Please ensure Javascript is enabled for purposes of website accessibility

3 Things to Watch in Domino's Pizza's Earnings Report

By Demitri Kalogeropoulos – Apr 20, 2018 at 7:16AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors have big questions heading into the pizza chain's earnings report on Thursday.

Domino's Pizza (DPZ -1.02%) is set to post first-quarter earnings results on Thursday, April 26. Its last announcement was a bit of a disappointment for shareholders since the pizza chain's growth slowed in the core U.S. market and its international expansion pace slipped to the low end of management's target. Yet Domino's still produced mouth-watering growth in 2017, with sales rising 8% as net income spiked higher by 30%. 

Below, we'll look at the prospects for more scorching gains ahead as the chain kicks off fiscal year 2018 next week.

Four hands pulling slices of pizza from a pizza box

Image source: Getty Images.

Market share

Domino's grip on the pizza delivery market weakened last year. The company accounted for 27% of the industry, down from 28% in 2016 and 29% in 2015. But healthy growth in the much larger carry-out business offset that slide and kept revenue churning higher. Meanwhile, its 8% comparable-store sales growth set Domino's far apart from its biggest rivals. Papa John's comps were flat in 2017, and Pizza Hut expanded by just 2%.

It will be interesting to see where comps land this week after they decelerated to their slowest pace of the year last quarter. Within that comps figure, investors should keep a close eye on international gains. While that segment is still just a small piece of the chain's broader results today, it's a major part of the long-term growth story. The division expanded comps by 3.4% in 2017 -- near the bottom of management's goal of between 3% and 6% annual growth. Executives are aiming to improve on that result in 2018.

Store growth

A half century after it opened its first franchised store, Domino's is still firmly in expansion mode. It opened 1,045 locations last year to push its global footprint to just under 15,000. That boost included over 800 restaurants located in international markets. 

Don't expect that expansion pace to slow anytime soon. Since they don't require much real estate to handle in-store dining, Domino's locations are small, efficient, and relatively easy to launch. That helps explain how executives can target adding between 6% and 8% to its store base each year. The "tremendous net store growth and incredibly low number of closures," CEO J. Patrick Doyle told investors in February, "helps validate that our long-term fundamental strength is well intact heading into 2018." Look for Doyle and his team to talk up that expansion strategy for the current fiscal year.

Cash and profits

Domino's is expecting modestly higher prices on core ingredients like cheese in 2018. It passes those increases directly on to franchisees, though, which should keep its own profitability steady this year. Operating margin was 31.1% of sales last year, or about the same as it was in 2016. 

Meanwhile, the company is working on refinancing its substantial debt load that, as of the end of 2017, stood at $3.15 billion, or just below management's target leverage range. The recapitalizing process isn't cheap, but it will free Domino's up to continue its aggressive expansion plans. Excess cash might even put the company in position to issue another special dividend or to speed up stock repurchase spending, now that its $1 billion accelerated repurchase plan ended its run in late 2017.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
DPZ
$317.90 (-1.02%) $-3.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
107%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.