Domino's Pizza (DPZ 1.45%) left investors hungry for more after releasing its latest earnings report. The pizza delivery giant announced double-digit sales growth for the full 2021 year, but those gains slowed to a crawl in the fourth quarter.
The good news is that Domino's added over $3 billion to its sales footprint since the start of the pandemic, and management sees room to continue growing at a near double-digit pace over the next several years. 2022 is shaping up to show weaker gains than that, though, as profitability shrinks.
Let's take a closer look.
Sales are up
Domino's returned to growth in the fourth quarter, as expected, with comparable-store sales rising 1% after dipping 2% in the previous quarter. That's a win given that the chain is facing its hardest comparisons since the pandemic started. Demand soared in late 2020 and early 2021 due to the combination of social distancing restrictions and federal stimulus payments, and those factors aren't repeating today.
Image source: Getty Images.
But management cast the results in wider terms, saying it was thrilled that Domino's was able to add $3.5 billion to its global sales footprint since 2019, marking two consecutive years of double-digit gains. "The strength of our franchisees and our excellent unit economics continued to deliver outstanding store and retailer sales growth for the Domino's brand," CEO Ritch Allison said in a press release.
Cracks in the armor
There were several signs that shareholders will be seeing weaker earnings results in the year ahead. While Domino's profitability held steady for the full year, it fell in Q4 as expenses spiked and the chain struggled to fully staff its fast-food restaurants. Operating income fell to $506 million, or 37.7% of sales, compared to $535 million, or 39.5% of sales a year ago.
Domino's raised delivery fees and prices across most of its popular menu offerings. It also launched a promotion aimed at reducing driver demand by encouraging carry-out service. These efforts allowed earnings to keep growing, but at a slower pace than sales.
Still, the chain's efficient stores continued to generate some of the highest returns in the industry. "Our unit economics remain very strong, even in the face of rising labor and food costs," Allison said in the company's recent conference call.
Looking ahead
Domino's didn't issue a detailed outlook for 2022, but gave enough hints that investors have a good idea of what to expect over the next few quarters. Costs will soar at nearly 10%, executives said, with just a portion of that spike being immediately offset by higher prices. The chain's growth in Q1 should look soft again given that sales soared 13% in the core U.S. market a year earlier.
The chain is still projecting that global sales will rise by 6% to 10% annually over the next several years, which is exactly the same long-term forecast Domino's issued in early 2021.
It appears that this year will show growth closer to the low end of that range with profitability likely falling. That's no reason to abandon the stock, but it does mean investors should brace for slower earnings gains over the next several quarters.
