Magical Brownies Don't Lead to New Highs

In September, a couple broke into a Domino's (NYSE: DPZ  ) pizza shop in North Carolina. But it wasn't cash they were after, and it wasn't pizza, either. The couple was arrested for breaking and entering and larceny after baking up $5 worth of Domino's Brownie Squares (a.k.a. Fudgems), using the shop's still-warm ovens. It gets better: One of the two received a misdemeanor for carrying a marijuana pipe.

Following the arrest, Sergeant Mike Kane tried the brownies for himself, and described them as "killer." Unfortunately, Domino's new magically delicious brownies didn't translate into new revenue highs for the company's third quarter.

During the third-quarter earnings conference call, management indicated that the company is pulling out "every trick" it knows to keep momentum going. Its latest gimmick, the brownie squares, hit the market in August. When deployed in a test market, the brownies were successful in increasing customer traffic, but as the latest results show, this success has yet to translate into the broader market.

Third-quarter revenues of $327 million fell shy of the $338 million mark achieved a year ago, and also came up short of analyst estimates calling for $339 million. Same-store sales in the domestic market were down 3.1%. Fortunately, the company continues to benefit from a strong international market, which contributed comps growth of 3%.

Management blamed a broader-than-expected weakening in the domestic market as one of the primary problems. Domino's isn't the only one struggling in the United States. Pizza Hut, a division of Yum! Brands (NYSE: YUM  ) , also saw comp declines in the domestic market. However, it would be un-Foolish not to note that Papa John's (Nasdaq: PZZA  ) actually witnessed strong, positive comps in the U.S. market over the same period.

Do the comps differences between the two companies suggest that Papa John's has, as advertised, "better ingredients, better pizzas?" In recent months, at least, consumers seem to think so. Perhaps Domino's magically yummy brownies will eventually catch on. In the meantime, they have yet to lead to new highs.

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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned.


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