June 23, 1999

Domino's Pizza Inc.
30 Frank Lloyd Wright Dr.
Ann Arbor, MI 48106
Phone: 734-930-3674

by Rick Munarriz (TMFEdible)

Ownership: Bain Capital, Tom Monaghan
Competition: Papa John's, Pizza Hut, Little Caesar's
A Future IPO? "It's definitely a possibility."
Hungry? Domino's Pizza is the country's largest pizza delivery chain. With more than 6,200 stores worldwide (all but 641 franchised), it is a behemoth in the dough pie industry. The company commands a 12% market share in a sector that shows no signs of slowing down as consumers continue to opt to dial out for lunch and dinner. As a matter of fact, Domino's has reported higher same-store sales for a stunning 23 consecutive quarters.

It's largely due to the perpetual innovation of the company -- from the 30-minute delivery guarantee (that has long been discarded after some unfortunate accidents) to the new HeatWave packaging -- that the quick service giant has been a consistent grower. Last year, Domino's grew sales by 10% to $1.2 billion while chainwide revenues, which reflect the take from both company-owned and franchise locations, came in at $3.2 billion, unchanged from fiscal 1997. Pro-forma EBITDA (earnings before interest, taxes, depreciation and amortization) was $130.6 million, or 11% of Domino's sales.

In December, Domino's took a huge step toward eventually leading a public life. Tom Monaghan, who founded the chain in 1960, sold his 93% stake in the company to Bain Capital. According to Cozette Phifer, Public Relations Manager for Domino's, the remaining 7% is held by Monaghan's family and company executives. Still, it's clear that the company's future is now in Bain's hands. While Monaghan will serve on the Board of Directors, David Brandon now serves as Chairman and CEO.

Ordering a Domino's IPO with everything on it is not a given. Bain has stakes in king-size private companies like Sealy Mattress as well as public ones like the Staples (Nasdaq: SPLS) office superstore chain. So, will Domino's go public? Will you be able to buy your shares in 30 minutes or less?

"It's definitely a possibility," Phifer concedes.

In the meantime the company is probably trying to put on its freshest face. Sales were up a scant 1.9% for the March quarter and Bain will probably try to drum up ways to pick up that pace before taking Domino's to market. Acquisitions? Retail ventures? It's all possible. Now that the pizza chain has a presence in 65 different countries, it will be hard to aggressively grow the top line organically.

While this all seems to point to a maturing company, one that may have made a much better investment earlier in its prime, don't count on a tumbling Domino's. While ambitious upstarts like Papa John's (Nasdaq: PZZA) cut into the market share of Tricon's (NYSE: YUM) Pizza Hut and privately held Little Caesar's (the country's second- and third-largest pizza chains) last year, Domino's convincingly held on and padded its lead.

With Monaghan still on board you won't find the same humiliating incident where Pizza Hut's founder ran off to become a Papa John's franchisee. Monaghan is still active at the company's Ann Arbor headquarters, only now with more time to devote to his charitable efforts (a signature of the community-building nature of Domino's).

So the future at Domino's appears bright -- and an intriguing equity if it were to eventually be served up. Just as the company effectively expanded its menu offerings over the years to include items like chicken wings and sodas without having to overburden its physical operations, there is still room for growth. Sandwiches can help shore up the slower day sales. Add-on items like toy premiums and video rentals have helped invigorate other players, and if one thing is for sure, Domino's has effectively rolled with the changes as it readies for the dawning of its fifth decade delivering pizza pies next year (and maybe its first as a public company).

Next -- J. Crew

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