Domino's Pizza (DPZ 1.36%) shares recently cracked $200 apiece as we approach the company's fiscal third-quarter earnings report set for the morning of Thursday, Oct. 12. The stock has gained over 25% this year to trounce the 13% improvement in the broader market.
Below, we'll look at why investors are expecting good news from the pizza delivery chain this week.
Image source: Getty Images.
Burning rivals
Long-term investors have enjoyed an incredible run with this company. They can credit market share gains for the fact that shares are up more than 1,000% in the past decade.
Domino's was the leading pizza delivery specialist in 2007, but management has widened that lead over competitors since then. Its market share stood at just below 19% a decade ago. Today, the chain is responsible for 27% of sales in its industry.
At its last quarterly outing, Domino's posted 9.5% comparable-store sales growth in the core U.S. market, which blew away rival Papa John's (PZZA 0.23%) and its 1.4% uptick. This is part of a solid long-term trend, too. Domino's posted double-digit comps gains in each of the last two fiscal years while Papa John's expanded by less than 4%.
Investors will be looking for similarly strong results this week as evidence of continued market share gains.
Rebounding internationally
Domino's has been a global company since it tiptoed into the Canadian and Australian markets in 1983. Today, the international division counts over 8,000 stores across 85 markets. Regional offerings, meanwhile, include a banana and cinnamon desert pizza in Brazil and a squid topping in Japan (yum).
That segment held growth back last quarter, with comps slipping to a 2.6% rate from 4.3% in the prior quarter. Executives said the issue was driven by a few markets, including Europe, that stumbled against competition. Management is "working hard with the teams on the ground" in the areas "to improve those results," Chief Financial Officer Jeffrey Lawrence said in a conference call with Wall Street analysts. Investors can expect to see an update on that initiative this week, given that Domino's has big plans to grow its international business from its current modest position accounting for just 7% of sales.
Profits and outlook
Domino's has a light business model that focuses on small stores built mainly to serve as delivery and take-out hubs. This approach lowers costs in a few major ways, including by requiring no restaurant facilities or full-service staff.
Combine ultra-low expenses with quick growth, and you can get some eye-popping earnings gains. Domino's net income cracked $200 million last year to almost double the chain's profit result from just five years prior. It is far more profitable than peers, too, with operating margin sitting at roughly double Papa John's 9%.
DPZ Operating Margin (TTM) data by YCharts.
So far this year, the earnings improvement has been even more pronounced. Earnings have spiked to $2.58 per share from $1.86 per share over the past six months, in fact. Consensus estimates are calling for Domino's to keep that streak alive this week as earnings rise to $1.94 per share from $1.48 per share in last year's third quarter. The company doesn't issue a quarterly sales outlook, but Wall Street is targeting a 10% revenue boost to about $625 million.
Whether Domino's comes up slightly higher or lower than that forecast, it's likely that the company will post its 26th consecutive quarter of comps growth in its home market this week while extending its international growth streak to 95 quarters of gains.
