February 20, 2018 / 4:27 PM / 10 months ago

UPDATE 3-Domino's Pizza rises on profit beat, takeover speculation

(Adds context, executive comment)

By Lisa Baertlein

Feb 20 (Reuters) - Domino’s Pizza Inc reported better-than-expected quarterly profit on Tuesday amid speculation that the pizza delivery chain could be bought by the owner of Burger King and other fast-food brands.

Domino’s shares reversed earlier losses to trade nearly 2 percent higher, as a media report about a potential acquisition overshadowed growing investor concerns that delivery services like GrubHub Inc and UberEATS are nibbling away at the pizza chain’s business.

Domino’s fourth-quarter profit rose 28 percent to $93.3 million, or $2.09 per share, topping analysts’ average target of $1.95 per share, according to Thomson Reuters I/B/E/S.

Brazil Journal, citing people with knowledge of the matter, reported that Restaurant Brands International Inc is putting together a bid to buy Domino’s. Reuters was not immediately able to verify the report.

U.S. same-store sales at Domino’s company-owned outlets rose 3.8 percent, while those at its franchise stores were up 4.2 percent. International same-store sales rose 2.5 percent. Those results missed analysts’ targets.

On a conference call with analysts, outgoing Chief Executive J. Patrick Doyle said international same-store sales were more volatile than usual, due in part to weakness in Japan, but that Domino’s business remains healthy.

Results from the United States were lapping a very strong quarter a year earlier, Doyle added.

Analysts on a conference call peppered Doyle with questions about the restaurant industry’s stepped-up delivery efforts. Yum Brands Inc recently announced a $200 million investment in GrubHub as sales of its Pizza Hut brand improve.

Doyle said overall sales for the restaurant industry have not been growing, which suggests that some operators’ take-away or on-premise business is moving to delivery.

“As long as all that’s happening is it’s shifting from one restaurant chain from a carry-out transaction to a delivery transaction ... I don’t know that it really makes any difference,” he said.

About two-thirds of Domino’s U.S. business is from delivery and the remainder is carry out.

Doyle steps down as Domino’s CEO at the end of June. His eight-year run was marked by explosive share gains from improving the taste of the chain’s pizza and investing in online ordering and other initiatives.

Richard Allison, president of Domino’s international business, will succeed Doyle as CEO.

Restaurant Brands was formed in 2014, when 3G Capital-backed Burger King acquired Canadian coffee and doughnut chain Tim Hortons Inc for $11 billion. It bought Popeyes Louisiana Kitchen in March for $1.8 billion.

Domino’s shares were last up 1.8 percent at $224.68.

Reporting by Nivedita Balu in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Bernadette Baum and Meredith Mazzilli

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