Domino's Pizza Stock Jumped on Its Earnings Release: What Investors Should Know

Shares of Domino's Pizza (DPZ -0.30%) gained 10.4% on Thursday, following the restaurant chain's release of fiscal third-quarter results that investors found at least semi-appetizing in light of the current challenging macroeconomic environment.

Shares likely got a tailwind from market dynamics, as the market had a good day on Thursday. But the bulk of their gain is probably attributable to Domino's U.S. same-store sales returning to growth after posting year-over-year declines in the first two quarters of this fiscal year. Investors were also likely pleased that the third quarter's total revenue managed to slightly exceed Wall Street's expectation. 

High inflation and concerns about a possible recession are causing some consumers to tighten their discretionary spending, so investors were no doubt relieved that Domino's results held up relatively decently.

Below is an overview of Domino's quarter and guidance centered around five key metrics.

1. Total revenue grew 7% 

In the fiscal third quarter (which ended Sept. 11), Domino's revenue grew 7% year over year to $1.07 billion, topping the $1.06 billion Wall Street had expected. Growth was primarily driven by supply chain revenue, which got a boost from the company's 13% year-over-year increase in the price of the food baskets that it sells to stores. Revenue also benefited from 4.1% growth in U.S. retail sales.

Like other U.S.-based companies that generate some sales outside of the country, Domino's saw its revenue get hurt by the strength in the U.S. dollar relative to other currencies over the last year. 

Key year-over-year revenue-related stats:

• Global retail sales edged down 1.6% (and rose 4.7% in constant currency). 
• U.S. retail sales grew 4.1%.
• U.S. same-store sales grew 2%.
• International retail sales declined 6.8% (and rose 5.2% in constant currency).
• International same-store sales declined 1.8% in constant currency.

2. Operating income edged down 2%

In the third quarter, income from operations fell 2% year over year to $176.5 million. This decline is largely attributable to lower gross margins for U.S. company-owned stores and supply chains. Cost inflation is the main culprit here. 

3. Earnings per share declined 14%

In the quarter, net income according to generally accepted accounting principles (GAAP) declined 17% year over year to $100.5 million, which translated to earnings per share (EPS) decreasing 14% to $2.79. This result missed the $2.97 Wall Street had projected. 

(There were no "one-time items" for either of the periods, so the GAAP and adjusted numbers are the same.) 

4. Operating cash flow fell 32% in the first three quarters of the year

In the first three quarters of fiscal 2022, Domino's generated cash of $330.2 million running its operations, down 32% from the year-ago period. Free cash flow was $279.6 million for the same period, down 36% year over year.

The company ended the quarter with $114.8 million in cash and cash equivalents, and $5.15 billion in total debt. 

5. Currency headwinds are expected to take a bigger bite than previously expected out of royalty revenue 

Management updated the full-year guidance that it issued last quarter. It now expects a more-negative impact on royalty revenue from changes in foreign-currency exchange rates. In order to help offset a more-negative impact to its bottom line, the company has lowered its spending plans.

Data source: Domino's Pizza. 

In short, Domino's turned in a decent quarter considering the current challenging global macroeconomic environment.