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Domino's Pizza Earnings: 3 Trends to Watch

By Demitri Kalogeropoulos – Oct 12, 2021 at 6:15AM

Key Points

  • Watch profit margins for signs of cost challenges.
  • Market share should keep rising despite increased competition.
  • The drive-thru niche is a big target for management heading into 2022.

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The pizza delivery leader announces its latest results in just a few days.

Domino's (DPZ -3.05%) shareholders have some big questions heading into the fast-food chain's upcoming earnings report. Sales are expected to rise, even compared to the surging results of a year ago. But costs are also rising, and competition is growing as rivals target the home delivery space.

With that big picture in mind, let's look at a few key trends to watch when Domino's reports earnings on Thursday, Oct. 14.

A family eating pizza at home.

Image source: Getty Images.

1. Market share

Analysts expect Domino's to report sales growth of about 9% in its fiscal third quarter. That boost will include the company's 42nd consecutive quarter of same-store sales growth in its core U.S. market -- a streak that peers like McDonald's can't match.

Beyond that top-line figure, watch for CEO Ritch Allison and his team to cast the results in a long-term light. U.S. same-store sales in the second quarter were up nearly 20% on a two-year basis (which smooths out the volatility from the pandemic). If growth stayed near that level compared to 2019 in the latest quarter, then Domino's momentum will still be strong.

The chain might have updates on its market-share battles that include the home delivery space and, increasingly, drive-thru pickups. Domino's sees drive-thru as a major growth opportunity in late 2021 and beyond, but that push will put it in more direct competition with McDonald's and other established fast-food giants. Domino's is responsible for about 15% of all carry-out pizza sales, which include car-side delivery, in the U.S. today. 

2. Cost issues

Costs are rising in key areas like food and transportation. Domino's also faced labor shortages that likely required higher pay for delivery drivers and cooks. Yet the company is expected to notch significantly higher earnings in the third quarter with profits rising to $3.11 per share, up from $2.49 last year.

Look for signs that Domino's can pass along higher costs in the form of increased prices. Management will comment on the level of sales promotions in the quarter, which have been unusually low in recent periods thanks to strong demand. Stores are becoming more profitable, too, as volume rises.

DPZ Operating Margin (TTM) Chart

Data by YCharts.

Ideally, Domino's can soon start to push its operating margin toward 20% of sales to establish new highs for the business. The metric might keep creeping in that direction on Thursday.

3. Looking ahead

The chain doesn't issue short-term guidance, but Wall Street is currently looking for sales to rise about 9% in fiscal 2021 to mark a modest slowdown from last year's 10.4% growth. Profits are on a similar trajectory and should rise roughly 10% to $13.69 per share.

Notching steady sales and earnings growth through the pandemic and its immediate aftermath is a win for the company and a testament to Domino's efficient operating model.

Sure, the company faces new challenges as it looks out to 2022, including a mature U.S. store footprint and rising competition around home delivery. But Domino's has navigated tough issues like these over the past decade while still steadily gaining market share. That track record is the best evidence shareholders have that the chain will likely continue building, and capitalizing on, its leading position in the fast-food industry.

Demitri Kalogeropoulos owns shares of McDonald's. The Motley Fool recommends Domino's Pizza. The Motley Fool has a disclosure policy.

Stocks Mentioned

Domino's Pizza Stock Quote
Domino's Pizza
DPZ
$369.63 (-3.05%) $-11.63
McDonald's Stock Quote
McDonald's
MCD
$271.51 (-0.03%) $0.08

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