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Domino's (DPZ) Stock Up on Q4 Earnings and Revenues Beat

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Share of Domino's Pizza, Inc. (DPZ - Free Report) surged 25.6% after the company reported better-than-expected fourth-quarter 2019 results. Notably, this marked the company’s fourth straight quarter of earnings beat. Both earnings and revenues have improved year over year. The company also reported robust U.S. same-store sales. The fourth quarter also marked the 35th straight quarter of positive U.S. comparable sales and the 104th consecutive quarter of positive international comps.

Domino's robust results can primarily be attributed to solid digital ordering system, robust international expansion and other sales initiatives.

Adjusted earnings in the quarter under review came in at $3.13 per share, which outpaced the Zacks Consensus Estimate of $2.93. The metric also improved 19.5% on a year-over-year basis. The bottom line was driven by higher net income and share repurchase program, which offset higher effective tax rate.

Quarterly revenues improved 6.3% year over year to $1,150.4 million, which surpassed the consensus mark of $1,123 million. Higher supply chain volume, and increase in same-store sales and in-store count both in the United States and international markets drove fourth-quarter revenues. International franchise revenues also increased but were marginally overshadowed by foreign currency headwinds. However, the company recorded lower U.S. company-owned store revenues thanks to the sale of 59 U.S. company-owned stores to existing U.S. franchisees.

Domino's Pizza Inc Price, Consensus and EPS Surprise

 

Comps

Global retail sales (including total sales of franchise and company-owned units) rose 6.9% year over year in the fourth quarter. This compared favorably with an improvement of 6.5% in the year-ago quarter. The uptick can primarily be attributed to solid comps at international stores (up 7%) and domestic stores (up 6.8%). Excluding foreign currency impact, global retail sales increased 7.6%.

In the fourth quarter, comps at Domino’s domestic stores (including company-owned and franchise stores) improved 3.4%. However, it was lower than the prior-year quarter’s improvement of 5.6%.

At domestic company-owned stores, Domino’s comps grew 3.9% year over year, higher than 3.6% in the year-ago quarter. Moreover, domestic franchise stores comps increased 3.3% compared with growth of 5.7% in the prior-year quarter.

Comps at international stores, excluding foreign currency translation, were up 1.7%. This was lower than improvement of 2.4% in the year-ago quarter.

Margins

Domino’s operating margin expanded 70 basis points (bps) year over year to 38.9% in the reported quarter. Operating margin expansion was driven by rise in supply chain margin owing to the positive impact of procurement savings and lower insurance costs. Moreover, the net income margin expanded 90 bps to 11.2%.

Balance Sheet

As of Dec 29, 2019, cash and cash equivalents totaled $190.6 million, up from $25.4 million as of Dec 30, 2018. Long-term debt at the end of the fourth quarter was $4,071.1 million, up from $3,495.7 million as of Dec 30, 2018. Inventory amounted to $53 million at the end of the fourth quarter.

Cash flows from operating activities totaled $497 million as of Dec 29, 2019. In the quarter under review, Domino’s incurred capital expenditures of $85.6 million.

Share Repurchases

During fourth-quarter 2019, the company repurchased 2,063,378 shares of its common stock for approximately $593.9 million. As of Dec 29, 2019, the company had nearly $406.1 million remaining under current authorization.

Long-term View

Domino’s has reaffirmed two to three-year outlook. The company continues to expect global retail sales growth of 7-10% in the said time period. The company expects same-store sales growth in the range of 2-5%. International same-store sales growth is anticipated to be in the range of 1-4%. The company anticipate global net unit growth in the range of 6-8%.

Zacks Rank & Stocks to Consider

Domino’s carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Brinker International, Inc. (EAT - Free Report) , Chipotle Mexican Grill, Inc. (CMG - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - 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.

Brinker International, Chipotle Mexican Grill and El Pollo Loco have an impressive long-term earnings growth rate of 7.7%, 19.3% and 10%, respectively.

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