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Domino’s 3rd-Q profit falls, co. seeks additional financing

ANN ARBOR Mich. Domino’s Pizza Inc. reported Tuesday an 8-percent drop in third-quarter profit as sales continued to decline in its U.S. market and the nationwide credit freeze led to slower unit development among franchisees.

The parent to the national pizza delivery chain also said it would seek additional sources of liquidity, as the now-bankrupt Lehman Brothers was a primary lender responsible for commitments of up to $90 million under Domino’s $150 million variable funding notes.

While the company said certain debt financing would most likely be diminished, it added that it held sufficient operating funds “for the foreseeable future” and that it was in the process of exploring alternative sources of financing.

“Our strong cash flows remain the mainstay of our business model,” David Brandon, the company’s chairman and chief executive, said. “We believe ‘cash is king’ in today’s uncertain market conditions.”

At Sept. 7, the company held $1.7 billion in debt, $20.1 million of unrestricted cash and cash equivalents, no borrowings under its variable funding notes, even if reduced, and $36.8 million in letters of credit. 

For the latest quarter ended Sept. 7, Domino’s earned $10.1 million compared with a profit of $11.0 million a year ago. Domino’s per-share profit remained unchanged year-to-year, at 17 cents, because of a steep reduction in the average number of shares outstanding in the latest quarter.

Domino’s total revenues fell 4 percent to $323.6 million, which reflected negative same-store sales and negative net unit growth within the company’s domestic market. Same-store sales for all U.S.-based stores fell 6.1 percent, and the company ended the quarter with 5,086 U.S. units, down 21 locations from the beginning of the quarter. Worldwide Domino’s operates or franchises 8,726 pizza delivery locations. Its international restaurants posted a same-store sales gain of 5.4 percent for the quarter.

“Reversing negative trends in the current environment is very tough,” Brandon said. “Our operators face the powerful forces of high commodity prices, consumers who are reluctant to spend, and a credit crunch that has slowed domestic new store growth, re-investment in stores, and our ability to expedite the turnover of poor-performing franchisees.”

The company said it was encouraged by new initiatives like its oven-baked sub sandwiches, and that turnaround plans for its domestic operation, which include selling under-performing locations to successful franchisees, will continue.

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