Domino's Pizza (DPZ 277.53, -6.15, -2.17%) is trading modestly lower today after
reporting Q2 earnings this morning. We are all familiar with Domino's Pizza. It
was founded in 1960 and is the world leader in pizza delivery and does significant business in carryout pizza. The company also, and perhaps less
familiarly, has a very large international presence.
It ranks among the world's top public restaurant brands, with more than 15,100 stores in over 85 international markets. Domino's had global retail sales of $12.2 bln in 2017, with more than $5.9 bln in the U.S. and $6.3 bln internationally. Note: these metrics describe retail sales at the store level, and they are not equivalent to 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 features/online technology into the pizza ordering process and has had good success. In fact, more than half of all of the company’s global retail sales in 2017 came from digital channels, primarily online ordering and mobile apps.
In the U.S., Domino's generates over 60% of its sales via digital channels and has produced several innovative ordering methods, including facilitating orders on Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter, and text message platforms via pizza emoji texts. In late 2017, Domino's began an industry-first test of self-driving vehicle delivery with Ford, and in April 2018, it launched Domino's HotSpots, through which it provides delivery service to over 200,000 non-traditional delivery locations including parks, beaches, local landmarks, and other unique gathering spots for increased customer convenience.
Turning to the Q2 results, non-GAAP EPS rose 39% year/year to $1.84, which was better than market expectations. Revenue rose 24.0% year/year to $779.4 mln, which was a bit below expectations. The company also had Q2 global net store growth of 156 stores, comprised of 113 net new international stores and 43 net new domestic stores. Here is evidence, then, of DPZ’s increasing significant international presence presented in its new store growth intiatives; it's more than just an American phenomenon.
Domestic same store sales came in at a robust +6.9% (+5.1% company-owned, +7.0% franchise) while international comps came in at +4.0% (excluding FX impact). These were good comps considering that DPZ was lapping some particularly good comps from 2Q17 (+9.5% for domestic and +2.6% for international sales).
While DPZ initially traded sharply lower after reporting results, the stock has bounced off its lows, though it remains in negative territory. The revenue miss seems to be a concern for investors. Also, the company’s Q2 domestic comps of +6.9% were very good, but they did fall shy of the +8.3% results seen in Q1. Perhaps the same store comps were not as strong as expected. Also, keep in mind that this stock has rallied more than $100 since late November, up nearly 60%, so expectations have been running high. Despite the Q2 hiccup, the overall growth picture for DPZ looks quite good.
On a final note, DPZ is probably benefiting from all the turmoil over at Papa John's (PZZA) following controversial comments by its founder and his removal. That stock has been under pressure, but DPZ has been doing quite well in recent sessions.
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