Domino's Pizza Inc. DPZ is off to a strong start in 2015. The company posted better-than-expected first-quarter 2015 results with earnings and revenues beating the Zacks Consensus Estimate. Moreover, domestic as well international comps grew significantly year over year as well as sequentially. While the company’s margins showed considerable improvement, the company lowered its commodity cost guidance. The upside caught the investors’ attention and the share price of the company hit a new 52-week high of $110.66 yesterday.
Earnings of 81 cents per share beat the Zacks Consensus Estimate of 80 cents by 1.3%. Earnings improved 19% year over year driven by strong comps, margins and a lower share count.
Domino's Pizza Inc. - Earnings Surprise | FindTheCompany
Quarterly revenues increased 10.6% year over year to $502.0 million and surpassed the Zacks Consensus Estimate of $488.0 million by 2.9%. Revenues were driven by strong comps — both in domestic and international markets. Higher supply chain revenues due to better sales volumes and store growth also aided the top line. The positives were partially offset by a negative impact of foreign currency exchange rates due to a strengthening dollar.
Inside the Headline Numbers
Domino's Pizza’s domestic and international comps continued their momentum during the quarter.
The company’s domestic store (including company-owned and franchised) comps were up 14.5% with company-owned and franchised comps rising 15.9% and 14.4%, respectively. The company’s domestic comps were better than the year-ago comps of 4.9% as well as the fourth-quarter comps of 11.1%.
International store comps at 7.8% (excluding foreign currency translation) expanded from the prior-quarter figure of 6.1% and year-ago comps of 7.4%.
Including foreign currency translation impact, global retail sales (including total sales of franchised and company-owned units) were up 10.4%.
Total cost of sales, as a percentage of sales, declined 110 basis points on lower food costs. The average cheese block price in the quarter was $1.54 per pound, down from $2.16 per pound in the year-ago quarter.
Domino’s Pizza’s operating margin increased 110 basis points year over year to 31.3% mainly due to a 230 bps improvement in company-owned store operating margins.
Guidance for 2015 and Beyond
The company expects commodity prices to be down 3% to 6% in 2015 as compared to the previous expectation of a decline of 2% to 4%. The company also expects foreign currency exchange rates to continue to hurt profits in 2015.
Meanwhile, over the long term, the company expects domestic same store sales growth of 2–4%.
Our Take
Domino’s Pizza has been posting impressive results over the past few quarters on the back of higher traffic at its restaurants and unit growth. The company’s international operations hold significant growth opportunities. We believe that the company’s digital ordering system and its entry into the Pan Pizza and Specialty Chicken categories would help it to sustain the top-line momentum.
Domino’s Pizza currently carries a Zacks Rank #3 (Hold). Some better ranked stocks in the restaurant industry that can be considered include Cracker Barrel Old Country Store, Inc. CBRL, Darden Restaurants, Inc. DRI and Ruby Tuesday, Inc. RT. All these stocks sport a Zacks Rank #1 (Strong Buy).
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