Domino's Pizza (NYSE:DPZ) recently announced earnings results that kept its impressive growth streak alive, even though the chain's expansion pace appears to be slowing.
CEO Ritch Allison, in just his second quarterly conference call as Domino's new top executive, sought to put those results into perspective for investors. Below are a few key points that Allison and his team wanted to get across to shareholders as they look ahead to the fourth quarter and into 2019.
A better marketing approach
The launch of Domino's Hotspots and the Paving for Pizza program both generated terrific attention and are two good examples of how we continue to make news for the brand in unique and different ways. -- CEO Ritch Allison
Domino's managed 6.3% higher comparable-store sales in the core U.S. market this quarter. While that represented a slowdown from the prior quarter's 7% increase, it still translated into market share gains for the pizza delivery leader. The growth kept it ahead of other fast-food giants, too.
Many factors went into that success, but management highlighted their Hotspots program, which added 200,000 non-traditional locations, like beaches and parks, to Domino's delivery footprint.
That offering boosted order volumes while also strengthening the chain's tech leadership position. "We see these [initiatives] as more effective than the limited time offerings, product of the month approach [and that] differentiates us from others," Allison explained, "not only in pizza but across the [fast-food] landscape."
International struggles confined to Europe
Three of our four regions delivered positive same-store sales with our Europe region being the exception. While there is work to do in a few key markets, overall, I continue to be very pleased to see our international same-store sales growth being driven by order growth. -- Allison
Last quarter, the company said it was implementing initiatives that would soon speed growth back up in the international segment. That rebound didn't happen this quarter, and in fact, international gains slowed to 3.3% from 4%.
Executives explained that the weakness mainly came from the European market, as each of its other three geographic segments turned in positive comps. They again pointed to other positive trends, including healthy store count growth, that they say describe an overall solid business in Europe. Still, investors will want to watch the international segment, and Europe in particular, for signs of stabilization in the coming quarters.
The brand is strong
Year-to-date in 2018, we have only closed seven stores in the U.S. I'm just going to repeat that; year-to-date in 2018, we have closed just seven U.S. stores while opening 140. -- Allison
Domino's launch of 140 new locations in the U.S. so far this year makes it easily one of the fastest-growing chains in the country. That's impressive considering the fast-food giant already had about 5,200 stores spread out across the nation at the beginning of the year.
Those locations are extremely efficient, since their focus on delivery and takeout mean they can operate within small spaces. Domino's surging sales volumes, meanwhile, are helping ensure that franchisees enjoy strong returns, which ultimately drive the chain's profits higher through royalty and franchise fees.
The lack of high store turnover, despite the fact that Domino's has opened over 4,000 new locations around the world in the past four years, supports management's claim that the chain has unusually strong brand power and attractive franchise economics.
Those assets will come in handy as Allison and his team work to add thousands of additional stores to Domino's base, both in the U.S. and in core international markets, over the next few years.