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Domino's (DPZ) Down 13.8% Since Earnings Report: Can It Rebound?

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About a month has gone by since the last earnings report for Domino's Pizza Inc (DPZ - Free Report) . Shares have lost about 13.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Domino's Tops Q3 Earnings & Revenue Estimates

Domino’s posted robust third-quarter 2017 results, with both earnings and revenues beating the Zacks Consensus Estimate.

Performance in Detail

Adjusted earnings of $1.27 per share beat the Zacks Consensus Estimate of $1.22 by 4.1%. Further, the bottom line climbed 32.3% year over year on strong sales and a lower share count.

Meanwhile, adoption of new accounting standards for share-based compensation have reduced tax expenses and added as much as 7 cents to Domino's earnings in the reported quarter.

Quarterly revenues jumped 13.6% year over year to $643.6 million and surpassed the Zacks Consensus Estimate of $630.8 million by over 2%. The improvement was on the back of higher supply chain revenues as well as increased same store sales, and store count growth at both domestic and international markets.

Comps

Global retail sales (including total sales of franchise and company-owned units) were up 14.5% year over year. The uptick was primarily owing to strong comps from international stores. Excluding foreign currency impact, global retail sales increased 14.2%.

During the quarter, the company’s domestic stores (including company-owned and franchise stores) comps increased 8.4%. This compared unfavorably with 13% growth in the year-ago quarter and 9.5% growth in the previous quarter.

The company experienced year-over-year comps growth of 8.4% at domestic company-owned stores, lower than 13.8% comps growth in the year-ago quarter and 11.2% growth in the last quarter. Also, domestic franchise stores comps grew 8.4%, lower than comps growth of 12.9% and 9.3%, in the year-ago quarter and the preceding quarter, respectively.

Comps at international stores, excluding foreign currency translation, grew 5.1%. This was better than the prior quarter improvement of 2.6% but lower than the year-ago quarter rise of 6.6%.

Margins

Domino’s operating margin increased 10 bps year over year to 30.8% in the quarter under review.

Also, the net income margin rose 50 bps to 8.8%. The rise in the company’s net income was primarily driven by an increase in comps growth and store count as well as higher supply chain volumes. The adoption of the new equity-based compensation accounting standard too drove net income. However, the same was somewhat offset mainly due to higher general and administrative expenses from investments in technological initiatives.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There has been one revision higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been four moves higher compared to one lower two months ago.

Domino's Pizza Inc Price and Consensus

 

Domino's Pizza Inc Price and Consensus | Domino's Pizza Inc Quote

VGM Scores

At this time, Domino's stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been trending upward for the stock, the magnitude of this revision also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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