UPDATE 2-Domino's posts higher-than-expected profit

* EPS ex-items 20 cents vs. Wall Street view 17 cents

* Domestic same-store sales up 1 pct

* Improved sales at U.S. franchisee outlets

* Says "cautiously optimistic" about H1 outlook (Recasts; adds estimates, background)

BANGALORE, April 30 (Reuters) - Domino's Pizza Inc (DPZ.N) reported a higher-than-expected first-quarter profit on Thursday, boosted by the performance of its U.S. franchisees.

Ann Arbor, Michigan-based Domino's, which competes with Yum Brands Inc's (YUM.N) Pizza Hut and Papa John's International Inc (PZZA.O), said it was "cautiously optimistic" about the first half of the year.

"Our domestic franchisees outperformed our Team USA stores in same-store sales for the first time in many quarters," Chief Executive David Brandon said. "This is a ... a strong indication that our domestic franchise system is starting to regain some positive sales momentum."

Net profit at the pizza chain rose to $23.8 million, or 41 cents a share, from $14.1 million, or 23 cents a share, a year earlier.

Excluding a gain from debt repayment efforts, Domino's reported earnings of 20 cents a share. Analysts on average were expecting 17 cents, according to Reuters Estimates.

"Using a combination of cash-on-hand and our bank revolver with a very low borrowing rate, we took advantage of opportunities to repurchase a portion of our debt at deep discounts," Brandon said.

The bankruptcy last year of Lehman Brothers (LEHMQ.PK), Domino's main lender, forced the company to seek alternative funding at a time when credit markets were frozen.

During the first quarter, Domino's repurchased about $43.3 million of principal of its outstanding fixed rate senior notes for about $22.3 million, resulting in a pretax gain of about $21.2 million.

As of March 22, the company had about $1.7 billion in total debt.

Pizza sellers, which are getting a break on ingredient costs as cheese prices fall, have been fighting for business as more people prepare meals at home to save money in a time of recession.

Total revenue at Domino's fell about 5 percent to $321.8 million. Sales at domestic stores open at least one year were up 1 percent, while international stores turned in a 6.6 percent same-store sales rise. (Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)