Domino’s beats the Street on earnings
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Domino’s beats the Street on earnings

Investors received a nice surprise this week when fast-food giant Domino’s Pizza easily overshot consensus estimates on earnings. The company was able to deliver that win while continuing to show a same-store sales growth figure which is slowing less than analysts expected. One reason for the slowing growth might be close to home: Domino’s has adopted a “fortressing” strategy, expanding into their own markets in an effort to be closer to customers. This, critics say, leads to cannibalisation of existing customers. If that’s true, however, it hasn’t had as much of an impact on same-store sales as they’re claiming.

Domino’s share price has increased by 15% year to date

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Source: Yahoo Finance

Domino’s beat the Street’s expectation on earnings, delivering $2.20 per share instead of the $2.09 analysts had expected. Likewise, same-store sales growth came in better than expected at 4.22%, year on year. This is a slowdown – but by less than the Street had expected. Analysts were looking for growth of 3.90%. The only area Domino’s missed consensus estimates was on revenue, where it returned $836 million against expectations of $849.6 million.

These results go a long way to reassuring investors, who have shown concern over the expansion of third-party delivery services (delivery and ordering tech always having been a strength for Domino’s). It also indicates that the company’s aforementioned strategy of “fortressing” is continuing to proceed effectively. Looking to the future, the company’s CEO, Rich Alison, said that Domino’s would be looking to use data analysis to help drive sales:

“I want to highlight one area, where we plan to step up our efforts to advise and assist our master franchisee partners. This centres around the use of and reliance on customer insights, research and data in making big strategic decisions for the business. This has been a huge driver of our success for the past decade in the U.S.”

“Reliance on data and the insights has kept us educated, consistent and aligned with our franchisees in ways that would absolutely benefit many of our master franchisee partners. My team and I are focused on continuing to emphasize this and on doing what we can to help our master franchisee partners establish and grow their capabilities in this important area.”

Disclosure

Dominion holds Domino’s Pizza in its Global Trends Managed Fund.


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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.