It's time for Domino's (DPZ -0.95%) to answer some big questions for investors. The pizza delivery leader will announce operating results for the end of fiscal 2021 in just a few days, and there's a lot of uncertainty heading into that report.
The fast-food giant will likely announce modest sales growth compared to soaring results a year ago, when the pandemic lifted delivery demand to record highs. But the bigger questions revolve around how well the chain is handling spiking food and labor costs -- and whether these issues will significantly hurt it in 2022.
Let's take a closer look at the report set for March 1.
Sales trends
Domino's is facing comparison to a tough year-ago period that saw sales jump 12%. Most investors are expecting more modest gains this time around, with global revenue rising about 2% through late December.
Keep an eye on comparable-store sales in the U.S. market, which contracted 2% last quarter after having soared 18% a year earlier. Those year-ago gains were a bit weaker in late 2020, and so Domino's has a good chance at returning to year-over-year growth in the fourth quarter.
Image source: Getty Images.
In any case, revenue is sure to be much higher than in 2019, before the pandemic struck. Two years ago, the chain booked $1.15 billion in sales, while expectations are for it to approach $1.4 billion this quarter.
Paying up for service
The chain likely faced several profit challenges, including soaring costs for things like cheese, cardboard, and shipping. The industry is seeing widespread labor shortages, too, which affected Starbucks and Chipotle in recent months.
CMG Operating Margin (TTM) data by YCharts
We'll find out on Tuesday whether these issues harmed sales growth and profitability through late December or if higher prices, along with Domino's carry-out promotion, offset the pressure. Watch Domino's operating margin for signs of struggles here. That metric has been climbing toward record highs over 18% of sales through the pandemic, but might have stepped lower in Q4.
Looking ahead
Domino's doesn't usually issue annual sales outlooks. Yet management might still make a few predictions about 2022, given the big demand swings that investors have seen over the last few quarters. Shareholders have big questions about where growth will settle after soaring through 2020 and the first half of 2021.
Management's most recent long-term outlook envisions the company adding roughly 2,000 more locations to the mature U.S. market and many more stores in the international segment. The company sees room to win more market share, especially through its carry-out service, with help from its expanding coverage of neighborhoods. Domino's "fortressing" strategy, which puts locations closer to customers, should allow it to deliver speed and quality levels that might be hard for any rival to match.
Another great reason to like this stock is the efficiency that Domino's delivers through its small-footprint stores. Their focus on delivery and take-out, at high volumes, makes them cash machines. Domino's network of stores is an ideal platform to sell pizzas, chicken wings, desserts, and almost any other popular product in the fast-food industry.
As a result, the stock should still provide good returns to investors, even if 2022 brings slower growth than shareholders have seen in several years.
