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Domino's (DPZ) Shares Rise as Investors Find Silver Lining in Q3 Earnings

Christopher Vargas

Domino’s DPZ reported their third quarter earnings before the opening bell today. The pizza delivery giant’s shares rose about 5% as investors looked past the company’s continued same store sales struggles. Domino’s shares are only up 1.8% year-to-date, significantly lagging behind the restaurant market’s 23.7% gain.

The pizza firm has had its financial figures hindered by the intense competition it faces in the food delivery space not only from rival pizza companies but third-party delivery platforms like Uber Eats UBER and GrubHub GRUB as well. Let’s take a closer look at how Domino’s performed in Q3 and where they might be headed in the closing quarter of their fiscal year.

Domino’s Reports Mixed Q3 Results

Growing competition in the pizza and food delivery space led to Domino’s mixed performance in Q3. The business was already fighting to compete for market share against Papa John’s PZZA and Yum Brands’ YUM Pizza Hut but the emergence of competition from third-party delivery companies has Domino’s fighting a two-front war.

Comp sales continued to decelerate in the quarter as US company-owned stores comp sales grew 1.7% but lagged behind the 4.9% gain made in the prior year’s quarter.

Despite the mixed bag of results the pizza maker reported in the third quarter, Wall Street seemed to find a silver lining. Along with the report, the company said that it would authorize a new stock buyback program to repurchase up to $1 billion in stock. With the pizza chain having spent almost $94 million on buybacks during the quarter, shareholders hope the new authorization will make Domino’s even more aggressive going forward.

Domino’s chose to not partner with third-party delivery services despite rival companies like Papa John’s and Pizza Hut choosing to go into business with the platforms. Instead, the firm is betting that the business models of these third-party delivery companies are not feasible and in turn is ramping up its store expansion efforts to cut delivery times and potentially take market share from its rivals.

Company Outlook

Our Q3 consensus estimates forecast Domino’s revenue to jump 5.18% to $1.14 billion and for its bottom-line to leap 12.6% to $2.95 per share. The supply chain segment is projected to grow 8.02% to $666.7 million and company owned stores sales are expected to slip 12.7% to $136.4 million. International franchise and royalty fees are expected to hike 11.55% to $78.7 million.

However, comp sales are projected to continue decelerating as US company-owned comp sales are forecasted to leap 2.83% compared to the 3.6% hike a year ago. Domestic franchise comp sales are predicted to grow 3.33% and fall behind the 5.7% gain last year. Full fiscal 2019 estimates call for sales to come in at $3.61 billion and for earnings to hit $9.41 per share for respective gains of 5.02% and 11.76%.

The fierce competition Domino’s faces from rival pizza companies and third-party delivery companies have weighed on the company’s core business. Decelerating comp sales have directly resulted from the uptick in companies in the delivery and pizza space but the company has been able to continue to grow. Its refusal to work with the Uber Eats of the world show Domino’s confidence in its own ability to mitigate headwinds. Domino’s sits at a Zacks Rank #3 (Hold).

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