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Domino’s 4Q14 Profitability: Income Rises But Profit Margins Fall

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Profitability analysis

Domino’s Pizza (DPZ) reported a net income of $48 million, which was up 7.5% compared to $44.7 million in the third quarter a year ago. The growth in net income was due to higher same-store sales and unit growth, as we discussed in the earlier part of this series. Net profit margins were down 41 basis points (1%=100 basis points) to 7.47%, compared to 7.88% in the same quarter a year ago.

Domino’s operating margin was also down to 29.4% from 30.4% compared to the corresponding quarter in 2013. Operating margins were affected by higher commodity costs. Yum! Brands (YUM), which owns Pizza Hut, had an operating loss during the fourth quarter. DPZ had an effective tax rate of 36.9%.

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Share repurchase program

The company repurchased shares worth $1.2 million in fiscal 2014. According to the company, this repurchase program boosted earnings per share by $0.01. Share repurchase programs are one way a company gives back its profits to shareholders, and dividends are another.

The company disbursed $52 million over the full year in dividends and had a yield of 0.96%. Domino’s competitor Pizza Hut, owned by Yum! Brands (YUM), had a dividend yield of 2.5% and Papa John’s (PZZA) had a yield of 0.71%. The Consumer Discretionary Select Sector SPDR Fund (XLY), which includes cafe stocks such as Starbucks (SBUX), holds ~1.5% of YUM, 4% of McDonald’s (MCD), and 0.9% of Chipotle Mexican Grill (CMG)

We’ll discuss dividends in more detail in the next part of the series.

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