It has been about a month since the last earnings report for Domino's Pizza (DPZ Quick QuoteDPZ - Free Report) . Shares have added about 0.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Domino's Pizza due for a pullback? 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 Beats on Q1 Earnings, Withdraws Guidance

Domino's reported first-quarter 2020 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Notably, this marked the company’s fifth straight quarter of earnings beat.  Domino's robust results can primarily be attributed to solid digital ordering system, robust international expansion and other sales initiatives.

Earnings & Revenues Discussion 

Adjusted earnings in the quarter under review came in at $3.07 per share, which outpaced the Zacks Consensus Estimate of $2.29. The reported figure also improved 39.5% on a year-over-year basis. The bottom line was primarily driven by higher net income and share repurchase program.

Quarterly revenues improved 4.4% year over year to $873.1 million, which beat the consensus mark of $867 million. Higher supply chain volume, and increase in same-store sales and store count both in the United States and international markets drove first-quarter revenues. The company opened 178 gross new stores and 69 net new stores. International franchise revenues also increased. However, the company recorded lower U.S. company-owned store revenues 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) improved 4.4% year over year in the first quarter. The upside can primarily be attributed to solid comps at international stores (up 3.9%) and domestic stores (up 4.9%). Excluding foreign currency impact, global retail sales increased 5.9%.

In the first quarter, comps at Domino’s domestic stores (including company-owned and franchise stores) improved 1.6%. However, it was lower than the prior-year quarter’s improvement of 3.9%.

At domestic company-owned stores, Domino’s comps grew 3.9% year over year, higher than 2.1% in the year-ago quarter. Moreover, domestic franchise stores comps increased 1.5% compared with growth of 4.1% in the prior-year quarter.

Comps at international stores, excluding foreign currency translation, were up 1.5%. This was lower than improvement of 1.8% in the year-ago quarter.

Margins

Domino’s operating margin expanded 40 basis points (bps) year over year to 39% in the reported quarter. Operating margin expansion was primarily driven by the New York store sale and increase in revenues from the company’s global franchise business. Moreover, the net income margin expanded 280 bps to 13.9%.

Balance Sheet

As of Mar 22, 2020, cash and cash equivalents totaled $200.8 million, up from $190.6 million as of Dec 29, 2019. Long-term debt at the end of the first quarter was $4,061.2 million, compared with $4,071.1 million as of Dec 29, 2018. Inventory amounted to $49 million at the end of the first quarter.

Cash flows from operating activities totaled $95.4 million at the end of first quarter. In the quarter under review, Domino’s incurred capital expenditures of $17.5 million.

Share Repurchases

During first-quarter 2020, the company repurchased 271,064 shares of its common stock for approximately $79.6 million. As of Mar 22, 2020, the company had nearly $326.6 million remaining under current authorization.

Preliminary Estimates

Domino’s, which has withdrawn its two to three-year guidance citing the coronavirus-induced crisis, provided preliminary estimates for the available period of second quarter. For the first four weeks of the second-quarter, U.S. stores same store sales are anticipated to have improved 7.1%, year over year. 

However, for the first three weeks of the second quarter (Mar 23 to Apr 12), international same store sales are expected to have declined 3.2% year over year.

As of Apr 21, almost all of the U.S stores are operational but dine-in services have not been resumed. However, as of Apr 21, there are nearly 1,750 international stores that are still closed.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Domino's Pizza has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Domino's Pizza has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.