Still Bullish on This Pizza Company

If you read articles about the economy, then you're well aware that consumers aren't as optimistic today as they were 10 or 20 years ago. This trend has led to fewer people dining out, which has put strain on the casual dining space. However, when one market fails, it opens the door for another market. For instance, a great way for people to save money without having to cook is to order pizza. With this approach, feeding an average-size family can cost less than $10.

Simply put, pizza delivery matches today's value-conscious consumer. And one company in the business stands out above its peers. 

Strong numbers across the board
Domino's Pizza (NYSE: DPZ  ) recently reported third-quarter results, and same-store sales (or comps) stood out positively. Domestic comps increased 5.4% year over year, and international comps improved 5%. It should also be noted that Domino's international comps have grown for 79 consecutive quarters. It's difficult to be bearish on any company that has established such an impressive comps run in a challenging economic environment.

Revenue jumped 6.9% year over year. Supply chain revenue was the biggest contributor, which grew at 6%. For Domino's, supply chain revenue refers to sales of food, equipment, and supplies to franchise stores. For a better understanding of Domino's revenue, here's how it breaks down:

  • Domestic company-owned Stores: 18.8%
  • Domestic franchise stores: 11.8%
  • Domestic supply chain: 56%
  • International: 13.4%

This is how it works: Domino's aims to offer higher-quality food at low prices through effective marketing and promotions. This grows the brand, which then leads to increased demand and franchisees needing more supplies. 

Continued growth
Domino's also added 483 international stores and 43 domestic stores since the year-ago quarter. Currently, Domino's has 5,508 international stores and 4,534 domestic locations. This makes it the No. 2 pizza restaurant in the world by units. However, it's No. 1 in the world by consumer spending. Domino's looks to grow by adding new stores, but it also looks to grow through technology.

Domino's sees itself as the technological and digital leader in pizza delivery. The digital platform has played a big role in the company's success -- it was responsible for $2 billion in global digital sales last year alone. Having ordering apps compatible with 95% of smartphones on the market helped a great deal.

In September, Domino's launched an "Easy Order" option on its digital platform, where you can place an order in as few as five clicks and within 30 seconds. This "Easy Order" option offers customizable profiles where you can save your favorite order, your address, and your payment information. The goal for Domino's is to make digital ordering faster and more convenient.

Domino's is clearly performing well, but is it likely to be the best investment option in its peer group?

Domino's vs. peers
Papa John's (NASDAQ: PZZA  ) , with a market cap of $1.55 billion, isn't quite as large as Domino's -- which has a market cap of $3.74 billion. However, Papa John's is focused on international growth, and it recently celebrated its 1,000th international location. Considering that the company's first international location opened in Mexico City in 1998, this demonstrates rapid growth.

Additionally, Papa John's has outperformed Domino's in at least one area. According to the American Customer Satisfaction Index, consumers have rated Papa John's No. 1 for pizza delivery in 12 of the last 14 years.

That's good news for Papa John's. For investors, Papa John's still comes up a little short compared to Domino's. For instance, consider top- and bottom-line comparisons for these two companies over the past year.

Top line:

DPZ Revenue TTM Chart

DPZ Revenue TTM data by YCharts.

Bottom line:

DPZ EPS Diluted TTM Chart

DPZ EPS Diluted TTM data by YCharts.

I've also included Yum! Brands (NYSE: YUM  ) in the two charts above. While Papa John's is right on Domino's tail, Yum! Brands seems as though it's running away from its peer group -- and heading south.

Yum! Brands owns the largest pizza company in the world in Pizza Hut. Considering that Yum! Brands is so focused on China for growth, it's good news that Pizza Hut's comps in China grew at a 6% clip in September year over year. However, its KFC comps in China declined 13%, and overall comps in China dropped 11%.

The avian flu and the now-infamous poultry supply concerns for KFC in China have been major drags. While these are negative events, they're also likely to be temporary. They're simply taking longer to overcome than originally expected.

The bottom line
While all three of these pizza companies offer strong brands and long-term potential, Domino's is outperforming its peers. Domino's is staying ahead of the digital curve, showing comps growth domestically and internationally, and performing well on the bottom line. Unless something drastic happens, Domino's should continue to be a quality investment. 

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Related Tickers

9/27/2016 4:02 PM
DPZ $153.63 Up +0.14 +0.09%
Domino's Pizza CAPS Rating: ***
PZZA $81.61 Down -0.02 -0.02%
Papa John's Intern… CAPS Rating: ****
YUM $89.86 Up +0.34 +0.38%
Yum! Brands CAPS Rating: ****