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Domino's franchisees help serve profit beat, shares rise

(Reuters) - Domino's Pizza Inc's first-quarter profit beat Wall Street estimates on Wednesday, as it booked more revenue and royalties from franchisees across the globe.

Shares of the world's largest pizza company rose more than 6 percent before the bell.

Royalties and fees from U.S. franchisees jumped 8.1 percent, while that from international franchisees rose 4.1 percent. Supply chain revenue, from selling ingredients and equipment to franchisees, rose 7.2 percent in the quarter.

The pizza chain, amid competition from delivery services GrubHub Inc and UberEats, has been aggressively growing its store count by opening more small-format outlets, with fewer seating, to deliver faster by bringing delivery areas tighter and closer together.

The multiple-store strategy, termed fortressing, has helped Domino's improve its quality and speed of delivery, but skewed sales toward newer outlets, hitting same-store sale comparisons and also overcrowding the market.

Domino's U.S. comparable sales fell between 1 and 1.5 points in 2018, but it was willing to continue investing in new stores for long-term growth, it said.

Analysts agreed the strategy could pressure same-store sales in the near term, but would benefit the pizza chain in the coming years.

Domino's recorded its slowest same-store sales growth in at least three years of 2.1 percent from company-owned U.S. stores, below the estimate of 4.02 percent, according to IBES Refinitiv data.

U.S. franchisees saw same-store sales growth of 4.1 percent, also missing the estimate of 4.45 percent.

The company's Chief Executive Officer Ritch Allison said "It was a good quarter for our U.S. business," citing a "balanced" growth in sales.

International same-store sales for the company were weak, rising only 1.8 percent, well below the estimate of 2.43 percent.

"We remain focused on improving international comps," Allison said.

The company's profit climbed 10 percent to $2.20 per share, while revenue rose 6.4 percent to $836 million.

Analysts had forecast a profit of $2.09 per share and revenue of $849.6 million.





(Reporting by Nivedita Balu and Aishwarya Venugopal in Bengaluru; Editing by Shinjini Ganguli)