How Domino's Is Delivering for Hungry Customers and Shareholders Alike

By Markets Fool.com

In the past five years, shareholders of Domino's (NYSE: DPZ)have seen the stock rise well over 400%, and Papa John's investors have enjoyed similar gains.

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In this video, theMarket Foolerycast discuss the international pizza chain, its most recent earnings report, and some of the primary drivers behind its incredible success.

A full transcript follows the video.

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This podcast was recorded on Oct.18, 2016.

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Chris Hill:Let's wrap up with Domino's Pizza. Third quarter profits rose 25%, and same-store sales were up 13%.

Jason Moser:Pizza, man.

Hill:13%.

Moser:What was that Leno said that even bad pizza is still pizza? Is that what he said?

Hill:Yeah.

Moser:Is that what he said? I think there's something to that. Domino's is one of those ones that just seem so obvious, and then you look at it and you see what it's done over the past five years. It's been phenomenal. It's actually right up there with Papa John's. Papa John's and Domino's together in the last five years, you can retire off of those pizza.

Hill:You've done well.

Moser:The weird thing is we're talking about before taping is that the pizza itself -- no offense, everybody's got their own thing -- it's not the most compelling pizza in the world, is it?

Hill:It's not, although, I remember years ago, Matt Koppenheffer, our colleague who's now over in Germany, was in the studio. We were talking about pizza. I said, "What's your go-to pizza?" He said, "Domino's."

Moser:Really?

Hill:I was like, "Really? Are you kidding me?" In the U.S., the most dominant pizza chain is independents if you're just looking at a pie chart.

Moser:No pun intended.

Hill:No pun intended. But Koppenheffer said, "It's reliable. I know what I'm getting. I don't have to think twice." I agree. I think there are people who feel that way about ... isn't that why chain restaurants succeed to the extent that they do, is because you know what you're getting?

Moser:You know what you're getting.

Hill:Is Domino's the best pizza? I don't think so, but I also know it's not the worst pizza.

Moser:No, it's not. I think that your point is spot-on. It's reliable. You know what you're getting, and they've done a good job with that. I can just testify to something it's maybe 2004, 2005, when we were living in Cairo, Egypt, and we actually got Domino's there in Cairo. It was very much in line with what you would normally get here. I think they've been able to roll this out on a global scale, which has worked out very well for them.

I think that one thing that they've done very well, and Papa John's has also done very well with, is the convenience factor, the mobile factor, because I think oftentimes, it does boil down to just trying to get it done quickly and easily. Most of these mom-and-pop joints don't have apps. Or if they do have apps, they're not typically very well-designed. They're not so user-friendly. With Domino's and with Papa John's, they have built out some really, really good mobile apps. They make ordering very simple. Then because of their scale, they're able to offer pretty easy deals. If you're a family, like we are, then you've got the family deal. You'll get a couple pizzas and something to drink, or whatever. It's simple.

I think the other under-the-radar move that Domino's did really well that has worked out pretty well for them is the rebranding away from Domino's Pizza. Now, it's just Domino's. That's subtle, but it matters because you don't go to Domino's now just to get pizza. I think they've run a pretty genius little ad campaign here recently kind of making fun of people who like salads where they're saying, "Hey, you've got everybody in your family wants pizza except for that one person who wants a salad. They ruin the whole night because you can't have pizza because you got to have a salad." Now, they're making the ad campaign, "Hey, you can get the salad, too, at Domino's." I think they're doing a really good job of going just beyond pizza and being a restaurant with a lot of different things.

Hill:Let me go back to the app for a second, because I think it's worth noting. Part of what has worked for Domino's, for the business of Domino's with this app, is it's enabled them to lower their cost structure.

Moser:Oh, easily.

Hill:I think if you're an investor, and you're looking at any sort of business like this in the fast-casual space, fast food, whatever, that's what you're rooting for, to the extent that a company you own shares of is rolling out a new app. You want it to succeed for a lot of reasons. One of which is something that the company probably won't talk about, and you won't think about as a consumer, and that is, it enables them to lower their cost.

Moser:With most things, technology can have that effect. We were talking yesterday about Hasbro, and how Hasbro has done such a good job by investors in taking what is relatively modest sales growth and really bringing it down to impressive bottom-line growth. Domino's has done very much the same thing. If you look over the last five years, revenue has grown 40% from year one to year five. Net income is up 85%. Earnings per share are up 118%. That is just really bringing out that profitability. There's some share buy-acks there, of course, that helped the cause, but the bottom line is, they are really managing the cost out of the business well. Am I going to go home and have Domino's Pizza and wanting celebrate this? No. I'm not.

As a matter of fact, I promised ... in going back to my ordeal last night with the stupid HOA meeting, it took up most of my time. I had to bring my daughters to this thing, by the way. Now, they're sitting there at this meeting and they're outside. They're doing their own work like champs. They were really great. I promised them actually though to take them out for a nice dinner tonight. My wife is out of town. I'll take them out for a nice dinner, and then fro-yo after. We're going to a local mom-and-pop dining joint and that will be great. What I have found ultimately ... we're on the topic of pizza. I can talk about this all day long. There is no pizza like pizza you make yourself. I think I am really close to having mastered this process. I know you probably can't believe that.

Hill:I want to get to that in a second. I got to back to the ... something that we've touched on with Domino's, we got to mention the CEO. Patrick Doyle, who's overseeing everything we've been talking about here. Patrick Doyle became CEO in March of 2010. Domino's Pizza was trading at $13 a share. This is six and a half years ago. It's now in the $160's. Holy cow.

Moser:To give one more shout-out, I think we have to call out our own Ron Gross, here, because Ron has been on board with Domino's as an investment for a long time. He's been behind this one from a very long time. Whether it was on the radio show, or stuff that we were doing, our services, and any investors who followed Ron's lead, they have done very well as well. Hey, that's what you call firing on all cylinders.

Hill:Exactly.

Chris Hill has no position in any stocks mentioned. Jason Moser owns shares of Hasbro. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool owns shares of Papa John's International. The Motley Fool is short Domino's Pizza. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.