores		$	92,264			$	87,694			$	184,913			$	172,605
U.S. franchise royalties and fees			147,576				139,268				298,094				272,132
Supply chain			659,244				615,711				1,318,458				1,239,937
International franchise royalties and fees			73,696				70,495				145,662				140,166
U.S. franchise advertising			124,956				111,459				235,256				224,185
Total revenues			1,097,736				1,024,627				2,182,383				2,049,025
Cost of sales:
U.S. Company-owned stores			76,059				71,423				152,517				141,995
Supply chain			584,646				548,548				1,170,965				1,116,827
Total cost of sales			660,705				619,971				1,323,482				1,258,822
Gross margin			437,031				404,656				858,901				790,203
General and administrative			115,947				97,794				216,971				192,983
U.S. franchise advertising			124,956				111,459				235,256				224,185
Refranchising loss			25				—				158				149
Income from operations			196,103				195,403				406,516				372,886
Other income (expense)			11,398				(14,964	)			(7,301	)			(14,964	)
Interest income			4,219				2,537				7,958				4,928
Interest expense			(44,721	)			(44,932	)			(90,567	)			(91,479	)
Income before provision for income taxes			166,999				138,044				316,606				271,371
Provision for income taxes			25,021				28,664				48,804				57,221
Net income		$	141,978			$	109,380			$	267,802			$	214,150
Earnings per share:
Common stock - basic		$	4.07			$	3.11			$	7.68			$	6.07
Common stock - diluted		$	4.03			$	3.08			$	7.61			$	6.02

The accompanying notes are an integral part of these condensed consolidated financial statements.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolida****ted Statements of Comprehensive Income

(Unaudited)

		Fiscal Quarter Ended								Two Fiscal Quarters Ended
		June 16,				June 18,				June 16,				June 18,
(In thousands)		2024				2023				2024				2023
Net income		$	141,978			$	109,380			$	267,802			$	214,150
Currency translation adjustment			(483	)			1,378				(1,608	)			927
Comprehensive income		$	141,495			$	110,758			$	266,194			$	215,077

The accompanying notes are an integral part of these condensed consolidated financial statements.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

		Two Fiscal Quarters Ended
		June 16,				June 18,
(In thousands)		2024				2023
Cash flows from operating activities:
Net income		$	267,802			$	214,150
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			40,218				36,731
Refranchising loss			158				149
Loss on sale/disposal of assets			327				402
Amortization of debt issuance costs			2,475				2,578
Benefit for deferred income taxes			(6,246	)			(7,596	)
Non-cash equity-based compensation expense			22,024				17,065
Excess tax benefits from equity-based compensation			(20,238	)			(133	)
Provision for losses on accounts and notes receivable			111				1,166
Unrealized loss on investments			7,301				14,964
Changes in operating assets and liabilities			(31,660	)			(33,794	)
Changes in advertising fund assets and liabilities, restricted			(8,122	)			(3,391	)
Net cash provided by operating activities			274,150				242,291
Cash flows from investing activities:
Capital expenditures			(43,683	)			(37,980	)
Other			(1,277	)			(1,211	)
Net cash used in investing activities			(44,960	)			(39,191	)
Cash flows from financing activities:
Repayments of long-term debt and finance lease obligations			(14,764	)			(27,186	)
Proceeds from exercise of stock options			31,467				1,051
Purchases of common stock			(25,000	)			(120,847	)
Tax payments for restricted stock upon vesting			(9,260	)			(3,068	)
Payments of common stock dividends and equivalents			(53,100	)			(42,930	)
Net cash used in financing activities			(70,657	)			(192,980	)
Effect of exchange rate changes on cash			(990	)			494
Change in cash and cash equivalents, restricted cash and cash equivalents			157,543				10,614
Cash and cash equivalents, beginning of period			114,098				60,356
Restricted cash and cash equivalents, beginning of period			200,870				191,289
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period			88,165				143,559
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period			403,133				395,204
Cash and cash equivalents, end of period			283,699				77,020
Restricted cash and cash equivalents, end of period			197,019				189,694
Cash and cash equivalents included in advertising fund assets, restricted, end of period			79,958				139,104
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period		$	560,676			$	405,818

The accompanying notes are an integral part of these condensed consolidated financial statements.

Domino’s Pizza, Inc. and Subsidiaries

Notes t****o Condensed Consolidated Financial Statements

(Unaudited; tabular amounts in thousands, except share and per share amounts)

June 16, 2024

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended December 31, 2023 included in the Company’s 2023 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 26, 2024 (the “2023 Form 10-K”).

In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter and two fiscal quarters ended June 16, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2024.

2. Segment Information

The tables below summarize the financial information concerning the Company’s reportable segments for the second quarter and two fiscal quarters of 2024 and the second quarter and two fiscal quarters of 2023. Intersegment revenues are comprised of sales of food, equipment and supplies from the supply chain segment to the Company-owned stores in the U.S. stores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income below primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.

		Fiscal Quarters Ended June 16, 2024 and June 18, 2023
		U.S.				Supply				International				Intersegment
		Stores				Chain				Franchise				Revenues				Other				Total
Revenues
2024		$	364,796			$	686,464			$	73,696			$	(27,220	)		$	—			$	1,097,736
2023			338,421				641,481				70,495				(25,770	)			—				1,024,627
Segment Income
2024		$	129,482			$	64,986			$	59,097			N/A				$	(26,165	)		$	227,400
2023			123,592				60,026				58,865			N/A					(18,865	)			223,618

		Two Fiscal Quarters Ended June 16, 2024 and June 18, 2023
		U.S.				Supply				International				Intersegment
		Stores				Chain				Franchise				Revenues				Other				Total
Revenues
2024		$	718,263			$	1,373,390			$	145,662			$	(54,932	)		$	—			$	2,182,383
2023			668,922				1,291,605				140,166				(51,668	)			—				2,049,025
Segment Income
2024		$	265,590			$	129,563			$	118,429			N/A				$	(44,339	)		$	469,243
2023			236,275				108,541				117,004			N/A					(34,587	)			427,233

The following table reconciles total Segment Income to consolidated income before provision for income taxes.

		Fiscal Quarter Ended								Two Fiscal Quarters Ended
		June 16,				June 18,				June 16,				June 18,
		2024				2023				2024				2023
Total Segment Income		$	227,400			$	223,618			$	469,243			$	427,233
Depreciation and amortization			(20,349	)			(18,561	)			(40,218	)			(36,731	)
Refranchising loss			(25	)			—				(158	)			(149	)
Loss on sale/disposal of assets			(237	)			(127	)			(327	)			(402	)
Non-cash equity-based compensation expense			(10,686	)			(9,527	)			(22,024	)			(17,065	)
Income from operations			196,103				195,403				406,516				372,886
Other income (expense)			11,398				(14,964	)			(7,301	)			(14,964	)
Interest income			4,219				2,537				7,958				4,928
Interest expense			(44,721	)			(44,932	)			(90,567	)			(91,479	)
Income before provision for income taxes		$	166,999			$	138,044			$	316,606			$	271,371

3. Earnings Per Share

		Fiscal Quarter Ended								Two Fiscal Quarters Ended
		June 16,				June 18,				June 16,				June 18,
		2024				2023				2024				2023
Net income available to common stockholders - basic and diluted		$	141,978			$	109,380			$	267,802			$	214,150
Basic weighted average number of shares			34,904,786				35,199,067				34,852,548				35,295,346
Earnings per share – basic		$	4.07			$	3.11			$	7.68			$	6.07
Diluted weighted average number of shares			35,224,080				35,492,423				35,199,277				35,601,335
Earnings per share – diluted		$	4.03			$	3.08			$	7.61			$	6.02

The denominators used in calculating diluted earnings per share for common stock for the fiscal quarters and two fiscal quarters each ended June 16, 2024 and June 18, 2023 do not include the following because the effect of including these shares would be anti-dilutive or because the performance targets for these awards had not yet been met:

		Fiscal Quarter Ended								Two Fiscal Quarters Ended
		June 16,				June 18,				June 16,				June 18,
		2024				2023				2024				2023
Anti-dilutive shares underlying stock-based awards
Stock options			44,305				227,276				46,669				229,156
Restricted stock awards and units			—				35,064				—				36,378
Performance condition not met
Restricted stock awards and units			49,908				59,675				49,908				59,675

4. Stockholders’ Deficit

The following table summarizes the changes in stockholders’ deficit for the second quarter of 2024.

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Deficit				Loss
Balance at March 24, 2024			34,801,757			$	348			$	1,191			$	(4,004,877	)		$	(4,992	)
Net income			—				—				—				141,978				—
Dividends declared on common stock and equivalents ($1.51 per share)			—				—				—				(53,109	)			—
Issuance and cancellation of stock awards, net			17,616				—				—				—				—
Tax payments for restricted stock upon vesting			(5,175	)			—				(2,560	)			—				—
Exercise of stock options			142,425				2				20,691				—				—
Non-cash equity-based compensation expense			—				—				10,686				—				—
Currency translation adjustment			—				—				—				—				(483	)
Balance at June 16, 2024			34,956,623			$	350			$	30,008			$	(3,916,008	)		$	(5,475	)

The following table summarizes the changes in stockholders’ deficit for the two fiscal quarters of 2024.

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Deficit				Loss
Balance at December 31, 2023			34,726,182			$	347			$	2,801			$	(4,069,648	)		$	(3,867	)
Net income			—				—				—				267,802				—
Dividends declared on common stock and equivalents ($3.02 per share)			—				—				—				(106,063	)			—
Issuance and cancellation of stock awards, net			61,669				1				—				—				—
Tax payments for restricted stock upon vesting			(20,388	)			—				(9,260	)			—				—
Purchases of common stock			(56,372	)			(1	)			(17,021	)			(8,099	)			—
Exercise of stock options			245,532				3				31,464				—				—
Non-cash equity-based compensation expense			—				—				22,024				—				—
Currency translation adjustment			—				—				—				—				(1,608	)
Balance at June 16, 2024			34,956,623			$	350			$	30,008			$	(3,916,008	)		$	(5,475	)

Subsequent to the end of the second quarter of 2024, on July 16, 2024, the Company’s Board of Directors declared a $1.51 per share quarterly dividend on its outstanding common stock for shareholders of record as of September 13, 2024 to be paid on September 30, 2024.

The following table summarizes the changes in stockholders’ deficit for the second quarter of 2023.

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Deficit				Loss
Balance at March 26, 2023			35,330,133			$	353			$	1,474			$	(4,148,455	)		$	(5,145	)
Net income			—				—				—				109,380				—
Dividends declared on common stock and equivalents ($1.21 per share)			—				—				—				(42,645	)			—
Issuance and cancellation of stock awards, net			14,078				—				—				—				—
Tax payments for restricted stock upon vesting			(4,596	)			—				(1,515	)			—				—
Purchases of common stock			(292,030	)			(2	)			(6,824	)			(84,800	)			—
Exercise of stock options			10,000				—				708				—				—
Non-cash equity-based compensation expense			—				—				9,527				—				—
Currency translation adjustment			—				—				—				—				1,378
Balance at June 18, 2023			35,057,585			$	351			$	3,370			$	(4,166,520	)		$	(3,767	)

The following table summarizes the changes in stockholders’ deficit for the two fiscal quarters of 2023.

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Deficit				Loss
Balance at January 1, 2023			35,419,718			$	354			$	9,693			$	(4,194,418	)		$	(4,694	)
Net income			—				—				—				214,150				—
Dividends declared on common stock and equivalents ($2.42 per share)			—				—				—				(85,650	)			—
Issuance and cancellation of stock awards, net			28,573				—				—				—				—
Tax payments for restricted stock upon vesting			(9,669	)			—				(3,068	)			—				—
Purchases of common stock			(392,545	)			(3	)			(21,371	)			(100,602	)			—
Exercise of stock options			11,508				—				1,051				—				—
Non-cash equity-based compensation expense			—				—				17,065				—				—
Currency translation adjustment			—				—				—				—				927
Balance at June 18, 2023			35,057,585			$	351			$	3,370			$	(4,166,520	)		$	(3,767	)

5. Leverage Ratio

In accordance with the Company’s debt agreements, the payment of principal on the outstanding senior notes may be suspended if the Holdco Leverage Ratio is less than or equal to 5.0x total debt to adjusted EBITDA, as defined in the related agreements, and no catch-up provisions are applicable. As of the end of the first and second quarters of 2024, the Company had a Holdco Leverage Ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payments for its outstanding notes beginning in the second quarter of 2024. Accordingly, all principal amounts of the Company’s outstanding notes have been classified as long-term debt in the condensed consolidated balance sheet as of June 16, 2024.

6. Fair Value Measurements

Fair value measurements enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Fair Value of Cash Equivalents and Marketable Securities

The fair values of the Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets.

Fair Value of Investments

The Company holds a non-controlling interest in DPC Dash Ltd (“DPC Dash”), the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. The Company accounts for its investment in DPC Dash as a trading security and records it at fair value at the end of each reporting period, with gains and losses recorded in other income or expense in its condensed consolidated statements of income. As of June 16, 2024, the fair value of the Company’s investment in 18,101,019 DPC Dash ordinary shares is based on the active exchange quoted price for the equity security of HK$58.80 per share (HK: 1405).

The Company recorded a positive adjustment of $11.4 million in the second quarter of 2024 and a negative adjustment of $7.3 million in the two fiscal quarters of 2024 to the carrying amount of its investment in DPC Dash. These amounts were recorded in other income (expense) in the Company’s condensed consolidated statements of income. The Company recorded a negative adjustment to the carrying amount of its investment in DPC Dash of $15.0 million in the second quarter of 2023 and did not record any adjustments to the carrying amount of its investment in the first quarter of 2023.

The following tables summarize the carrying amounts and fair values of certain assets at June 16, 2024 and December 31, 2023:

		At June 16, 2024
						Fair Value Estimated Using
		Carrying				Level 1				Level 2				Level 3
		Amount				Inputs				Inputs				Inputs
Cash equivalents		$	231,511			$	231,511			$	—			$	—
Restricted cash equivalents			132,579				132,579				—				—
Investments in marketable securities			19,063				19,063				—				—
Advertising fund cash equivalents, restricted			56,881				56,881				—				—
Investment in DPC Dash			136,252				136,252				—				—

		At December 31, 2023
						Fair Value Estimated Using
		Carrying				Level 1				Level 2				Level 3
		Amount				Inputs				Inputs				Inputs
Cash equivalents		$	50,732			$	50,732			$	—			$	—
Restricted cash equivalents			133,063				133,063				—				—
Investments in marketable securities			16,720				16,720				—				—
Advertising fund cash equivalents, restricted			69,199				69,199				—				—
Investment in DPC Dash			143,553				143,553				—				—

Fair Value of Debt

The estimated fair values of the Company’s fixed rate notes are classified as Level 2 measurements, as the Company estimates the fair value amount by using available market information. The Company obtained quotes from two separate brokerage firms that are knowledgeable about the Company’s fixed rate notes and, at times, trade these notes. The Company also performed its own internal analysis based on the information gathered from public markets, including information on notes that are similar to those of the Company. However, considerable judgment is required to interpret market data to estimate fair value. Accordingly, the fair value estimates presented are not necessarily indicative of the amount that the Company or the noteholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values stated below.

Management estimated the approximate fair values of the Company’s 2015, 2017, 2018, 2019 and 2021 notes as follows:

		June 16, 2024								December 31, 2023
		Principal Amount				Fair Value				Principal Amount				Fair Value
2015 Ten-Year Notes		$	742,000			$	727,902			$	744,000			$	727,632
2017 Ten-Year Notes			940,000				899,580				942,500				895,375
2018 7.5-Year Notes			402,688				393,023				403,750				392,041
2018 9.25-Year Notes			379,000				365,735				380,000				365,180
2019 Ten-Year Notes			648,000				592,920				649,688				591,865
2021 7.5-Year Notes			826,625				735,696				828,750				730,958
2021 Ten-Year Notes			972,500				840,240				975,000				830,700

The Company did not have any outstanding borrowings under its variable funding notes at June 16, 2024 or December 31, 2023.

7. Revenue Disclosures

Contract Liabilities

Contract liabilities primarily consist of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of $5.3 million were included in current other accrued liabilities as of both June 16, 2024 and December 31, 2023. Deferred franchise fees and deferred development fees of $18.9 million and $19.9 million were included in long-term other accrued liabilities as of June 16, 2024 and December 31, 2023, respectively.

Changes in deferred franchise fees and deferred development fees for the two fiscal quarters of 2024 and 2023 were as follows:

		Two Fiscal Quarters Ended
		June 16,				June 18,
		2024				2023
Deferred franchise fees and deferred development fees, beginning of period		$	25,195			$	28,225
Revenue recognized during the period			(2,737	)			(2,716	)
New deferrals due to cash received and other			1,769				1,400
Deferred franchise fees and deferred development fees, end of period		$	24,227			$	26,909

Advertising Fund Assets

As of June 16, 2024, advertising fund assets, restricted of $99.8 million consisted of $80.0 million of cash and cash equivalents, $10.9 million of accounts receivable and $8.9 million of prepaid expenses. As of June 16, 2024, advertising fund cash and cash equivalents included $2.0 million of cash contributed from U.S. Company-owned stores that had not yet been expended.

As of December 31, 2023, advertising fund assets, restricted of $106.3 million consisted of $88.2 million of cash and cash equivalents, $14.0 million of accounts receivable and $4.1 million of prepaid expenses. As of December 31, 2023, advertising fund cash and cash equivalents included $2.1 million of cash contributed from U.S. Company-owned stores that had not yet been expended.

Change in Advertising Fund Contributions and Technology Fees

As previously announced, as of March 27, 2023, Domino's National Advertising Fund Inc., the Company’s consolidated not-for-profit advertising subsidiary, effectuated a temporary reduction of 0.25% to its standard 6.0% advertising contribution rate. This temporary reduction expired at the beginning of the second quarter of 2024 and the advertising contribution rate returned to its standard 6.0% as of March 25, 2024.

Additionally, as of March 25, 2024, the Company decreased the U.S. digital per-transaction technology fees that are recognized as the related U.S. franchise retail sales occur by $0.04 to $0.355.

8. Leases

The Company leases certain retail store and supply chain center locations, vehicles, equipment and its corporate headquarters with expiration dates through 2045. Rent expense totaled $21.0 million and $42.2 million in the second quarter and two fiscal quarters of 2024, respectively. Rent expense totaled $19.7 million and $39.0 million in the second quarter and two fiscal quarters of 2023, respectively. Rent expense includes operating lease cost, as well as expense for non-lease components including common area maintenance, real estate taxes and insurance for the Company’s real estate leases. Rent expense also includes the variable rate per mile driven and fixed maintenance charges for the Company’s supply chain center tractors and trailers and expense for short-term rentals. Rent expense for certain short-term supply chain center tractor and trailer rentals was $1.9 million and $3.9 million in the second quarter and two fiscal quarters of 2024, respectively. Rent expense for certain short-term supply chain center tractor and trailer rentals was $1.3 million and $2.7 million in the second quarter and two fiscal quarters of 2023, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in each of the second quarter and two fiscal quarters of 2024 and 2023.

The components of operating and finance lease cost for the second quarter and two fiscal quarters of 2024 and the second quarter and two fiscal quarters 2023 were as follows:

		Fiscal Quarter Ended								Two Fiscal Quarters Ended
		June 16,				June 18,				June 16,				June 18,
		2024				2023				2024				2023
Operating lease cost		$	11,462			$	10,867			$	22,715			$	21,675
Finance lease cost:
Amortization of right-of-use assets			1,322				1,313				2,646				2,512
Interest on lease liabilities			973				1,015				1,957				1,998
Total finance lease cost		$	2,295			$	2,328			$	4,603			$	4,510

Supplemental cash flow information related to leases for the two fiscal quarters of 2024 and the two fiscal quarters of 2023 was as follows:

		Two Fiscal Quarters Ended
		June 16,				June 18,
		2024				2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	21,736			$	20,092
Operating cash flows from finance leases			1,957				1,998
Financing cash flows from finance leases			1,853				1,436
Cash paid for amounts included in the measurement of financing obligation from sale leaseback:
Operating cash flows from sale leaseback			598				—
Financing cash flows from sale leaseback			36				—
Right-of-use assets obtained in exchange for lease obligations:
Operating leases			26,469				12,175
Finance leases			1,296				3,054

As of June 16, 2024, the Company had additional leases for certain supply chain real estate and certain supply chain vehicles that had not yet commenced with estimated future minimum rental commitments of $154.8 million. These leases are expected to commence in 2024 and 2025 with lease terms of up to 20 years. These undiscounted amounts will be included in the Company’s condensed consolidated balance sheet at the respective commencement dates.

The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees was $15.6 million and $18.5 million as of June 16, 2024 and December 31, 2023, respectively. The Company does not believe these arrangements have or are likely to have a material effect on its results of operations, financial condition, revenues, expenses or liquidity.

9. Supplemental Disclosures of Cash Flow Information

The Company had non-cash investing activities related to accruals for capital expenditures of $8.8 million at June 16, 2024 and $6.7 million at December 31, 2023. The Company also had $2.7 million and $2.6 million in non-cash financing activity related to accruals for excise taxes on share repurchases as of June 16, 2024 and December 31, 2023, respectively.

10. Company-owned Store Transactions

During each of the first and second quarters of 2024, the Company refranchised one U.S. Company-owned store for proceeds of less than $0.1 million each. The pre-tax refranchising losses associated with the sale of the related assets and liabilities, including goodwill, were approximately $0.1 million each and were recorded in refranchising loss in the Company’s condensed consolidated statements of income.

During the first quarter of 2023, the Company refranchised one U.S. Company-owned store for proceeds of less than $0.1 million. The pre-tax refranchising loss associated with the sale of the related assets and liabilities, including goodwill, was approximately $0.1 million and was recorded in refranchising loss in the Company’s condensed consolidated statements of income.

11. New Accounting Pronouncements

The Company has considered all new accounting standards issued by the Financial Accounting Standards Board (“FASB”). The Company has not yet adopted the following standards:

Accounting Standards Not Yet Adopted

Accounting Standards Update (“ASU”) 2020-04, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker and included within the reported measure of segment profit or loss. In addition, the ASU requires disclosure of other segment expenses by reportable segment and a description of their composition to permit the reconciliation between segment revenue, significant segment expenses and the reported segment measure of profit or loss. The ASU also requires disclosure of the name and title of the chief operating decision maker.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure on an annual basis, of a tabular reconciliation, including both amount and percentage of specific categories of the effective tax rate reconciliation, including state and local income taxes (net of Federal taxes), foreign taxes, effects of changes in tax laws and regulations, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable and nondeductible items and changes in unrecognized tax benefits. Additional disclosures are required for certain items exceeding five percent of income from continuing operations multiplied by the statutory income tax rate. The standard also requires disclosure of income taxes paid between Federal, state and foreign jurisdictions, including further disaggregation of those payments exceeding five percent of the total income taxes paid.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

(Unaudited; tabular amounts in millions, except percentages and store data)

The 2024 and 2023 second quarters referenced herein represent the twelve-week periods ended June 16, 2024 and June 18, 2023, respectively. The 2024 and 2023 two fiscal quarters referenced herein represent the twenty-four-week periods ended June 16, 2024 and June 18, 2023, respectively. In this section, we discuss the results of our operations for the second quarter and two fiscal quarters of 2024 as compared to the second quarter and two fiscal quarters of 2023.

Overview

Domino’s is the largest pizza company in the world, with more than 20,900 locations in over 90 markets around the world as of June 16, 2024, and operates two distinct service models within its stores with a significant business in both delivery and carryout. We are a highly recognized global brand, and we focus on value while serving neighborhoods locally through our large worldwide network of franchise owners and U.S. Company-owned stores through both the delivery and carryout service models. We have been selling quality, affordable food to our customers since 1960. We became “Domino’s Pizza” in 1965 and opened our first franchised store in 1967. Over more than 60 years, we have built Domino’s into one of the most widely-recognized consumer brands in the world. We believe our commitment to value, convenience, quality and new products continues to keep consumers engaged with the brand.

We are primarily a franchisor, with approximately 99% of Domino’s global stores owned and operated by our independent franchisees as of June 16, 2024. Franchising enables an individual to be a business owner and maintain control over all employment-related matters and pricing decisions, while also benefiting from the strength of the Domino’s global brand and operating system with limited capital investment by us.

Domino’s business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees.

Domino’s generates revenues and earnings by charging royalties and fees to our franchisees. Royalties are ongoing percent-of-sales fees for use of the Domino’s® brand marks. We also generate revenues and earnings by selling food, equipment and supplies to franchisees through our supply chain operations primarily in the U.S. and Canada and by operating a number of Company-owned stores in the United States. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza® brand to master franchisees. These master franchisees are charged with developing their geographical area, and they may profit by sub-franchising and selling food and equipment to those sub-franchisees, as well as by running pizza stores. We believe that everyone in the system can benefit from the franchise model, including the end consumer, who can purchase Domino’s menu items for themselves and their family conveniently and economically.

Domino’s business model can yield strong returns for our franchise owners and our Company-owned stores. It can also yield significant cash flows to us, through a consistent franchise royalty payment and supply chain revenue stream, through an asset-light model. We have historically returned cash to shareholders through dividend payments and share repurchases. Domino’s financial results are driven largely by retail sales at our franchised and Company-owned stores. Changes in retail sales are primarily driven by same store sales growth and net store growth. We monitor both of these metrics very closely, as they directly impact our revenues and profits, and we strive to consistently increase both metrics. Retail sales drive royalty payments from franchisees, as well as Company-owned store and supply chain revenues.

At Domino’s, we believe we have a proven business model for success that has historically driven strong returns for our shareholders. In 2023, we announced our Hungry for MORE strategy aimed at generating MORE sales, MORE stores and MORE profits. The strategic imperatives of our Hungry for MORE strategy are as follows:

Most Delicious Food: We believe we have the best pizza in the industry, and our menu has even more mouthwatering options beyond pizza. We will continue to showcase the breadth of our menu, while highlighting the deliciousness of our food through our innovative marketing promotions.

Operational Excellence: We are relentless in our focus on convenience, consistency and efficiency for our customers.

Renowned Value: We are committed to continuing to offer competitive pricing and personalized value for our customers that is innovative and memorable.

Enhanced by Best-in-Class Franchisees: Our franchisees play a vital role in driving results and excitement across the more than 90 markets in which we operate.

Second Quarter of 2024 Highlights

MORE Sales: Global retail sales, excluding foreign currency impact (which includes total retail sales at Company-owned and franchised stores worldwide), increased 7.2% as compared to the second quarter of 2023. U.S. retail sales increased 6.8% and international retail sales, excluding foreign currency impact, increased 7.7% as compared to the second quarter of 2023. Same store sales increased 4.8% in our U.S. stores and increased 2.1% in our international stores (excluding foreign currency impact).

MORE Stores: Global net store growth of 175.

MORE Profits: Income from operations increased 0.4%.

Two Fiscal Quarters of 2024 Highlights

MORE Sales: Global retail sales, excluding foreign currency impact (which includes total retail sales at Company-owned and franchised stores worldwide), increased 7.3% as compared to the two fiscal quarters of 2023. U.S. retail sales increased 7.3% and international retail sales, excluding foreign currency impact, increased 7.2% as compared to the two fiscal quarters of 2023. Same store sales increased 5.2% in our U.S. stores and increased 1.5% in our international stores (excluding foreign currency impact).

MORE Stores: Global net store growth of 339.

MORE Profits: Income from operations increased 9.0%.

Excluding the negative impact of foreign currency, Domino’s experienced global retail sales growth during the second quarter and two fiscal quarters of 2024, driven by same store sales growth and net store growth in both our U.S. and international businesses. These factors also contributed to an increase in income from operations. In the second quarter, these increases in income from operations were partially offset by higher general and administrative expenses primarily driven by higher labor costs as well as expenses for our Worldwide Rally that takes place every two years. Overall, we believe our global retail sales growth (excluding foreign currency impact), emphasis on technology, operations and marketing initiatives have combined to strengthen our brand. These financial and statistical measures are described in additional detail below.

Statistical Measures

The tables below outline certain statistical measures we utilize to analyze our performance. This historical data is not necessarily indicative of results to be expected for any future period.

Global Retail Sales

Global retail sales is a commonly used statistical measure in the quick-service restaurant industry that is important to understanding performance. Global retail sales refers to total worldwide retail sales at Company-owned and franchised stores. We believe global retail sales information is useful in analyzing revenues because franchisees pay royalties and, in the U.S., advertising fees that are based on a percentage of franchise retail sales. We review comparabl

Showing the first 8K of 61K characters. Open the full section

Market Risk

We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. In connection with the recapitalizations of our business, we have issued fixed rate notes and entered into variable funding notes, and, at June 16, 2024, we are exposed to interest rate risk on borrowings under our variable funding notes. As of June 16, 2024, we had no outstanding borrowings under our 2022 and 2021 Variable Funding Notes.

Our 2022 and 2021 Variable Funding Notes bear interest at fluctuating interest rates based on the Secured Overnight Financing Rate (“Term SOFR”), plus a spread adjustment. Accordingly, a rising interest rate environment could result in higher interest expense due on borrowings under our 2022 and 2021 Variable Funding Notes, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected.

Our fixed-rate debt exposes the Company to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate.

We are exposed to market risks from changes in commodity prices. During the normal course of business, we purchase cheese and certain other food, cardboard and paper products that are affected by changes in commodity prices and, as a result, we are subject to volatility in our product costs. Severe increases in commodity prices or food costs, including as a result of inflation, could affect the global and U.S. economies and could also adversely impact our business, financial condition or results of operations. We may periodically enter into financial instruments to manage this risk, although we have not done so historically. We do not engage in speculative transactions or hold or issue financial instruments for trading purposes. In instances when we use fixed pricing agreements with our suppliers, these agreements cover our physical commodity needs, are not net-settled and are accounted for as normal purchases.

Foreign Currency Exchange Risk

We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside the U.S., which can adversely impact our net income and cash flows. Approximately 6.7% of our total revenues in both the second quarter of 2024 and the two fiscal quarters of 2024, approximately 6.9% of our total revenues in the second quarter of 2023, and approximately 6.8% of our total revenues in the two fiscal quarters of 2023 were derived from our international franchise segment, a majority of which were denominated in foreign currencies. We also operate dough manufacturing and distribution facilities in Canada, which generate revenues denominated in Canadian dollars. We do not enter into financial instruments to manage this foreign currency exchange risk. We estimate that a hypothetical 10% adverse change in the foreign currency rates for our international markets would have resulted in a negative impact on royalty revenues of approximately $12.9 million in the two fiscal quarters of 2024.

Management, with the participation of the Company’s Chief Executive Officer, Russell J. Weiner, and Executive Vice President and Chief Financial Officer, Sandeep Reddy, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, Mr. Weiner and Mr. Reddy concluded that the Company’s disclosure controls and procedures were effective.

During the quarterly period ended June 16, 2024, there were no changes in the Company’s internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PA****RT II. OTHER INFORMATION

Ite****m 1. Legal Proceedings.

We are a party to lawsuits, revenue agent reviews by taxing authorities and administrative proceedings in the ordinary course of business which include, without limitation, workers’ compensation, general liability, automobile and franchisee claims. We are also subject to suits related to employment practices. In addition, we may occasionally be party to large claims, including class action suits.

Litigation is subject to many uncertainties, and the outcome of individual litigated matters is unpredictable. These matters referenced above could be decided unfavorably to us and could require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated with accuracy. However, we do not believe these matters, individually or in the aggregate, will have a material adverse effect on the business or financial condition of the Company, and we expect that the established accruals adequately provide for the estimated resolution of such claims.

There have been no material changes with respect to those risk factors previously disclosed in Item 1A “Risk Factors” in Part I of our 2023 Form 10-K.

It****em 2. Unregistered Sales of Equity Securities and Use of Proceeds.

c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

														Maximum Approximate Dollar
										Total Number of Shares				Value of Shares that
		Total Number								Purchased as Part of				May Yet Be Purchased
		of Shares				Average Price Paid				Publicly Announced				Under the Program (2)
Period		Purchased (1)				Per Share				Program (2)				(in thousands)
Period #4 (March 25, 2024 to April 21, 2024)			1,014			$	496.25				—			$	1,116,333
Period #5 (April 22, 2024 to May 19, 2024)			876				523.37				—				1,116,333
Period #6 (May 20, 2024 to June 16, 2024)			1,229				522.45				—				1,116,333
Total			3,119			$	514.19				—			$	1,116,333

(1)	3,119 shares in the second quarter of 2024 were purchased as part of the Company’s employee stock payroll deduction plan at an average price of $514.19.
(2)	On February 21, 2024, the Company’s Board of Directors authorized an additional share repurchase program to repurchase up to $1.0 billion of the Company’s common stock, in addition to the $141.3 million that was previously remaining for a total authorization of $1.14 billion for future share repurchases as of that date. As of June 16, 2024, $1.12 billion remained available for future purchases of the Company’s common stock under this share repurchase program.
	Authorization for the repurchase program may be modified, suspended, or discontinued at any time. The repurchase of shares in any particular period and the actual amount of such purchases remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future.

It****em 3. Defaults Upon Senior Securities.

None.

Ite****m 4. Mine Safety Disclosures.

Not applicable.

Rule 10b5-1 Trading Plans

Our directors and officers (as defined in Section 16 of the Exchange Act (“Section 16”) may from time to time enter into plans for the purchase or sale of Domino’s stock that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

During the fiscal quarter ended June 16, 2024, the following Section 16 officer adopted a “Rule 10b5-1 trading arrangement” (as defined in Item 408 under Regulation S-K of the Exchange Act):

Kelly E. Garcia, our Executive Vice President, Chief Technology Officer, adopted a new Rule 10b5-1 trading arrangement on June 7, 2024. The plan’s maximum duration is until August 29, 2025, and first trades will not occur until September 6, 2024 at the earliest. The trading plan, which is subject to certain conditions, is intended to permit Mr. Garcia to exercise and sell from time to time (i) a tranche of 1,950 stock options set to expire on July 20, 2026 and (ii) a tranche of 4,870 stock options set to expire on November 7, 2026.

The Rule 10b5-1 trading arrangement described above was adopted and precleared in accordance with Domino’s Insider Trading Policy and actual sale transactions made pursuant to such trading arrangement will be disclosed publicly in future Section 16 filings with the SEC.

No other directors or officers adopted, modified and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 under Regulation S-K of the Exchange Act, during the last fiscal quarter.

Exhibit Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.
32.1		Certification of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.
32.2		Certification of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.
101.INS		XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
104		Cover page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101).

SI****GNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		DOMINO’S PIZZA, INC. (Registrant)
Date: July 18, 2024		/s/ Sandeep Reddy
		Sandeep Reddy
		Executive Vice President, Chief Financial Officer (Principal Financial Officer)