Whoa! Domino's Pizza Hits 2 Key Milestones. Can It Keep Up the Momentum?

Holy smokes -- Domino's Pizza (NYSE: DPZ  ) continues to take over the globe. In a world of pizza chains that's quickly becoming more and more dominated by Yum! Brands' (NYSE: YUM  ) Pizza Hut and Papa John's (NASDAQ: PZZA  ) alone, the international growth appears almost unstoppable at Domino's. What's really remarkable are two key milestones in particular that the company hit last quarter.


Source:  Domino's Pizza.

The tasty results
Domino's Pizza reported its fiscal fourth-quarter results on Feb. 25. Since 96% of the stores in its chain are owned by franchisees, revenue results aren't as meaningful as same-store sales and net income, but the numbers impressed on that front. Same-store sales popped 3.7% domestically and 7% internationally, while diluted earnings per share leaped 21.9% to $0.78. It was the 80th quarter and 20th full year in a row of international same-store sales growth for Domino's. That's a full two decades of nonstop growth through at least two terrible recessions!

In a word, CEO J. Patrick Doyle credited "technology" as the main driver of results. Momentum continues in same-store sales as well as growth of locations. "Consumers worldwide are redefining convenience," Doyle said, "and we are meeting their evolving needs by pioneering technology in the restaurant industry."

It gets even better
In the conference call, CFO Michael Lawton pointed out that foreign currency translations into U.S. dollars was a headwind. If you exclude the impact of this and focus just on the operations, global retail sales zoomed up by 9.9% in constant currencies, compared with 7.2% in U.S. dollars. Both average sales per customer order and the number of orders contributed to these gains.

Last quarter, Domino's Pizza opened 47 net domestic stores, which is the greatest number in a long time. The company plans to continue to grow this count, while international had its greatest growth in units last year, with 573. Last quarter alone brought another net 273 locations.

Source: Domino's Pizza.

Doyle pointed out that the 80-quarter, 20-year milestone of international same-store growth is unrivaled: "We've looked and we can't find evidence of another restaurant brand doing this ever." And with 95% of the world's population living outside the U.S., he continues to believe that is where the bulk of the opportunity for huge growth will continue to come from.

Accumulating digits
On the topic of milestones, Domino's Pizza finished the year with a run rate of $3 billion in digital sales. Domino's Pizza is now at the point that half of its "order ahead" business is digital, or equal to the amount of phone orders. This puts digital now at 45% of sales."We're continuing to see nice robust growth out of that channel," Doyle said. "And we think that's going to continue."

That 45% is a pretty good clip higher than 40% in the quarter just before. The industry average was just 12% to 13% in 2012. Smartphone, tablet, and website ordering is a key competitive advantage that is allowing Domino's Pizza, Papa John's, and Pizza Hut to crush the competition. As Doyle once put it, "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."

Papa and the Hut
For Papa John's, it's a similar thing. A quarter ago, digital ordering made up 40% of sales. With last quarter's results, it's up to 45%, just like Domino's. In fact, COO Tony Thompson says, "We are well on our way to becoming the first national pizza chain to achieve a domestic systemwide digital sales mix of 50%." Perhaps this is a hint that Papa John's is already there with the first quarter, because Domino's seems to be breathing down its neck on this milestone.

Meanwhile, Pizza Hut is the third amigo that Domino's specifically names as receiving a large amount of digital orders. For Yum! Brands in China, 70% of its delivery orders are coming from digital. Domestically, Yum! Brands reported that 40% of its Pizza Hut delivery orders are from online, or a total of $1 billion in annual sales.

Foolish final thoughts
Domino's Pizza trades with an analyst-estimated P/E in the low 20s based on next year's EPS of $3.28. Analysts have been consistently raising that figure while the company has been steadily buying back shares and recently raised its dividend another 25%. This is a company that not only survived two recessions, but also thrived and grew during and after them. On top of that, bad weather actually helps this company, as snowed-in people still need to eat and tend to order delivery more often. Domino's Pizza deserves a closer look by Fools looking to add a long-term steady grower with low business risk.

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