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Domino's Pizza's Growth Comes Racing Back

By Demitri Kalogeropoulos - Updated May 1, 2018 at 3:50PM

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The delivery and carryout giant posted big improvements across several areas of its business.

If there were concerns that its market-thumping expansion pace was about to fizzle out, Domino's Pizza (DPZ -1.73%) put those fears to rest this week. Instead, the pizza delivery giant's latest quarterly results show that its growth story is intact, whether with respect to delivery or carryout, in the domestic business or in new international markets.

Across those categories, and in key profitability metrics, Domino's turned in a strong first quarter that investors celebrated by pushing the stock higher. Let's take a closer look at the results.

Friends sharing a delivered pizza.

Image source: Getty Images.

Sales and profits

In late February, the food chain notched its 27th straight quarter of positive comparable-store sales in the U.S., its core market. But that 4% comps improvement marked Domino's third consecutive quarter of decelerating growth as gains were cut in half between the second and fourth quarters of 2017.

The company started the new fiscal year on a much stronger note as comps rose 8% in the domestic business. Sales gains sped up in the international division, too, with the 5% comps rate landing within management's long-term target of between 3% and 6% growth.

A man and woman eating pizza.

Image source: Getty Images.

Major rivals including Papa John's and Yum Brands' Pizza Hut haven't reported their first-quarter numbers yet, but both companies trailed Domino's by a wide margin in 2017 and so this quarter's gains will likely translate into continued market share struggles for its peers.

The results also demonstrated the earnings power of Domino's franchised business model. The company passed along modestly increasing input costs to its franchise partners while collecting significantly higher royalties and fees. Its own expenses dove to 61.8% of sales from 69% a year ago, which pushed operating margin up to 38% from 31%.

Domino's store expansion continued its aggressive pace, with 110 new stores added during the quarter, including 79 launched in international markets. The chain ended the period just shy of 15,000 locations, up from 10,000 back in 2012.

A brighter outlook

Patrick Doyle, who is wrapping up his tenure as CEO, said the first-quarter metrics show that Domino's business model works. "We delivered in every way: from global retail sales growth through strong domestic and international same store sales comps, to new stores, and through both delivery and carryout," Doyle said in a press release. The period marked "another outstanding performance by our franchisees and managers across the globe," he continued.

Domino's doesn't issue short-term earnings guidance, but nothing in this recent report detracts from management's aggressive long-term forecasts. Domino's believes it can expand its domestic base to at least 8,000 stores, which would represent a huge boost over its current footprint of 5,600. The potential of the international segment is about twice as large, yet today it still accounts for less than 10% of Domino's sales.

Doyle and his team are aiming for international comps growth of between 3% and 6% each year and roughly similar gains in the domestic business. That success, they estimate, would translate into overall sales gains of between 8% and 12% each year.

Domino's 26% revenue spike this quarter suggests that, rather than slowing down in the face of increased competition in the industry, the pizza chain has a good shot at surpassing the top end of management's long-term target and maybe achieve an acceleration over 2017's 13% sales gain.

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