Domino's Pizza Productivity
When buying a pizza, we never consider how well the company is doing. We only choose to pick a brand of pizza and think nothing more than to pay for it. Investors think a very different way. They require annual reports, quarterly financial statements, business plans, and keep track of the stocks. The closest pizza place to my house is "Pizza Hut" and it was acceptable until I tried "Domino's Pizza". I began to notice that more and more Domino's Pizza commercials were coming on the air and more franchises were opening up in my neighborhood over the years. After looking at their financial statements, it makes sense as to why the big business boom occurred.
Domino's is the global leader in pizza delivery. The 50th year anniversary was celebrated in 2010. For the 50th year anniversary, Domino's boldly took on Subway in a national taste test in sandwiches and was declared the winner. Overnight, the once leading pizza delivery franchise also became the world's largest sandwich delivery franchise. The company keeps expanding and launching new products is becoming a regular business strategy. In 2010, the old CEO, David A. Brandon was replaced by J. Patrick Doyle. The change seems to have been the right choice considering the decline in revenue in the years up until 2010. When Mr.Doyle became the CEO, the company boosted back to the top in terms of revenue and net income, as high as it used to during Domino's most successful years.
The current mission is to eliminate the financial debt that Domino's has incurred from the previous CEO, David Brandon. A recent addition to Domino's was the online ordering, with live tracking of the pizza's delivery progress.
The foremost importance to Domino's is security and being able to take care of their employees. In the annual report it stated that they were having a hard time in acquiring a suitable insurance company that would look out for their employees, so they took the matters into their own hands and in 2007, opened up a new section in their financial statements called "Restricted Cash and Cash Equivalents" as a safety belt for any injuries or claims. The environment is setup to be a safe and clean working place to work. Security cameras oversee the sales and any sort of danger. The workers must wear Domino's uniforms with the correct color scheme in the absence of the official uniform
Some factors that contributed to the large debt incurred in 2007 was Domino's leap to international sales and further expansion. Over 400 international stores were opened, 86 in Spain and hundreds more in USA. However, the debt caused an issue with the allocation of resources, it put the company in a risky situation with the insurance policies because they were borderline to not being able to afford coverage. The issue seems to be resolving and there is a positive trend in paying off debts.
An interesting fact that showed up is that Domino's Pizza is a large corporation and has stocks, but all complaints and contacts are sent to a LLC company also by the name of Domino's Pizza.
Since the decline up until 2008, Domino's has been facing a market in which their shares cost little and is finally improving. The competition they have overcome, ranging from Pizza Hut, Papa Johns, Round Table, and more, are rarely thought about anymore.
As of January 3, 2010, the consolidated debt was $1.57 billion dollars. Since 1998 the debt was being paid off and until 2007, interest was between 45 and 55 million dollars per year. After 2007, the company increased their debt again and paid very high interest expenses of over 130 million a year. The company holds a securitized debt and pays interest only payments up until April 2012. After April 2012, the company will file for two one year extensions to keep the payments interest only. The lenders had very specific financial requirements to be able to extend the loan period, and Domino's exceeds the threshold and qualifies for the extension.
The company holds an immense $1.4 billion dollar receipt in advertising for the last five years. That means approximately $280,000,000 dollars was spent every year just on advertising. Revenues decreased $21.0 million or 1.5% in 2009 and decreased $37.8 million or 2.6% in 2008, making the payments of over $100,000,000 dollars in interest difficult. The company was able to hold together and squeeze out the payments though, at the expense of the stock prices. Dividends received less pay, many of them backed out for better investment opportunities but Domino's chose the right decision and will lessen their debt by paying off larger quantities now. The large amount of money spent on advertising shows a positive trend in revenue and net income, but it takes a large amount of advertising to receive a small amount of revenue, leaving this a risky practice (investing exponential amounts of money for minimal results).
In December 31, 2006 the financial statement showed a stable progress sheet compared to the previous statement, which was made in January 1, 2006. The revenues were similar, a small decline of $11.8 million or 1.9%. The cost in sales dropped but yielded a higher profit per good so the change in operating margin barely changed by $0.8 million or 0.003% in the negative direction. The interest payment increased by $7 million dollars but it doesn't affect the net income. The stock prices increased and at the time Domino's did not use the "Restricted cash and Cash Equivalents" table.
When comparing 2006 to 2007, there is a huge difference in the amount of interest paid. Everything else stayed the same except domestic supply chain revenues. The administrative expenses had increased and ended up making the income for operations lower than before. The worst thing that was noticed, was the earning per share. The large interest expense had ruined the earnings and the stockholders share value suffered from it by a whole $1.07 dollars per share.
2008 and 2010 suffered huge drops in revenue from Domestic Company-Owner stores while Domestic Franchises stayed stable in the proximity of previous years, which is $153-160 million dollars per year. Though the revenues were less for those stores, the cost of sales dropped significantly likely due to opening more factories for cheese and dough with the money that was borrowed. In the end the income for operations was lower than ever before because the administrative expenses had increased to more than it has ever been. There was a $56.3 million dollar income from a source known as "other" that we don't know about. Without that unknown "other" income, we would have seen a near crash of the company but instead we saw an increase. The stock prices are increasing again and that means the investors see potential again and are trusting Domino's to come through and out of the debt
The larger administrative expenses could have come about from the new Domino's delivery system that was developed for online ordering. The increase of this expense could be considered a research and development expense. The new technology theoretically will improve the accessibility to buying products, thus increasing the amount of products and the occurrence of products being bought.
My recommendations would be to shut down the company owned stores and leave it as a franchise store. The amount of company owned stores is still the same but obviously bringing $65 million dollars less in revenue, while keeping the same administrative and general expenses. The cost of sales has dropped so there should be no excuse for the lack of revenue and income. I would also recommend to cut down on the amount of advertising going on, it hasn't shown a greatly noticeable difference from previous years. Overcrowding people with commercials won't make a difference, just being known by word of mouth is enough, the company is large enough to not need 50 daily commercials per channel.
The only short term goal that I can provide is to get more energy efficient vehicles for delivery. Cutting down on gas in the ever declining economy can help a business out. Hybrid cars only use electricity when speeds don't exceed 45 miles per hour. City driving does not require speeds above 35 mph so it should be an amazing addition to the company.
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