Balanced View on Domino's Pizza - Analyst Blog
April 14 2014 - 1:00PM
Zacks
On Apr 10, 2014, we issued an updated research report on
Domino's Pizza, Inc. (DPZ).
On Feb 25, this pizza delivery company reported solid fourth
quarter results with earnings and revenue beating the Zacks
Consensus Estimate. Adjusted earnings of 78 cents per share for the
fourth quarter grew 21.9% year over year driven by higher revenues,
margin expansion and lower share count.
Quarterly revenues increased 5% year over year, thanks to strong
international sales and higher supply-chain revenues. During the
quarter, Domino's Pizza’s domestic stores comps were up 3.7% while
international store comps recorded 7% growth.
Domino’s Pizza has been posting impressive results for the past few
quarters on the back of higher traffic and unit growth. Also, the
company was successful in expanding its operating margin during the
quarter owing to favorable revenue mix and higher franchise
royalties. Estimates for both 2014 and 2015 have largely moved
upwards over the last 60 days driven by the strong quarterly
performance.
Domino’s Pizza’s international operations promise significant
growth potential. The company has witnessed 80 consecutive quarters
of positive same-store sales in its international business. Apart
from established markets such as Canada, the UK and South Korea,
emerging markets like Brazil and Indonesia have been posting strong
growth. The company expects unit growth to be 4.0% to 6.0% over the
long term, of which the majority is expected to be in the
international markets.
Dominos Pizza has undertaken several brand revitalization
initiatives such as product and technological innovation,
increasing store count and re-imaging existing stores to drive its
revenues. We believe these initiatives will contribute
significantly to Domino’s growth in the near future. Driven by
these initiatives, the company expects global retails sales growth
in the range of 6.0% to 10.0% over the long-term. We expect the
company’s digital ordering system and its foray into the Pan Pizza
category to help it sustain top line momentum.
However, like other fast food chains, the company is experiencing
weak consumer spending environment owing to macroeconomic
pressures. U.S. consumers are burdened with higher gasoline prices,
payroll tax increases and delayed tax refund checks. These external
forces might restrict consumer discretionary spending further,
which in turn can put pressure on the company’s sales. Also, rising
cost pressure due to reimaging and unit expansion initiatives is a
major headwind for this Zacks Rank #3 (Hold) company.
Other Stocks to Consider
Some better-ranked stocks worth considering in the restaurant
industry include Ignite Restaurant Group, Inc.
(IRG), The Wendy's Company (WEN), Famous
Dave's of America Inc. (DAVE). All these stocks sport a
Zacks Rank #1 (Strong Buy).
FAMOUS DAVES (DAVE): Free Stock Analysis Report
DOMINOS PIZZA (DPZ): Free Stock Analysis Report
IGNITE RESTRNT (IRG): Free Stock Analysis Report
WENDYS CO/THE (WEN): Free Stock Analysis Report
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