Let’s start with Domino’s
“Domino’s is a continuation, there isn’t much new but good secular stories can outperform for years and valuation has recently become compelling,” Saleh wrote.
Hard to believe, but December will mark a decade since Domino’s first introduced its $5.99 price point, “establishing compelling equity on value that should continue to drive sales for another year,” Saleh said.
Despite a stellar return last year, and in 2017, and 2016, and 2015 [we could go on], we see no reason the gains can’t continue as the formula of the company’s growth remains intact,” Saleh said.
Domino’s posted domestic same-store sales growth of 6.3 percent in the third quarter, marking the 30th consecutive quarter of positive comps growth. Internationally, same-store sales lifted 3.3 percent, making it a ridiculous 99 straight quarters of positive gains. The U.S. growth, though, represented the second straight quarter of decelerating gains. It was 7 percent in Q2 and 8 percent to start the fiscal calendar. Revenue of $785.97 million, up from last year’s $643.64 million Q3 figure, missed Wall Street’s estimate of $788.08 million at the time. Earnings per share came in at $1.95 and net income $84.10 million. The fact these type of results missed any sort of expert prediction should tell you all you need to know about Domino’s current standing in the marketplace.
The brand also opened 232 locations in Q3 over the 113 in Q2 and has added 920 delivery and takeout hubs year to-date (as of October) to bring its store count to 15,300. Since 2012, the company added 5,114 restaurants. CEO Ritch Allison noted that (again, as of October year-to-date) Domino’s closed just seven restaurants in the U.S., which is a pretty remarkable figure given there are more than 5,700 stateside units.
Returning to the compelling value topic, Domino’s $5.99 price point initially met customers as a two-medium, two-topping pizza offer. Since, it has expanded into the broader Mix & Match platform with the addition of pasta, sandwiches, chicken, desserts, and salads.
“This steady expansion of the menu and consistent price point as allowed Domino’s to establish its dominance on value,” Saleh wrote.
BTIG estimated that 20–25 percent of the $37 billion-plus domestic pizza category is comprised of value-seeking customers. That’s probably a safe bet. Added up this equates to $7.4–$9.3 billion in sales. Measured with Domino’s systemwide sales of roughly $6.6 billion, there is ample room for further gains, Saleh noted.
And if you’re looking at market share in one of the most intense quick-service segments in the land, Domino’s currently delivery dollar share—by its own shared numbers—is the highest it has been in at least eight years. In 2017, the company said it had 17 percent of the total quick-service pizza market share. Other major pizza chains accounted for 31 percent, and regional chains and independents made up 52 percent. In regards to pizza delivery market share, Domino’s held 29.3 percent. Major brands had 28 percent and regional chains/independents accounted for 43 percent.
Here’s a look at the delivery dollar share:
- 2011: 21.9 percent
- 2012: 22 percent
- 2013: 23 percent
- 2014: 24.4 percent
- 2015: 26.7 percent
- 2016: 27.2 percent
- 2017: 29.3 percent
Domino’s is set to host its annual Investor Day January 17 in Orlando. Saleh wrote they don’t expect any major surprises, just more details on Domino’s previously touted fortressing strategy that entails splitting markets and purposely cannibalizing stores to increase total sales and capture more carryout business. Saleh said carryout is a larger segment of the pizza category at $17 billion versus $10 billion for delivery, showing another runway for Domino’s to bolster its performance.
“We're going to continue to be front footed,” Jeffrey Lawrence, Domino’s EVP and CFO, said in October. “We're going to continue to try to make the right choices, but we're not going to run off the clock … We are going to be aggressive and try to grow share.”