Will Domino's Pizza Beat Q3 Earnings on Sales Initiatives?
We expect leading pizza delivery chain, Domino's Pizza, Inc. (DPZ), to beat expectations when it reports third-quarter 2014 results on Oct 14. Last quarter, the company posted an earnings surprise of 0.8%. Let us see what is in store for us this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Domino's Pizza is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.64%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Domino's Pizza has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Domino's Pizza’s Zacks Rank #3 and +1.64% ESP makes us confident of an earnings beat.
What is Driving the Better-Than-Expected Earnings?
Domino’s Pizza has been posting earnings beat over the past three quarters on the back of higher traffic at its restaurants and unit growth. The company has undertaken several initiatives to revamp its brand through menu innovation, store expansion and re-imaging of existing stores to significantly drive revenues.
Domino’s Pizza has also been recording strong domestic as well international comps over the past few quarters. In fact, the company’s international operations promise significant growth. Domino’s Pizza has witnessed 82 consecutive quarters of positive same-store sales in its international business. Apart from established markets such as Canada, Japan, the U.K. and South Korea, the emerging markets of Brazil and Indonesia have also demonstrated strong growth.
Meanwhile, the company is investing heavily in technology-driven initiatives like digital ordering in order to capitalize on the digital wave that has hit the U.S. fast casual restaurant sector. Also, in an attempt to remain consistent with consumer preference, the company launched a new item, Specialty Chicken, to cater to the growing demand for boneless chicken preparations. Interestingly, demand for boneless chicken has increased 11% over the past three years. We believe that the company’s digital ordering system and its foray into the Pan Pizza and Specialty Chicken categories will help it to sustain the top-line momentum.
Overall, we believe such efforts will continue to contribute significantly to Domino’s growth for the upcoming quarter. However, higher commodity costs and weak consumer spending could dent some of the company’s efforts to boost sales and profits.
Other Stocks to Consider
Domino's Pizza is not the only firm looking up this earnings season. We also anticipate earnings beat from three other companies in the restaurant industry:
Jack in the Box Inc. (JACK) has an Earnings ESP of +1.89% and a Zacks Rank #1 (Strong Buy).
Chipotle Mexican Grill, Inc. (CMG) has an Earnings ESP of +1.30% and a Zacks Rank #1.
Burger King Worldwide, Inc. (BKW) has an Earnings ESP of +3.70% and a Zacks Rank #2 (Buy).
Read the Full Research Report on CMG
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Read the Full Research Report on JACK
Read the Full Research Report on BKW
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