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Why Is Domino's Pizza (DPZ) Down 6.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Domino's Pizza (DPZ - Free Report) . Shares have lost about 6.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Domino's Pizza 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 catalysts.

Domino's Q2 Earnings Top, Stock Down on Revenue Miss

Domino's Pizza reported mixed second-quarter 2019 financial numbers, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Notably, this marked the company’s fifth straight quarter of revenue miss.

Adjusted earnings came in at $2.19 per share, which outpaced the Zacks Consensus Estimate of $2.00. The metric also increased 19% 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 4.1% year over year to $811.6 million but missed the consensus mark of $833 million. Higher supply chain volume, robust same-store sales and increase in-store count both in the United States and international markets drove the company’s revenues. International franchise revenues also increased but were marginally overshadowed by foreign currency headwinds.

However, the company-owned store revenues declined in the quarter due to the sale of 59 U.S. company-owned stores to existing U.S. franchisees.

Comps

Global retail sales (including total sales of franchise and company-owned units) rose 5.1% year over year. This compared unfavorably with 12.6% growth in the year-ago quarter. The uptick can be attributed to solid comps at international stores (up 3.5%) and domestic stores (up 6.8%). Excluding foreign currency impact, global retail sales increased 8.4%.

In the second quarter, comps at Domino’s domestic stores (including company-owned and franchise stores) improved 3%. This compared unfavorably with a 6.9% increase in the year-ago quarter.

At domestic company-owned stores, Domino’s comps grew 2.1% year over year, lower than 5.1% registered in the year-ago quarter. Also, domestic franchise stores comps increased 3.1% compared with 7% in second-quarter 2018.

Comps at international stores, excluding foreign currency translation, were up 2.4%. This was comparatively lower than 4% increase recorded in the year-ago quarter.

Notably, the second quarter marked the 33rd consecutive quarter of positive U.S. comparable sales and the 102nd consecutive quarter of positive international comps.

Margins

Domino’s operating margin expanded 130 basis points (bps) year over year to 39% in the reported quarter. Operating margin expansion was driven by rise in supply chain margin owing to the positive impact of procurement savings as well as lower insurance costs. Moreover, the net income margin expanded 150 bps to 11.4%. Company-owned store margins inched up 0.6%.

Balance Sheet

As of Jun 16, 2019, cash and cash equivalents totaled $108.3 million, up from $25.4 million as of Dec 30, 2018. Long-term debt at the end of the second quarter was $3,415 million, down from $3,495.7 million as of Dec 30, 2018. Inventory amounted to $44.3 million at the end of the second quarter.

Cash flows from operating activities summed $201.6 million as of Jun 16, 2019. In the quarter under review, Domino’s has spent $25.7 million on capital expenditures.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Domino's Pizza has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Domino's Pizza has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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