From March 23 to April 19, Domino’s began to see its COVID-19 investments and market positioning pay off. The company spent roughly six weeks rewriting its operating procedures. The main flip: moving to a 100 percent contactless delivery model nationwide.
The results haven’t slowed since.
Domino’s Wednesday provided a look into the first eight weeks of Q2 to date, which produced a “material increase in U.S. same-store sales,” the company said. It’s the latest (and last) coronavirus business update Domino’s plans to share outside of typical quarterly earnings.
IS A GOLDEN ERA FOR PIZZA CHAINS COMING?
“We are seeing a tailwind as consumer behavior across the restaurant industry has shifted toward delivery and carryout, though we are not sure whether this trend will continue for the remainder of the second quarter or how long this tailwind may last,” CEO Ritch Allison said in a statement.
In other terms, the off-premises-centric landscape has been good to Domino’s, but there’s no telling when it might shift.
Weeks 1–4 (March 23 to April 19)
Same-store sales (year-over-year)
- U.S. company-owned stores: 10.5 percent
- U.S. franchises: 6.9 percent
- Blended: 7.1 percent
- International: –1.1 percent
Global retail sales (year-over-year)
- U.S. stores: 10.7 percent
- International stores: –16.6 percent
- Blended: –3.1 percent
Weeks 5-8 (April 20 to May 17)
Same-store sales
- U.S. company-owned stores: 22 percent
- U.S. franchises: 20.9 percent
- Blended: 20.9 percent
- International: 3.3 percent
Global retail sales growth
- U.S. stores: 25 percent
- International: –6.6 percent
- Blended: 9 percent
Weeks 1–8 (March 23 to May 17)
Same-store sales
- U.S. company-owned stores: 16.2 percent
- U.S. franchises: 13.9 percent
- Blended: 14 percent
- International: 1 percent
Global retail sales growth
- U.S. stores: 17.8 percent
- International: –11.6 percent
- Blended: 2.9 percent
As of May 24, Domino’s said nearly all of its corporate domestic units were open, with dining rooms closed and stores deploying contactless delivery and carryout solutions. At the end of Q1, Domino’s entire 6,156-unit U.S. business faced fewer than 20 temporarily store closures due to COVID-19 (5,811 of the brand’s restaurants are franchise run).
Domino’s also estimated fewer than 900 international restaurants are currently temporarily closed. There are 10,933 total around the globe.
“I am proud of the way the Domino’s system has responded rapidly to the COVID-19 environment, innovating across all aspects of our operations and our digital platforms to provide a contactless delivery and carryout experience, which is just one aspect of the unwavering commitment that we and our franchisees have to the safety of our customers and team members,” Allison said. “We will continue to focus on providing our franchisees and stores with tools to remain operationally and financially healthy, and to provide a trusted, safe and affordable option for customers at a time when they need it most.”
He added Domino’s international sales could be “choppy” for the foreseeable future. “In some markets, sales results are matching or exceeding those that we see in the U.S.,” Allison said. “In others, where our master franchisees are still experiencing significant operating limitations or temporary store closures, those sales are down materially versus last year.”
At its peak, Domino’s had roughly 2,400 international closures (about 1,750 five weeks ago). “We expect that temporary closures, partial-week openings, abbreviated store hours and limited service methods will continue to pressure international same-store and retail sales in the near-term,” Allison said.
In Q2, Domino’s borrowed the remaining $158 million available under its outstanding variable funding notes. The company said Wednesday it’s repaid $100 million of the borrowings and is currently generating positive operating cash flow. Domino’s has nearly $250 million cash on hand and $102 million of available borrowings.
“We will continue to be a ‘work-in-progress’ brand, adapting to this new world, while maintaining our long-term emphasis on great-tasting pizza, value, service, and technology,” Allison said.
BTIG analyst Peter Saleh wrote in a note Wednesday that Domino’s nearly 21 percent comps boost in recent weeks “demonstrates the power of the investments the company has made in technology and menu innovation over the past decade and the favorability of a largely delivery/carryout model.”
“While we recognize this recent sales surge is likely unsustainable as more restaurants reopen, we expect domestic sales trends to moderate to a higher level than they otherwise would have given lingering mandates and consumer apprehension,” he added.
To Allison’s earlier point about sales sustainability, it’s difficult to say how much Domino’s momentum will moderate as other restaurants begin welcoming guests back to dining rooms.
But there’s no question Domino’s has made ample changes during the pandemic. It rolled contactless drive-up carryout technology to all U.S. stores. Whether it stays a corporate mandate or not, Allison said in Q1, the chain expects to make contactless delivery available “for some extended period of time.”
Leading up to Q2, Domino’s ran its digital mix up to 75 percent of total sales from 70 percent. It went as high as 80 percent one week.
The company unfurled a system that makes tipping delivery drivers easier and more prominent in the ordering experience and even created a cardboard “pizza pedestal,” so drivers don’t have to put guests’ orders on the ground.
Domino’s sales trends started to lean heavier on weekday sales over weekends, with lunch and dinner moving up and late night down. And like many chains, the brand continues to see larger order sizes throughout the week.
Additionally, Domino’s redirected advertising to focus on contactless delivery and carryout. The company previously noted it was producing roughly an ad per week going on six straight.
In recent quarters, Allison has also hinted a menu innovation coming over the summer, which Saleh believes will provide another jolt.
The chain’s Q1 same-store sales climbed 1.6 percent, year-over-year, in the U.S., marking 36 consecutive quarters of positive gains. Domino’s is scheduled to release full Q2 results in July.
