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Domino's (DPZ) Down 24% in Past Year: What's Hurting the Stock?

Shares of Domino's Pizza, Inc. DPZ have declined 24% in the past year against the industry’s growth of 1%. The downside was primarily caused by inflationary pressures and staffing challenges.

This Zacks Rank #4 (Sell) company reported third-quarter fiscal 2022 results, with earnings missing the Zacks Consensus Estimate. The company posted adjusted earnings per share (EPS) of $2.79 per share, missing the Zacks Consensus Estimate of $2.95. In the year-ago quarter, DPZ reported an adjusted EPS of $3.24 a share.

In the past 60 days, earnings estimates for fiscal 2023 have witnessed downward revisions of 4.8% to $14.08 per share. Let’s discuss the factors hurting the company’s performance.

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Zacks Investment Research


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Primary Concerns

Domino's performance has been affected by higher inflationary pressures in commodity, labor and fuel costs (resulting from the macroeconomic environment in the U.S.) and staffing challenges.

In the third quarter of fiscal 2022, the company’s total cost of sales amounted to $686.7 million compared with $612.8 million reported in the prior-year quarter. During the quarter, fuel and labor costs negatively impacted the supply chain margins. The company anticipates fluctuations in commodity prices (including wheat) and fuel costs arising from geopolitical risk and the impact on the overall macroeconomic environment.  It expects inflation to impact its delivery business owing to added expenses of fees and tips in the channel.

Domino's has been strategically increasing prices to mitigate the impact of inflation while maintaining a strong value proposition. For the fourth quarter of fiscal 2022, the company expects pricing to increase to approximately 7%.

High debt remains a concern for the company. Long-term debt (less current portion) at the end of the fiscal third quarter came in at $5,097.3 million compared with $4,989.6 million reported in the previous quarter. The company ended the fiscal third quarter with cash and cash equivalent of $114.8 million compared with $114.4 million reported in the previous quarter.

Although cash balances have improved sequentially, they may not be enough to manage the high debt level. Debt-to-capitalization ratio at the end of the fiscal third quarter came in at 616% compared with 583.3% reported in the previous quarter.

Key Picks

Some better-ranked stocks in the Zacks Retail – Restaurants industry are Wingstop Inc. WING, Chuy's Holdings, Inc. CHUY and Chipotle Mexican Grill, Inc. CMG.

Wingstop sports a Zacks Rank #1. WING has a long-term earnings growth rate of 11%. Shares of WING have increased 4.3% in the past year.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the comparable year-ago period’s levels.

Chuy’s Holdings currently carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have increased 16.4% in the past year.

The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 11.7%, respectively, from the corresponding year-ago period’s levels.

Chipotle currently carries a Zacks Rank #2. CMG has a trailing four-quarter earnings surprise of 4.1%, on average. The stock has increased 1.6% in the past year.

The Zacks Consensus Estimate for Chipotle’s 2022 sales and EPS suggests growth of 15.1% and 31%, respectively, from the corresponding year-ago period’s levels.

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