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3 Things to Look for When Domino's Pizza Announces Earnings

By Parkev Tatevosian, CFA – Oct 2, 2020 at 7:15AM

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The largest pizza company in the world reports earnings Oct. 6.

Dominos Pizza (DPZ -0.73%) is one of the fortunate companies experiencing increased business due to the coronavirus pandemic. Stay-at-home orders and people's hesitancy to leave their homes have led to an increase in orders for the company. 

The question remains how the pizza chain will be affected as restaurants start reopening and people cautiously begin to venture outside. The company reports earnings on Tuesday, Oct. 6. Here are three things to look for in the release. 

A pepperoni pizza.

Domino's sales are surging in the U.S. Image source: Getty Images.

Domino's is delivering revenue growth to investors 

First, investors will want to see continued same-store sales growth in the U.S. The company reported U.S. same-store sales growth of 16.1% in its most recent quarter, which included results as of June 14. Investors will want to know how that number changed as more restaurants were allowed to reopen, and others were given permission to increase capacity.

Second, those following the stock will be looking at how many international locations were able to reopen during the quarter. Pizza delivery was allowed to continue in the U.S. during stay-at-home orders, which was not the case in all the markets where the company operates. This resulted in international revenue declining by 12.5% in the second quarter. At its peak, the company estimates about 2,400 locations were closed in markets outside the U.S., but that has been trending positively, with fewer than 600 locations closed as of July 8.

Lastly, shareholders will be watching the company's operating profits. In its most recent quarter, operating profits increased by 17.7% to $164 million. While it is likely that the company will report expanding revenue, it is also facing some increasing costs. Domino's, like Amazon, Home Depot, and Coca-Cola, is experiencing rising labor costs. A significant change this quarter is that the enhanced unemployment benefits from the CARES Act expired at the end of July, and with that, perhaps the need to pay bonuses to front-line employees will be reduced.  

Looking ahead  

The coronavirus is creating higher levels of uncertainty in the business environment. Therefore, it is unlikely that management will provide any specific forward guidance for the rest of 2020. However, investors will look for some information on management's thoughts about continued store growth and capital allocation decisions. 

The company has $327 million remaining in a share buyback program, but it hasn't repurchased any shares since the first week of the first quarter of fiscal 2020. Furthermore, this consumer goods company has over $4 billion of long-term debt on its balance sheet, with over $2 billion coming due before 2025. That being said, according to Domino's most recent quarterly statement, the company feels it can return capital to shareholders and pay debtholders simultaneously:

"We expect to continue to use our unrestricted cash and cash equivalents, cash flows from operations, excess cash from our recapitalization transactions, and available borrowings under our variable funding notes to, among other things, fund working capital requirements, invest in our core business, service our indebtedness, pay dividends and repurchase our common stock."

All in all, investors will be looking forward to Domino's results on Oct. 6 where analysts are expecting the company to report revenue of $947 million, and earnings per share of $2.75. If the company beats those estimates, look for the stock to rally. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Home Depot. The Motley Fool recommends Domino's Pizza and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Domino's Pizza Stock Quote
Domino's Pizza
DPZ
$382.76 (-0.73%) $-2.82
Amazon.com Stock Quote
Amazon.com
AMZN
$94.13 (-1.44%) $-1.37
Home Depot Stock Quote
Home Depot
HD
$327.99 (0.28%) $0.92
Coca-Colansolidated Stock Quote
Coca-Colansolidated
COKE
$508.07 (1.51%) $7.57

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

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