Domino's New Recipe Helps Pizza Maker More Than Double Its Profits
ANN ARBOR, Mich. — Revamped pizza and a frank advertising campaign helped Domino's Pizza Inc. more than double its fourth-quarter profit as curious customers tried out its new recipe, the delivery chain said Tuesday.
Executives have said that the chain decided to start overhauling its recipes more than 18 months ago after mounting criticism from focus groups and on social media sites. And it boldly admitted in a series of documentary-style spots that under its old recipe, customers complained its crust tasted like cardboard and its sauce was reminiscent of ketchup.
The company began promoting its new pie, which has a new sauce and cheese combination and herb- and garlic-flavored crust, in December. That helped the company's profit climb to $23.6 million, or 41 cents per share, for the three months that ended Jan. 3.
Domino's earned $11 million, or 19 cents per share, a year earlier.
Removing one-time items, the company's profit was 30 cents per share – well ahead of forecasts.
Sales for the period improved to $462.9 million from $428.2 million. Analysts expected a profit of 25 cents per share with sales of $437.5 million.
In the U.S., sales at stores open at least a year grew 1.4 percent on higher traffic, while overseas – which comprises nearly half of global retail sales – climbed 3.9 percent.
This sales figure is a key measure of a retailer's performance since it measures results at existing stores rather than newly opened ones.
Meanwhile, Chairman and CEO David Brandon said traffic increased all of last year and has continued to grow in 2010.
The question remains, though, whether Domino's can keep the momentum going, or whether the novelty of the new recipe will wane.
"When a restaurant company radically changes their menu, usually there's a curiosity bump involved in the results," said Morningstar analyst R.J. Hottovy. "But it's too early to tell if that's going to be sustainable for a long time."
Full-year profit surged 48 percent to $79.7 million, or $1.38 per share, from $54 million, or 93 cents per share, in the prior year.
Adjusted earnings were 87 cents per share.
Annual revenue fell 2 percent to $1.4 billion from $1.43 billion.
Domino's does not give quarterly or full-year profit outlooks, but did provide some long-term same-store sales forecasts. The pizza chain predicts domestic sales at stores open at least a year will rise 1 percent to 3 percent, with international sales at stores open at least a year up 3 percent to 5 percent.
Domino's shares climbed 65 cents, or 5.1 percent, to close at $13.39 Tuesday. Earlier in the session, the stock hit a 52-week high of $13.40.
(This version CORRECTS SUBS 2nd graf to correct spellings to 'recipe,' 'reminiscent.')