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Domino's (DPZ) Q1 Earnings Surpass Estimates, Shares Up

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Domino's Pizza, Inc. (DPZ - Free Report) reported mixed first-quarter 2019 financial numbers, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Notably, this marked the company’s fourth straight quarter of revenue miss. However, shares of the company gained 4.9% on Apr 24 backed by its impressive bottom-line performance. Year to date, the stock has rallied 14.6% compared with the industry’s 15.9% growth.

Adjusted earnings of $2.20 per share surpassed the Zacks Consensus Estimate of $2.07 and increased 10% on a year-over-year basis. The bottom-line improvement was driven by higher net income and lower diluted share count as a result of share repurchases.

Quarterly revenues improved 6.4% year over year to $836 million but missed the consensus mark of $844 million. Higher supply chain volume, robust same store sales and increase in store counts both in the U.S. and international markets drove the company’s revenues. International franchise revenues also increased but was marginally overshadowed by foreign currency headwinds.

Comps

Global retail sales (including total sales of franchise and company-owned units) were up 4.6% year over year. This compared unfavorably with 16.8% growth in the year-ago quarter. The uptick can be attributed to solid comps at international stores (up 1.5%) and domestic stores (up 7.9%). Excluding foreign currency impact, global retail sales increased 8.5%.

In the first quarter, comps at Domino’s domestic stores (including company-owned and franchise stores) improved 3.9%. This compared unfavorably with an 8.3% increase in the year-ago quarter.

At domestic company-owned stores, Domino’s experienced 2.1% comps growth year over year, lower than 6.4% registered in the year-ago quarter. Also, domestic franchise stores comps grew 4.1% compared with 8.4% in first-quarter 2018.

Comps at international stores, excluding foreign currency translation, were up 1.8%. This was comparatively lower than 5% increase recorded in the year-ago quarter.

Notably, the first quarter marked the 32st consecutive quarter of positive U.S. comparable sales and the 101th consecutive quarter of positive international comps.

Domino's Pizza Inc Price, Consensus and EPS Surprise

Margins

Domino’s operating margin expanded 40 basis points (bps) year over year to 38.6% in the reported quarter. Increase in operating margin was driven rise in supply chain margin owing to positive impact of procurement savings. However, the net income margin contracted 20 bps to 11.1%. Moreover, company-owned store margins declined due to increase in labor expenses.

Balance Sheet

As of Mar 24, 2019, cash and cash equivalents totaled $83.1 million, up from $25.4 million as of Dec 30, 2018. Long-term debt at the end of the first quarter was $3,447.8 million, down from $3,495.7 million as of Dec 30, 2018. Inventory amounted to $45.7 million at the end of the first quarter.

Cash flows from operating activities summed $97 million as of Mar 24, 2019. In the quarter under review, Domino’s has spent $12.2 million on capital expenditures.

Zacks Rank & Stocks to Consider

Domino’s carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the same space include Chipotle Mexican Grill, Inc. (CMG - Free Report) , Starbucks Corporation (SBUX - Free Report) and Darden Restaurants, Inc. (DRI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  
 
Chipotle Mexican Grill has an impressive long-term earnings growth rate of 17.6%.

Starbucks delivered positive earnings surprise in three of the trailing four quarters, the average beat being of 6%.

Darden Restaurants reported better-than-expected earnings in three of the trailing four quarters, the average beat being 3.7%.

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