Industry News | October 12, 2017 | By Danny Klein | QSR Exclusive Brief

Domino’s Shares Slide as Sales Slow in 3Q

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Domino’s recent sales have set a high bar for the pizza chain. On Thursday, despite surpassing Wall Street expectations for both profit and same-store sales in the third quarter, shares fell more than 6 percent in premarket trading. They were down nearly 5 percent to 199.05 heading into the lunch hour. The main culprit was a perceived slump in comparable same-store sales growth of 8.4 percent compared to 13.8 percent a year earlier. That beat Consensus Metrix’s prediction of 6.6 percent but still gave some analysts pause.

The company’s bottom line was helped by the adoption of new accounting guidance that lowered the third quarter’s provision for income taxes and boosted earnings per share by 7 cents to $1.27 on revenue of $643.6 million. Wall Street expected revenue of $631 million. Net income rose to $56.4 million, or $1.18 per share, from $47.2 million, or 96 cents per share, a year earlier.

READ MORE: How Domino's loyalty program is paying off.

“The third quarter was an excellent example of us simply continuing to do what we do best: executing on our long-term strategy, relying upon our strong fundamentals and aligning with our outstanding U.S. and international operators to turn in another quarter of phenomenal results," said J. Patrick Doyle, Domino's president and chief executive officer, in a statement. "The momentum behind this business continues to amaze me, proving once again that our domestic and international franchisees are second to none."

Domino’s has now reported 26 consecutive quarters of positive sales momentum in its domestic business. It has slowed a bit lately, however. Comps were up 9.5 percent in the second quarter after growing 10.2 percent in the first. Increasing in the upper single digits is still enviable in a category that has seen Domino’s competition struggle. Yum! Brands’ Pizza Hut reported same-store sales declines of 1 percent in the second quarter. Domino's shares have gained 31.3 percent this year.

Domino’s international growth in the last quarter—2.6 percent—was troubling for pundits. It jumped to 5.1 percent in the third quarter, which topped estimates of 3.2 percent, according to Consensus Metrix, and marked the 95th consecutive quarter of positive international same-store sales growth.

In the quarter, Domino’s reported global net store growth of 217 stores, comprised of 53 new net domestic locations and 164 net units internationally. Domino’s has added 1,182 locations over the trailing four quarters.

Revenues rose 13.6 percent in the third quarter due primarily, Domino’s said, to higher supply chain revenues from increased volumes. “Higher same store sales and store count growth in both our domestic and international markets also contributed to the increase in revenues,” the company added.

The net income increase of 19.3 percent versus the prior year period was driven by similar metrics, as well as the aforementioned adoption of a new equity-based compensation accounting standards. They were partially offset by higher general and administration expenses from investments in technological initiatives and expenses related to Domino’s recapitalization, where the company borrowed $1.9 billion and used a portion of the proceeds to repay its remaining debt under its 2012 fixed rate notes.

Some technological rollouts lately have included the expansion of Domino’s rewards program, where the chain became the first national pizza delivery company, it said, to offer loyalty points via online, phone, and in-store orders.

The brand announced in late August it was researching self-driving delivery vehicles through a partnership with Ford Motor Co. Domino’s also enhanced its Amazon Alexa service by increasing the customization and simplicity of the platform.