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Domino's Pizza Heats Up on Earnings Beat

ANN ARBOR, Mich. (TheStreet) -- Domino's Pizza (DPZ) shares spiked Tuesday morning after the restaurant chain beat top- and bottom-line expectations for the third quarter.

Nearly 2 million Domino's shares were in play in morning trading, much heavier than their average daily trading volume of 609,000, after the restaurant chain posted quarterly earnings of $16.6 million, or 27 cents per share, beating expectations for earnings of $14.9 million, or 25 cents per share. The stock gained 5.6% to $15.45.

Despite the earnings beat, profits actually declined year-over-year, though adjusted for one-time gains booked in the year-earlier period, earnings did grow year-over-year. Results in the third quarter last year include a 15 cent per share gain attributed to senior debt extinguishment.

The recent quarter saw revenues jump 14.8% to $347.4 million, besting expectations by nearly $12 million, due primarily to higher volumes and commodity prices in supply chain, higher same store sales in both domestic and international stores and store count growth in international markets.

The key restaurant industry metric of same-store sales, or sales at stores open at least one year, jumped 11.7% year-over-year in Domino's recent quarter, attributed to continued positive consumer response to the company's new pizza recipe, launched last December. International stores grew comps by 7%, marking the 67th consecutive quarter of positive same store sales growth for the division.

"We're pleased that people love our reformulated pizza," said CEO J. Patrick Doyle.

Feltl analyst Mark Smith told TheStreet recently he was encouraged by Domino's performance after the new recipe was launched, and was surprised the momentum maintained as well as it did. He said the company also benefited because so many people who tried the new pizza ordered online, giving the company an easy way to continue marketing to them through email reminders, promotions and coupons.

Smith pointed out that few liked Domino's old pizza recipe -- the chain was best known for delivering pizzas quickly, not for tasty eats. While there was a risk in changing their core product -- we all know how New Coke (KO) turned out -- but the difference here was that no one really liked the core product, so there wasn't much to lose. "It was a great strategy and it's paid off really well," said Smith.

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