Domino's Pizza Inc. Reports Slower Growth in Both U.S. and International Markets

This week, Domino's Pizza (NYSE: DPZ) revealed its weakest quarterly sales growth pace in well over a year. Yet the fourth-quarter results were still good enough to lift its full-year numbers above management's targets. The pizza chain also succeeded in expanding its store footprint in 2017, mainly in international markets, while improving profitability at the same time.

Here's a look at how the headline results stacked up against the prior-year period:

What happened this quarter?

Revenue rose 9% as the company notched its 27th straight quarter of positive comparable-store sales growth in its core U.S. market. That expansion translated into another year of market share gains -- although at a slower rate than in 2016 and 2015.

Here are some of the key highlights from the quarter:

  • Domino's closed out a big year of store openings by adding 422 locations to its base. That total included 96 launches in the U.S. and 326 international stores.
  • Comparable-store sales slowed for the third straight quarter, dropping to a 4.2% rate in the U.S. segment from 8.4% in the third quarter and 9.5% in the second. That result pushed full-year comps to 7.7% to mark the first time in three years that Domino's failed to grow at a double-digit pace. The company still outpaced rivals -- including Yum! Brands' Pizza Hut -- by a wide margin.
  • Domino's international segment decelerated to a 2.5% expansion pace from 5% in the prior quarter.
  • Food costs and administrative expenses both grew slowly, which contributed to higher profitability as operating income rose to 19.7% of sales from 18.4% a year ago. That success, plus a slightly lower tax charge, translated into a 27% spike in net income as bottom-line profit margin improved to 10.5% of sales from 8.9%.
  • The chain ended the quarter with $36 million of cash and $3.15 billion in debt.

What management had to say

CEO J. Patrick Doyle focused his comments on the broader operating trends that delivered market share gains during the 2017 fiscal year. "We are pleased with our fourth quarter and full-year 2017 performance," he said in a press release, "with results that continued to outpace the industry."

Doyle highlighted the fact that Domino's total sales growth and domestic comps metrics both surpassed management's long-term targets. "This, along with tremendous net store growth and an incredibly low number of closures, helps validate that our long-term fundamental strength is well intact heading into 2018," he explained.

Looking forward

International comps will likely be a focus for management in the year ahead, given that the 2017 gains just missed their target range of between 3% and 6% annual growth. The company left that outlook in place, though, and it affirmed each of its other big-picture forecasts, including global sales growth of between 8% and 12%.

For a chance at edging past that result for the third straight year, Domino's will need to pair steadily improving sales at existing locations with a store base that's expanding by at least 6% annually.

10 stocks we like better than Domino's PizzaWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Domino's Pizza wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 5, 2018

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.