On Nov 11, we maintained our Neutral recommendation on Domino’s Pizza Inc. (DPZ) following mixed third quarter results.
Why the Reiteration?
On Oct 15, 2013, Domino’s Pizza announced third-quarter 2013 results. Although Domino's Pizza’s third-quarter adjusted earnings of 51 cents per share missed the Zacks Consensus Estimate by a penny it was up 18.6% year over year. The company’s higher top line, margin expansion and lower share count boosted earnings per share during the quarter.
Quarterly revenues of $404.1 million beat the Zacks Consensus Estimate by 0.3% and surged 6.9% year over year led by higher comparable restaurant sales (comps) growth, increased domestic store revenues (franchised and company-owned units included), strong international sales, improved supply-chain and unit expansions.
Established in 1960, Domino’s is the second largest pizza chain in the U.S. The company is the market leader in the delivery segment in the U.S. and ranks second in the carry-out segment.
Since Domino’s Pizza earned majority of its revenues from outside the U.S., it always remains committed to accelerate its presence in high-growth international markets to boost its business. Currently, Domino’s has established its presence in 70 countries worldwide. The company has witnessed 79 consecutive quarters of positive comps in its international business.
We believe that the company has several compelling growth drivers like digital ordering and foray into the Pan Pizza category to sustain the revenue momentum.
However, despite these enthusiastic facts, some negatives prevent us from being too optimistic on the stock. Domino’s Pizza has become extremely vulnerable to macroeconomic headwinds like government budget cuts, high tax rates and still-tightened consumer discretionary spending which can be a drag on the company’s winning momentum. Increasing operating expenses also remain a major headwind.
Other Stocks to Consider
Domino’s Pizza carries a Zacks Rank #3 (Hold). Some other players in the restaurant industry which look attractive at present include Red Robin Gourmet Burgers Inc. (RRGB), Cracker Barrel Old Country Store, Inc. (CBRL) and Bob Evans Farms, Inc. (BOBE). All these companies hold a Zacks Rank #2 (Buy).