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Domino's (DPZ) Q3 Earnings to Gain Despite Cost Concerns

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Domino's Pizza, Inc. (DPZ - Free Report) is scheduled to report third-quarter 2018 earnings on Oct 16, 2018, before the market opens. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 5.1%.

Q3 Expectations

The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.73, higher than $1.27 reported in the year-ago quarter. Of late, the company’s earnings estimates have been stable. In second-quarter 2018, it witnessed earnings growth of 39.4% on a year-over-year basis. Meanwhile, analysts polled by Zacks expect revenues of nearly $789.6 million, up 22.7% from the prior-year quarter.

Let’s delve deeper to find out how the company’s top and bottom line will shape up this earnings season.

Factors at Play

Domino's third-quarter 2018 results are likely to be driven by increase in sales at domestic and international stores. Notably, the second quarter marked the 29th consecutive quarter of higher U.S. comparable sales and 98th consecutive quarter of positive international comps.

Per the Zacks Consensus Estimate, comps at Domino’s domestic stores (including company-owned and franchise stores) are likely to improve 7.2%, higher than 6.9% growth recorded in second-quarter 2018. At domestic company-owned stores, the same is expected to witnesses a 6% growth, higher than 5.1% in the year-ago quarter.

Meanwhile, Domino's international growth continues to be strong and diversified across markets, courtesy of exceptional unit level economics. Moving ahead, Domino's initiatives on the digital front, increased store counts, focus on re-imaging and other sales-boosting strategies are expected to help sustain the momentum. Also, its digital loyalty program — Piece of the Pie Rewards — continues to contribute significantly toward increase in traffic. The company’s extended ways to order a pizza has kept it in the forefront of digital ordering and customer convenience.

However, high labor costs and expenses related to sales initiatives might impact the company’s margin in third-quarter 2018. In the second quarter, cost of sales increased 11.5% from the year-ago quarter.

Domino's Pizza Inc Price, Consensus and EPS Surprise

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Domino's is likely to beat earnings estimates in the third quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Domino's has an Earnings ESP of -1.52% and a Zacks Rank #4 (Sell), which makes the surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

As it is, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stock With Favorable Combinations

Here are a few other stocks from the Restaurant space that investors may consider as our model shows that they have the right combination of elements to post an earnings beat in the third quarter:

BJ's Restaurants, Inc. (BJRI - Free Report) has an Earnings ESP of +4.03% and a Zacks Rank #1.

Darden Restaurants, Inc. (DRI - Free Report) has an Earnings ESP of +0.20% and a Zacks Rank of 2.

Starbucks Corporation (SBUX - Free Report) has an Earnings ESP of +0.19% and a Zacks Rank #3.

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