Domino's Pizza Earnings Preview
Given the stock's volatility over the last few months, investors haven't landed on a clear consensus about Domino's (NYSE: DPZ) growth prospects. On the positive side, the pizza deliver leader is growing its store footprint at the fastest rate in decades, which supports management's aggressive outlook for global dominance. However, sales gains have been slowing at existing locations for almost a year, leading to questions about when the chain might stabilize its business.
Those conflicting narratives set up an important earnings announcement when Domino's reveals its fiscal first-quarter results before the market opens on Wednesday, April 24. Here's a look at what investors will be watching for in that report.
Meeting expectations
Domino's business has been on a tear for more than a decade now thanks to the combination of market share gains and robust growth in the store footprint. Lately, though, the chain has had to rely more on its restaurant expansion, as comparable-store sales are heading in the wrong direction.
Comps fell to a 5.6% increase last quarter to mark the third straight quarter of slowing growth. This boost translated into market share growth, CEO Richard Allison said back in late February, but the company could still do better. "Same-store sales performance can certainly improve versus what we have all come to expect," Allison told investors.
Adding to competitive pressures from peers like Papa John's, Domino's is increasingly competing with itself by adding locations within the delivery zones of its existing franchisees. The company says this "fortressing" strategy is great for the long-term sales profile of both new and existing locations since it raises customer satisfaction and keeps competitors at bay. For those reasons, it's easily worth the 1% to 2% drag on comps over the short term, executives say.
On Wednesday, investors will learn whether that strategy is helping sales gains end their slowdown. Yet that turnaround will be harder to achieve given that Domino's has a tough comparison with a prior-year period in which comps jumped 8%.
International business
In late March, Domino's opened a store in Shenzen, China, that had the distinction of being its 200th in the country and the 10,000th location outside of the U.S. Those numbers highlight just how important the international business is becoming to its overall growth goals. The chain crossed 15,000 locations worldwide last year, up from 10,000 in 2012. And executives think they could easily add another 5,000 stores in just their top international markets over the long term.
The best way to judge Domino's potential for hitting that ambitious goal is to follow its unit growth rate and its comps in the international division. The past year showed no major issues with the established store base, as the company closed just 37 locations out of a footprint of over 10,000. Comps held steady at just over 3%, and executives would be thrilled to see that metric inch higher in 2019.
Outlook updates
Domino's doesn't issue a short-term forecast, but its three-year outlook predicts annual comps of between 3% and 6% for both the U.S. and international segments. Last year those figures landed at 6.6% domestically and 3.5% outside its home country. With the added help from a growing store base, the chain aims for total revenue growth of between 8% and 12%, and its 11% rate from last year put it right within that aggressive goal.
On Wednesday, investors will find out whether Domino's is on track to put up another double-digit sales growth performance in 2019 while stretching its impressive streak of positive U.S. comps into its eighth consecutive year.
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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.