What happened
Shares of Domino's Pizza (DPZ -1.68%) were getting tossed today after the world's largest pizza chain turned in a disappointing first-quarter earnings report as both U.S. comparable-store sales (comps) and earnings per share (EPS) declined. The company acknowledged a number of headwinds -- including the omicron variant, driver shortages, and inflation -- for the weak performance.
As of 11:50 a.m. ET on Thursday, the stock was down 6.9%.
Image source: Domino's.
So what
Comps fell 3.6% in the U.S., a rarity for a company that had delivered more than a decade's worth of positive domestic-comps quarters. In international markets, comps ticked up 1.2%, marking its 113th consecutive quarter of comps growth.
Overall revenue rose 3% to $1.01 billion as the company opened 213 new locations in the quarter, but that was slightly short of estimates at $1.03 billion. Adjusted EPS slipped from $3 to $2.50 as performance at U.S. company-owned stores was particularly weak, with comps falling 10.5%. Most of Domino's restaurants are franchised, and it collects only a percentage of sales from these locations, so falling comps at company-owned stores have an outsize effect on results.
Outgoing CEO Ritch Allison said: "We faced a number of headwinds during the first quarter, from the omicron surge, to staffing shortages, to unprecedented inflation, which pressured our results. We are actively implementing strategies designed to address them; however, we expect some of these headwinds are likely to persist further into 2022."
Now what
Domino's didn't give guidance in its earnings report, but the company said it was focused on tackling the challenges ahead of it in a number of ways. It is leaning on carryout more, with the help of a discount and an ad campaign, which has been a bright spot.
It's also considering expanding driver hours, tapping call centers more, and possibly partnering with third-party delivery apps, though management would prefer to solve the delivery constraints in-house. It also mentioned using price increases to combat inflation.
Domino's has been a top stock over the last decade, and has a proven brand and business model. Many of the challenges it's facing, like inflation and the labor shortage, are macroeconomic and should resolve themselves in the next year or two. While today's earnings report was disappointing, the restaurant stock still looks like a long-term winner.
