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Domino's Pizza Inc. Earnings Spike 23% as It Adds Hundreds of New Locations

By Demitri Kalogeropoulos - Oct 16, 2017 at 9:03PM

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Yet the leading pizza delivery giant also saw its sales growth pace slow in the third quarter.

It's already the country's biggest pizza delivery specialist, but Domino's ( DPZ -1.84% ) continues to find ways to expand on its market lead. The chain last week posted earnings results that included spiking profits and solid sales growth -- even if that revenue improvement was a slowdown from the prior quarter.

More on that deceleration in a moment. First, here's how the headline results stacked up against the prior-year period:

 Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$644 million

$567 million

13.6%

Net income

$56.4 million

$47.2 million

19.5%

EPS

$1.18

$0.96

22.9%

Data source: Domino's financial filings.

What happened this quarter?

Domino's business benefited from a quickly growing store base. The pizza chain also enjoyed higher sales volumes at existing locations, both at home and in international markets.

Four adults sharing delivery pizza while sitting on a couch.

Image source: Getty Images.

Here are some of the key highlights from the quarter:

  • Domino's added 217 new stores, including 53 in the U.S. and 164 across its other geographic markets. Over the past year, it has launched nearly 1,200 new locations around the world.
  • Comparable-store sales improved by 8.4% in the core U.S. segment for a slight decrease from the prior quarter's 9.5% spike. Yet Domino's likely continued to win market share despite that slowdown. Yum Brands' Pizza Hut chain, after all, last posted a 2% comps improvement while Papa John's grew by just 1% in the second quarter.
  • Domino's international segment sped up to a 5.1% growth pace, or about double the prior quarter's results.
  • The 23% spike in earnings helped net profit margin improve to 8.8% of sales from 8.3% a year ago.
  • The company generated $183 million of free cash flow to help push cash on hand to $61 million.
  • Thanks to a recapitalization initiative that funded huge stock-repurchase spending, Domino's debt level rose to $3.16 billion from $2.18 billion in the prior quarter.

What management had to say

CEO J. Patrick Doyle and his management team were happy with the balanced results out of their U.S. and international segments. "The third quarter was an excellent example of us simply doing what we do best," Doyle said in a press release, "relying upon our strong fundamentals and aligning with our outstanding U.S. and international operators to turn in another quarter of phenomenal results."

Executives highlighted the fact this quarter's gains are part of a trend that stretches back for many years. Domino's has now grown comparable-store sales for 26 straight quarters in the U.S. and for 95 consecutive quarters internationally.

Looking forward

Investors should be happy with the improvement in international markets since it shows solid progress along management's rebound plan. After all, three months ago executives said they weren't satisfied with the international expansion pace, so it's encouraging to see that the adjustments they made appear to be working.

But Domino's still generates over 90% of its business from the U.S. segment, so naturally shareholders will be watching gains in domestic comparable-store sales over the next few quarters to see whether they keep on slowing from the market-crushing 10% pace they set last year. I'll also be following capital spending to see if management decides to pay down the company's substantial debt load rather than continue aggressively repurchasing the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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