Higher costs slice into Domino's profit

Tue Oct 15, 2013 12:05pm EDT

A protestor walks in front of a Domino's Pizza store during the Republican National Convention in Tampa, Florida August 30, 2012. REUTERS/Philip Andrews

A protestor walks in front of a Domino's Pizza store during the Republican National Convention in Tampa, Florida August 30, 2012.

Credit: Reuters/Philip Andrews

(Reuters) - Domino's Pizza Inc (DPZ.N), the second-largest U.S. pizza chain, reported a rare earnings miss due to higher costs, sending its shares down 5 percent as it spent more on overseas outlets and on mobile apps.

The company's earnings, after adjusting for one-time items, came in at 51 cents per share, missing analysts' expectations by a cent. This was the company's first profit miss in more than a year.

General and administrative expenses rose 8 percent.

Domino's, whose competitors include Yum Brands Inc's (YUM.N) Pizza Hut, Little Caesars Pizza and Papa John's International Inc (PZZA.O), franchises most of its restaurants, reducing risk and ensuring a steady stream of royalties.

The company posted strong sales growth while many other U.S. restaurant operators have struggled.

Sales rose by a better-than-expected 7 percent to $404.1 million, helped by new menu items such as handmade pan pizzas and chicken tacos and strong overseas growth.

U.S. same-store sales rose 5.4 percent in the third quarter ended September 8. Eleven analysts polled by Consensus Metrix had expected a 4.4 percent growth. International same-store sales, excluding currency fluctuations, rose 5 percent.

The company said third-quarter net income rose about 18 percent to $30.6 million, or 53 cents per share.

Brazil and Turkey showed the strongest growth this quarter, Chief Executive Patrick Doyle said on a call with analysts.

Online orders also boosted sales, accounting for about 40 percent of overall revenue in the latest quarter.

International sales contributed about 14 percent to overall revenue compared with 13 percent a year earlier.

As of December 30, Domino's had 4,513 franchised stores and 394 company-owned stores in the United States. It also had 5,327 outlets outside the United States, all franchised.

Shares of the Ann Arbor, Michigan-based company, which have risen more than 80 percent in the last year, were down 4 percent at $66.42 on the New York Stock Exchange on Tuesday.

(Reporting by Aditi Shrivastava in Bangalore; Editing by Ted Kerr and Saumyadeb Chakrabarty)

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