Domino's 4Q14 Earnings: Income Rises But Profit Margins Fall (Part 9 of 14)
Management guidance
In the last part of this series, we learned that Domino’s Pizza’s (DPZ) expenses towards its digital strategy has been a critical catalyst for bringing in sales—as much as 50% in the US. In this part, we’ll cover management’s guidance for the future.
Tax rate
Domino’s management anticipates an effective tax rate in the range of 37% to 38% for the “foreseeable future.” Corporate tax rates in the US are high, forcing companies to move their headquarters to a country that offers lower tax rates, similar to the recent move by Burger King (BKW), which acquired Tim Hortons (THI) in Canada.
Yum! Brands (YUM) had an effective tax rate of 22.7% previously, and McDonald’s (MCD) had an effective tax rate of 33.04%.. McDonald’s is part of the Consumer Discretionary Select Sector SPDR Fund (XLY), which you may want to consider for broader exposure to the restaurant industry. XLY holds 4% of McDonald’s (MCD) and 3% of Starbucks (SBUX).
Other expenses
Domino’s G&A (general and administrative) expenses in the fourth quarter came in higher due to a one-time charge of $6 million related to the replacement of its corporate plane, as we saw in the previous part. The purchase of the plane has also raised full-year capital expenditure estimates.
DPZ had an increase in net income of 7.5% but saw a decline in operating profit margins. We’ll discuss this in the next part of the series.
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