Domino's Pizza's (DPZ -1.87%) stock surged 10% on Oct. 13 after the pizza chain posted its third quarter earnings report. Its revenue rose 7% year-over-year to $1.07 billion and matched analysts' expectations. Its global retail sales grew nearly 5% on a constant currency basis, with its 2% same-store sales growth in the U.S. offsetting its 1.8% decline overseas.

But its adjusted earnings still declined 14% to $2.79 per share, which missed analysts' expectations by $0.19. Investors seemed to gloss over that bottom-line miss and focus on its accelerating domestic sales growth instead, but Domino's stock still remains down more than 40% for the year. So is it the right time to buy a slice of this leading pizza chain?

A Domino's Pizza store in Sweden.

Image source: Domino's Pizza.

Its sales are gradually stabilizing

Domino's growth accelerated significantly throughout 2020 as many brick-and-mortar restaurants shut down during the pandemic. Unlike many of its industry peers, which hastily shifted toward third-party delivery platforms like DoorDash to weather that downturn, Domino's business was already built to make efficient first-party deliveries. It had also invested in the expansion of its online ordering platform and mobile app over the past several years.

Domino's growth cooled off in 2021 as more restaurants reopened, but it continued to open hundreds of new stores every quarter. However, its domestic same-store sales started to decline in the first half of 2022, which prompted the bears to claim that Domino's was relying too heavily on new store openings to drive its global retail sales growth. Its international same-store sales also declined in the second and third quarters.


Q3 2022

Q2 2022

Q1 2022

FY 2021

FY 2020

U.S. Same-Store Sales Growth (YOY)






International Same-Store Sales Growth (YOY)






New Store Openings






Global Retail Sales* Growth (YOY)






Data source: Domino's Pizza. YOY = Year-over-year. *Constant currency.

Domino's blamed its slower domestic growth in the first half of the year on a shortage of delivery drivers and other workers, inflationary headwinds, and tough comparisons to its pandemic and stimulus-driven growth over the previous two years. The rising dollar also reduced its overseas revenue and prompted it to start reporting its international same-store sales growth in constant currency terms this year.

But in the third quarter, Domino's domestic same-store sales grew again as its growth in average ticket size (which was boosted by its recent price hikes) offset its declining number of total orders. That recovery offset its decline in international same-store sales, which was largely caused by a difficult year-over-year comparison to a value-added tax holiday in the U.K. in the third quarter of 2021 that didn't occur again this year. Analysts expect Domino's total revenue to rise 5% this year, then grow 6% to $4.88 billion in 2023 as the year-over-year comparisons finally stabilize.

But its margins are still declining

Domino's revenue is still growing, but its gross margins are being squeezed by inflation -- and it's only partly offsetting that pressure with its price hikes. As a result, Domino's adjusted earnings per share (EPS) have declined year-over-year for three consecutive quarters, even after factoring in an $0.08-per-share boost from its buybacks over the past 12 months. The company has also been funding some of those buybacks with debt instead of its own free cash flow (FCF), which is an odd decision considering that its shares have lost about 30% of their value over the past 12 months.


Q3 2022

Q2 2022

Q1 2022

FY 2021

FY 2020

Gross Margin






EPS Growth (YOY)






Data source: Domino's Pizza.

The company expects its margins to remain under pressure as a result of a 13% to 15% increase in food basket prices for the full year. The strong dollar, which could only get stronger as interest rates continue to rise, is another major problem. It now expects those currency headwinds to reduce its full-year royalty revenue by about $29 billion to $30 million, compared to its prior forecast of $22 billion to $26 million.

Domino's plans to rein in its operating expenses and continue buying back shares to counter that pressure, but analysts still expect its adjusted EPS to decline 8% this year before rebounding 18% in 2023.

The valuations and verdict

Domino's trades at 21 times forward earnings and it pays a forward dividend yield of 1.5%. Papa John's (PZZA 0.63%), which is growing slower than Domino's but faces many of the same challenges, trades at 18 times forward earnings and pays a forward yield of 2.4%. Yum Brands (YUM -1.57%), the parent company of Pizza Hut, KFC, and Taco Bell, trades at 20 times forward earnings and pays a forward yield of 2.2%.

Domino's doesn't seem particularly cheap relative to its peers or its near-term growth rates. Investors should also take analysts' estimates for next year with a grain of salt, since we can't be sure how long inflation, the rising dollar, and the macro headwinds will actually persist. Therefore, investors shouldn't buy a slice of Domino's until it gets a lot cheaper.