Yahoo Finance Domino's reports mixed Q3 results, reiterates 'primary focus' on value
Domino's (DPZ) posted mixed third quarter results before the market open and reiterated its commitment to value deals.
On Thursday, the pizza player reported revenue of $1.08 billion, less than the $1.1 billion expected by Wall Street. The increase in supply chain revenue from higher order values and pricing was offset by "a shift in the relative mix of the products sold" at the store.
Domino's reported adjusted earnings per share of $4.19 for the quarter, above estimates of $3.65. Its stock was up 1.7% in early trading on Thursday.
CEO Russell Weiner said the results demonstrate that its strategy is working "despite a pressured global marketplace."
He added that Domino's value pillar of its strategy will be the "primary focus" in the near term as the company believes its value proposition provides a "competitive advantage" that can help grow its market share.
In a call with investors, Weiner said it's all about getting value right. "We need to make sure that our promotional prices are consistent and they don't go above the CPI in the market," he said, adding that Domino's needs to gain share in third-party delivery while also "reminding everyone" that it's more than just a pizza delivery company with carry-out and in-restaurant dining.
US same-store sales for the third quarter increased 3%, which was slightly less than Wall Street's projection of a 3.55% increase and less than the previous quarter's 4.8% growth. Both company-owned stores and franchise locations fell short of Wall Street's estimates, reporting 3.1% and 3% growth, respectively.
International same-store sales growth also came in well below the 2.84% Wall Street projected with a 0.8% increase due to a slowdown in early August. Weiner acknowledged that a "combined impact of macroeconomic pressures, geopolitical issues, and the underperformance ... is creating a drag on our international sales."
Domino's stock has been under pressure and is down more than 17% in the last six months versus an 11% gain for the S&P 500 (^GSPC). Its close competitor, Papa John's (PZZA), is down nearly 25% in the same time period.
In a note to clients, Citi analyst Jon Tower wrote that "the brand is not alone in experiencing this top line pressure," but Domino's "premium valuation is likely to shrink versus global quick service peers who are posting similar levels of revenue/EBIT growth over time."
Value remains a key theme
Ahead of the report, Wedbush analyst Nick Setyan removed Domino's from the firm's Best Ideas List, given the increased value competition from fast food peers like McDonald's (MCD) and Taco Bell (YUM), among others.
"We believe QSR [quick-service restaurant] burger's aggressive pivot to value, led by McDonald's, limits near-term transaction share gains," Setyan, who has an Outperform rating on Domino's shares, wrote in a note to clients. "We have also been surprised by the lack of a stepped-up response by DPZ in the near term."
Throughout the month of September, the company launched a new promotion called "MOREflation" that allowed customers who ordered two or more medium pizzas to upgrade one of them to a large for free. The company also announced the return of its "Emergency Pizza" program this week, which has boosted Q4 results in the past.
The company also introduced a new loyalty program with lower-tier redemptions in early September as part of its value push.
Investors are awaiting more changes to come early next year. Domino's is expected to expand its third-party delivery service beyond UberEats (UBER) to DoorDash (DASH) and potentially announce menu innovation, Deutsche Bank analyst Lauren Silberman wrote in a note to clients.
US sales through Uber grew to 2.7% in the quarter; Domino's has a goal to exit the year with sales growth of 3%. Weiner said third-party order aggregators like Uber and DoorDash are incremental because their users are high-income customers.
While it no longer will have exclusivity with Uber at the end of Q1, adding DoorDash could provide a boost.
"DoorDash is bigger than Uber, so that would certainly be an incremental and, most likely, a more significant impact on our business than Uber, but we'll take one step at a time," he said. Weiner believes being on all the order aggregators is a $1 billion opportunity and added, "That's absolutely in our future."
Earnings overview
Here's what Domino's reported in the third quarter versus Wall Street estimates, per Bloomberg data:
Adjusted earnings per share: $4.19 versus $3.65
Revenue: $1.08 billion versus $1.1 billion
US same-store sales growth: 3% versus 3.55%
Company-owned: 3.1% versus 3.52%
Franchise: 3% versus 3.55%
International same-store sales growth: 0.8% versus 2.84%
The company expects to end 2024 with annual global retail sales growth of approximately 6% and annual income from operations growth of around 8%, citing a "challenging macroeconomic environment and its impact on current business trends."
For 2025, Domino's anticipates those metrics to be "generally in line" with its 2024 expectations. And from 2026-2028, it expects annual global retail sales to grow more than 7% and annual income from operations to grow more than 8%.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
