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Domino’s blames higher interest costs for 48% drop in 4th-Q net

ANN ARBOR Mich. Domino’s Pizza Inc. said a near doubling of interest expense and cautious consumer spending were to blame for the company’s 48-percent drop in profit for the fourth quarter.

Net income fell to $16.2 million, or 26 cents per share, for the quarter ended Dec. 30, from $31 million, or 49 cents a share, for the same quarter a year earlier. The company reported on Tuesday that it earned 21 cents per share for the latest quarter when excluding debt recapitalization charges and gains both from the sale of a corporate aircraft and from favorable outcomes from state tax issues. The result was 5 cents lower than Wall Street estimates.

Revenue for the latest quarter rose 3 percent to $445.9 million, aided mostly by sales gains overseas, as revenues from domestic, corporate-operated restaurants dipped by 0.4 percent. Same-store sales fell 1.1 percent at U.S.-based corporate units, and fell 3.5 percent systemwide for all U.S.-based locations. Same-store sales rose 9.5 percent internationally.

David Brandon, Domino’s chairman and chief executive, said in a statement that “unprecedented cost inflation and cautious consumer spending continue to create significant challenges” in the company’s domestic market. He pledged a renewed focus on improving store operations, but did not detail future steps.

The company’s interest expense surged to $34.6 million in the latest quarter, from $16.1 million a year earlier, on higher borrowings the company has used for share repurchases and other items. Domino’s had $1.7 billion in total debt as of Dec. 30, the company’s securities filing said. The filing also stated that a doubling in capital expenditures last year, to $42.4 million, was mostly because of the purchase of a corporate aircraft following the sale of an older aircraft.

For fiscal 2007, Domino’s profit plunged 64 percent to $37.9 million, or 59 cents a share, from $106.2 million, or $1.65 per share. The decrease was again attributed to increased interest expense. Revenues for the latest year increased 2 percent to $1.46 billion.

Looking forward, Domino’s said its long-term goal was to achieve annual domestic same-store sales growth between 1 percent and 3 percent and international growth between 3 and 5 percent. The company does not provide quarterly or annual guidance.

Domino’s, the world’s largest pizza delivery chain, oversees 8,624 franchised and company-owned stores worldwide. In 2007, Domino’s said it tallied global systemwide retail sales of more than $5.4 billion, including $3.2 billion in domestic sales and $2.2 billion in sales overseas.

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