Domino's Pizza Inc posted higher-than-expected quarterly profit on Thursday as its reworked U.S. pizza recipe drove sales, and costs for cheese and meats rose less than feared.
Shares of the pizza delivery chain closed up almost 11 percent.
Sales at non-U.S. restaurants open at least a year were up 8.3 percent in the first quarter. U.S. same-restaurant sales fell 1.4 percent from a year earlier, when they jumped a hefty 14.3 percent on the popularity of a reworked pizza recipe.
The drop in U.S. same-restaurant sales was significantly less steep than many analysts had expected.
We certainly had a tall mountain to leap over, Chief Executive Patrick Doyle said.
Ann Arbor, Michigan-based Domino's changed its U.S. pizza recipe last year to make it more flavorful. Doyle said many of the customers who sampled it back then continue to frequent the chain, expanding the company's domestic customer base.
Doyle told Reuters that some analysts were expecting rising commodity costs to hit margins despite company assurances that they would not.
This level of commodity growth is not difficult for us to manage through, not when labor is tame like it is now, he said, adding that the company would not significantly raise prices if commodity costs stay in the current range.
Net income for Domino's first quarter ended March 27 increased 10.6 percent to $27.1 million, or 43 cents per share, boosted by higher international royalty revenue and sales at established restaurants.
Excluding gains from sales of restaurants to franchisees, profit was 42 cents per share, beating analysts' average estimate by 8 cents, according to Thomson Reuters I/B/E/S.
We attribute virtually all of the upside to better-than-anticipated U.S. same-store sales, said Janney Capital Markets analyst Mark Kalinowski, who had expected U.S. sales at established restaurants to fall 6 percent for the quarter.
Revenue rose 2.1 percent to $389.2 million.
Operating margin improved to 28.7 percent from 28.3 percent a year earlier as the company lowered general and administrative expenses.
At the end of the first quarter, there were 9,379 Domino's outlets in the United States and 70 in international markets.
Rival Papa John's International Inc earlier this week reported first-quarter results that beat market expectations, despite rising costs for commodities, particularly cheese.
Domino's also competes with Yum Brands Inc's Pizza Hut chain, which saw U.S. same-store sales fall 3 percent in its latest quarter.
California Pizza Kitchen Inc , a full-service restaurant chain specializing in pizzas like roasted artichoke and spinach, on Thursday reported first-quarter profit that topped Wall Street's view after cost controls and a focus on higher-margin menu items offset lower sales due to weather.
Domino's closed up 10.9 percent or $2.10 to end at $21.30 on the New York Stock Exchange.
(Reporting by Lisa Baertlein; Editing by Maureen Bavdek, John Wallace, Matthew Lewis and Richard Chang)