Domino's profit boosted as demand holds up in U.S. pizza price war

By Sruthi Ramakrishnan

(Reuters) - Domino's Pizza Inc (NYSE:DPZ - News) reported a higher-than-expected quarterly profit as cheese prices fell and as demand in the United States held up despite heavy promotions from rivals such as Pizza Hut and Papa John's.

While the dollar hurts its international sales, Domino's has been outperforming rivals at home, helped by investments in technology such as smart watches and digital wallets which make it easier for customers to place and pay for orders.

"Clearly, business drivers – such as the ongoing shift to digital-ordering technologies ... and Domino's focus on everyday operational excellence as opposed to being in the "product of the month club" – continue to resonate," Nomura Securities analyst Mark Kalinowski wrote in a note.

Domino's shares soared as much as 10.4 percent to a record high of $129.90 on Thursday, before easing to trade up 9 percent at $128.32.

The company was not seeing any impact from the "price war" in the pizza category in the United States, Domino's Chief Executive Patrick Doyle said on a conference call.

Sales at Domino's U.S. company-owned and franchised restaurants open at least a year rose 10.7 percent in the fourth quarter ended Jan. 3.

That far surpassed the 2 percent rise at Yum Brands Inc' (NYSE:YUM - News) Pizza Hut and the Papa John's International Inc's (NasdaqGS:PZZA - News) 1.9 percent increase, indicating Domino's was gaining market share, Maxim Group analyst Stephen Anderson said.

Ann Arbor, Michigan-based Domino's international same-restaurant sales rose 8.6 percent, excluding the impact from a stronger dollar.

Cheese is Domino's biggest commodity cost and a near 23 percent drop in the price of an average cheese block, to $1.63 per pound, helped boost profit in the quarter.

The company's net income rose to $62.76 million, or $1.18 per share, from $48.03 million, or 85 cents per share. Excluding items, it earned $1.15 per share.

Domino's total revenue rose 15.3 percent to $741.18 million.

Analysts on average had expected a profit of $1.10 per share on revenue of $707 million, according to Thomson Reuters I/B/E/S.

Domino's also boosted its quarterly dividend to 38 cents per share from 31 cents.

(Reporting by Lisa Baertlein in Los Angeles and Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty and Savio D'Souza)