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Here's Why You Should Retain Domino's (DPZ) in Your Portfolio
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Domino's Pizza, Inc. (DPZ - Free Report) will likely benefit from technological enhancements, unit expansion and sales-building efforts. However, inflationary pressures and staffing challenges pose concerns.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Domino’s invests heavily in technology-driven initiatives like digital ordering to bolster sales. Domino’s digital loyalty program — Piece of the Pie Rewards — continues to contribute significantly to traffic gains. The extended ways to order a pizza have kept Domino’s at the forefront of digital ordering and customer convenience. Other digital enhancements in ordering, selecting service methods, paying and tipping were implemented to enhance the consumer experience. It continues to innovate aggressively across all aspects of its business, including GPS, e-bikes, AI in-store technology, great food and an evolving digital experience.
Since Domino’s generates a chunk of revenues from outside the United States, it is committed to accelerating its presence in high-growth international markets to boost business. The company’s international growth continues to be strong and diversified across markets, courtesy of exceptional unit-level economics.
During the fiscal third quarter, the company added 24 net new stores in the United States, bringing the total U.S. system store count to 6,643 stores. During the quarter, its international business added 201 net new stores (reflecting a store growth rate of 8.1% year over year). Together with the U.S. and international store openings, the company reported global net store growth of 6.2%. The company remains bullish on the long-term unit growth potential in the United States, anticipating an 8,000-plus store market. Also, it is confident about its two to the three-year outlook of 6% to 8% in annual global net store growth.
The company continues to witness growth in terms of its carryout and delivery businesses. It has been emphasizing on Car Side Delivery 2-Minute Guarantee with awareness campaigns. With less than two minutes of wait time, the technology has been well embraced by its franchisees and operators. Further developments in this regard are likely, as it intends to boost drive-through-oriented customer experience. To support the transition to online carryout, the company initiated coupons (of $3 tip) that customers can use on their next order. The approach focuses on driving repeat purchases, subject to the fact that the coupon must be used the week after the initial purchase. The company emphasized on balancing customer value and franchisee profitability by implementing the Carryout mix-and-match deal (from $5.99 to $6.99).
Concerns
Image Source: Zacks Investment Research
Shares of Domino's have declined 33.3% in the past year compared with the industry’s 5.4% fall. The downside was primarily caused by inflationary pressures and staffing challenges. Although the company initiated certain actions to improve staffing levels, complete recovery is likely to take time.
Inflationary pressure in commodity, labor and fuel costs continues to hurt the company. In the third quarter of fiscal 2022, the company’s total cost of sales amounted to $686.7 million compared with $612.8 million reported in the prior-year quarter. During the quarter, fuel and labor costs negatively impacted the supply chain margins. The company anticipates fluctuations in commodity prices (including wheat) and fuel costs arising from geopolitical risk and the impact on the overall macroeconomic environment. It expects inflation to impact its delivery business owing to added expenses of fees and tips in the channel.
Wingstop currently carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have lost 19.2% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and earnings per share (EPS) suggests growth of 18.4% and 16.3%, respectively, from the year-ago period’s reported levels.
Tecnoglass currently carries a Zacks Rank #2. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average. Shares of the company have gained 29.8% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Yum China currently carries a Zacks Rank #2. YUMC has a long-term earnings growth rate of 11%. Shares of YUMC have gained 16.8% in the past year.
The Zacks Consensus Estimate for Yum China’s 2023 sales and EPS suggests growth of 14.3% and 57.8%, respectively, from the year-ago period’s reported levels.
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Here's Why You Should Retain Domino's (DPZ) in Your Portfolio
Domino's Pizza, Inc. (DPZ - Free Report) will likely benefit from technological enhancements, unit expansion and sales-building efforts. However, inflationary pressures and staffing challenges pose concerns.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Domino’s invests heavily in technology-driven initiatives like digital ordering to bolster sales. Domino’s digital loyalty program — Piece of the Pie Rewards — continues to contribute significantly to traffic gains. The extended ways to order a pizza have kept Domino’s at the forefront of digital ordering and customer convenience. Other digital enhancements in ordering, selecting service methods, paying and tipping were implemented to enhance the consumer experience. It continues to innovate aggressively across all aspects of its business, including GPS, e-bikes, AI in-store technology, great food and an evolving digital experience.
Since Domino’s generates a chunk of revenues from outside the United States, it is committed to accelerating its presence in high-growth international markets to boost business. The company’s international growth continues to be strong and diversified across markets, courtesy of exceptional unit-level economics.
During the fiscal third quarter, the company added 24 net new stores in the United States, bringing the total U.S. system store count to 6,643 stores. During the quarter, its international business added 201 net new stores (reflecting a store growth rate of 8.1% year over year). Together with the U.S. and international store openings, the company reported global net store growth of 6.2%. The company remains bullish on the long-term unit growth potential in the United States, anticipating an 8,000-plus store market. Also, it is confident about its two to the three-year outlook of 6% to 8% in annual global net store growth.
The company continues to witness growth in terms of its carryout and delivery businesses. It has been emphasizing on Car Side Delivery 2-Minute Guarantee with awareness campaigns. With less than two minutes of wait time, the technology has been well embraced by its franchisees and operators. Further developments in this regard are likely, as it intends to boost drive-through-oriented customer experience. To support the transition to online carryout, the company initiated coupons (of $3 tip) that customers can use on their next order. The approach focuses on driving repeat purchases, subject to the fact that the coupon must be used the week after the initial purchase. The company emphasized on balancing customer value and franchisee profitability by implementing the Carryout mix-and-match deal (from $5.99 to $6.99).
Concerns
Image Source: Zacks Investment Research
Shares of Domino's have declined 33.3% in the past year compared with the industry’s 5.4% fall. The downside was primarily caused by inflationary pressures and staffing challenges. Although the company initiated certain actions to improve staffing levels, complete recovery is likely to take time.
Inflationary pressure in commodity, labor and fuel costs continues to hurt the company. In the third quarter of fiscal 2022, the company’s total cost of sales amounted to $686.7 million compared with $612.8 million reported in the prior-year quarter. During the quarter, fuel and labor costs negatively impacted the supply chain margins. The company anticipates fluctuations in commodity prices (including wheat) and fuel costs arising from geopolitical risk and the impact on the overall macroeconomic environment. It expects inflation to impact its delivery business owing to added expenses of fees and tips in the channel.
Zacks Rank & Key Picks
Domino's currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Wingstop Inc. (WING - Free Report) , Tecnoglass Inc. (TGLS - Free Report) and Yum China Holdings, Inc. (YUMC - Free Report) .
Wingstop currently carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have lost 19.2% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and earnings per share (EPS) suggests growth of 18.4% and 16.3%, respectively, from the year-ago period’s reported levels.
Tecnoglass currently carries a Zacks Rank #2. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average. Shares of the company have gained 29.8% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Yum China currently carries a Zacks Rank #2. YUMC has a long-term earnings growth rate of 11%. Shares of YUMC have gained 16.8% in the past year.
The Zacks Consensus Estimate for Yum China’s 2023 sales and EPS suggests growth of 14.3% and 57.8%, respectively, from the year-ago period’s reported levels.