Domino's Pizza (DPZ) is trading lower today (-5%) after reporting Q3 earnings this morning. We are all familiar with Domino's Pizza, but maybe not some of the details. It was founded in 1960 and is the world leader in pizza delivery, with a significant business in carryout pizza. Also, many people may not be aware that it has a very large international presence.
It ranks among the world's top public restaurant brands with more than 14,400 stores in over 85 international markets. Domino's had global retail sales of nearly $10.9 bln in 2016, with more than $5.3 bln in the US and $5.5 bln internationally. Note: these are retail sales at the store level, it's not the same as reported sales for Domino's which is primarily made up of royalty/franchise fees. DPZ does operate company stores, but the vast majority (more than 97%) of its locations are run by franchisees.
Domino's has made a big push to incorporate digital/online technology into the pizza ordering process with good success. DPZ has produced several innovative ordering platforms including Facebook Messenger, Samsung Smart TV, Apple Watch, Amazon Echo, Twitter and text message using a pizza emoji. In 2016, an estimated $5.6 bln in global sales came from digital/online. In late 2017, as part of an industry-first collaboration with Ford Motor, Domino's began a meaningful test of delivery using self-driving vehicles.
Turning to the Q3 results, non-GAAP EPS rose 32% YoY to $1.27, which was better than market expectations. Revenue rose 13.5% year/year to $643.6 mln, which also was a good bit above expectations. The company had global net store growth of 217 stores (53 domestic; 164 international) in the quarter, and has added 1,182 stores over the trailing four quarters. The total store count is 14,434 (5,491 domestic stores and 8,943 international stores), so you can see DPZ has a significant international presence, it's not just in the US.
In terms of domestic same store sales, they came in at a robust +8.4% (+8.4% company-owned, +8.4% franchise) while international comps came in at +5.1% (this excludes FX impact). These were good comps considering DPZ was lapping some real good comps in 3Q16 at +13.0% for domestic and +6.6% for international.
In sum, while DPZ reported results above market expectations, the stock is still trading lower as it appears investors are disappointed in the size of the beat. In Q1 and Q2, the company handily beat expectations but in Q3 the upside was more modest. Also, perhaps the same store comps were not as strong as expected. Also, keep in mind that this stock had rallied 17% since late August heading into this report, so maybe investors had higher expectations. However, the overall growth picture for DPZ looks quite good.