Domino's Pizza (DPZ -0.48%) is finding plenty of ways to profit from its dominant hold on the pizza delivery industry, even though its expansion pace is slowing both at home and internationally. That's the key takeaway from its recently announced third-quarter results.
Here's a look at how Domino's headline figures stacked up against the prior-year period:
|
Metric |
Q3 2018 |
Q3 2017 |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$786 million |
$644 million |
22% |
|
Net income |
$84 million |
$56 million |
50% |
|
EPS |
$1.95 |
$1.18 |
65% |
Data source: Domino's financial filings. YOY = year over year.
What happened with Domino's Pizza this quarter?
Revenue jumped thanks to higher sales at existing locations around the world, plus the addition of over 200 new stores to the sales base. Domino's overcame a slight dip in profitability, meanwhile, with help from reduced interest expenses and a lower tax burden.
Image source: Getty Images.
Here are some of the key highlights from the quarter:
- Comparable-store sales growth came in at 6.3% in the core U.S. market, which marked its second straight quarter of decelerating gains. Growth was 7% last quarter and 8% at the start of the fiscal year.
- Sales gains also slowed internationally, but at 3.3%, they stayed just within management's guidance range of between 3% and 6% for the year.
- Domino's physical expansion sped up, with 232 new locations added to its base compared to 113 in the prior quarter. Domino's has added 920 delivery and takeout hubs over the past year to bring its store count to over 15,300.
- After adjusting for changes to its accounting methods, profitability declined slightly. Operating income dipped to 16.8% of sales from 18.2% a year ago, in part because of higher costs on inputs like cheese. Lower taxes, meanwhile, allowed net income to jump to $84 million, or 10.7% of sales, from $56 million, or 8.8% of sales, a year earlier.
- Long-term debt held steady at just above $3 billion.
Management's comments
CEO Rich Allison had positive comments about the business in his second earnings report since taking over the leadership position in July. "I continue to be proud of our great franchisees and operators around the world," Allison said in a press release. "Our global business, driven by strong retail sales growth and franchisee economics that outperformed the industry, continued its strong momentum,"
Management noted that this quarter marked the 30th consecutive quarter of positive sales growth in the U.S. market and the 99th straight quarter of expansion for the international segment.
Looking forward
The favorable economics that Allison mentioned are a product of the combination of Domino's healthy sales volumes and the tiny footprint that its delivery hubs require. That efficiency forms the basis for management's goal of significantly boosting the chain's presence in the years to come, both at home and in its top international markets. The company hopes to get to as many as 8,000 locations in the domestic market from 5,300 today, in part by attacking the takeout niche just as aggressively as the delivery niche it currently dominates.
Nothing in this earnings report threatens that long-term vision, but the latest metrics do suggest growth will be harder achieve over the next few quarters. Comparable-store sales gains have slowed to a 6.3% rate over the past nine months, compared to 8.4% in the prior-year period.
Similarly, the international segment has seen its expansion pace dip to 3.3% from 5.1%. Those headline numbers still translate into market share gains for the pizza giant, but they also suggest management has some work to do to stabilize its business in a brutally competitive market.
