Domino's Pizza (NYSE:DPZ) has had some mixed results as a result of the COVID-19 pandemic. The restaurant chain's U.S. sales have accelerated as people stay home and many competing restaurants remain closed for in-person dining. But many of Domino's international stores have also had to close as part of efforts to slow the spread of the coronavirus.
The company will report fiscal 2020 second-quarter results on Thursday, July 16. While the coronavirus is still wreaking havoc around the world, leading more cities and states to pause reopening plans, the overall outlook for Domino's earnings is still positive. Here's what to look for in the report.
Will Domino's deliver accelerated growth when it reports earnings?
As of April 21, about 10% of Domino's total international stores had been temporarily closed. Preliminary figures in the first three weeks of the second quarter show its international sales decreasing by 3.2%. Investors will be interested to know how many of those locations have reopened, and, if they have, how sales are doing.
Same-store sales accelerated in the fiscal first quarter to an increase of 3.9% from a rise of 2.1% the year prior. And preliminary second-quarter results for U.S. sales growth pointed to an increase of 7.1% based on the first four weeks of sales. Restaurant reopenings may have put a dent in Domino's revenue growth in the rest of the quarter. The U.S. sales figure will should provide clues for investors as to whether it was able to keep up the strong pace.
Finally, it will be interesting to hear what management's plans are for capital allocation. Many companies paused dividend payments to conserve cash in this uncertain economic reality. However, Domino's maintained its dividend payout last quarter, as its business performed resiliently. If revenue growth continued to be robust, management might even discuss share repurchases, as it still has $326 million authorized in its share buyback program.
When commenting on the company's Q1 financial position, CEO Ritch Allison said that even with the adverse conditions and the changes being created, "Domino's is in a very strong financial position, both at the brand and franchisee levels."
Domino's near-term prospects are better than most during the pandemic, and it does have $200 million of cash and equivalents on hand. Still, the company has over $4 billion in long-term debt on its balance sheet. It must keep that in mind as it considers returning capital to shareholders. For context, Domino's net income was $121 million in the most recent quarter.
What this means for investors
The added volatility caused by the pandemic makes this report an important one. If the business remained resilient or even accelerated as cities and states started allowing restaurants to reopen, it will be a great sign for investors. However, if it reports a dent in sales because of competition from in-person dining, then there may be some small reason for a pause in enthusiasm for the stock.
Regardless of the direction in the outcome, shareholders should be prepared for a higher-than-usual price movement in Domino's stock after it releases its second-quarter earnings results on Thursday.