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Domino's (DPZ) Down 11.4% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Domino's Pizza Inc (DPZ - Free Report) . Shares have lost about 11.4% 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 its most recent earnings report in order to get a better handle on the important drivers.

Domino's Tops Q2 Earnings & Revenue Estimates

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

However, strength in domestic markets was overshadowed by weak international comps growth. Although the international segment posted positive comps, the figure came in much below expectations, due to softness in European markets.

Performance in Detail

Adjusted earnings of $1.32 per share beat the Zacks Consensus Estimate of $1.22 by 8.2%. Further, earnings climbed 34.7% year over year on strong sales as well as a lower share count.

Quarterly revenues jumped 14.8% year over year to $628.6 million and surpassed the Zacks Consensus Estimate of $613.4 million by 2.5%. The improvement was backed by 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 11.8% year over year. The uptick was primarily owing to strong comps from domestic stores. Excluding foreign currency impact, global retail sales increased 14.1%.

During the quarter, the company’s domestic stores (including company-owned and franchise stores) comps increased 9.5%. This compared unfavorably with 9.7% growth in the year-ago quarter and 10.2% growth in the previous quarter.

The company experienced year-over-year comps growth of 11.2% at domestic company-owned stores, higher than 9.1% comps growth in the year-ago quarter but lower than 14.1% growth in the last quarter. Also, domestic franchise stores comps grew 9.3%, lower than comps growth of 9.8% recorded in the year-ago quarter as well as the preceding quarter.

Comps at international stores, excluding foreign currency translation, grew 2.6%. This was much lower than the prior quarter and year-ago quarter improvement of 4.3% and 17.0%, respectively.

Margins

Domino’s operating margin decreased 30 bps year over year to 30.7% in the quarter.

Meanwhile, the net income margin increased 150 bps to 10.5%. The increase 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 and lower food costs. However, the improvements were partially offset by higher general and administrative expenses from investments in technological initiatives as well as unfavorable foreign exchange translations.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been three revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been four moves up in the last two months. In the past month, the consensus estimate has shifted by 5.4% due to these changes.

Domino's Pizza Inc Price and Consensus

 

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

VGM Scores

Currently, Domino's  stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions also looks promising.  The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.



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