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Domino's Pizza (DPZ -12%) is trading sharply lower despite reporting a sizeable Q2 EPS beat this morning. Revenue rose 7.1% yr/yr to $1.10 bln, which was in-line with analyst expectations. Its US comps were quite good too. However, the company also lowered its long term guidance for annual global net store growth.

• US comps had been disappointing in recent quarters, but the trend has been improving quite a bit and that continued in Q2. In Q2, DPZ reported healthy US same store comps of +4.8%, that is down slightly from +5.6% in Q1 but still quite good. That follows +2.8% in Q4, -0.6% in Q3 and +0.1% in Q2. We think Q2's international comp (excl FX) of +2.1% was decent. It was also above Q1's +0.9%.
• US comps were driven by positive order counts in its delivery business, positive order counts in its carryout business, and positive order counts across all income cohorts. Carryout comps were +7.9% in Q2 while delivery comps were +2.7%, driven primarily by transaction growth. Comp tailwinds were partially offset by a higher carryout mix, which carries a lower ticket than delivery.
• DPZ also benefited from a 1.5% price increase, including high single digits in California. Its sales mix from Uber grew to 1.9% for Q2. The incrementality of Uber sales continues to be in line with expectations. A tailwind recently has been its Emergency pizza promotion. It was a meaningful driver to comps in both Q4 and in Q1. However, this promotion has ended. On the positive side, DPZ recently went live with marketing on its new UberEats partnership, which seems to have helped comps.
• DPZ also sounds pretty excited about its New York-style pizza, which launched in Q2. It is intended to stay on the menu permanently. Its crust is thinner and more foldable than Domino's traditional crust. The goal is to attract customers whose preferences are a bit different than Domino's pizza other offerings.
• So, why is the stock lower? While DPZ continues to expect 175+ net stores annually in the US for 2024-28, the company lowered its international new store outlook. DPZ expects it will fall 175-275 stores below its 2024 goal of 925+ net stores in international primarily as a result of challenges in both openings and closures being faced by Domino's Pizza Enterprises (DPE), one of its master franchisees. The company is temporarily suspending its guidance of 1,100+ global net stores.

From an operations standpoint, we view the Q2 results as quite solid. DPZ posted big EPS upside and its US comps were quite good considering the end of a key promotion. It was good to see comp growth from both carryout and delivery. It also sounds like the UberEats partnership is off to a good start. However, it seems investors are spooked by this reduced international store outlook. This will be an area to watch in the quarters ahead to see if DPZ can fix this issue.