The Secret Way Domino’s Pizza Is Crushing It

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Pizza delivery service is decades old, and the menus haven't changed much. Sure, restaurants have added wings, sandwiches, salads, and a whole bunch of other stuff for that tiny minority that doesn't contact a pizza place to order pizza. Yet, knowing this, if you just looked at the numbers from Domino's Pizza (NYSE: DPZ  ) , you would think you were looking at a growing cultural icon such as Buffalo Wild Wings (NASDAQ: BWLD  ) or Chipotle Mexican Grill (NYSE: CMG  ) .

First the other guys
As new Buffalo Wild Wings & Chipotle Mexican Grill establishments pop up in new locations everywhere, they quickly become the "to go" trendy places to eat. So, of course their results have been fantastic.

Buffalo Wild Wings last reported sales that rocketed up 27.9% to $315.8 million. Net earnings exploded 66.9% to $17.9 million. Same-store sales, the most important long-term metric, popped 4.8% at company-owned locations and 3.9% at franchisees. Despite the exploding popularity of Buffalo Wild Wings, its same-store sales actually increased by less than Domino's Pizza.

Chipotle Mexican Grill's revenue improved 18% to $826.9 million. Net income jumped 15.3% to $83.4 million. Same-store sales shot up 6.2%. Steve Ells, Founder and co-CEO, stated, "Our unique food culture continues to resonate with our customers." This implies that Chipotle benefits from a cultural trend with a restaurant concept that is new to many people.

Now get the door -- it's Domino's
Domino's Pizza has been in business since 1960 with the same basic concept for 53 years – make and deliver pizza. Like any successful mom & pop local pizza chain, Domino's grows sales and bottom-line profits primarily by opening up new locations.

Domino's Pizza reported its third-quarter results on Nov. 5. Revenue climbed 6.9% to $404 million. Net income rose 17.9%. Adjusted earnings per share jumped 18.6% to $0.51. Same-store sales popped 5%.

The top line and bottom line numbers come as no surprise. It's the same-store sales number, however, that keeps exploding every quarter. In fact, this was the 79th quarter in a row of same-store sales growth for Domino's international locations. However, Domino's, unlike Buffalo Wild Wings and Chipotle Mexican Grill, has been a household name for what seems like forever.

So what gives? Was it a new marketing campaign? Is there some new pizza diet craze?

If all you did was look at the earnings release, you'd probably never know. CEO J. Patrick Doyle gave a vague explanation. He stated,

"Domino's Pizza is connecting with customers everywhere through technology, quality, convenience and value."

Umm ...OK? Maybe Domino's doesn't want to spell it out in a press release and make it too widely known for the thousands of mom & pop competitors out there. Turn to the conference call for the answer.

The conference call
Deep into the conference call, Doyle started to truly spell out the answer. It's mobile ordering. Domino's Pizza is proud of the fact that over 95% of smartphones now have the ability to order a pizza without even making a call. Digital sales have risen to 40% of Domino's Pizza sales. This compares to an industry average of just 12% or 13% in 2012.

Mobile sales specifically were up 102% year-over-year. All over the world, Domino's Pizza is seeing an explosion in digital and smartphone orders. How many places named "Tony's Pizza" do you think have 40% of their sales coming from digital orders? It's probably not a lot. During the Q&A, Doyle pointed out, "We're effectively competing against smaller players that either don't have digital ordering or certainly don't have the same kind of robust platform that we're operating on." He went on to say that digital has been driving growth.

Foolish final thoughts
Expect Domino's to continue to grab market share from local pizza delivery restaurants all over the world. In most cities, Domino's Pizza is merely one of dozens or even hundreds of choices. There is a sea of opportunity for Domino's to grab as people shift more and more to relying on their smartphones for ordering pizza.

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5/25/2016 4:02 PM
DPZ $121.29 Down -1.23 -1.00%
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