Domino’s might not have overwhelmed investors over earnings – but it’s still winning the pizza wars
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Domino’s might not have overwhelmed investors over earnings – but it’s still winning the pizza wars

Domino’s Pizza didn’t wow investors when it last-posted earnings, but take note: it’s still winning the pizza wars. To be clear about those earnings: they weren’t “bad” per se. In fact, they were pretty good! But same-store sales (which is considered a key metric when it comes to growth in the fast food industry) “only” rose by 5.6%, year on year. That’s below analysts’ predictions of a same-store sales rise on 7.2% against the year-ago quarter. At the same time, Domino’s is expanding rapidly, adding new stores worldwide at a fast clip. Investors were concerned, and pushed the share price down – but if they had eyes on the competition, they might feel better about Domino’s than the market currently suggests.

Domino’s was up by as much as 18% over the first two months of the year, but investors reacted poorly to its last quarterly earnings, rendering the share price flat, year to date.

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Source: Yahoo Finance

Leaving aside the questionable logic of sending a stock down by 18% for “only” posting 5.6% growth, investors should check out how its competitors are doing. Domino’s is still the market leader, and it’s increasing the size of its lead every day. Pizza Hut (in second place) is currently the laggard of Yum Brands’ portfolio, managing a paltry 1% sales growth at US stores over its fourth quarter. On the company’s earnings call, Yum CEO Greg Creed told analysts: “For both the U.S. and international business, sustainable improvements in sales growth will remain a slow build as we update and reposition the asset base and make the messaging more distinctive.” That’s management speak for: what we’re doing hasn’t been working.

Papa John’s (in fourth place) has been rocked by a spate of public scandals involving its founder, John Schnatter – and analyst Mark Kalinowski says a comeback still looks “years away”. The company is the last of the big, public, pizza companies to report earnings – and analysts are expecting to see a 67.8% decline, year on year, in earnings, as well as a 7.4% decline in same-store sales.

Meanwhile, Domino’s is still growing and increasing market share. BTIG analyst Peter Saleh summed up the situation well in a recent research note: “While disappointed with the results, we note that Domino's has experienced similar slowdowns in the past (a year ago, as noted) and has managed to reaccelerate comps through various means (new technology, menu items, clever advertising) and this quarter doesn't change that view.”

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


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