Domino's Next Delivery: An IPO?


Domino's Inc., the Ann Arbor-based pizza giant, has always prided itself on delivering on time, regardless of the weather. Now it looks like the company hopes to extend it reputation for reliability in inclement weather to Wall Street. Despite a volatile stock market and iffy prospects for new share issues, the nation's second-largest pizza chain is preparing for an initial public stock offering before the end of summer, several knowledgeable sources have told BusinessWeek Online.

Officials at Domino's declined to comment, while those at Boston-based Bain Capital, which acquired Domino's in a $1.1 billion recapitalization in 1998, declined to comment. But David A. Brandon, Domino's chairman and chief executive, has said in the past that an IPO is a "distinct possibility."

Domino's timing is gutsy. The market for IPOs this year has been soft at best -- with new issues coming only at "a slow drip pace," says Randall Roth, an IPO analyst at Renaissance Capital. Some 50 IPOs have been priced this year, 6% fewer than at this time last year. And the results haven't been hugely inspiring: The average return has been -12%. The latest restaurant chain to go public, on July 18, was Red Robin Gourmet Burger -- and its IPO was coolly received.

FAMILIAR TASTE. Still, that could be an advantage for Domino's, which has one of the strongest brands in the pizza biz. "There's a proclivity to go with names you know," Roth says. Greg Schroeder, research analyst at Fulcrum Global Partners, says a recognizable brand name is more important than it was a year ago. Domino's has "the proven ability to grow," he says. "I think the market likes focus."

Unlike other restaurant chains that are experimenting with new menus and store formats, Domino's remains focused on just one business -- pizza delivery. Such single-mindedness lowers the risk that the company will make mistakes, says Schroeder. Delivering pizza is also the sort of straightforward business many investors favor these days.

There are risks, of course. The economy isn't as strong as it might be. And in the crowded pizza business, consumers have been reluctant to pay more than $10 for a pie. Domino's has tried to woo buyers by offering meal packages with such freebies as beverages or cinnamon-flavored breadsticks.

Domino's was in deep trouble as recently as the early 1990s, but founder Thomas Monaghan managed to get the company back on track. Monaghan sold the company to Bain in order to devote himself to pursuing philanthropic interests, though he still owns a 7% stake. Since the purchase, Brandon has accelerated the turnaround and Domino's has been outpacing its competition.

RISING DOUGH. In the quarter ended June 16, Domino's net income rose 21.8%, to $10.8 million, on systemwide sales of $904 million, up 6% from a year earlier. Archrival Pizza Hut has seen same-store sales drop between 1% and 4% in each of the last four months vs. the comparable months last year. But Domino's domestic same-store sales rose 4.2% during the quarter, while international same-store sales rose 4.7%. Even more impressive: Domino's same-store sales have risen in 34 of the last 36 quarters.

"We continue to be proud of our great progress," Brandon told bond investors in a July 30 conference call. "We're building momentum by continuing to post strong results, despite a challenging environment." Soon, if all goes well, he and Domino's will capitalize on that momentum to raise some dough. By Joann Muller in Detroit, and Jane Black in New York, with Geoff Smith in Boston


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