Domino's Pizza Inc. (DPZ) - Credit Suisse | PLUS

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25 June 2019 Americas/United States

Equity Research

Restaurants

Domino’s Pizza Inc. (DPZ)

Rating OUTPERFORM Price (21-Jun-19, US$) 280.33 Target price (US$) 320.00 52-week price range (US$) 300.67 - 234.35 Market cap(US$ m) 11,523 Enterprise value (US$ m) 14,963 Target price is for 12 months.

Research Analysts

Lauren Silberman

212 325 2720

[email protected]

INITIATION

Time to Get A Piece of This Pie; Initiate

Outperform

■ We initiate coverage of Domino’s (DPZ) with an Outperform rating and $320 target price. DPZ is one of the best growth stories in restaurants, with ~10% revenue growth, margin expansion and benefits from repurchases driving an EPS CAGR of ~15% over the next four years. We believe concerns regarding the impact of third-party delivery could be overdone as the honeymoon phase wears off and carryout could offset pressure, with outperformance against SSS estimates as upside. Confidence in ~7% global unit growth is driven by global brand strength, domestic whitespace opportunities in a fragmented category and international master franchise agreements.

■ US SSS Outperformance: DPZ should maintain SSS momentum and share

gains as one of the few companies with contribution from positive traffic, the only company with a frequency-based loyalty program, consistent value messaging, favorable franchisee relations (avg franchisee ~$975K EBITDA) and an industry-leading digital ecosystem supporting best-in-class execution. We estimate US SSS of 5.5% in 2019, with expectations for sequential improvement throughout the year against easing compares and reduced competitive headwinds from 1Q (Points for Pies, QSR chains delivery campaigns). Longer term, we model US SSS of ~5%.

■ Third-Party Delivery as NT Pressure, But Not LT Issue: An increasing number of cross-branded campaigns with national QSR chains, competition for delivery drivers and aggressive promos represent incremental competitive pressure NT. LT, pizza’s stable 10-yr ~$10BN delivery market share should largely hold, with pizza a cuisine that travels well and offers great value. Positioning as a delivery company could be a net positive for DPZ as delivery demand increases, while increased focus on carryout can drive incremental sales and help offset competitive pressures (~2/3 delivery, 1/3 carryout split).

■ Valuation: Our $320 target price is based on ~20.5x our NTM EBITDA in 12

months, implying ~28x our NTM EPS in 12 months (30x avg), in-line with current multiples. Key risks: competition, consumer spending, interest rates.

Share price performance

On 21-Jun-2019 the S&P 500 INDEX closed at 2950.46

Daily Jun22, 2018 - Jun21, 2019, 06/22/18 = US$292.39

Quarterly EPS Q1 Q2 Q3 Q4 2018A 2.00 1.84 1.95 2.62 2019E 2.20 2.08 2.11 3.07 2020E 2.44 2.43 2.46 3.79

Financial and valuation metrics

Year 12/18A 12/19E 12/20E 12/21E EPS (CS adj.) (US$) 8.42 9.44 11.10 12.66 Prev. EPS (US$) - - - - P/E rel. (%) 186.3 172.0 162.6 156.3 Revenue (US$ m) 3,432.9 3,686.0 4,042.2 4,386.1 EBITDA (US$ m) 625.9 694.5 783.2 847.1 OCFPS (US$) 9.10 10.54 12.69 14.52 P/OCF (x) 27.5 26.6 22.1 19.3 EV/EBITDA (current) 24.0 21.6 19.2 17.7 Net debt (US$ m) 3,506 3,440 3,540 3,588 ROIC (%) 103.56 113.41 115.03 117.77

Number of shares (m) 41.10 IC (current, US$ m) 466.22 BV/share (Next Qtr., US$) -72.8 Dividend (current, US$) 2.60 Net debt (Next Qtr., US$ m) 3,400.6 Net debt/tot eq (Next Qtr.,%) -114.3 Source: Company data, Refinitiv, Credit Suisse estimates

25 June 2019

Domino’s Pizza Inc. (DPZ) 2

Domino’s Pizza Inc. (DPZ)

Price (21 Jun 2019): US$280.33; Rating: OUTPERFORM; Target Price: 320.00; Analyst: Lauren Silberman

Income Statement 12/18A 12/19E 12/20E 12/21E

Revenue (US$ m) 3,432.9 3,686.0 4,042.2 4,386.1 EBITDA (US$ m) 626 695 783 847 Depr. & amort. (54) (59) (65) (70) EBIT (US$) 572 635 718 777 Net interest exp (140) (149) (156) (157) PBT (US$) 433 487 562 619 Income taxes (68) (92) (112) (124) Profit after tax 365 395 450 496 Net profit (US$) 365 395 450 496 Other NPAT adjustments 0 0 0 0

Cash Flow 12/18A 12/19E 12/20E 12/21E

Cash flow from operations 394 440 514 568 CAPEX (120) (112) (100) (90) Free cashflow to the firm 274 328 414 478 Cash flow from investments (88) (71) (100) (90) Net share issue(/repurchase) (581) (223) (392) (391) Dividends paid (92) (105) (122) (136) Changes in Net Cash/Debt (388) 66 (100) (49)

Balance Sheet (US$) 12/18A 12/19E 12/20E 12/21E

Cash & cash equivalents 25 17 82 98 Account receivables 190 193 212 230 Other current assets 305 268 268 268 Total fixed assets 233 241 276 296 Investment securities - - - - Total assets 1,124 1,095 1,214 1,268 Total current liabilities 412 396 404 414 Shareholder equity (3,040) (2,986) (3,040) (3,061) Total liabilities and equity 1,124 1,095 1,214 1,268 Net debt 3,506 3,440 3,540 3,588

Per share 12/18A 12/19E 12/20E 12/21E

No. of shares (wtd avg) 43 42 41 39 CS adj. EPS 8.42 9.44 11.10 12.66 Prev. EPS (US$) Dividend (US$) 2.20 2.60 3.12 3.59 Free cash flow per share 6.33 7.85 10.22 12.22

Earnings 12/18A 12/19E 12/20E 12/21E

Sales growth (%) 23.1 7.4 9.7 8.5 EBIT growth (%) 9.7 11.0 13.1 8.1 Net profit growth (%) 29.5 8.1 14.0 10.2 EPS growth (%) 42.4 12.1 17.6 14.1 EBITDA margin (%) 18.2 18.8 19.4 19.3 EBIT margin (%) 16.7 17.2 17.8 17.7 Pretax margin (%) 12.6 13.2 13.9 14.1 Net margin (%) 10.6 10.7 11.1 11.3

Valuation 12/18A 12/19E 12/20E 12/21E

EV/EBITDA (x) 24.0 21.6 19.2 17.7 P/E (x) 33.3 29.7 25.3 22.1

Returns 12/18A 12/19E 12/20E 12/21E

ROIC (%) 103.6 113.4 115.0 117.8

Gearing 12/18A 12/19E 12/20E 12/21E

Net debt/equity (%) (115.3) (115.2) (116.4) (117.2)

Quarterly EPS Q1 Q2 Q3 Q4 2018A 2.00 1.84 1.95 2.62 2019E 2.20 2.08 2.11 3.07 2020E 2.44 2.43 2.46 3.79

Company Background

Domino's Pizza is the one of the world's largest pizza companies, with nearly 15,000 locations in more than 85 markets.

Blue/Grey Sky Scenario

Our Blue Sky Scenario (US$) 385.00

Our $385 one-year valuation in a blue sky scenario is based on an EV/EBITDA of ~22.5x our blue sky FY20 EBITDA. Our blue sky FY20 EBITDA is based on: 1) domestic SSS of 8%; 2) domestic unit growth of ~6%; and 3) operating margins of ~19%.

Our Grey Sky Scenario (US$) 235.00

Our $235 one-year valuation in a grey sky scenario is based on an EV/EBITDA of ~18x our grey sky FY20 EBITDA. Our grey sky FY20 EBITDA is based on: 1) domestic SSS of 3.5%; 2) domestic unit growth of ~4.5%; and 3) operating margins of ~16.5%.

Share price performance

On 21-Jun-2019 the S&P 500 INDEX closed at 2950.46

Daily Jun22, 2018 - Jun21, 2019, 06/22/18 = US$292.39

Source: Company data, Refinitiv, Credit Suisse estimates

25 June 2019


Executive Summary We initiate coverage of Domino’s Pizza (DPZ) with an Outperform rating and $320 target

price. DPZ is one of the best growth stories in restaurants, with ~10% revenue growth,

margin expansion and benefits from repurchases supporting EPS growth of ~15% over the

next four years.

Please refer to our views summarizing the Restaurants industry: US Restaurants Phone

To Table: Digitizing Restaurants.

■ DPZ Well Positioned for Global SSS Outperformance: DPZ has exhibited industry-

leading and consistent global SSS, with domestic SSS averaging ~9% and

international SSS averaging ~5.5% over the last five years. DPZ has consistently met

or exceeded its long-term SSS targets, currently 3-6% globally. While increasing

competitive pressure from third-party delivery companies has pressured SSS more

recently, we believe DPZ’s long-term strategy around value, digital and delivery well

positions the company for market share gains.

For 2019, we estimate domestic SSS of 5.5%, with expectations for sequential

improvement throughout the year as compares ease. We model domestic SSS of 5%

post 2019, toward the higher end of DPZ’s long-term SSS target of 3-6%. Our

confidence in ongoing SSS outperformance and market share gains comes from: 1)

historical precedent, with 32 consecutive quarters of positive US SSS averaging ~7.5%

since 2010 comprised of healthy traffic gains and average check increases; 2)

fragmented pizza market, with opportunities to gain share from independents, regional

chains and large chains; and 3) execution against sales initiatives, including ongoing

evolution of its digital platform, compelling and consistent value offers and benefits

from a greater focus on carryout.

We model international SSS of 3.1% in 2019, including sequential improvement

throughout the year as compares ease. Long term, we model international SSS of

~3.5%, toward the lower end of DPZ’s long-term SSS target of 3-6%, in-line with slower

growth over the last two years.

■ Delivery Concerns Could Be Overdone: Third-party delivery is likely to represent

incremental pressure near term, driven by: 1) increasing demand and supply from

third-party delivery providers fueling higher awareness; 2) aggressive

promotions/discounts; 3) QSR chains offering delivery; 4) cross-branded campaigns

between aggregators and large QSR chains; and 5) competition for delivery drivers.

Long term, we believe the pizza delivery market will largely maintain its delivery market

share, which has been ~$10BN for a decade. We view Domino’s as best positioned to

continue to gain share within the segment given the strength of its digital ecosystem

and long-term strategic approach. We expect Domino’s loyalty program and superior

execution in delivery will allow the company to maintain a competitive advantage even

against increasing competition.

■ Global Growth Opportunity Strong: We believe DPZ can reach 25,000 units by

2025, with contribution from accelerating domestic growth and continued robust

international development. The 25,000 unit growth target implies global growth of ~7%

over the next several years, including ~4.5% domestic unit growth and ~8%

international unit growth. We model global unit growth of ~7% through 2022, including

domestic unit growth of ~5% and international unit growth of ~8%. This compares to a

5-yr global growth CAGR of 7.9%, including 3.3% domestically and 11.2%

internationally.

Our confidence in development expectations comes from: 1) global brand strength,

fundamentals and operating momentum; 2) domestic whitespace opportunities with

fortressing strategy in existing markets; and 3) international development opportunities,

with increased visibility from master franchise agreements.

https://plus.credit-suisse.com/r/_XpiW2AN-VHSK

https://plus.credit-suisse.com/r/_XpiW2AN-VHSK

25 June 2019


■ Earnings Estimates: We expect top-line growth of ~9% over the next few years to

enable margin leverage for operating profit growth of ~10.5%. Together with accretion

from share repurchases, we model EPS growth of ~15% long term. For 2019, we

model EPS growth of ~12%, including dilution from the refranchising of company-

operated stores in New York. We also note 2020 includes a 53rd

week.

■ Valuation: Our $320 target price is based on ~20.5x our NTM EBITDA in 12 months,

implying a P/E multiple of ~28x our NTM EPS in 12 months. Our ~20.5x EV/EBITDA

multiple is in-line with DPZ’s current multiple and a premium to its 3-year average

multiple of ~19x. Our implied P/E multiple of ~28x is in-line with DPZ’s current trading

multiple and below its three-year average P/E multiple of ~30x.

■ Key risks include: 1) competition from pizza peers, other QSR chains and delivery

aggregators; 2) consumer spending; and 3) interest rates, as DPZ is highly levered at

~6x debt/EBITDA.

25 June 2019


Key Charts

Figure 1: DPZ has demonstrated system sales

growth of ~11% over the last five years, consistently

beating at least the lower end of long-term

guidance, with expectations to maintain 8-12%

growth over the next 3-5 years.

Figure 2: Execution against digital initiatives,

delivery and consistent value should support

ongoing SSS outperformance, even against

increased competitive pressures from delivery and

fortressing growth strategy.

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 3: Following several years of international

SSS at the high-end of DPZ’s LT range, we model

international SSS toward the low-end of guidance

and in-line with slower growth over the last two

years.

Figure 4: We model global unit growth of 6.9% over

the next four years, relative to 7.9% growth over the

last five years and DPZ’s target of 6-8% growth over

the next three to five years.


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25 June 2019


Figure 5: Delivery aggregators are growing at a

faster rate than pizza companies, highlighting

increasing competition.

Figure 6: Domino’s is currently trading at ~20.5x

EBITDA and we expect the company will maintain

its valuation premium to peers.

Source: Sensor Tower, Credit Suisse estimates

Note: Pizza Apps include Pizza Hut, Papa John’s, Hungry Howie’s, Domino’s, MyCicis, Little Caesars, Blaze, Papa Murphy’s, PizzaRev, Pieology and Marco’s. Delivery Apps include Grubhub, Seamless, Delviery.com, Postmates, DoorDash, Caviar and Uber Eats.

Source: FactSet, Credit Suisse estimates

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25 June 2019


What is DPZ’s SSS outlook? Credit Suisse View

DPZ has exhibited industry-leading and consistent global SSS over the last ten years.

Domestic SSS have averaged ~9% over the last 20 quarters and international SSS have

averaged ~5.5%. While increasing competitive pressure from third-party delivery

companies has pressured SSS more recently, we believe Domino’s remains well

positioned for outperformance globally.

For 2019, we estimate domestic SSS of 5.5%, with expectations for sequential

improvement throughout the year as compares ease. Long term, we model domestic SSS

of 5%, toward the higher end of DPZ’s long-term SSS target of 3-6%. Our confidence in

ongoing SSS outperformance and market share gains comes from: 1) historical precedent,

with 32 consecutive quarters of positive US SSS averaging ~7.5% since 2010 and ~9%

over the last five years comprised of healthy traffic gains and average check increases; 2)

fragmented pizza market, with opportunities to gain share from independents, regional

chains and large chains; and 3) execution against sales initiatives, including ongoing

evolution of its digital platform, compelling and consistent value offers and benefits from a

greater focus on carryout.

We model international SSS of 3.1% in 2019, including sequential improvement

throughout the year as compares ease. Long term, we model international SSS of ~3.5%,

toward the lower end of DPZ’s long-term SSS target of 3-6%, in-line with slower growth

over the last two years.

Consensus Expectations

Consensus Metrix estimates domestic SSS of 4.7% in 2019 and ~4.2% longer term. For

international SSS, consensus models 2.8% in 2019 and ~3.4% longer term.

Brand strength supports continued share gains in

the US

Domino’s has demonstrated 32 consecutive quarters of positive US SSS averaging ~7.5%

since 2010 and ~9% over the last five years comprised of healthy traffic gains and

average check increases. Ongoing execution against key sales drivers should continue to

support outperformance relative to peers and capture market share in the fragmented

pizza category.

We model sequential improvement in SSS throughout 2019 as compares ease. We

believe accelerating digital download growth in 1Q19 (~40% vs ~17% in 4Q18) could be a

leading indicator for accelerating SSS growth in 2Q19 (driven by DPZ’s expanded Piece of

the Pie Rewards program). We also expect the impact of Chipotle’s free delivery bowl

promotion in early January and Taco Bell’s co-branded marketing campaign with Grubhub

offering free delivery in February/March were both incremental pressures in 1Q19.

Chipotle and Taco Bell are two of the strongest competitors in the QSR/fast casual space

currently, and we believe advertising around delivery could have had an incremental

impact. We do note a large marketing campaign by McDonald’s would also represent a

more significant competitive pressure point and is likely to come at some point in 2019.

We model domestic SSS of ~5.5% in 2019, which assumes consistent 2-yr SSS trends

through the year, relative to consensus expectations of ~4.7%. Long term, we model 5%

SSS, at the high end of DPZ’s long-term target of 3-6% and relative to consensus’ ~4%.

We model domestic SSS of ~5-5.5% over

the next few years, relative to DPZ’s long-

term target of 3-6%

25 June 2019


Figure 7: Domino’s is facing easing compares

throughout 2019, noting 2018 represents the easiest

compares over the last three years.

Figure 8: We expect SSS to accelerate throughout

2019 against easier compares.

Source: Company data, Credit Suisse Source: Company data, Consensus Metrix, Credit Suisse estimates

Figure 9: Domino’s has demonstrated SSS strength

in the US since 2010, with average SSS of 7.4%.

Figure 10: We model domestic SSS of 5.5% in 2019

& 5% long-term, relative to consensus expectations

of ~4.7% in 2019 & ~4-4.5% long term.

Source: Company data, Credit Suisse Source: Company data, Consensus Metrix, Credit Suisse estimates

Consistent and impressive SSS offer confidence in long-term share gains

US SSS have averaged ~7.5% since 2010, supporting ~500bps of pizza segment market

share gains. Despite a challenging restaurant industry backdrop and heightened

competitive environment, Domino’s has maintained its long-term strategy to grow market

share profitability with compelling value and innovation through the evolution of its digital

platform and delivery infrastructure.

Over the last several years, DPZ has raised its long-term SSS outlook, currently guided for

3-6%. While the market has gotten accustomed to DPZ outperforming targets, SSS within

the targeted 3-6% range is still well above peers and demonstrates enviable market share

gains. DPZ has consistently met or exceeded targets, adding to our confidence in the

outlook.

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US SSS have averaged

~7.5% since 2010, generating ~500bps of

US pizza segment market share gains

25 June 2019


Figure 11: Domestic SSS have averaged ~7.5%

since 2010, reflecting consistently impressive

performance on a 1-yr and 2-yr basis.

Figure 12: Domino’s has largely outperformed long-

term outlooks set by management, which have

increased over time.

Source: Company data, Credit Suisse Source: Company data, Credit Suisse

Fragmented industry sets an attractive backdrop

The pizza segment is the most fragmented in restaurants, with the five largest chains making

up 45% of segment sales. For comparison, the five largest burger chains comprise nearly

80% of burger sales and the five largest Mexican restaurant chains make up ~70% of sales.

In every other category outside of pizza, the segment leaders maintain at least 30% of the

market share, and on average, comprise ~45% of their respective segment sales.

Figure 13: Pizza is the most fragmented segment in

restaurants, with the top five largest chains making

up less than 50% of category sales.

Figure 14: Across all segments except pizza, the

market leader makes up 30%+ of the category’s

sales.

Source: Technomic, Credit Suisse estimates Source: Technomic, Credit Suisse estimates

Domino’s is the market share leader, with 15%+ of segment sales, representing an

increase of ~560bps over the last ten years. Small chains and independents have lost

~140bps of market share over the same period, while Pizza Hut and other large pizza

chains have together lost ~10% of the segment’s sales. We believe large chains are better

positioned to gain market share over time as the segment consolidates. Structurally higher

cost structures, a shift toward margin-dilutive delivery channels and technological

investment requirements are likely headwinds for the smaller companies.

Domino’s has exhibited average domestic system sales growth of ~12% per year over the

last five years, nearly triple the rate of the US pizza segment’s ~4% average growth. Many

of the larger and regional chains have donated share, highlighting opportunities to capture

share from both larger players as well as regionals/local pizza shops. Domino’s has

indicated a US market share target of at least 25%, consistent with other market share

leaders, driven by a combination of SSS and unit growth.

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The pizza segment is the most fragmented in

restaurants, with the five largest pizza

chains making up just 45% of sales

25 June 2019


Figure 15: Small chain, independents and more

regionalized brands have lost ~700bps of market

share since 2009.

Figure 16: Large chains have represented the

majority of segment sales contribution, though

more recently, share losses from larger pizza

players have weighed on segment growth.


Best-in-class digital ecosystem as a meaningful

growth driver

Domino’s maintains an industry-leading digital platform, which has supported

outperformance relative to pizza peers and the overall industry. The company uses digital

development to lead its innovation strategy and maintain a competitive advantage. For the

first time, Domino’s added “online ordering” as a reason customers purchase from

Domino’s in its 2018 Franchise Disclosure Document (FDD).

Digital represents ~65% of Domino’s sales, with the pizza segment overall generating the

highest levels of digital utilization across the industry. Domino’s digital ecosystem and

compelling loyalty program have supported robust sales growth and a meaningful

outperformance gap relative to peers. While there are increasing concerns that digital

ecosystems will become table stakes as more restaurants invest in technology and service

providers make it more affordable for smaller companies, we still believe DPZ’s proprietary

infrastructure and integrated operations will help the company sustain a competitive

advantage. Domino’s has the potential to transition to an unprecedented nearly 100%

digital ordering business, and we expect the company to continue to evolve to be at the

forefront of innovation.

We expect Domino’s to continue to evolve its digital ecosystem through both consumer

facing and back of house technology. Domino’s already offers a voice ordering channel,

and though not widely used, can potentially be leveraged for phone orders, unlocking

capacity. Phone orders represent ~25% of the business, so greater digital conversion

should meaningfully drive benefits for restaurant operations and profitability. With every

order guaranteed to be answered in any language and automatically offer add-

ons/suggested sell, the digital technology could actually improve the customer experience.

In addition, we expect utilization of in-store technology such as kiosks makes it possible to

generate labor savings and help in the transition to an increasingly digital company.

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Digital makes up ~65% of sales, with an

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~100% of sales over time

25 June 2019


Figure 17: The pizza segment leads the industry in

digital sales mix, with the top three largest pizza

players generating at least 50% of their sales

through digital channels.

Figure 18: More than 65% of sales come from digital

channels, with expectations to approach nearly

100% long term.


High digital utilization and a large scale loyalty program offer Domino’s a significant

advantage to analyze, segment and target customers through personalized marketing

efforts and suggestive sell. Domino’s is one of the most aggressive in the industry with

suggestive selling, offering add-ons and upselling at nearly every step of the ordering

process. We expect this has been supportive of average check increases and should

continue to offer a benefit.

Figure 19: Domino’s uses suggestive sell at multiple times during the online

ordering process, likely a factor driving its healthy average mix.

Source: Domino’s Digital App

Mobile:

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Domino’s app suggests add-ons at each stage

of the ordering process, likely a

meaningful factor driving its average

check growth

25 June 2019


Figure 20: For comparison, Pizza Hut offers an “Extras” page for add-ons and

Papa John’s features popular add-ons at the top of its checkout screen.

Source: Pizza Hut Digital App, Papa John’s Digital App

Domino’s is arguably a pizza company, technology company and marketing company. The

Domino’s AnyWare platform provides a suite of ordering options, from Facebook

messenger to Amazon Alexa. We largely view the AnyWare platform as a marketing tool

to maintain relevancy and generate new news, with limited sales mix likely generated from

a tweet or Facebook message. The Hotspots program allows customers to order delivery

from nontraditional sites, though we expect minimal sales mix from the channel.

Figure 21: Domino’s offers a suite of fun and

innovative ordering platforms.

Figure 22: Domino’s offers 200K Delivery HotSpots

in the US, expanding delivery available to

nontraditional sites, though utilization is limited.

Source: Company data, Credit Suisse Source: Company data, Credit Suisse

2017 Slack

2016 Google Home

2016 Facebook Messenger

2016 Zero Clicks

2016 Apple Watch

2016 Amazon Alexa

2015 Text

2015 Tweet

2015 Pebble & Android Wear smartwatches

2015 Samsung Smart TV

2014 Voice

2014 Ford Sync AppLink

AnyWare Platform

Pizza Hut and Papa John’s both use

suggestive sell though separate from the

overall ordering process

25 June 2019


Both Pizza Hut and Papa John’s have increased investments to accelerate digital

development. Pizza Hut is playing a catch-up game to Domino’s, launching its Delivery

Tracker in early 2017, nearly a decade after Domino’s, and digital enhancements were

largely rolled out at once. Papa John’s similarly introduced its Papa Track in March 2017,

and has expanded into additional order channels, including Amazon Alexa, Apple and

Google Pay, evolved its loyalty program and expanded into a delivery partnership with

DoorDash. While pizza peers are beginning to offer similar headline features, we believe

Domino’s will maintain a competitive advantage given its holistic integration.

“Piece of the Pie” Loyalty Program

Domino’s “Piece of the Pie” loyalty program launched in late 2015 and is already one of

the largest in the industry, with ~20MM active users (ordered within last 6 months). The

ease of sign up and integration of the Pizza Profile make it a compelling and frictionless

process.

The loyalty program has consistently contributed meaningfully to SSS growth, with its

simplicity, ease of use and ease for customers to understand the value as sources of

strength. The frequency-based loyalty program rewards consumers 10 points for every

order, and consumers can redeem a free pizza once they reach 60 points. Benefits from

data analytics will likely accelerate over time given the large scale of its program.

Domino’s has created an integrated digital ecosystem built off of simplicity, consistency

and value that should continue to be a meaningful contributor to SSS going forward.

Figure 23: Domino’s frequency-based loyalty

program requires minimum spend of $60, which is

compelling relative to pizza peers.

Figure 24: We believe Domino’s loyalty program has

supported high levels of digital download share,

with Domino’s ~35% download share outpacing its

pizza market share (~15% overall and 26% among

large pizza chains).

Source: Company data, Credit Suisse estimates Source: Sensor Tower, Credit Suisse estimates

Domino’s recently launched a 12-week (February to April 2019) campaign through its

loyalty program by rewarding customers for eating any pizza, a creative attempt to acquire

new customers onto to the platform and capture more customer data. To earn points,

customers use the app to upload a picture of their pizzas, and can earn up to 60 total

points, the redemption value of a free pizza, over the promotional period.

Importantly, Domino’s used the program as an opportunity to inquire about competitors

and customers’ experiences. The company also inquired about other loyalty program

memberships to assess competitive overlap. Questions ranged from where customers

ordered the pizza from, how the pizzas were ordered, the quality of the pizza, the type of

pizza ordered (i.e., crust, sauce, cheese, meat) and reward program membership.

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Domino’s frequency-based loyalty program

has meaningfully contributed to SSS

since it launched in late 2015

25 June 2019


Figure 25: Domino’s Points for Pies Promotion (February to April 2019)

Source: Domino’s App

Consistent value messaging

Execution against value has supported strength, through consistent permanent value

platforms, including a $5.99 Mix & Match deal, $7.99 carryout deal and $19.99 combo

meal deal. Domino’s has maintained its $5.99 deal for nearly a decade, with options

spanning the entire menu, encouraging trial, flexibility and limiting menu fatigue. The $5.99

Mix & Match deal requires the purchase of at least two items, setting a floor for minimum

tickets and supporting margins. Beyond the $5.99 deal, Domino’s has maintained a

permanent $7.99 large three topping carryout deal, which has helped drive growth in that

part of the business, as well as other periodic promos and deals.

Domino’s value strategy is based on consistency. Domino’s sends customers emails daily,

featuring its $5.99 Mix & Match deal in every single communication, and often includes its

$7.99 carryout and $19.99 combo in the majority of its communications. Additionally, its

homepage also features the three national value offers, communicating a consistent

message across channels and across time. For comparison, Pizza Hut also features its $5

Lineup and $7.99 online national price points on its website, though email marketing is

lacking (though has picked up in recent weeks). Papa John’s has relatively inconsistent

value messaging across different platforms.

Execution against consistent value

messaging has supported share gains

25 June 2019


Figure 26: Domino’s prominently features its three

value deals on its website.

Figure 27: Domino’s maintains a consistent

message by offering the same deal through its

email marketing (and selectively through text).

Source: Domino’s website Source: Domino’s Email – 5/9/19

Menu innovation is limited

Domino’s does not use menu innovation as a driver of growth. The company rarely

introduces new items to the menu. It appears the company’s strategy is to use value deals

as a consistent message, digital innovation as an opportunity to generate new news and

limits operational complexity to optimize operations..

In August 2016, Domino’s rolled out salads nationwide, which are available on the $5.99

meal deal and can help eliminate the veto vote, though unlikely a high volume category.

Bread twists were introduced in mid-2017, a complementary add-on with potential for

suggested sell and supportive of higher average tickets.

Increased focus on driving carryout business

As the rest of the restaurant industry shifts into the food delivery channel, Domino’s has

increased its focus on the carryout side of its business, which represents approximately

1/3 of sales. Domino’s has indicated carryout sales are largely incremental and supportive

of its fortressing strategy as consumers are less willing to travel long distances to pick up a

pizza. We believe this strategy allows the company to remain defensive as delivery

expands into different segments, and also offers added flexibility on value, as carryout

orders eliminate the cost of delivery. Further, in a tight labor market, particularly with

delivery drivers, carryout can help unlock some capacity and drive additional sales.

Carryout represents ~1/3 of Domino’s US sales mix, highlighting opportunity for further

growth. As other restaurants push the delivery message, we believe Domino’s could gain

further share in the carryout segment.

New menu innovation does not appear to be a

meaningful part of the strategy

Carryout sales can help offset increasing

competitive pressure in the delivery segment and unlock capacity

25 June 2019


Figure 28: Pizza delivery sales have remained

largely stable, while carryout has increased over the

last several years.

Figure 29: Carryout represents ~1/3 of sales for

Domino’s, with opportunities for further share gains

closer to competitors.

Source: Company data, Credit Suisse estimates Source: Company data, Restaurant Research Journal, Credit Suisse estimates

International market strong, but some slowdown

raises concerns

Domino’s has demonstrated 101 consecutive quarters of positive international SSS

averaging ~6% over the last ten years, largely driven by traffic growth. Growth has slowed

more recently, with 1Q19’s 1.8% SSS the lowest comp over the last decade. 2-yr SSS

trends have also decelerated, with 2018 2-yr trends down ~300bps to ~6.9%, relative to

~9.7% in 2017 and ~14.1% in 2016. 2017 and 2018 were the lowest international SSS

over the last 20 years.

We model international SSS of 3.1% in 2019 and ~3.5% longer term, near the low end of

DPZ’s long-term guidance of 3-6%. Our go-forward estimates are below historical

averages given ongoing expectations for an elevated drag from new store cannibalization

given DPZ’s fortressing strategy, more recently lower SSS and the potential impact of

increasing global delivery competition. Consensus models international SSS of 2.8% in

2019 and ~3.5% over the next few years, relatively in-line with the last two years.

Figure 30: International SSS have averaged ~6%,

though have decelerated more recently.

Figure 31: We expect international SSS of ~3.1% in

2019 and ~3.5% over the next several years, in-line

with consensus expectations and DPZ guidance.

Source: Company data, Credit Suisse estimates Source: Company data, Consensus Metrix, Credit Suisse estimates

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We model international SSS of 3.1% in 2019

and ~3.5% LT, near the low end of DPZ’s 3-6%

target

25 June 2019


New store cannibalization pressuring international SSS

The proliferation of new store growth in existing markets is one factor weighing on

international SSS trends, with territory splits now making up the majority of unit growth in

certain markets.

In the United Kingdom, splits have had a ~200-300bps drag on SSS on the region’s SSS.

Going forward, the majority of new store openings are expected to be splits, which will

continue to pressure SSS. While sales appear to recover over time and the company

benefits from overall market share gains, near-term organic SSS growth will remain

pressured. With the UK one of DPZ’s largest international markets representing ~11% of

international stores, we expect international SSS to see a drag from this strategy.

Figure 32: The majority of new unit growth is

expected to come in the form of splits.

Figure 33: Increased unit growth and greater splits

have weighed on SSS.

Source: Company data, Credit Suisse estimates

Note: 2018 unit growth estimates reflect Domino’s Pizza Group (DOM) guidance for 2/3 split unit composition.


India represents ~12% of international units. SSS performance improved in 2018, though

unit growth has notably decelerated over the last two years. Recently, India’s master

franchisee, Jubliant Foodworks (JUBI), has indicated intent to incorporate the fortressing

strategy in certain areas through some store splits (which the market has done before).

Given the market’s relatively large store base and lower unit growth, the splits should not

have a material impact on the region’s SSS, though could add some pressure relative to

more recent quarters with modest unit growth. JUBI indicated new opens should not affect

SSS by more than 200-300bps, noting existing stores affected by splits return to the same

level within one year.

Figure 34: SSS have been somewhat volatile, with

2018 performance the strongest in several years.

Figure 35: Unit growth in the region has

decelerated, likely alleviating SSS pressure on the

base.


Note: SSS above reflect calendar quarters. Jubilant Foodworks (JUBI) FY end March 31.


Note: Unit growth reflects calendar years.

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25 June 2019


Increasing penetration of global delivery aggregators

The proliferation of delivery aggregators has been a common theme across geographies

given the potential impact on the pizza segment and DPZ’s digital and delivery strength. In

the US, Domino’s has largely strayed away from delivery aggregators and does not

appear to have plans to add presence on a national scale (though franchisees may

choose to be on a third-party platform). Internationally, master franchisees appear to be

more open to at least testing partnerships with third-party providers as they grow in scale

and customer demand continues to shift toward delivery.

India tested delivery through third-party partners, though has since pulled back and

decided to control the end-to-end experience. The master franchisee, JUBI, has noted the

growth in third-party delivery driven by fundamental consumer changes (greater demand

for convenience, increasing number of women in workforce, more traffic/congestion) and

discounting. The company is working with aggregators from a platform presence

perspective, though not to complete the actual delivery.

The master franchisee, DOM, views delivery aggregators as a potential gateway to

acquire new customers. The company has been on an aggregator platform in Switzerland

for several years and in Norway and Iceland there is minimal if any aggregator presence.

In the UK, DOM recently ran a 20-store trial through Just Eat, indicating overall profit per

order was actually higher than a direct order, with nearly 40% of customers new to

Domino’s. The UK is extending the trial to more than 100 stores in 2019, highlighting

aggregators tend to appeal more to younger cohorts and can be a potential customer

acquisition channel.

DMP in Australia has also indicated it is partnering with aggregators across different

markets, viewing the platforms as a customer acquisition tool and a search engine. Given

lower discounts offered on these platforms, the orders are still profitable transactions.

DMP has also highlighted customers tend to be incremental and are different customers

not specifically entrenched to a brand or cuisine.

ALSEA has also called out the rise of third-party delivery apps pressuring Domino’s

delivery sales in Spain in particular.

25 June 2019


Will third-party delivery eat into Domino’s US market share? Credit Suisse View

No, we don’t expect the expansion of third-party delivery to meaningfully eat into Domino’s

US market share, though it is likely to represent incremental pressure for the foreseeable

future, driven by: 1) increasing demand and supply from third-party delivery providers

fueling higher awareness; 2) aggressive promotions/discounts; 3) QSR chains offering

delivery; 4) cross-branded campaigns between aggregators and large QSR chains; and 5)

competition for delivery drivers. Long term, we believe the pizza delivery market will

largely maintain its delivery market share, and view Domino’s as best positioned to

continue to gain share within the segment given the strength of its digital ecosystem and

long-term strategic approach. We expect Domino’s loyalty program and superior execution

in delivery will allow the company to maintain a competitive advantage even against

increasing competitive pressure in the delivery channel.

In 1Q19, Domino’s reported its lowest domestic comp in 21 quarters (3.9% in 1Q19 vs 8.7%

avg over 21 qtrs), identifying aggressive promotional activity by delivery aggregators as a

pressure point. While Domino’s has historically indicated limited impact from aggregators, we

believe the 2019 inflection reflects: 1) partnerships and cross-marketing campaigns between

delivery aggregators and QSR chains, and 2) increased advertising by aggregators with

greater access to capital as they grow, particularly at times when the convenience of delivery is

more in demand. We believe the greatest delivery share risk is at the late night daypart, during

at-home events (i.e., major sporting events, elections, etc.) and with inclement weather.

Despite increasing competition, we believe the pizza segment will largely maintain its

delivery market share despite increasing competitive threats given: 1) customers largely

choose the pizza cuisine, limiting the potential share shift; 2) customers prefer individual

brand platforms over third-party aggregators; 3) pizza is a cuisine that maintains its

integrity and travels well; 4) pizza delivers attractive value to the customer based on the

amount of food; and 5) restaurant operators and delivery aggregators still have significant

challenges ahead to improve economics for all parties involved, ensure operational

execution, develop a better system to share data and to limit the customer shift to third-

party platforms. We do believe regional and local chains are facing greater risk given the

aforementioned challenges, as delivery becomes an expectation.


We believe consensus is pricing in pressure from the increasing growth of delivery

aggregators, with domestic SSS estimates of ~4-4.5% over the next several years below

DPZ’s average ~9% over the last five years and lower than prior estimates (albeit in part

related to decelerating comps in recent quarters, also a function of increased competitive

pressure). A significant number of questions in recent quarters have been focused on the

impending impact of third-party delivery, and expectations for delivery market share

growth among other QSR chains to be sourced from the pizza segment.

Domino’s delivery infrastructure is a competitive

advantage…

Domino’s is the number one delivery player in the number one delivery category, uniquely

positioned relative to every other restaurant concept. While many large QSR competitors

have recently partnered with third-party providers, challenges remain, and likely

exacerbate over time as incrementality and the benefit of “newness” declines. Delivery is a

core competency for Domino’s, which we believe has been a meaningful driver of its

success. In contrast, even other pizza chains have failed to execute delivery at the same

level as Domino’s, and we’re unconvinced third-party aggregators will be able to approach

25 June 2019


Domino’s execution levels any time soon. That said, a flexible work schedule and

potentially higher pay could be a meaningful headwind in attracting delivery drivers for

Domino’s regardless of its proprietary delivery infrastructure.

■ Overall experience – Domino’s has full control of the customer experience, from initial

order to customer delivery. In contrast, restaurants on third-party platforms hand off

control to the third-party provider completing the last mile, though ultimately are

responsible for the end experiences. While customers currently appear more accepting

of lower quality delivery orders in exchange for convenience, we’re not sure they will be

as forgiving longer term.

■ Quality control – Restaurants have limited control over the quality of the food once it

is handed off to a third party. As third-party delivery drivers seek to maximize their

order count, the quality of the food could be secondary (i.e., could wait around for

multiple orders from restaurants before delivering). In contrast, Domino’s has strict

standards regarding food quality and maintains control over the “chain of custody.”

Based on discussions with franchisees from pizza competitors, the quality of the food

delivered by third-party aggregators has been an issue.

■ Economics – Delivery is expensive for all stakeholders, including delivery drivers,

restaurants and customers. Aggressive promotions and discounting have helped drive

customer demand for delivery, though third-party aggregators and restaurants have

borne much of that customer acquisition cost. Over time, we expect costs to largely

shift to customers in the form of inflated delivery menu prices, delivery fees and service

fees. While delivery demand seems relatively inelastic right now, we don’t view that as

sustainable on a larger scale. Additionally, pizza arguably offers one of the best value

propositions for customers, and as newness and aggressive discounting dissipates, we

think the value of pizza will help sustain the segment’s delivery market share.

■ Data – Third-party aggregators own the data transacted through their platforms, giving

minimal information to restaurants about their own customers, while also having

powerful and diversified data. In contrast, customer transactions through restaurants’

own branded platforms captures proprietary data that can be used to better market and

segment customers. Access to data from digital platforms has been a key driver of

success from industry-leading share gainers over the last several years, including

Domino’s, Starbucks and Panera. New up-and-coming restaurant chains are also

leaning into their digital strategies.

■ Customer Shift – Delivery through aggregator platforms alone creates risk that

customers will shift onto the platforms, get introduced to competitors and choose to

start at the platform in the future rather than consider the restaurant from the start.

We do believe presence on a platform could be beneficial should it be incremental to

the business and attract new customers, particularly as third-party aggregators

expand and acquire new customers. Domino’s digital ecosystem is a core tenet of its

success, and risk of customer shift could be high relative to restaurants with nascent

and small digital platforms.

…but not ruling out presence on delivery platforms

Domino’s has been very clear about its unwillingness to allow a third-party to complete the

last-mile of delivery given concerns around the quality of the food and experience.

Franchisees in select markets have signed up with aggregators, which could help offset

some risk of delivery share shift to platforms, while offering an opportunity to enter the

consideration sets of customers.

We do not expect Domino’s to partner with a third-party aggregator of any kind at a

national level, though we do believe franchisees have the decision to partner with

platforms for order aggregation.

25 June 2019


Domino’s has indicated company-operated delivery is the lower cost option relative to

outsourcing to third-party providers given scale. However, we expect if Domino’s followed

the strategy implemented by many QSR chains and inflated delivery menu prices on

aggregator platforms to cover commission costs and/or do not offer traditional promotions,

the economics could be compelling. However, we also recognize the added potential cost

of poor execution from third parties.

There is some level of overlap between digital Domino’s users and third-party platforms,

suggesting there could be some cannibalization from presence on platforms, but such is

limited. ~10-15% of Domino’s digital users also use the four largest third-party platforms

(Grubhub, DoorDash, Uber Eats, Postmates). Customers using these platforms could

choose to transact through third parties rather than Domino’s directly, which would be a

negative, though it seems to be relatively limited in scope, for now. On the other side, ~15-

20% of customers using third-party platforms also transact through Domino’s digitally. This

suggests Domino’s could access the ~80-85% of customers on these platforms not currently

transacting through Domino’s. This could represent an opportunity to attract new customers,

as well as reduce the impact of the growing popularity of third-party aggregators.

Figure 36: ~10-15% of Domino’s digital users also

use the four largest third-party platforms.

Figure 37: ~15-20% of third-party delivery

customers also transact with Domino’s digitally,

highlighting an opportunity for Domino’s to reach

seemingly incremental 80-85% of third-party

delivery customers.

Source: comScore, Credit Suisse estimates Source: comScore, Credit Suisse estimates

Competition for delivery stomach share is growing

Demand and supply from third-party delivery providers is growing

The exponential growth of third-party delivery providers undoubtedly represents a

competitive threat to the pizza segment, which has largely faced minimal competition in

the delivery channel to-date. Third-party delivery providers have meaningfully expanded

geographic coverage and the number of restaurants on their platforms. Many QSRs have

stepped up their investments and are increasingly engaging with third-party partners,

fueling growth in the delivery channel. Further, these third-party platforms help level the

playing field for smaller companies to engage with consumers on a large scale.

Industry conferences, articles, research and discussions have focused on the delivery

channel as the industry navigates through dynamic changes. This is transforming delivery

into a “need-to-have” channel, and third-party delivery is the fastest way to “turn on”

delivery, driving the growth of the aggregators.

Based on our analysis of digital app downloads over time, third-party delivery platforms

are meaningfully growing download share relative to pizza companies. Over the past

several years, growth in third-party platform downloads have outpaced that of traditional

pizza companies. While this is in part due to the relative newness of these platforms,

such highlights increasing demand for delivery. For reference, Domino’s has ~20MM+

0%

5%

10%

15%

20%

25%

Pizza Hut Papa

John's

GrubHub DoorDash Uber Eats Postmates

Pizza Peers Delivery

% D

om

ino's

Use

rs

Cro

ss V

isiti

ng

0%

5%

10%

15%

20%

25%

30%

Pizza Hut Papa

John's

GrubHub DoorDash Uber Eats Postmates

Pizza Peers Delivery

% P

izza

Peers

/Deliv

ery

Use

rs

Cro

ss V

isiti

ng

25 June 2019


active users on its digital platform. Grubhub has already amassed 19MM+ active users

as of the end of 1Q19 alone, and together with other aggregators, would meaningfully

top Domino’s users.

Figure 38: Delivery app providers are now growing

digital downloads at a faster rate than the pizza

players.

Figure 39: There is notable overlap among top

digital aggregators, highlighting competition in the

restaurant space overall as well as among delivery

providers.

Note: Read starting from left. Example: 34% of Uber Eats users also visit Grubhub. 19% of Grubhub digital users also use Uber Eats.

Source: SensorTower, Credit Suisse estimates

Note: Pizza Apps include Pizza Hut, Papa John’s, Hungry Howie’s, Domino’s, MyCicis, Little Caesars, Blaze, Papa Murphy’s, PizzaRev, Pieology and Marco’s. Delivery Apps include Grubhub, Seamless, Delviery.com, Postmates, DoorDash, Caviar and Uber Eats.

Source: comScore, Credit Suisse estimates

Figure 40: Based on Google search volumes by metro areas, Domino’s has lost relative volume share

compared to the largest delivery aggregators, highlighting the increasing competitive threat from these

players (we use Grubhub and DoorDash as proxies).

Source: Google Trends, Credit Suisse estimates

Aggressive promos and discounts have recently driven more compelling value proposition

Increasing advertising by the largest third-party delivery aggregator, Grubhub, the launch

of DoorDash’s first TV campaign in January and co-marketing campaigns between QSR

chains and third-party providers suggest increasing competition for share of voice in

delivery. Grubhub spent $170MM in advertising in 2018, a ~60% increase from 2017,

which does not even include free promotions it might offer with select partners (i.e., Taco

Bell). Many other platforms also fund free delivery periodically for select chains to drive

trial as part of the partnership.

0%

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9

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Pizza Apps Delivery Apps

Uber Eats Grubhub DoorDash Postmates

Uber Eats 34% 35% 19%

Grubhub 19% 27% 12%

DoorDash 22% 30% 15%

Postmates 23% 27% 30%

Cross App Usage

2013 2014 2015

2016 2017 2018

25 June 2019


Expansion of QSR chain delivery pressures delivery segment, particularly with cross-branded campaigns

With delivery now available across nearly all large public restaurant chains, the pizza

segment no longer has a competitive advantage in the channel. To some extent, we

believe the cuisine and price of QSR chain delivery has been secondary to the excitement

of customer trial. The chains’ national access and delivery marketing campaigns represent

incremental pressure in the segment that has not existed before, even amidst the growth

of third-party delivery over the last several years. QSR chains are significantly driving

delivery channel awareness and trial.

We looked at relative search queries based on data from Google Trends for Domino’s and

select competitors within the context of search volume for delivery. For the first time in

1Q19, Taco Bell and Chipotle gained relative search share in select markets. We also note

both of these brands launched marketing campaigns to highlight the offering. Taco Bell

and Grubhub launched a co-marketing campaign, with Taco Bell featuring delivery in its

advertising and Grubhub featuring Taco Bell on its platform and funding free delivery.

Chipotle also ran a few marketing campaigns related to digital and delivery, including a

Free Delivery Bowl offering (December 18 to January 7), free delivery during Super Bowl

weekend and TV advertising during March Madness.

Figure 41: Based on Google search volumes by

metro areas, Chipotle and Taco Bell have gained

relative search volume share for delivery for the

first time in 1Q19.

Figure 42: Chipotle and Taco Bell continued to

generate high delivery search volumes in April

2019, highlighting delivery promotions from 1Q19 is

driving more sustainable delivery interest.

Source: Google Trends, Credit Suisse estimates Source: Google Trends, Credit Suisse estimates

Note: Google Trends through April 2019.

Fighting for delivery drivers, not just sales

Labor is the number one concern among restaurant operators. While restaurants are still

navigating through higher cost structures and fears of additional wage hikes, labor supply

remains a challenge. Unemployment is near historical lows, and it appears the supply of

delivery drivers is even lower. Given the rapid growth of on-demand apps requiring

delivery drivers, even outside of the food space, operators seem to be having a hard time

finding and retaining good talent. We believe this limited supply pool could affect

opportunities for new unit growth, lead to a reduced service experience and potentially

result in lost sales. Based on our channel checks, Domino’s as well as other concepts

have had to turn down or cancel delivery orders because of insufficient delivery driver

staffing. Given expanded job opportunities for delivery drivers (even outside of restaurant

delivery), we believe attracting and retaining good drivers could be difficult.

Third-party aggregators offer attractive pay opportunities and a flexible work schedule,

which are advantageous relative to Domino’s, which has more stringent

requirements/standards. Other benefits such as mileage reimbursement and distances to

travel could affect the relative pay scales.

1Q19 April 2019

25 June 2019


The shift toward aggregators over time

Increasing awareness, geographic coverage and restaurant partnerships are indicative of

the growing demand and supply of delivery aggregators, with share expected to increase

over time. Based on our survey of consumers in March 2019, delivery aggregators are

gaining favor among consumers as a preferred choice for delivery. On average, ~14% of

consumers indicated third-party platforms were their preferred ordering methods, up from

10% in July 2018. Across all age groups and neighborhoods, less consumers indicated

their preferred ordering method was calling the restaurant directly, suggesting digital could

improve the overall customer experience.

~50% of consumers indicated ordering directly through the restaurant website/app was

their favorite ordering method, an increase of ~7% from July 2018 and now the most

preferred ordering method. More than 60% of consumers age 18-29 selected ordering

through restaurant website/app as their preferred method (+13% March 2019 from July

2018), which we believe is in part due to the offering of loyalty/rewards programs, which

seems to be the most important and intent-driving factor relative to other cohorts.

While we do believe third-party aggregators will grab a greater market share over time, the

overall customer experience from branded websites/apps is superior to the platforms and

is a competitive advantage, for now. Domino’s remains well positioned given its digital

ecosystem and compelling loyalty program, and expect the company to defend its share

even in an environment of growing penetration from delivery aggregators.

Figure 43: On average ~14% consumers indicated

third-party platforms as the preferred delivery

method, with some range across cohorts.

Figure 44: Consumers across age groups are

shifting to digital channels, with the greatest

change in delivery aggregator preference among

those ages 30-44, and the greatest move toward

branded websites/apps among those ages 18-29.

Source: Survey data, Credit Suisse estimates Source: Survey data, Credit Suisse estimates

12%22%

12% 8%

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60%

70%

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100%

18-29 30-44 45-60 60+

Age

% R

esp

ondents

What is/would be your preferred method to order delivery?

Call the restaurant Restaurant website/mobile app Third-party aggregator

-15%

-10%

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15%

18-29 30-44 45-60 60+

Chan

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arch

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25 June 2019


Figure 45: Consumers in urban markets tend to

prefer third-party aggregators, though this is in part

due to the availability and magnitude of restaurants

relative to suburban/rural neighborhoods.

Figure 46: Consumers are increasingly shifting

toward digital channels to order delivery across

neighborhoods.


Pizza segment should be able to hold onto its

delivery market share long term

Despite increasing competition, we believe the pizza segment will largely maintain its

delivery market share long term despite increasing competitive threats given: 1) customers

largely choose the pizza cuisine, limiting the potential share shift; 2) customers prefer

individual brand platforms over third-party aggregators; 3) pizza is a cuisine that maintains

its integrity and travels well; 4) pizza delivers attractive value to the customer based on the

amount of food; and 5) restaurant operators and delivery aggregators still have significant

challenges ahead to improve economics for all parties involved, ensure operational

execution, develop a better system to share data and to limit the customer shift to third-

party platforms. We do believe regional and local chains are facing greater risk given the

aforementioned challenges, as delivery becomes an expectation.

Consumers largely choose to order pizza

Pizza is a top of mind choice for consumers that choose to order delivery given the

segment’s delivery association. Pizza tends to travel well relative to other cuisines, and we

believe many households specifically select pizza as a cuisine, and do not simply choose

to order delivery. Based on our survey of 1,000+ consumers in March 2019, pizza remains

the top cuisine for ordering delivery, with ~65% of consumers indicating they would most

likely order pizza for delivery. Additionally, nearly 65% of consumers first choose the type

of food they want and then choose where delivery is available. This compares to ~35% of

consumers that first decide they want delivery and then select the type of food. We believe

this highlights that pizza is often selected as the cuisine of choice and can be a different

occasion, not necessarily directly competing for delivery share among different cuisines.

19% 14%5%

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40%

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60%

70%

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Urban Suburban Rural

Neighborhood

% R

esp

ondents

What is/would be your preferred method to order delivery?


-15%

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-5%

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Urban Suburban Rural

Chan

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25 June 2019


Figure 47: Based on our consumer survey, pizza is

the top cuisine chosen to order for delivery.

Figure 48: Consumers tend to first select the

cuisine they want to order, and then choose where

delivery is available.


However, we expect at a certain frequency level, the availability of other cuisines for delivery

could eat into pizza delivery market share. Notably, the availability of other delivery

options appears to have a more meaningful impact on 1) more frequent delivery

consumers, and 2) younger cohorts. We expect a greater impact at certain times where

the pizza cuisine has otherwise enjoyed a competitive advantage and restaurants have

experienced lost sales, such as inclement weather and large at-home events.

On average, ~25% of consumers indicated the number of times they order pizza has

changed given the availability of other restaurant delivery options. Among consumers that

order pizza delivery at least 3-4 times per month, ~30% indicated the availability of other

cuisines has affected their pizza delivery. Nearly 50% of consumers that order delivery at

least 5 times per month indicated optionality has affected their pizza delivery consumption.

While we believe pizza delivery could be a separate occasion and consumers explicitly

choose pizza, pizza delivery market share could be at risk in part among frequent delivery

consumers that are likely using the delivery channel more for convenience.

Age tends to influence the impact of other delivery options as well, with ~35% of

consumers ages 18-29 indicating the availability of other delivery options are affecting

their pizza delivery orders. This is likely due in part to higher delivery order frequencies

among younger consumers.

Figure 49: Availability of alternative delivery options

has a more significant impact on higher frequency

delivery consumers. Nearly 50% of consumers that

order pizza delivery at least 5 times per month have

changed their frequency as a result of other options.

Figure 50: ~35% of consumers have changed their

pizza delivery order consumption as a result of

other delivery options, relative to ~25% on average.


0%

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70%

Pizza

Chin

ese

Mexi

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Burg

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/

Sandw

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(Thai,

Sush

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% R

resp

ondents

What cuisines would you most likely order for delivery?

66%

34%

First choose what type of food you

want (i.e. pizza) and then choose

where delivery is available

First decide that you want food

delivered to you, and then select the

type of food

% Respondents

When ordering delivery, do you:

0%10%20%30%40%50%60%70%80%90%

100%

Average Never 1-2 times per

month

3-4 times per

month

5 or more

times per

month

Pizza Delivery Frequency

% R

esp

ondents

Has the # of times you order pizza each week/month

changed with the availability of other delivery options?

Yes No

0%10%20%30%40%50%60%70%80%90%

100%

Average 18-29 30-44 45-60 60+

Age

% R

esp

ondents

Has the # of times you order pizza each week/month

changed with the availability of other delivery options?

Yes No

25 June 2019


Brand platforms still preferred over aggregators

Despite the strong growth among third-party delivery providers, consumers still show a

preference to order delivery directly from the restaurant. ~85% of consumers in our survey

indicated they prefer to order delivery directly from a restaurant website/app or by calling

the restaurant, with just 15% that prefer online aggregators.

There appears to be a relationship between the frequency of delivery orders and

consumers’ preferences toward third-party aggregators. Among consumers who never use

delivery, only ~6% would choose to order from third-party platforms. As the frequency of

delivery increases, consumers’ affinity toward delivery aggregators tends to increase,

likely suggesting consumers become less sensitive to the cuisine or restaurant, and more

inclined to order delivery for the convenience. Among consumers who order delivery 5+

times per month, a notable 36% of respondents prefer to order from third-party platforms.

Looking at consumers who order pizza delivery specifically, a similar ~85% of consumers

prefer to order from the restaurant directly, which is largely consistent irrespective of pizza

delivery order frequency. Among consumers who order pizza delivery at least 5 times per

month, 22% indicated their preferred channel is third-party aggregators, compared to 36%

among users who order other cuisines for delivery at least 5 times per month. The pizza

chains’ early lead in the digital evolution, secured mindshare in consumers’ consideration

sets, and established real estate on consumers’ phones could support greater defense

against the rise of third-party aggregators.

Figure 51: More frequent delivery consumers tend

to have a greater affinity toward third-party

aggregators.

Figure 52: Pizza delivery consumers tend to prefer

to order from the restaurants directly, with a

consistent 14% indicating a preference for

aggregators.


Pizza travels well, though not all cuisines may maintain the same quality

While customers appear relatively forgiving of the quality of food in favor of convenience

currently, we don’t believe customers are willing to lower the bar across the board for

delivery long term. One of the reasons pizza has been a top cuisine choice for delivery is

the ability to maintain the integrity of the product from restaurant to the customer. The

pizza box packaging is a good conduit for movement (including the little table in the middle

of the pizza), pizza can stay hot for a relatively long period of time and pizza can be

reheated well. In contrast, other cuisines do not travel as well, are not prepared in the

proper packaging and cannot be reheated successfully.

14% 6% 13% 22%36%

0%10%20%30%40%50%60%70%80%90%

100%


month

3-4 times per

month

5 or more times

per month

Frequency among ALL Delivery Users

% R

esp

ondents

What is/would be your preferred method to order ANY delivery?


14% 12% 14% 15% 22%

0%10%20%30%40%50%60%70%80%90%

100%


month

3-4 times per

month

5 or more times

per month

Frequency among PIZZA Delivery Users

% R

esp

ondents

What is/would be your preferred method to order PIZZA delivery?


25 June 2019


Figure 53: Fries do not hold up as well as other

delivery products, often coming soggy at high wait

times.

Figure 54: Traditional packaging may not be

sufficient for delivery, requiring companies to take a

long-term view and investment in the channel

(though some are less willing).

Source: Credit Suisse (Delivery May 2019 in NYC) Source: Credit Suisse (Delivery May 2019 in NYC)

Delivered pizza has an attractive value proposition

Despite what appears to be seemingly inelastic demand for delivery currently, it is unclear

how sustainable the current delivery model will be long term. To improve delivery

economics, many QSR chains are inflating delivery menu prices or adding service fees to

offset margin dilution. Additionally, many of the chains do not offer their national value

promotions through delivery channels. As a result of higher delivery prices, lower

promotional take rates through delivery and benefits of suggestive sell (and to some extent

group orders), delivery transactions tend to be 1.5-2x the size of an in-store order. Pizza

arguably offers the most attractive delivered value, in part due to pizza chain restaurants’

value promotions, which are largely non-existent for other cuisines through delivery.

Delivery challenges must be addressed as volumes increase

Challenges with delivery include: 1) incremental delivery costs weigh on already thin

margins; 2) operational execution for restaurants and third-party delivery is still a work-in-

progress (i.e., integration efforts, layout, etc.); 3) data is not being shared as freely as

restaurants would like; and 4) there is risk customers will shift to aggregator platforms as

restaurants market the ease and availability of these offerings through partnerships.

While restaurants are inflating delivery prices and adding service fees, aggregator platforms

are adding delivery fees and customers are still responsible for tips. The combination of

these fees could make the order total ~50%+ higher. Shifting costs to customers seems to

be working right now, but we’re not convinced this is a sustainable model.

Restaurants are still working to optimize operations through integration efforts, delivery

sales forecasting and staffing needs and layout improvements as their digital channels

grow. Third-party delivery providers are also still working through challenges of increasing

demand and fulfilling orders as efficiently as possible.

As we’ve previously highlighted, limited data sharing from delivery providers to restaurants

is a major negative in the partnerships.

Long-term benefits from third-party partnerships are still unknown. Grubhub recently

indicated its co-marketing campaign with Taco Bell in 1Q19 attracted many new diners.

Importantly, Grubhub indicated some new diners are reordering from Taco Bell, with the

majority trying other restaurants on the platform. This highlights our key concern that these

25 June 2019


partnerships are shifting customers to become platform customers and introducing them to

new competitors. Should Taco Bell decide to integrate delivery in its app, we think it will

have a difficult time reattracting the customers to use its own branded platform given the

ease of use of Grubhub’s ecosystem.

In our view, best practice for restaurants starting to offer delivery is to integrate the

channel directly with their digital apps/websites and have third-party partners fulfill the

order. This should allow restaurant chains to improve economics through a lower

commission structure, capture customer data and limit customer shifting. Presence on

aggregator platforms could also unlock opportunities for incremental orders.

25 June 2019


Can DPZ reach 25,000 units by 2025? Credit Suisse View

Yes, we believe DPZ can reach 25,000 units by 2025, with contribution from accelerating

domestic growth and ongoing strength internationally. The 25,000 unit growth target

implies global growth of ~7% over the next four years (7.9% 5-yr CAGR), including ~4.5%

domestic unit growth (3.3% 5-yr CAGR) and ~8% international unit growth (11.2% 5-yr

CAGR). We model global unit growth of ~7% through 2022, including domestic unit growth

of ~5% and international unit growth of ~8%. Assuming DPZ maintains our average unit

growth estimates through 2025, the company would achieve ~25,000 global units.

Our confidence in accelerating DPZ global unit growth to ~25,000 units comes from: 1)

global brand strength, fundamentals and operating momentum; 2) domestic whitespace

opportunities with fortressing strategy in existing markets; and 3) international

development opportunities, with increased visibility from master franchise agreements.


Consensus models global unit growth of ~7% through 2022, including ~4.5-5% domestic

unit growth and ~8% in international markets. Applying consensus’ four-year forward

CAGR through 2025 implies DPZ global units of 25,000+, suggesting consensus also buys

into DPZ’s unit growth targets.

DPZ maintains robust global unit growth opportunity

DPZ has exhibited global net unit growth of 7.3% over the last five years, including 3.3% in

the US and 11.2% internationally. Increasing contribution from domestic development

similar to recent levels and continued robust international expansion should support

growth of ~7% over the next few years. Our estimates are relatively in-line with consensus

and at the midpoint of DPZ’s long-term net unit growth target of 6-8%.

DPZ has consistently met or exceeded its long-term unit growth targets over the last

several years, giving us added confidence in the targeted 25,000 units by 2025. Further,

the implied 6.7% unit growth CAGR over the next seven years to reach 25,000 units is a

step down from the 7.3% unit growth CAGR over the last seven years, with DPZ

maintaining 7%+ unit growth over the last four years.

Figure 55: DPZ has maintained global unit growth of

7.3% over the last seven years and 7.9% over the

last five years.

Figure 56: International growth is expected to

contribute to the majority of our estimated ~7%

global growth.


5.3%6.2%

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CSe Domestic Consensus Domestic DPZ Domestic

CSe Int'l Consensus Int'l DPZ Int'l

DPZ has grown at a 7.9% unit CAGR over

the last 5 years, including 3.3% in the

US and 11.2% internationally

25 June 2019


Figure 57: DPZ has consistently met or exceeded its

long-term unit growth targets, giving us added

confidence in the company’s ability to meet its long-

term targets.

Figure 58: We model global net unit growth of ~7%

over the next few years, at the midpoint of DPZ’s

guidance of 6-8%, and in-line with consensus.


Domestic Unit Growth

DPZ has demonstrated domestic net unit growth of 3.3% over the last five years, with

acceleration each year since 2012. We estimate domestic net unit growth of 4.7% through

2022, above consensus’ 4.4% and somewhat above DPZ’s implied unit growth of ~4.5%

to reach a targeted ~8,000 units by 2025.

Our confidence in above average domestic unit growth of 4.7% over the next several

years comes from: 1) strong fundamentals and operating momentum; 2) favorable

franchisee relationships and more optimal franchisee base; 3) robust whitespace

opportunities in a fragmented category; and 4) fortressing strategy providing increased

visibility into development pipeline.

Figure 59: DPZ has demonstrated domestic net unit

growth of 3.3% over the last five years, with

acceleration each year behind strong fundamentals,

favorable franchise relationships and whitespace

opportunities.

Figure 60: We model domestic net unit growth of

4.7% over the next few years, slightly above

consensus expectations of 4.4% and DPZ’s implied

domestic target of 4.5%.


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CSe Consensus DPZ Implied Target

We model domestic unit growth of 4.7%

through 2022, above 3.3% over the last five

years

25 June 2019


Figure 61: DPZ has indicated a domestic unit

growth potential of ~8,000 units by 2025. Based on

our estimates through 2022, such would imply a

step down to ~4.2% through 2025.

Figure 62: We expect domestic unit development to

represent ~25% of global growth over the next

several years, relative to ~15-20% over the prior few.


Strong fundamentals and operating momentum

Since 2010, DPZ has delivered average domestic SSS of ~7.5%, primarily through

increased traffic, well outpacing industry peers and driving strong franchisee economics.

Domino’s should continue to maintain industry-leading SSS through traffic gains and

healthy ticket.

Average franchisee EBITDA in 2018 was ~$141K per store, representing growth of ~230%

since 2009 and a ~2-3 year payback period. At an enterprise level, the average franchisee

owns ~7 stores, generating ~$975K of EBITDA in 2018. Further, DPZ franchisees appear

to have the highest cash-on-cash returns among QSR peers, supporting confidence in

franchisee appetite for growth.

Digital innovation also benefits franchisees and operations. DPZ is currently testing its

voice technology, DOM, for phone calls, digital kiosks for in-store orders, as well as an in-

store voice recognition inventory app, allowing crew members to automatically update

inventory. These investments could help offset rising labor pressures, driving attractive

returns and potentially additional franchisee appetite for growth.

Figure 63: Franchisee EBITDA has grown to $141K

per store in 2018, up ~230% since 2009’s ~$60K.

Figure 64: At an aggregate level, the average

franchisee operates 7 stores and is generating

enterprise-wide EBITDA of ~$975K in 2018, up from

an average of 4 stores and ~$235K in 2009.


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25 June 2019


Figure 65: Domino’s has the best cash-on-cash

returns (excludes rent and G&A) among QSR peers,

supportive of franchisee appetite for growth.

Figure 66: US system orders have doubled over the

past decade. US Franchisee EBITDA has tripled

over the same period.

Source: Restaurant Research Journal, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Favorable franchisee relationships

DPZ has a unique franchisee base, with ~90% of franchise owners that have started within

the restaurant and a vast majority solely dedicated to operating Domino’s restaurants. We

believe this strategy creates a franchisee base with an operator mindset, though could

constrain growth. The base has become more consolidated over the last several years,

with the average franchisee operating ~7 stores, compared to an average of ~4 stores ten

years ago. We believe some consolidation is a prudent strategy, with multi-unit operators

likely better capitalized, can leverage best practices across its base and benefit from

economies of scale. Franchisee EBITDA of ~$141K per store in 2018 and ~$975K on an

aggregate basis per franchisee suggests healthy financials, which should generate an

appetite for unit growth.

DPZ has now largely completed its five-year rollout of the updated reimage program, with

more than 90% of the US system on the Pizza Theater image. This should also unlock

incremental capital for franchisees to invest in new units.

Figure 67: DPZ has consolidated over the last

decade, with the average franchisee operating ~7

stores, up from ~4 stores in 2009.

Figure 68: Multi-unit operators can benefit from the

sharing of best practices and economies of scale

across its system. 262 franchisees operate one

restaurant, down from 372 in 2013.


0%

10%

20%

30%

40%

50%

60%

70%

Dom

ino's

Pap

a Jo

hn's

McD

onal

d's

Pizza

Hut

Litt

le C

aesa

rs

Dunkin

Donuts

Tac

o B

ell

Jack

in t

he B

ox

Popeye

s

Culv

er'

s

Sonic

Boja

ngle

s'

Burg

er

Kin

g

Zax

by'

s

Car

l's J

r.

Arb

y's

Wendy'

s

KF

C

Har

dee's

Churc

h's

Dai

ry Q

ueen

Cash

-on-C

ash

Retu

rn

(Exc

l. R

ent

& G

&A

)

140MM

$223MM

310MM

$707MM

US System Orders US Franchise EBITDA

2008 2017

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Ave

rage #

of

Sto

res

per

Fra

nch

isee

200

220

240

260

280

300

320

340

360

380

400

2013 2014 2015 2016 2017 2018

# F

ranch

isees

Opera

ting 1

Sto

reThe average franchisee operates ~7 stores and

earned ~$975K in EBITDA in 2018

25 June 2019


DPZ’s integrated supply chain and profit sharing arrangement helps to strengthen

franchisee relationships by providing aligned strategies, enhancing transparency and

further incentivizing franchisees to operate efficiently and effectively. Based on the profit

sharing arrangement, franchisees earn 50% of their regional supply chain’s profits.

Domino’s operates 19 regional supply chain centers across the US, which provide food,

supplies and equipment to nearly the entire US system.

Based on DPZ’s outlook for the US business, the company is expanding supply chain

capacity by building new supply chain centers in the US, including the recently opened

and largest supply chain center in Edison, NJ. DPZ is also accelerating investments to

support two additional centers which are projected to open in early 2020 in South Carolina

and Texas. These investments signal management confidence in the growth of the US

business and the capacity requirements needed to support growth across the existing

base and new units.

Whitespace opportunity in a fragmented category

The pizza segment has exhibited unit growth of ~1% over the last five years, with large

chains outpacing growth among small chains & independents. With the exception of the

Asian/Noodle segment, pizza is the only other segment with small chains & independents

making up more than 50% of the category’s ~62K units. Pizza is also the only segment

with the market share leader representing less than 10% of the segment’s units (Note:

Pizza Hut represents 12% of the segment’s units, but is no longer the segment leader on

overall sales market share). DPZ represents ~10% of the segment’s units, compared to

~30% for burgers, ~38% for coffee and ~15% for Asian/Noodle. We do believe there is a

fundamental difference between pizza and other cuisine categories given relatively lower

barriers to entry with pizza, but still see opportunities for segment share gains, especially

given heightened structural costs.

Segment consolidation appears to be in some part driven by the level of competitive

pricing in the industry, as highlighted by the significant concentration in the burger

segment. We believe DPZ is particularly well positioned on value, with its $5.99 per item

national deal that has run for nearly a decade, as well as the pulsing of additional promos.

Given an environment that is more price sensitive, an increased focus on price point deals

from competitors and consumer access to unlimited information, we view DPZ as a net

beneficiary of increased price competition in the pizza segment.

Figure 69: The top five pizza chains make up just

~35% of the segment’s units, with small chains &

independents comprising ~50% of units.

Figure 70: The pizza segment is the most

consolidated among restaurant categories (with the

exception of Asian/Noodle), while also one of the

largest by units.


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017 2018

Unit

Com

posi

tion

Small Chains &

Independents

Other Large

Chains

Papa Murphy's

Papa John's

Little Caesars

Pizza Hut

Domino's

36% 13% 51%

0% 20% 40% 60% 80% 100%

Burgers

Chicken

Bakery Café

Coffee

Sandwich

Frozen Desserts

Mexican

Pizza

Asian/Noodle

Unit Composition by Segment

Top 5 Chains Other Large Chains Small Chains & Independents

DPZ’s integrated supply chain and profit

sharing arrangement help strengthen

franchisee relations and align incentives

25 June 2019


Opportunity to gain share from small chains & independents

Pizza’s large and fragmented market well positions DPZ to continue to take share from

smaller chains & independents. Structurally higher costs and challenges in navigating high

investment, emerging disruptors such as digital and delivery create an uncertain future for

regional players. Additionally, we expect some incremental segment consolidation as

independent pizza operators age, and younger generations may not want to take over the

business given an increasingly difficult restaurant industry backdrop. Over the last several

years, top competitors have gained share in both delivery and carryout. The top three

largest competitors now represent more than 56% of the QSR pizza segment delivery

sales, up ~10% in share since 2010 and ~300bps since 2013. The top four largest

competitors comprise 48% of the QSR pizza segment carryout sales, up ~700bps in share

over the last five years.

Figure 71: Large chains have consistently outpaced

unit growth among small chains & independents…

Figure 72: …supporting market share gains among

the top competitors in both delivery and carryout.

Source: Technomic, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Opportunity for share gains among larger competitors

While DPZ has historically targeted share gains among regional chains & independents,

the company has also identified opportunities to take share from larger chains. In the

aggregate, larger chains represent the greatest competitive threat to DPZ given their

system sizes. Within a one-mile radius, ~34% of DPZ’s store base competes with Pizza

Hut, ~26% of its base competes with Little Caesars and ~25% with Papa John’s.

As Domino’s develops units through its fortressing strategy, we expect geographic overlap

could increase as Domino’s seeks to capture greater market share in its existing markets.

~34% of Domino’s store base competes with a Pizza Hut within a one-mile radius, while

~72% compete with Domino’s within a three-mile radius. Assuming Domino’s puts units

within that three-mile territory, the number of Domino’s facing competition with Pizza Hut

within a shorter distance will increase.

41%

42%

43%

44%

45%

46%

47%

48%

49%

50%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2013 2014 2015 2016 2017 2018

Larg

e C

hain

s as

% o

f S

egm

ent

Unit

Gro

wth

YO

Y %

Top 500 Chains Small Chains & Independents Large Chains as % of Segment

46%

51%

53%

53%

55%

58%

56%

56%

56%

41%

41%

42%

47%

48%

48%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2013

2014

2015

2016

2017

2018

Top 3

as

% o

f Q

SR

Pizza

Deliv

ery

Top 4

as

% o

f Q

SR

Pizza

Carr

yout

Top 3 pizza competitors have >55%

of the QSR pizza segment delivery sales,

up ~10% since 2010

~34% of Domino’s store bases competes with Pizza Hut within 1

mile and ~72% of the base within 3 miles

25 June 2019


Figure 73: Domino’s store base faces the most

competition from mature pizza peers given their

relative system sizes. ~34% of DPZ’s base faces

competition from Pizza Hut and ~25% from Papa

John’s within a 1 mile radius.

Figure 74: Domino’s places relatively significant

competitive pressure on select pizza peers, with

~30-40% of the largest pizza competitors facing

pressure from Domino’s within a 1 mile radius.

Source: Thinknum, Credit Suisse estimates Source: Thinknum, Credit Suisse estimates

Fortressing strategy provides increased visibility into domestic growth

DPZ has indicated opportunities to grow in underpenetrated markets, as well as fill-in

existing markets. As part of its fortressing strategy, DPZ is splitting its delivery areas into

smaller addressable markets. This is an offensive move to gain market share as well as a

defensive move to capture market share before a competitor moves in.

Benefits of fortressing include: 1) incremental carryout sales (primarily all carryout sales

are incremental in new split stores); 2) improved service through faster delivery times (per

Domino’s: the closer a delivery customer is to a store, the higher the frequency and

increased spend over time); 3) increased enterprise sales and profits for franchisees, with

most splits within one franchisee’s territory (in general, franchisee cannibalizing own

sales); 4) increased profitability with reduced delivery trade area (shorter distance) and

increased carryout sales (better margins); and 5) defends against competition and

aggregators, especially as Domino’s competes for delivery drivers (assumption is that

delivery drivers can earn more tips per hour with shorter delivery drives).

Fortressing should better position Domino’s long term, though is likely to pressure SSS

near term. In 2018, fortressing represented a ~1-1.5% SSS drag, which we expect to

continue over the next several years. This includes some benefit from split stores comping

over time, but we assume the initial negative impact well offsets the gains.

Based on our geospatial analysis, ~2% of Domino’s store base faces competition from

another Domino’s restaurant within a one-mile radius. We expect there is notable

opportunity for Domino’s to expand through splits in these trade areas, with store overlap

likely to increase over time as a result.

7%

7%

10%

13%

14%

19%

25%

26%

34%

24%

9%

24%

61%

61%

72%

17%

18%

30%

73%

73%

82%

Blaze

MOD

Papa Murphy's

Papa John's

Little Caesars

Pizza Hut

% DPZ Base Facing Competition From Select Peers

0.25 Miles 0.5 Miles 1 Mile 3 Miles 5 Miles

8%

7%

12%

12%

11%

9%

16%

16%

22%

25%

20%

17%

40%

34%

39%

46%

38%

31%

95%

94%

86%

90%

83%

64%

99%

99%

91%

95%

90%

69%

Blaze

MOD

Papa Murphy's

Papa John's

Little Caesars

Pizza Hut

% Select Peers' Bases Facing Competition From DPZ


Domino’s fortressing strategy is likely to be a

1-1.5% drag on SSS going forward

25 June 2019


Figure 75: ~2% of Domino’s store base faces

competition from another Domino’s within a 1 mile

radius.

Figure 76: Domino’s same-store overlap is relatively

in-line with peers.

Source: Thinknum, Credit Suisse estimates Source: Thinknum, Credit Suisse estimates

Fortressing – Not a New Concept for Domino’s

Domino’s has implemented its fortressing strategy internationally and in select US markets

for several years. Given expectations for increased domestic expansion over the next

several years, there has been increased interest on the impact of fortressing, which will

likely lead to greater SSS pressure near term. 2018 generated the highest absolute unit

growth in at least a decade, and with the majority in split territories, weighed on SSS by

~1-1.5%. Going forward, unit growth will primarily be split units, and we expect a similar

impact on SSS near term. Long-term, examples from other markets highlight meaningful

share gains within markets as a result of the fortressing strategy.

■ Exeter, UK – Domino’s split the territory in Exeter, UK in both 2014 and 2015, which

now has a total of three stores. Over the last five years, Domino’s increased total

retail sales in the market by more than 100%, and the average sales per store has

continued to increase post splits. Average weekly sales have increased by ~14.5%

from 2015 to 2018.

■ Nottingham, UK – Domino’s split the territory in Nottingham, UK, starting with six

stores, and adding four additional stores in 2013 and 2014. Total market sales in the

region have increased ~80% since 2013. Average sales per unit have increased each

year in the mid to high-single digits, with average weekly sales increasing by ~22.5%

from 2015 to 2018.

0%

0%

0%

2%

35%

65%

0.1 Miles

0.25 Miles

0.5 Miles

1 Mile

3 Miles

5 Miles

% Domino's Base Facing Competition From Another Domino's

~2% of Domino's store base faces

competition from another Domino's

within a 1 mile radius

14%

11%

41%

9%

22%

42%

28%

37%

53%

35%

34%

52%

62%

63%

63%

63%

65%

MOD Pizza

Papa Murphy's

Pizza Hut

Papa John's

Little Caesars

Blaze Pizza

Domino's

% Base Facing Competition From Same Brand


25 June 2019


Figure 77: In Exeter, UK, Domino’s more than

doubled the market’s total retail sales through

splits, and the average sales per store has

continued to increase.

Figure 78: In Nottingham, UK, Domino’s increased

its store count to 10 units (opened 4 in 2013 and

2014), up ~80% in total market sales since 2013.


Note: Represents average sales per store post splits (calculated as total sales in period/number of stores in period).


■ Las Vegas, NV – Domino’s split a company-operated Las Vegas territory by adding a

fourth store, which reduced the trade area in each of its other three stores. One year

later, average annual sales per store increased ~$42K, average carryout sales per

store increased ~$82K and average EBITDA per store increased nearly ~$17K.

■ Roanoke, VA – One year after the opening of a second store, total sales increased

$500K per year and EBITDA increased $130K per year.

Figure 79: Incremental carryout sales in Las Vegas

appear to offset the drag from loss of delivery sales

due to smaller trade areas.

Figure 80: The split store in Roanoke, VA generated

increased average market sales of $500K and

EBITDA of $130K. On a per store level, on average,

sales decreased, but EBITDA increased,

highlighting the benefits of smaller delivery trade

areas and a greater carryout mix.


£2.4MM

£5.0MM

£0.0MM

£1.0MM

£2.0MM

£3.0MM

£4.0MM

£5.0MM

£6.0MM

2013 2014 2015 2016 2017 2018

Tota

l Reta

il S

ales

-E

xete

r, U

K Split in 2014 & 2015

£5.0MM

£6.0MM

£7.0MM

£8.0MM

£9.0MM

£10.0MM

£11.0MM

£12.0MM

2013 2014 2015 2016 2017 2018

Tota

l Reta

il S

ales

-N

ottin

gham

, U

K

Total of 10 units - opened 4 in

2013 & 2014

$0K

$200K

$400K

$600K

$800K

$1,000K

$1,200K

$1,400K

Pre-Split Post-Split

Avg

Sale

s/S

tore

-Las

Vegas,

NV

Delivery Sales Carryout Sales

Avg Sales/Store:

+$42,120

Avg Carryout

Sales/Store:

+$81,640

Avg EBITDA/Store:

+$16,654

$1.1MM

$1.6MM

$110K

$240K

Sales Store 1

Pre-Split

Sales Post Split EBITDA Store

1 Pre-Split

EBITDA Post

Split

Ave

rage S

ale

s &

EB

ITD

A -

Roanoke,

VA

+$130K

+$500K

25 June 2019


International unit growth opportunity is strong

DPZ’s international segment has grown at an 11.2% growth CAGR over the last five years,

representing ~85% of DPZ system unit growth. We expect international to continue to drive the

majority of system unit growth going forward, and model an ~8.1% international unit CAGR

over the next several years, comprising ~75% of DPZ system growth. This is relatively in-line

with consensus expectations and DPZ’s implied ~8% per year to reach ~17,000 international

units by 2025. Our confidence in robust unit growth in international markets comes from:

1) strong fundamentals and operating momentum; 2) global whitespace opportunities; and

3) master franchise partnerships with mandated development schedules.

Figure 81: DPZ has exhibited international net unit

growth of 11.2% over the last five years.

Figure 82: We model international unit growth of

8.1% over the next few years, relatively in-line with

consensus and DPZ’s implied target.


Note: DPZ’s implied target is based on 7-yr unit growth CAGR to reach 17K international units by 2025.

Figure 83: Domino’s has identified the potential for 6,500+ units in its largest

and fastest growing international markets, including 3,000+ in its top 15

international markets (excl. India & Brazil) and 3,500+ units in Brazil, Russia,

India and China.


*Note: (1) India & Brazil are two of DPZ’s top 15 international markets, but growth opportunities are included in BRIC target growth of 3,500+ units. (2) DPZ has previously indicated a 500 unit market potential in Brazil. At the 2019 DPZ Investor Day, DPZ highlighted the opportunity for at least 1,000 units in Brazil (as well as Russia and China).

Strong fundamentals and operating momentum

101 consecutive quarters of positive international SSS averaging ~6% since 2010 highlight

strong fundamentals in international markets and a solid business case for future growth.

On average, international stores are generating payback periods of about three years, with

the majority of large markets experiencing improving or consistent paybacks.

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

2014 2015 2016 2017 2018

Inte

rnatio

nal U

nit

Gro

wth

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

2019E 2020E 2021E 2022E

Inte

rnatio

nal U

nit

Gro

wth

CSe Consensus DPZ Implied Target

Developed Emerging BRIC

UK/Ireland 1,675 Mexico 1,025 Brazil* 1,000+

Australia/New Zealand 1,200 Turkey 900 Russia 1,000+

France 1,000 Saudi Arabia 450 India* 1,800

Germany 1,000 Malaysia 450 China 1,000+

Kapan 1,000 India* 1,800

Canada 700 Brazil* 1,000+

South Korea 500

Netherlands 400

Spain 350

Total Developed 7,825 Total Emerging 5,625 Total BRIC 4,800

Current Developed ~4,700 Current Emerging ~1,800 Current BRIC ~1,800

Top International Markets (excl. BRIC) Growth Opportunity: 3,000+ BRIC Opportunity 3,500+

We model international growth of 8.1% over the

next 4 years following an 11.2% unit CAGR over the last 5 years

25 June 2019


Global whitespace opportunities for pizza

Pizza represents a ~$150BN global market, with international comprising ~$100BN and

expected to grow ~4% annually. Carryout and delivery are growing at a faster rate than

dine-in, well positioning Domino’s as a carryout/delivery focused brand. Domino’s

maintains the #1 or #2 pizza delivery market positions in all of its top 15 markets, which

comprise ~75% of international units.

Going forward, Domino’s expects to reach ~17,000 international units by 2025, with the

majority of growth coming from DPZ’s top 15 international markets and markets of Brazil,

Russia, India and China (BRIC). DPZ has indicated an opportunity for 3,000+ more units

in its top 15 international markets excluding the BRIC countries, representing growth of

~50% over the next several years. DPZ has targeted 3,500+ more units across the BRIC

regions, tripling the number of units in these countries.

Figure 84: The global pizza market is expected to

grow at ~4% per year over the next several years.

Figure 85: Chains are expected to drive the majority

of sales growth in domestic markets and about half

of the growth in international markets.

Source: Euromonitor, Credit Suisse estimates Source: Euromonitor, Credit Suisse estimates

Figure 86: DPZ has highlighted an opportunity for

6,500+ units in its largest and fastest growing

markets, including 3,000+ in the top 15 international

markets excl. BRIC and BRIC store growth

opportunity of 3,500+ units by 2025.

Figure 87: Based on our estimates, Domino’s

expects to gain a greater share of the market’s units

in nearly every country with targeted unit growth,

implying the company expects to grow at a faster

rate than the industry.


Note: Brazil and India are among DPZ’s top 15 markets, though growth targets are included in the BRIC store growth opportunity of 3,500+ units by 2025.

Source: Company data, Euromonitor, Credit Suisse estimates

Note: (1) Potential share of international markets is based on DPZ’s stated potential in the region over the estimated unit count in each market by 2025. (2) Potential unit count in each market in 2025 is based on Euromonitor’s 2022 unit count estimate in each market multiplied by Euromonitor’s average unit growth estimate from 2020 to 2022.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2016 2017 2018 2019 2020 2021 2022

Glo

bal

Pizza

Sal

es

Gro

wth

YO

Y %

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Chain

/Independent

Gro

wth

Contr

ibutio

n

US Chains US Independents International Chains International Independents

0200400600800

1,0001,2001,4001,6001,8002,000

UK

/Ire

land

Aust

ralia

/New

Zeal.

Fra

nce

Germ

any

Japan

Canada

South

Kore

a

Neth

erlands

Spain

Mexi

co

Turk

ey

Saudi A

rabia

Mala

ysia

Bra

zil

Russ

ia

India

Chin

a

Developed Markets Emerging

Markets

BRIC Markets

Unit

Count

Current Potential

0%

10%

20%

30%

40%

50%

UK

/Ire

land

Aust

ralia

/New

Zeal

.

Fra

nce

Germ

any

Japan

Canad

a

South

Kore

a

Neth

erla

nds

Spai

n

Mexi

co

Turk

ey

Sau

di A

rabia

Mal

ays

ia

Bra

zil

Russ

ia

Chin

a

India

Developed Markets Emerging

Markets

BRIC Markets

DP

Z a

s %

of

Units

Current Potential

25 June 2019


Master franchise partnerships

DPZ is one of the more unique franchised business concepts, with ~65% of its

international units held by five public master franchisees including: Domino’s Pizza

Enterprises Ltd. (DMP), Domino’s Pizza Group PLC (DOM), Jubilant FoodWorks Ltd.

(JUBI), Alsea SAB de CV (ALSEA) and DP Eurasia (DPEU). In addition, Dash Brands, the

master franchisee in China, has indicated interest in going public over the next couple of

years. DPZ’s public international franchises are well capitalized operators and have been

strong partners for the brand.

Select international markets have deployed strategies to purchase existing restaurant

concepts and convert them to Domino’s restaurants, providing for expedited increases in

unit counts. Over the last several years, international master franchisees have converted

restaurants in select markets, including Germany, France and South Africa. We expect

markets will continue to strategically purchase existing concepts going forward, though

such will likely get more challenging as competitors are smaller and the geographical

overlap with existing Domino’s stores may make the deal less complementary.

As part of the agreements, master franchisees have set development schedules, giving

increased confidence in the visibility of the international growth pipeline. Master franchisees

pay lower royalty rates, making returns more attractive, with an added incentive through a

royalty fee rate reduction if the master franchisee meets development targets.

Domino’s Pizza Group (DOM.GB)

Domino’s Pizza Group is master franchisee in the markets of the UK, Ireland, Switzerland

and Liechtenstein, holds a controlling stake in the holders of the master franchise

agreements in Iceland, Norway and Sweden, and associate investments in Germany and

Luxembourg. DOM’s current development agreement is for 350 new stores over a 10-year

period, with a minimum of 1,346 stores by 2026 (from 1,261 at the end of 2018).

Domino’s Pizza Enterprises (DMP.AX/DMP AU)

DMP includes the regions of Australia/New Zealand, Europe and Japan. DMP has a target

to reach 4,900 total stores by FY25-FY28 (raised from 4,650 by FY25) from 2,454 at the

end of FY1H19 (CY18).

Australia/New Zealand

Australia/New Zealand comprise 830 units, with expectations for strong organic new store

openings in FY19, following two calendar years of ~50 net new opens. System sales have

grown nearly 15% per year, including average SSS of ~10%. Domino’s has indicated

market potential for 1,200 total stores, highlighting a still strong runway for growth.

Germany

Germany has 320 stores currently, with an expected market potential of 1,000 stores. In

early 2018, DMP completed the acquisition of the largest independent pizza chain in

Germany, Hallo Pizza, in a JV transaction. A total of 126 stores were converted to

Domino’s restaurants, with conversions completed at a faster rate than expected and at

higher volumes.

France

France is one of the largest European markets with ~400 stores currently and a targeted

potential for 1,000. The region has underperformed expectations, but is working to

address challenges with new management in place.

Five public master franchisees comprise

~65% of DPZ’s international units

25 June 2019


Netherlands

Netherlands has ~270 units, with expectations to reach 400 long-term. The region appears

to be performing well, including double-digit SSS in 2018. Going forward, expectations

include expansion through splitting territories. With 90% of FY18’s 45 new stores opened

with existing franchisees/managers, confidence in unit growth is high, though likely to

weigh on strong SSS.

Luxembourg

DMP recently acquired the Master Franchise Agreement for Luxembourg, completing the

Benelux region (Netherlands, Belgium, Luxembourg), with the first store in Luxembourg

expected to open in 2019.

Japan

Japan has 550 stores as of FY1H19 (CY18), including organic growth of nearly 100 stores

over the last 2.5 years and a long-term target of 1,000 stores.

Dash Brands

Dash Brands is the master franchisee in China, with ~200 units across mainland China,

Hong Kong and Macau. The company has targeted growth to ~1,000 stores by 2025,

representing a ~25% growth CAGR over the next seven years, relative to ~30% over the

last few years, albeit a smaller base. Sub-franchising opportunities represent upside to

current growth targets.

25 June 2019


What is DPZ’s earnings growth outlook? Credit Suisse View

We model DPZ EPS growth of ~15% over the next four years, with ~9% revenue growth

(SSS 4.2%, global unit growth ~7%) enabling slight margin expansion for operating profit

growth of ~10.5%, and accretion from share repurchases (~3-4% of EPS growth). In 2019,

we model EPS growth of ~12%,

Upside to expectations exists should Domino’s be able to generate company restaurant

margin expansion following ~300bps of degradation since 2015. We model ~30bps of

contraction in 2019 and relatively stable company margins going forward. We estimate

every ~100bps of company margin expansion is ~1% to EPS. Margin improvement from

the supply chain could also generate upside – we model ~50bps of improvement in 2019

and relatively flat supply chain margins going forward.


Consensus models DPZ EPS growth of ~14% over the next four years, including revenue

growth of 8.8%, ~90bps of operating margin expansion from 2018 for operating profit

growth of ~10% and share repurchases representing ~3% of market cap per year. For

2019, consensus estimates EPS growth of ~12%.

Figure 88: EPS has grown at a ~28% EPS CAGR

over the last five years.

Figure 89: We model EPS growth of 15% over the

next four years, slightly above consensus’ 14%.


0%

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25 June 2019


Valuation $320 Target Price

Our $320 target price is based on ~20.5x our NTM EBITDA in 12 months, implying a P/E

multiple of ~28x our NTM EPS in 12 months. Our ~20.5x EBITDA multiple is in-line with

DPZ’s current trading multiple (3-yr avg ~19x). Our implied P/E multiple of ~28x is in-line

with DPZ’s current trading multiple and slightly below its three-year average P/E multiple

of ~30x.

Peer Group EV/EBITDA Analysis

DPZ currently trades at ~20.5x consensus NTM EBITDA estimates, above its three-year

average EV/EBITDA multiple of ~19x. DPZ is currently trading at a ~12% premium to

heavily franchised restaurant peers, relative to ~18.5% over the last three years, with its

historical premium implying DPZ could trade at ~21.5x EBITDA.

Figure 90: DPZ NTM EV/EBITDA Figure 91: DPZ NTM EV/EBITDA vs Peers

Source: FactSet, Credit Suisse estimates Source: FactSet, Credit Suisse estimates

Note: Peers include heavily franchised restaurant companies.

Peer Group P/E Analysis

DPZ currently trades at ~28x consensus NTM EPS estimates, slightly below its three-year

average P/E multiple of ~30x. DPZ has historically traded at a ~20% premium to heavily

franchised restaurant peers. At current levels, DPZ is trading at a ~5% premium to

restaurant peers, with its historical premium implying a P/E multiple of ~32x EPS.

Figure 92: DPZ NTM P/E Figure 93: DPZ NTM P/E vs Peers

Source: FactSet, Credit Suisse estimates Source: FactSet, Credit Suisse estimates

Note: Peers include heavily franchised restaurant companies.

12.0x

14.0x

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18.0x

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24.0x

Jun-1

6

Aug-1

6

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8

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EV

/EB

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NTM EV/EBITDA 3-yr Avg +1 Std Dev -1 Std Dev

12.0x

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6

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7

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DPZ Peers Implied Multiple on Avg. Premium

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Jun-1

6

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6

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NTM P/E 3-yr Avg +1 Std Dev -1 Std Dev

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9

P/E

DPZ Peers Implied Multiple on Avg. Premium

25 June 2019


Figure 94: DPZ’s above-average system sales and EBITDA growth outlook

support its premium valuation.

Source: Company data, FactSet, Consensus Metrix

Note: (1) FCF, system sales and EBITDA growth calculated based on 3-yr forward CAGR using consensus estimates. (2) % Franchised/ Licensed reflects 2018 franchise mix. (3) Averages exclude SHAK.

Scenario Analysis

Blue Sky: $385 One-Year Valuation

Our $385 one-year valuation in a blue sky scenario is based on an EV/EBITDA of ~22.5x

our blue sky FY20 EBITDA. Our blue sky FY20 EBITDA is based on: 1) domestic SSS of

8%; 2) domestic unit growth of ~6%; and 3) operating margins of ~19%.

Grey Sky: $235 One-Year Valuation

Our $235 one-year valuation in a grey sky scenario is based on an EV/EBITDA of ~18x

our grey sky FY20 EBITDA. Our grey sky FY20 EBITDA is based on: 1) domestic SSS of

3.5%; 2) domestic unit growth of ~4.5%; and 3) operating margins of ~16.5%.

NTM

EV/EBITDANTM P/E

System Sales

Growth% Unit Growth EBITDA Growth

% Franchised/

Licensed

SHAK 28.2x 113.8x 22.2% 22.8% 17.5% 40%

CMG 25.6x 53.0x 11.0% 5.9% 22.6% 0%

DPZ 20.4x 29.0x 9.7% 6.8% 10.5% 98%

YUM 20.1x 28.3x 6.8% 4.1% 7.3% 98%

DNKN 18.3x 26.4x 3.5% 1.5% 5.0% 100%

MCD 18.0x 24.8x 5.0% 2.1% 4.4% 93%

QSR 17.5x 25.5x 6.5% 5.4% 5.8% 100%

SBUX 17.4x 29.0x 7.1% 6.9% 7.5% 48%

PZZA 15.7x 36.8x 1.3% 2.8% 3.1% 88%

WEN 15.0x 30.3x 3.3% 1.9% 5.3% 95%

JACK 12.1x 19.1x 2.3% 0.9% 2.6% 94%

Average 18.0x 30.2x 5.7% 3.8% 7.4% 81.3%

25 June 2019


Investment Risks

■ Competition: Domino’s faces competition from large pizza chains, regional pizza

chains, QSR competitors and third-party delivery aggregators. Increasing competitive

pressure could weigh on market gains globally.

■ Inflation: Inflation in store-level input costs (labor, cheese, etc.) could weigh on store

level profitability and margin compression.

■ Store Growth: Domino’s growth strategy relies in part on opening new US and

international stores. DPZ could face difficulty executing its strategy if it is unable to find

quality site locations, secure leases with acceptable terms, obtain government permits

or approvals and find qualified employees. DPZ’s ability to increase revenues and

operating income could be adversely affected if they are unable to add a significant

number of new stores.

■ Supply Chain Center Disruption: Domino’s operates 19 regional dough

manufacturing and supply chain centers, one crust manufacturing center and one

vegetable processing center in the US and five dough manufacturing and food supply

chain centers in Canada. Domino’s services all company-owned and US franchise

stores. Any prolonged disruption in the operations of these facilities could adversely

affect its business and operating results.

■ International Exposure: ~6.5% of DPZ’s total revenue in 2018 was derived from its

international franchise segment. A hypothetical 10% adverse change in the FX rates in

DPZ’s international markets would likely have a ~$20MM negative impact on

international royalties. Each 10% change in FX in DPZ’s international markets affects

EPS by ~5%.

■ Economic Exposure: DPZ’s financial condition and operations are affected by

economic conditions outside of its control. DPZ could experience reduced product

demand, longer payment cycles, slow adoption of new technologies and increased price

competition if there is an economic downturn or deterioration in economic conditions.

■ Cybersecurity: DPZ collects and stores personal information about its customers,

employees and franchisees as a result of accepting electronic forms of payment and

the nature of its business operations. DPZ’s business, reputation and results of

operations could be adversely affected if confidential customer, employee or franchisee

information is compromised.

■ Food-borne Illness: In the past, reports of food-borne illness or tampering have

injured the reputations of the companies involved. DPZ’s sales, profits, and reputation

could be adversely affected if it is linked to reported cases of food-borne illness or

other food safety incidents.

■ Interest Rates: DPZ is highly levered, with ~6x debt/EBITDA. ~90% of debt is fixed,

though an increase in rates could raise concerns around future refinancing.

25 June 2019


Financials

Figure 95: DPZ Income Statement


Domino's (DPZ) Fiscal Yr Fiscal Yr 2018 Fiscal Yr 2019 Fiscal Yr 2020 Fiscal Yr Fiscal Yr Fiscal Yr

($ in millions) 2016 2017 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19E 3Q19E 4Q19E 2019E 1Q20E 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

2016 2017 Mar-18 Jun-18 Sep-18 Dec-18 2018 Mar-19 Jun-19 Sep-19 Dec-19 2019E Mar-20 Jun-20 Sep-20 Jan-21 2020E 2021E 2022E

Income Statement

Revenues

Domestic Company-owned stores $439.0 $490.8 $121.2 $118.8 $118.5 $156.3 $514.8 $123.5 $115.0 $109.3 $147.2 $495.0 $118.0 $114.8 $116.5 $166.4 $515.6 $540.0 $577.4

YOY % 10.6% 11.8% 6.7% 5.7% 5.0% 2.8% 4.9% 1.9% -3.2% -7.8% -5.8% -3.8% -4.4% -0.2% 6.5% 13.0% 4.2% 4.7% 6.9%

Domestic franchise royalties and fees $312.3 $351.4 $89.5 $87.4 $89.4 $125.2 $391.5 $96.7 $97.1 $98.8 $136.3 $428.9 $107.5 $106.5 $107.9 $157.8 $479.7 $513.4 $560.1

YOY % 14.5% 12.5% 12.0% 6.1% 11.4% 15.0% 11.4% 8.1% 11.1% 10.5% 8.9% 9.6% 11.1% 9.7% 9.2% 15.8% 11.8% 7.0% 9.1%

Supply chain $1,544.3 $1,739.0 $440.1 $440.9 $445.1 $617.2 $1,943.3 $472.1 $485.0 $489.6 $678.9 $2,125.7 $519.3 $533.5 $538.6 $746.8 $2,338.2 $2,572.1 $2,829.3

YOY % 11.7% 12.6% 13.3% 13.0% 10.7% 10.6% 11.7% 7.3% 10.0% 10.0% 10.0% 9.4% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

International franchise royalties and fees $177.0 $206.7 $52.4 $51.3 $50.4 $70.6 $224.7 $54.6 $55.7 $56.5 $80.1 $246.9 $59.5 $60.9 $62.1 $93.6 $276.1 $298.5 $327.9

YOY % 8.2% 16.8% 24.2% 17.5% 4.3% -2.6% 8.7% 4.1% 8.5% 12.1% 13.5% 9.9% 9.1% 9.4% 9.8% 16.9% 11.8% 8.1% 9.9%

Domestic franchise advertising $0.0 $0.0 $82.2 $80.9 $82.5 $112.9 $358.5 $89.1 $88.1 $89.3 $122.9 $389.5 $97.1 $96.0 $97.3 $142.2 $432.6 $462.3 $503.8

YOY % 8.4% 8.9% 8.2% 8.9% 8.6% 8.9% 9.0% 9.0% 15.6% 11.1% 6.9% 9.0%

Total Revenues $2,472.6 $2,788.0 $785.4 $779.4 $786.0 $1,082.1 $3,432.9 $836.0 $841.0 $843.5 $1,165.5 $3,686.0 $901.4 $911.7 $922.3 $1,306.8 $4,042.2 $4,386.1 $4,798.5

YOY % 11.6% 12.8% 25.8% 24.0% 22.1% 21.4% 23.1% 6.4% 7.9% 7.3% 7.7% 7.4% 7.8% 8.4% 9.3% 12.1% 9.7% 8.5% 9.4%

Costs of sales:

Domestic Company-owned stores $331.9 $377.7 $93.0 $92.0 $93.0 $120.1 $398.2 $95.5 $89.4 $86.1 $113.3 $384.4 $91.1 $89.2 $92.0 $128.4 $400.7 $420.2 $449.4

YOY % 12.5% 13.8% 6.7% 3.3% 7.1% 4.8% 5.4% 2.7% -2.8% -7.4% -5.7% -3.5% -4.6% -0.2% 6.8% 13.3% 4.2% 4.9% 6.9%

% of Domestic Company-owned stores revenues 75.6% 76.9% 76.8% 77.4% 78.5% 76.9% 77.3% 77.4% 77.7% 78.8% 77.0% 77.6% 77.2% 77.7% 79.0% 77.2% 77.7% 77.8% 77.8%

Restaurant Margin 24.4% 23.1% 23.2% 22.6% 21.5% 23.1% 22.7% 22.6% 22.3% 21.2% 23.0% 22.4% 22.8% 22.3% 21.0% 22.8% 22.3% 22.2% 22.2%

Margin Chg. YOY -127bps -135bps 1bps 177bps -156bps -144bps -40bps -62bps -30bps -30bps -10bps -30bps 15bps 0bps -20bps -20bps -7bps -11bps 0bps

Supply Chain $1,373.1 $1,544.3 $392.5 $393.8 $397.7 $548.0 $1,732.0 $418.1 $430.8 $435.0 $600.8 $1,884.7 $459.4 $473.3 $478.0 $660.1 $2,070.9 $2,278.0 $2,505.8

YOY % 11.4% 12.5% 14.3% 13.6% 11.0% 10.5% 12.2% 6.5% 9.4% 9.4% 9.6% 8.8% 9.9% 9.9% 9.9% 9.9% 9.9% 10.0% 10.0%

% of Supply chain revenues 88.9% 88.8% 89.2% 89.3% 89.3% 88.8% 89.1% 88.6% 88.8% 88.8% 88.5% 88.7% 88.5% 88.7% 88.7% 88.4% 88.6% 88.6% 88.6%

Supply Chain Margin 11.1% 11.2% 10.8% 10.7% 10.7% 11.2% 10.9% 11.4% 11.2% 11.2% 11.5% 11.3% 11.5% 11.3% 11.3% 11.6% 11.4% 11.4% 11.4%

Margin Chg. YOY 21bps 11bps -85bps -44bps -24bps 6bps -33bps 62bps 50bps 50bps 30bps 46bps 10bps 10bps 10bps 10bps 10bps 0bps 0bps

Total costs of sales $1,704.9 $1,922.0 $485.5 $485.8 $490.7 $668.2 $2,130.2 $513.7 $520.2 $521.1 $714.1 $2,269.1 $550.6 $562.6 $569.9 $788.5 $2,471.6 $2,698.2 $2,955.2

YOY % 11.6% 12.7% 12.8% 11.5% 10.2% 9.4% 10.8% 5.8% 7.1% 6.2% 6.9% 6.5% 7.2% 8.1% 9.4% 10.4% 8.9% 9.2% 9.5%

General & administrative expenses $313.6 $344.1 $84.2 $86.0 $80.4 $121.4 $371.9 $89.7 $89.4 $89.2 $123.8 $392.0 $94.4 $94.6 $95.2 $135.5 $419.8 $449.0 $484.0

YOY % 13.3% 9.7% 8.2% 7.5% -0.5% 15.0% 8.1% 6.5% 4.0% 11.0% 1.9% 5.4% 5.3% 5.9% 6.8% 9.5% 7.1% 6.9% 7.8%

% of Total Revenue 12.7% 12.3% 10.7% 11.0% 10.2% 11.2% 10.8% 10.7% 10.6% 10.6% 10.6% 10.6% 10.5% 10.4% 10.3% 10.4% 10.4% 10.2% 10.1%

Margin Chg. YOY 20bps -34bps -174bps -169bps -232bps -63bps -151bps 1bps -40bps 35bps -60bps -20bps -25bps -25bps -25bps -25bps -25bps -15bps -15bps

Domestic franchise advertising $82.2 $80.9 $82.5 $112.9 $358.5 $89.1 $88.1 $89.3 $122.9 $389.5 $97.1 $96.0 $97.3 $142.2 $432.6 $462.3 $503.8

% of Domestic System Sales 5.4% 5.4% 5.5% 5.5% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4%

Total operating costs $2,018.6 $2,266.1 $651.9 $652.7 $653.53 $902.5 $2,860.6 $692.5 $697.7 $699.6 $960.8 $3,050.6 $742.0 $753.2 $762.5 $1,066.2 $3,324.0 $3,609.5 $3,942.9

Operating Income $454.0 $521.9 $133.48 $126.68 $132.44 $179.64 $572.23 $143.5 $143.2 $143.9 $204.7 $635.3 $159.3 $158.5 $159.8 $240.6 $718.3 $776.7 $855.6

YOY % 10.2% 14.9% 15.0% 12.2% 12.5% 2.5% 9.7% 7.5% 13.1% 8.7% 13.9% 11.0% 11.0% 10.6% 11.1% 17.6% 13.1% 8.1% 10.2%

Operating Margin 18.4% 18.7% 17.0% 16.3% 16.9% 16.6% 16.7% 17.2% 17.0% 17.1% 17.6% 17.2% 17.7% 17.4% 17.3% 18.4% 17.8% 17.7% 17.8%

Margin Chg. YOY -22bps 36bps -159bps -170bps -144bps -306bps -205bps 17bps 78bps 21bps 96bps 57bps 51bps 35bps 27bps 85bps 53bps -6bps 12bps

Interest income $0.7 $1.5 $0.5 $1.2 $0.8 $0.9 $3.3 $0.7 $0.4 $0.4 $0.4 $1.9 $0.4 $0.4 $0.4 $0.4 $1.6 $1.6 $1.6

Interest expense ($110.1) ($116.8) ($30.3) ($32.8) ($34.0) ($46.0) ($143.0) ($35.1) ($34.8) ($34.7) ($46.1) ($150.6) ($34.5) ($35.4) ($36.3) ($51.3) ($157.6) ($158.9) ($161.5)

Interest expense, net ($109.4) ($115.3) ($29.8) ($31.6) ($33.2) ($45.1) ($139.7) ($34.4) ($34.4) ($34.3) ($45.7) ($148.7) ($34.1) ($35.0) ($35.9) ($50.9) ($156.0) ($157.3) ($159.9)

Pretax Income $344.7 $406.6 $103.7 $95.0 $99.3 $134.6 $432.5 $109.1 $108.9 $109.6 $158.9 $486.6 $125.2 $123.5 $123.9 $189.7 $562.3 $619.4 $695.7

Pre-Tax Margin 13.9% 14.6% 13.2% 12.2% 12.6% 12.4% 12.6% 13.1% 12.9% 13.0% 13.6% 13.2% 13.9% 13.5% 13.4% 14.5% 13.9% 14.1% 14.5%

Income tax expense $130.0 $124.7 $14.8 $14.7 $15.2 $22.9 $67.58 $16.5 $21.8 $21.9 $31.8 $92.0 $25.0 $24.7 $24.8 $37.9 $112.5 $123.9 $139.1

Tax Rate 37.7% 30.7% 14.3% 15.4% 15.3% 17.0% 15.6% 15.1% 20.0% 20.0% 20.0% 18.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

Net Income $214.7 $281.9 $88.83 $80.38 $84.1 $111.64 $364.9 $92.7 $87.1 $87.7 $127.1 $394.6 $100.2 $98.8 $99.1 $151.7 $449.8 $495.5 $556.5

Net Income Margin 8.7% 10.1% 11.3% 10.3% 10.7% 10.3% 10.6% 11.1% 10.4% 10.4% 10.9% 10.7% 11.1% 10.8% 10.7% 11.6% 11.1% 11.3% 11.6%

Adj EPS $4.30 $5.91 $2.00 $1.84 $1.95 $2.62 $8.42 $2.20 $2.08 $2.11 $3.07 $9.44 $2.44 $2.43 $2.46 $3.79 $11.10 $12.66 $14.73

YOY % 18.6% 37.5% 59.3% 39.6% 54.3% 25.2% 42.4% 9.7% 12.6% 7.8% 17.2% 12.1% 11.2% 16.9% 16.7% 23.5% 17.6% 14.1% 16.3%

Weighted Average Basic Shares 48.6 46.0 42.8 42.0 41.6 41.0 41.9 40.9 40.6 40.3 40.1 40.5 39.7 39.4 39.0 38.7 39.2 37.8 36.4

YOY % -9.6% -5.5% -10.5% -12.4% -9.7% -2.4% -8.9% -4.6% -3.4% -3.0% -2.2% -3.3% -2.8% -3.0% -3.3% -3.5% -3.2% -3.5% -3.6%

Weighted Average Diluted Shares 49.9 47.7 44.4 43.6 43.1 42.6 43.3 42.2 41.9 41.7 41.4 41.8 41.0 40.7 40.3 40.0 40.5 39.1 37.8

YOY % -10.1% -4.5% -10.7% -12.4% -9.7% -4.5% -9.1% -4.9% -3.8% -3.3% -2.8% -3.5% -2.7% -2.9% -3.2% -3.4% -3.1% -3.4% -3.5%

Cash Dividends per Share $1.52 $1.84 $0.55 $0.55 $0.55 $0.55 $2.20 $0.65 $0.65 $0.65 $0.65 $2.60 $0.78 $0.78 $0.78 $0.78 $3.12 $3.59 $4.13

YOY % 22.6% 21.1% 19.6% 19.6% 19.6% 19.6% 19.6% 18.2% 18.2% 18.2% 18.2% 18.2% 20.0% 20.0% 20.0% 20.0% 20.0% 15.0% 15.0%

Payout Ratio 35.3% 31.1% 27.5% 29.8% 28.2% 21.0% 26.1% 29.6% 31.3% 30.9% 21.2% 27.5% 32.0% 32.1% 31.7% 20.6% 28.1% 28.3% 28.0%

Operating Income $454.0 $521.9 $133.5 $126.7 $132.4 $179.6 $572.2 $143.5 $143.2 $143.9 $204.7 $635.3 $159.3 $158.5 $159.8 $240.6 $718.3 $776.7 $855.6

Depreciation & Amortization $38.1 $44.4 $11.1 $12.2 $12.5 $17.9 $53.7 $13.8 $13.2 $13.5 $18.7 $59.2 $14.9 $14.3 $14.7 $21.0 $64.9 $70.4 $77.0

EBITDA $492.2 $566.2 $144.5 $138.9 $144.9 $197.5 $625.9 $157.3 $156.4 $157.4 $223.4 $694.5 $174.2 $172.8 $174.6 $261.6 $783.2 $847.1 $932.6

YOY % 10.7% 15.0% 15.1% 12.8% 13.2% 4.2% 10.5% 8.8% 12.6% 8.6% 13.1% 11.0% 10.7% 10.5% 10.9% 17.1% 12.8% 8.2% 10.1%

EBITDA Margin 19.9% 20.3% 18.4% 17.8% 18.4% 18.3% 18.2% 18.8% 18.6% 18.7% 19.2% 18.8% 19.3% 19.0% 18.9% 20.0% 19.4% 19.3% 19.4%

Margin Chg. YOY -15bps 40bps -171bps -177bps -145bps -301bps -208bps 41bps 78bps 22bps 91bps 61bps 51bps 35bps 27bps 85bps 53bps -6bps 12bps

25 June 2019


Figure 96: DPZ Balance Sheet





Balance Sheet

Cash and cash equivalents $42.8 $35.8 $44.6 $157.8 $84.6 $25.4 $25.4 $83.1 $85.2 $52.0 $17.2 $17.2 $14.1 $157.6 $118.2 $82.2 $82.2 $98.4 $214.1

Restricted cash and cash equivalents $126.5 $191.8 $145.2 $145.0 $168.2 $167.0 $167.0 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1

Accounts receivable, net $150.4 $173.7 $174.4 $182.8 $170.2 $190.1 $190.1 $194.1 $204.3 $196.1 $193.4 $193.4 $206.8 $220.2 $212.4 $212.1 $212.1 $230.2 $251.8

Inventories $40.2 $40.0 $41.2 $40.2 $41.4 $46.0 $46.0 $45.7 $45.7 $45.7 $45.7 $45.7 $45.7 $45.7 $45.7 $45.7 $45.7 $45.7 $45.7

Deferred income taxes $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Prepaid expenses and other $17.6 $18.4 $18.7 $33.4 $22.4 $25.7 $25.7 $19.5 $19.5 $19.5 $19.5 $19.5 $19.5 $19.5 $19.5 $19.5 $19.5 $19.5 $19.5

Advertising fund assets, restricted $118.4 $120.2 $112.3 $123.8 $118.8 $112.7 $112.7 $98.1 $98.1 $98.1 $98.1 $98.1 $98.1 $98.1 $98.1 $98.1 $98.1 $98.1 $98.1

Total Current Assets $495.9 $579.8 $536.4 $682.9 $605.6 $566.9 $566.9 $590.5 $602.8 $561.5 $524.0 $524.0 $534.3 $691.2 $644.0 $607.7 $607.7 $642.0 $779.3

Gross PP&E $359.5 $406.9 $412.8 $425.6 $454.2 $485.2 $485.2 $488.1 $476.8 $511.8 $546.8 $546.8 $571.8 $596.8 $621.8 $646.8 $646.8 $736.8 $826.8

Accumulated depreciation and amortization ($221.0) ($237.3) ($243.2) ($248.4) ($247.2) ($252.2) ($252.2) ($260.3) ($273.5) ($286.9) ($305.6) ($305.6) ($320.5) ($334.8) ($349.6) ($370.6) ($370.6) ($441.0) ($518.0)

Net PP&E $138.5 $169.6 $169.5 $177.2 $207.0 $233.0 $233.0 $227.9 $203.4 $224.9 $241.2 $241.2 $251.3 $262.0 $272.3 $276.3 $276.3 $295.8 $308.8

Investments in marketable securities, restricted $7.3 $8.1 $0.0 $0.0 $0.0 $8.7 $8.7 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Notes receivable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Deferred financing costs $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Goodwill $16.1 $15.4 $15.4 $15.4 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9 $14.9

Capitalized software, net $40.3 $52.8 $56.0 $58.9 $59.8 $63.8 $63.8 $66.2 $66.2 $66.2 $66.2 $66.2 $66.2 $66.2 $66.2 $66.2 $66.2 $66.2 $66.2

Other assets $9.4 $8.3 $16.9 $17.1 $21.8 $12.5 $12.5 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7

Operating lease right-of-use assets $218.9 $218.9 $222.0 $222.0 $222.0 $222.0 $222.0 $222.0 $222.0 $222.0 $222.0 $222.0 $222.0 $222.0

Deferred income taxes $8.9 $2.8 $4.1 $3.2 $2.9 $5.5 $5.5 $4.1 $4.1 $4.1 $4.1 $4.1 $4.1 $4.1 $4.1 $4.1 $4.1 $4.1 $4.1

Total Assets $716.3 $836.8 $798.3 $954.6 $912.1 $1,124.3 $1,124.3 $1,148.3 $1,136.1 $1,116.3 $1,095.0 $1,095.0 $1,115.5 $1,283.0 $1,246.1 $1,213.9 $1,213.9 $1,267.7 $1,417.9

Current portion of long-term debt $38.9 $32.3 $32.3 $35.6 $35.8 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9

Accounts payable $111.5 $106.9 $89.0 $79.4 $87.5 $92.5 $92.5 $84.9 $91.1 $89.5 $95.9 $95.9 $94.8 $97.5 $96.5 $104.5 $104.5 $114.0 $124.9

Accrued compensation $42.1 $37.4 $0.0 $0.0 $0.0 $41.0 $41.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Accrued interest $18.8 $22.1 $0.0 $0.0 $0.0 $26.0 $26.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Insurance reserves $16.7 $20.8 $21.5 $21.3 $21.9 $22.2 $22.2 $22.0 $22.0 $22.0 $22.0 $22.0 $22.0 $22.0 $22.0 $22.0 $22.0 $22.0 $22.0

Dividends Payable $0.0 $0.0 $24.0 $23.6 $23.3 $0.0 $0.0 $27.2 $26.4 $26.2 $0.0 $0.0 $31.0 $30.7 $30.4 $0.0 $0.0 $0.0 $0.0

Advertising fund liabilities $118.4 $120.2 $105.8 $117.4 $112.2 $107.2 $107.2 $93.0 $93.0 $93.0 $93.0 $93.0 $93.0 $93.0 $93.0 $93.0 $93.0 $93.0 $93.0

Legal reserves $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Other accrued liabilities $57.3 $58.6 $112.1 $100.2 $95.7 $54.9 $54.9 $117.2 $117.2 $117.2 $117.2 $117.2 $117.2 $117.2 $117.2 $117.2 $117.2 $117.2 $117.2

Operating lease liabilities $32.0 $32.0 $31.8 $31.8 $31.8 $31.8 $31.8 $31.8 $31.8 $31.8 $31.8 $31.8 $31.8 $31.8

Total Current Liabilities $403.7 $398.3 $384.8 $377.4 $376.4 $411.6 $411.6 $412.0 $417.4 $415.7 $395.9 $395.9 $425.7 $428.2 $426.9 $404.4 $404.4 $414.0 $424.9

Long-term debt, less current portion $2,149.0 $3,121.5 $3,117.2 $3,437.0 $3,437.6 $3,495.7 $3,495.7 $3,447.8 $3,439.0 $3,430.2 $3,421.4 $3,421.4 $3,412.6 $3,603.8 $3,594.9 $3,586.1 $3,586.1 $3,650.9 $3,762.9

Insurance reserves $27.1 $30.6 $31.4 $33.2 $34.0 $31.1 $31.1 $32.6 $32.6 $32.6 $32.6 $32.6 $32.6 $32.6 $32.6 $32.6 $32.6 $32.6 $32.6

Deferred income taxes, net. $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Other accrued liabilities $19.6 $21.8 $35.8 $36.2 $37.8 $31.1 $31.1 $32.5 $32.5 $32.5 $32.5 $32.5 $32.5 $32.5 $32.5 $32.5 $32.5 $32.5 $32.5

Operating lease liabilities $194.7 $194.7 $198.5 $198.5 $198.5 $198.5 $198.5 $198.5 $198.5 $198.5 $198.5 $198.5 $198.5 $198.5

Total Liabilities $2,599.4 $3,572.1 $3,569.2 $3,883.8 $3,885.9 $4,164.2 $4,164.2 $4,123.4 $4,120.0 $4,109.5 $4,080.9 $4,080.9 $4,101.9 $4,295.6 $4,285.5 $4,254.2 $4,254.2 $4,328.5 $4,451.4

Common stock $0.5 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4

Additional paid in capital $1.0 $5.7 $0.1 $0.7 $1.9 $0.6 $0.6 $5.5 $7.5 $9.5 $11.5 $11.5 $13.5 $15.6 $17.7 $19.8 $19.8 $28.5 $37.6

Retained deficit ($1,881.5) ($2,739.4) ($2,768.6) ($2,926.9) ($2,972.6) ($3,036.5) ($3,036.5) ($2,976.8) ($2,987.7) ($2,998.9) ($2,993.5) ($2,993.5) ($2,996.1) ($3,024.4) ($3,053.3) ($3,056.3) ($3,056.3) ($3,085.5) ($3,067.3)

Accumulated other comprehensive loss ($3.1) ($2.0) ($2.8) ($3.4) ($3.5) ($4.4) ($4.4) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2) ($4.2)

Shareholders' Equity ($1,883.1) ($2,735.4) ($2,770.9) ($2,929.2) ($2,973.8) ($3,039.9) ($3,039.9) ($2,975.2) ($2,984.0) ($2,993.2) ($2,985.9) ($2,985.9) ($2,986.4) ($3,012.6) ($3,039.4) ($3,040.3) ($3,040.3) ($3,060.8) ($3,033.4)

Total Liabilities & Shareholders' Equity $716.3 $836.8 $798.3 $954.6 $912.1 $1,124.3 $1,124.3 $1,148.3 $1,136.1 $1,116.3 $1,095.0 $1,095.0 $1,115.5 $1,283.0 $1,246.1 $1,213.9 $1,213.9 $1,267.7 $1,417.9

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Balance Sheet Analysis 2016 2017 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19E 3Q19E 4Q19E 2019E 1Q20E 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

Debt Analysis

Long-term debt, less current portion $2,149.0 $3,121.5 $3,117.2 $3,437.0 $3,437.6 $3,495.7 $3,495.7 $3,447.8 $3,439.0 $3,430.2 $3,421.4 $3,421.4 $3,412.6 $3,603.8 $3,594.9 $3,586.1 $3,586.1 $3,650.9 $3,762.9

Current portion of long-term debt $38.9 $32.3 $32.3 $35.6 $35.8 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9 $35.9

Total Debt $2,187.9 $3,153.8 $3,149.5 $3,472.6 $3,473.5 $3,531.6 $3,531.6 $3,483.7 $3,474.9 $3,466.1 $3,457.3 $3,457.3 $3,448.5 $3,639.7 $3,630.9 $3,622.0 $3,622.0 $3,686.8 $3,798.8

Cash and cash equivalents $42.8 $35.8 $44.6 $157.8 $84.6 $25.4 $25.4 $83.1 $85.2 $52.0 $17.2 $17.2 $14.1 $157.6 $118.2 $82.2 $82.2 $98.4 $214.1

Net Debt $2,145.1 $3,118.0 $3,104.9 $3,314.8 $3,388.9 $3,506.1 $3,506.1 $3,400.6 $3,389.7 $3,414.1 $3,440.1 $3,440.1 $3,434.4 $3,482.1 $3,512.6 $3,539.8 $3,539.8 $3,588.4 $3,584.7

Average Debt $2,214.3 $2,670.8 $3,151.7 $3,311.0 $3,473.0 $3,502.5 $3,342.7 $3,507.7 $3,479.3 $3,470.5 $3,461.7 $3,494.4 $3,452.9 $3,544.1 $3,635.3 $3,626.4 $3,539.7 $3,654.4 $3,742.8

TTM EBITDA $492.2 $566.2 $585.2 $601.0 $617.9 $625.9 $625.9 $638.6 $656.2 $668.7 $694.5 $694.5 $711.4 $727.8 $744.9 $783.2 $783.2 $847.1 $932.6

NTM EBITDA $566.2 $625.9 $638.6 $656.2 $668.7 $694.5 $694.5 $711.4 $727.8 $744.9 $783.2 $783.2 $800.5 $818.4 $836.4 $847.1 $847.1

Total Debt/TTM EBITDA 4.4x 5.6x 5.4x 5.8x 5.6x 5.6x 5.6x 5.5x 5.3x 5.2x 5.0x 5.0x 4.8x 5.0x 4.9x 4.6x 4.6x 4.4x 4.1x

Net Debt/TTM EBITDA 4.4x 5.5x 5.3x 5.5x 5.5x 5.6x 5.6x 5.3x 5.2x 5.1x 5.0x 5.0x 4.8x 4.8x 4.7x 4.5x 4.5x 4.2x 3.8x

25 June 2019


Figure 97: DPZ Statement of Cash Flows





Cash Flow Statement

Operating Cash Flows

Net income $214.7 $277.9 $88.8 $77.4 $84.1 $111.6 $362.0 $92.7 $87.1 $87.7 $127.1 $394.6 $100.2 $98.8 $99.1 $151.7 $449.8 $495.5 $556.5

Depreciation and amortization $38.1 $44.4 $11.1 $12.2 $12.5 $17.9 $53.7 $13.8 $13.2 $13.5 $18.7 $59.2 $14.9 $14.3 $14.7 $21.0 $64.9 $70.4 $77.0

D&A as a % of Revenue 1.5% 1.6% 1.4% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%

Gain/losses on sale/disposal of assets $0.9 ($3.1) $0.4 $0.2 ($5.7) $0.5 ($4.7) $0.1 $0.0 $0.0 $0.0 $0.1 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Benefit for losses on accounts and notes receivable ($0.2) ($0.3) $0.0 $0.0 $0.0 $0.9 $0.9 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Provision (benefit) for deferred income taxes ($3.1) $6.2 $0.6 $0.9 $0.3 ($2.6) ($0.9) $1.5 $0.0 $0.0 $0.0 $1.5 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Amortization of debt issuance costs $6.4 $11.0 $1.2 $4.3 $1.1 $1.5 $8.0 $1.1 $1.0 $1.0 $1.0 $4.1 $1.1 $1.0 $1.0 $1.0 $4.1 $4.1 $4.1

Non-cash compensation expense $18.6 $20.7 $6.1 $5.4 $4.2 $7.1 $22.8 $4.6 $5.6 $4.4 $7.5 $22.2 $4.8 $5.9 $4.6 $7.9 $23.3 $24.4 $25.7

Excess tax benefits from equity-based compensation ($48.1) ($27.2) ($8.4) ($6.9) ($7.4) ($1.1) ($23.8) ($8.7) ($3.0) ($3.0) ($3.0) ($17.7) ($8.7) ($3.0) ($3.0) ($3.0) ($17.7) ($17.7) ($17.7)

Other $0.0 $0.0 ($0.1) $0.2 $0.2 ($0.4) $0.0 $0.1 $0.0 $0.0 $0.0 $0.1 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Changes in operating assets and liabilities $60.0 $9.6 ($15.4) ($34.8) $24.6 $7.1 ($18.4) $2.0 ($4.8) $6.4 ($17.1) ($13.6) $16.5 ($10.9) $6.6 ($22.3) ($10.1) ($8.5) ($10.8)

Accounts receivable ($18.7) ($22.6) ($18.2) ($10.2) $8.1 $2.7 ($13.4) ($13.4) $7.8 $0.2

Inventories, prepaid expenses, and other ($2.9) $1.5 ($12.5) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Accounts payable and accrued liabilities $78.9 $22.3 $10.0 $5.4 ($1.7) ($19.8) $29.9 $2.5 ($1.3) ($22.5)

Insurance reserves $2.8 $8.4 $2.2 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Changes in advertising fund assets and liabilties, restricted $0.0 ($0.5) $12.1 ($6.1) ($10.9) ($5.4) ($10.2) $0.0 $0.0 $0.0 ($10.2) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Net Operating Cash Flows $287.3 $339.0 $83.7 $71.0 $107.8 $131.7 $394.2 $97.0 $99.2 $110.0 $134.2 $440.4 $128.8 $106.1 $123.1 $156.3 $514.3 $568.4 $634.9

Year-to-date $83.7 $154.7 $262.5 $394.2 $97.0 $196.2 $306.2 $440.4 $128.8 $234.9 $358.0 $514.3

Investing Cash Flows

Capital expenditures ($58.6) ($90.0) ($13.6) ($23.6) ($27.8) ($54.8) ($119.9) ($12.2) ($30.0) ($35.0) ($35.0) ($112.2) ($25.0) ($25.0) ($25.0) ($25.0) ($100.0) ($90.0) ($90.0)

Proceeds from sale of assets $4.9 $6.8 $0.0 $0.3 $7.9 $0.2 $8.4 $0.0 $41.3 $0.0 $0.0 $41.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Changes in restricted cash $54.4 ($65.3) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Maturities of advertising fund investments, restricted $0.0 $4.0 $25.0 $15.0 $50.0 $94.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Purchases of advertising fund investments, restricted $0.0 $0.0 ($35.2) ($15.0) ($20.0) ($70.2) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Other ($1.7) ($0.6) ($0.5) ($0.2) ($1.7) $1.8 ($0.6) $0.3 $0.0 $0.0 $0.0 $0.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Net Investing Cash Flows ($0.8) ($149.0) ($10.1) ($33.6) ($21.6) ($22.9) ($88.3) ($12.0) $11.3 ($35.0) ($35.0) ($70.7) ($25.0) ($25.0) ($25.0) ($25.0) ($100.0) ($90.0) ($90.0)

Year-to-date ($10.1) ($43.8) ($65.4) ($88.3) ($12.0) ($0.7) ($35.7) ($70.7) ($25.0) ($50.0) ($75.0) ($100.0)

Financing Cash Flows

Proceeds from issuance of long-term debt $63.0 $1,900.0 $0.0 $905.0 $0.0 $65.0 $970.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $200.0 $0.0 $0.0 $200.0 $100.0 $1,000.0

Repayments of long-term debt and capital lease obligations ($122.3) ($928.2) ($8.1) ($578.1) ($8.9) ($9.0) ($604.1) ($49.0) ($8.8) ($8.8) ($8.8) ($75.4) ($8.8) ($8.8) ($8.8) ($8.8) ($35.3) ($35.3) ($888.0)

Proceeds from issuance of common stock $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Proceeds from exercises of stock options $15.2 $6.1 $3.7 $1.5 $3.8 $0.9 $9.8 $4.5 $2.0 $2.0 $2.0 $10.5 $2.0 $2.1 $2.1 $2.1 $8.3 $8.7 $9.2

Excess tax benefit from equity-based compensation $48.1 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Purchases of common stock ($300.3) ($1,064.3) ($101.1) ($219.0) ($109.1) ($162.0) ($591.2) ($8.1) ($75.0) ($75.0) ($75.0) ($233.1) ($100.0) ($100.0) ($100.0) ($100.0) ($400.0) ($400.0) ($400.0)

Tax payments for restricted stock upon vesting ($5.6) ($9.4) ($2.3) ($0.0) ($4.5) ($0.1) ($7.0) ($2.5) $0.0 $0.0 $0.0 ($2.5) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Payments of common stock dividends and equivalents ($73.9) ($84.3) ($0.1) ($23.5) ($23.2) ($45.4) ($92.2) ($0.1) ($26.6) ($26.4) ($52.3) ($105.3) $0.0 ($31.0) ($30.7) ($60.6) ($122.3) ($135.6) ($150.4)

Cash paid for financing costs $0.0 ($16.8) $0.0 ($8.2) $0.0 $0.0 ($8.2) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Other $0.0 ($0.2) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Net Financing Cash Flows ($375.8) ($197.1) ($107.8) $77.8 ($142.0) ($150.7) ($322.8) ($55.1) ($108.4) ($108.2) ($134.1) ($405.8) ($106.8) $62.3 ($137.4) ($167.3) ($349.2) ($462.2) ($429.2)

Effect of exchange rates ($1.3) $0.1 $0.0 ($0.2) ($0.1) ($0.3) ($0.5) $0.1 $0.0 $0.0 $0.0 $0.1 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Year-to-date ($107.8) ($30.1) ($172.1) ($322.8) ($55.1) ($163.5) ($271.7) ($405.8) ($106.8) ($44.5) ($181.9) ($349.2)

Change in cash and equivalents incl restricted cash ($90.6) ($7.0) ($34.2) $115.0 ($55.9) ($42.3) ($17.4) $30.0 $2.1 ($33.2) ($34.9) ($35.9) ($3.0) $143.4 ($39.3) ($36.0) $65.1 $16.2 $115.7

Cash at beginning of period $133.4 $42.8 $35.8 $44.6 $157.8 $84.6 $35.8 $25.4 $83.1 $85.2 $52.0 $25.4 $17.2 $14.1 $157.6 $118.2 $17.2 $82.2 $98.4

Less: change in restricted cash ($43.1) $1.8 $17.3 $16.9 ($7.1) ($27.6) $0.0 $0.0 $0.0 ($27.6) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Cash at end of period $42.8 $35.8 $44.6 $157.8 $84.6 $25.4 $25.4 $83.1 $85.2 $52.0 $17.2 $17.2 $14.1 $157.6 $118.2 $82.2 $82.2 $98.4 $214.1

Restricted cash $126.5 $191.8 $145.2 $145.0 $168.2 $167.0 $167.0 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1 $150.1

Cash & cash equivalents included in advertising fund assets, restricted $25.1 $27.3 $30.8 $32.8 $26.9 $45.0 $45.0 $34.3 $34.3 $34.3 $34.3 $34.3 $34.3 $34.3 $34.3 $34.3 $34.3 $34.3 $34.3

Change in restricted cash ($49.2) $67.5 ($43.1) $1.8 $17.3 $16.9 ($7.1) ($27.6) $0.0 $0.0 $0.0 ($27.6) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Change in cash and cash equivalents excl restricted cash ($41.4) ($74.5) $8.8 $113.2 ($73.2) ($59.2) ($10.3) $57.7 $2.1 ($33.2) ($34.9) ($8.3) ($3.0) $143.4 ($39.3) ($36.0) $65.1 $16.2 $115.7

Cash on Balance Sheet $42.8 $35.8 $44.6 $157.8 $84.6 $25.4 $25.4 $83.1 $85.2 $52.0 $17.2 $17.2 $14.1 $157.6 $118.2 $82.2 $82.2 $98.4 $214.1

Difference (0) - - - - 0 0 - - - - (0) - - - - - 0.0 -

Free Cash Flow 2016 2017 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19E 3Q19E 4Q19E 2019E 1Q20E 2Q20E 3Q20E 4Q20E 2020E 2021E 2022E

Operating Cash Flow $287 $339 $84 $71 $108 $132 $394 $97 $99 $110 $134 $440 $129 $106 $123 $156 $514 $568 $635

Less: Capex ($59) ($90) ($14) ($24) ($28) ($55) ($120) ($12) ($30) ($35) ($35) ($112) ($25) ($25) ($25) ($25) ($100) ($90) ($90)

Free Cash Flow $229 $249 $70 $47 $80 $77 $274 $85 $69 $75 $99 $328 $104 $81 $98 $131 $414 $478 $545

FCF/Share $4.58 $5.22 $1.58 $1.09 $1.86 $1.80 $6.33 $2.01 $1.65 $1.80 $2.40 $7.85 $2.53 $1.99 $2.43 $3.28 $10.22 $12.22 $14.42

25 June 2019


Credit Suisse HOLT® Analysis

DPZ’s current price implies expectations of 4.2% sales growth. DPZ’s valuation is more

sensitive to top-line growth, with every 100bps adding ~$47 per share, and every 100bps

of EBITDA margin adding ~$19 per share.

Figure 98: HOLT Market Implied Scenario

Source: Credit Suisse HOLT®

-200 bps -100 bps 0 bps +100 bps +200 bps

Assumptions and Methodology-

-

-

Source: Credit Suisse HOLT®. CFROI and HOLT are trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries.

Sales growth: 2019-2025 based on CS Research; then solved for the

sales CAGR required to get to the current price

After the 10-year explicit forecast, the HOLT methodology calculates

the terminal value by fading returns on capital and growth towards cost

of capital and GDP growth respectively

For this analysis, we have made two adjustments consistently across

our coverage: first, we are using the US Country discount rate

(3.83%) for all companies and second, we have adjusted the final fade

rate from 10% to 5% to account for the sector's longer sustainability

of returns on capital

EBITDA margins: 2019-2029 based on CS Research, then assumed

constant

+200 bps 23.8% $231 $271 $318 $373 $437

> 10%

downside

Within

10%

> 10%

upside

DPZ's valuat ion is more sensit ive to top line growth with every

100bps increment adding ~47 per share vs. ~$19 per share

added for 100bps incremental margins growth

$390

+100 bps 22.8% $216 $255 $299 $352 $413

0 bps 21.8% $202 $238 $281 $331

$342

-100 bps 20.8% $187 $222 $262 $310 $366

19.8% $172 $205 $244 $289

HO

LT m

ark

et

imp

lie

d s

ce

nari

o

DOMINO'S PIZZA INC (DPZ)

Illustrative "What's Priced In" AssumptionsValuation Sensitivity Analysis

at Current Share Price of $281

Long-Term Sales growth

2.2% 3.2% 4.2% 5.2% 6.2%

Lo

ng

-Te

rm E

BIT

DA

Marg

in

-200 bps

21.1 21.8 21.8

0

5

10

15

20

25

30

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Historical margins Forecast Historical median

EBITDA Margin (%)

2019-2029 based on CS Research, then assumed constant

CS Research

7.2 7.4 4.2

(10)

(5)

0

5

10

15

20

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Historical sales growth Market implied Historical median

Sales Growth (%)

2019-2025 based on CS Research, then solved long term sales growth

required to get to current priceCS Research

41.7 40.1 40.0

0

5

10

15

20

25

30

35

40

45

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Historical CFROI Forecast CFROI Discount rate Historical median

CFROI (%)

2.4 1.8 1.8

(10)

(5)

0

5

10

15

20

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Historical asset growth rate Forecast asset growth

Asset Growth (%)

2.0 2.0 2.0

0.0

0.5

1.0

1.5

2.0

2.5

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Historical asset turns Forecast Historical median

Asset Turns (x): Sales/ Invested Capital

25 June 2019


Company Overview Domino’s Pizza (DPZ) is the largest pizza company in the world based on global retail

sales, serving pizza, sandwiches, pasta, chicken, desserts and beverages. Domino’s was

founded in 1960, with roots in pizza delivery, with a significant amount of sales also

coming from carryout (2/3 delivery and 1/3 carryout). Domino’s is currently headquartered

in Ann Arbor, Michigan.

Domino’s operates ~16,000 restaurants in over 85 markets around the world as of the end

of 2018, including 390 company-operated stores in the US, 5,486 domestic franchise

stores and 10,038 international stores. There are 793 US franchisees as of the end of

2018, with the average franchisee operating ~7 Domino’s stores and generating EBITDA

of ~$141K per store. DPZ is ~98% franchised and operates in three reportable segments

including: 1) US Stores; 2) Supply Chain; and 3) International Franchise. In 2018, DPZ

generated ~$3.4BN in total revenue (~$3.1BN excluding franchise advertising

contributions). System sales were ~$13.5BN in 2018, including ~$6.6BN in the US and

~$7BN internationally.

Figure 99: DPZ Unit Composition Figure 100: DPZ Revenue Composition


Note: 2018 revenue excludes US franchise advertising contributions.

Figure 101: DPZ System Sales Figure 102: Average # Stores Per Franchisee


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Unit

Com

posi

tion

US Company US Franchise International Franchise

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

20

09

20

10

20

11

20

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20

13

20

14

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15

20

16

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17

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18

Reve

nue C

om

posi

tion (

$M

M)

US Company US Franchise International Franchise Supply Chain

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

20

09

20

10

20

11

20

12

20

13

20

14

20

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20

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20

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20

18

Sys

tem

Sal

es

($M

M)

Domestic International

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

20

09

20

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16

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18

Ave

rage #

of

Sto

res

per

Fra

nch

isee

25 June 2019


Supply Chain

Domino’s operates 19 regional dough manufacturing and food supply chain centers, one

thin crust manufacturing center, one vegetable processing center and one center providing

equipment and supplies in the US. The company also operates five dough manufacturing

and food supply chain centers in Canada. In 2018, Domino’s made ~2.5 deliveries per

store per week. Domino’s is in a profit-sharing arrangement with US and Canadian stores

that purchase all their food from supply chain centers, which generally offer franchisees

50% of their supply chain centers' profits.

Cheese is the largest food cost (~20-25%) and Domino’s purchases the US pizza cheese

from a single supplier (Leprino Foods). Prices charged to US franchisees for cheese is

based on the Chicago Mercantile Exchange cheddar block price, plus a supply chain

markup. As cheese prices fluctuate, actual supply chain dollar margins remain unchanged,

though revenues and margin percentages similarly fluctuate. Domino’s has a multi-year

agreement with Coca-Cola in the US as the company’s exclusive beverage supplier. The

majority of meat toppings in the US also come from a single supplier (Tyson).

Properties

DPZ owns five supply chain center buildings and two store buildings the company leases

to US franchisees, with all other company-owned stores, US supply chain centers and

international supply chain centers under leases.

Fiscal Year End/Reporting Period

DPZ’s fiscal year ends on the Sunday closest to December 31. Each of DPZ’s first three

fiscal quarters consists of 12 weeks with the fourth fiscal quarter consisting of 16 or 17

weeks. FY20 is the next fiscal year with 53 weeks in the reporting period.

25 June 2019


Management & Board of Directors

Figure 103: Management & Board Directors

Source: Company data

Management Profile

Executive Position Years at DPZ

Richard E. Allison, Jr. Chief Executive Officer 8

Jeffrey D. Lawrence EVP, Chief Financial Officer 19

Stuart A. Levy EVP, Supply Chain Services Joined Jan 2019

Kevin S. Morris EVP, General Counsel & Corporate Secretary 2

Joseph H. Jordan EVP, International 7

J. Kevin Vasconi EVP, Chief Information Officer 7

Russell J. Weiner Chief Operating Officer & President of the Americas 10

Scott R. Hinshaw EVP, Franchise Operations & Development 33

Thomas B. Curtis EVP, Team USA 34

Timothy P. McIntyre EVP, Communications, Legislative Affairs & Investor Relations 34

Mangement Compensation

Executive Position SalaryStock & Option

Awards

Non-Equity

Incentive & OtherTotal

Richard E. Allison, Jr. CEO $744,711 $6,726,382 $1,631,323 $9,102,416

J. Patrick Doyle Former President & CEO $551,923 $2,606,295 $1,486,203 $4,644,421

Jeffrey D. Lawrence EVP, CFO $500,000 $587,179 $596,689 $1,683,868

Russell J. Weiner COO & President of the Americas $679,557 $4,613,899 $1,064,661 $6,358,117

Joseph H. Jordan EVP, International $425,000 $520,195 $867,171 $1,812,366

J. Kevin Vasconi EVP, CIO $510,000 $613,424 $618,272 $1,741,696

Management Compensation Metrics

CEO Richard E. Allison

Tenure as CEO Since Jul 2018

Total Compensation ~$9.1MM

Annual Incentive Plan Metric

Adjusted Total Segment Income

Long-term Incentive Metrics Vesting Period

Performance Shares 4-yrs

Adjusted Total Segment Income

Stock options 4-yrs

Retention Equity Shares 4-yrs

Board of Directors

Director Joined Board

David A. Brandon Chairman of the Board; former CEO of Domino's Pizza & Toys “R” Us 1999

Andrew B. Balson Managing Partner of Cove Hill Partners; former CEO of Match Beyond 1999

Diana F. Cantor Partner at Alternative Investment Management & Vice Chairman at Virginia Retirement System 2005

James A. Goldman Senior Advisor at Eurazeo; former President, CEO & Director at Godiva Chocolatier 2010

Richard L. Federico Former Non-Executive Chairman, CEO & Co-CEO of P.F. Chang’s 2011

C. Andrew Ballard CEO & Co-founder of Wiser Solutions; Chairman of Datacor; Vice Chairman of Zignal Labs 2015

Richard E. Allison Chief Executive Officer of Domino's Pizza 2018

Corie S. Barry Senior EVP & Chief Financial and Strategic Transformation Officer of Best Buy 2018

Patricia E. Lopez CEO & Director of High Ridge Brands; former SVP at Estée Lauder 2018

Experience

25 June 2019


Companies Mentioned (Price as of 21-Jun-2019) Chipotle Mexican Grill, Inc. (CMG.N, $726.85) Domino’s Pizza Inc. (DPZ.N, $280.33, OUTPERFORM, TP $320.0) Grubhub Inc. (GRUB.N, $71.17) Jubilant Foodworks (JUBI.BO, Rs1255.7) McDonald’s Corporation (MCD.N, $204.26) Papa John’s International, Inc. (PZZA.OQ, $44.37) Pizza Hut (Unlisted)

Disclosure Appendix

Analyst Certification I, Lauren Silberman, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Domino’s Pizza Inc. (DPZ.N)

DPZ.N Closing Price Target Price

Date (US$) (US$) Rating

04-Oct-17 201.64 200.00 N *

13-Oct-17 192.98 205.00

04-Jan-18 197.29 220.00 O

23-Jan-18 219.57 235.00

21-Feb-18 230.53 245.00

14-Mar-18 226.66 NC

* Asterisk signifies initiation or assumption of coverage.

Effective July 3, 2016, NC denotes termination of coverage.

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a sto ck’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the re levant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to it s current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stoc ks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

N EU T RA L

O U T PERFO RM

N O T CO V ERED

25 June 2019


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 46% (32% banking clients) Neutral/Hold* 39% (27% banking clients) Underperform/Sell* 13% (22% banking clients)

Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Domino’s Pizza Inc. (DPZ.N)

Method: Our $320 target price and Outperform rating is based on ~20.5x our NTM EBITDA in 12 months, implying a P/E multiple of ~28x our NTM EPS in 12 months. Our ~20.5x EBITDA multiple is in-line with DPZ’s current trading multiple (3-year avg ~19x). Our implied P/E multiple of ~28x is in-line with DPZ’s current trading multiple and slightly below its three-year average P/E multiple of ~30x.

Risk: Key risks to our $320 target price and Outperform rating include: competition and economic factors. Increasing competitive pressure could weigh on market gains globally. DPZ could experience reduced product demand, longer payment cycles, slow adoption of new technologies and increased price competition if there is an economic downturn or deterioration in economic conditions.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (DPZ.N) within the next 3 months. Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): DPZ.N

For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=437127&v=2woh88f4ce9b1f3k3plxy3072 .

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. This research report is authored by: Credit Suisse Securities (USA) LLC ................................................................................................................................................ Lauren Silberman

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25 June 2019


Important Credit Suisse HOLT Disclosures The HOLT methodology does not assign ratings or a target price to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default variables and incorporated into the algorithms available in the HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. These adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variables may also be adjusted to produce alternative warranted prices, any of which could occur. The warranted price is an algorithmic output applied systematically across all companies based on historical levels and volatility of returns. Additional information about the HOLT methodology is available on request. CFROI, CFROE, HOLT, HOLT Lens, HOLTfolio, "Clarity is Confidence" and "Powered by HOLT" are trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse. © 2019 Credit Suisse Group AG and its subsidiaries and affiliates. All rights reserved.

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25 June 2019


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