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Domino's Pizza (DPZ) Up 3.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Chipotle Mexican Grill (CMG) closed at $761.85 in the latest trading session, marking a +0.26% move from the prior day.

It has been about a month since the last earnings report for Domino's Pizza (DPZ). Shares have added about 3.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Domino's Pizza due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Domino's Q1 Earnings Surpass Estimates

Domino's Pizza reported mixed first-quarter 2019 financial numbers, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Notably, this marked the company’s fourth straight quarter of revenue miss.

Adjusted earnings of $2.20 per share surpassed the Zacks Consensus Estimate of $2.07 and increased 10% on a year-over-year basis. The bottom-line improvement was driven by higher net income and lower diluted share count as a result of share repurchases.

Quarterly revenues improved 6.4% year over year to $836 million but missed the consensus mark of $844 million. Higher supply chain volume, robust same store sales and increase in store counts both in the U.S. and international markets drove the company’s revenues. International franchise revenues also increased but was marginally overshadowed by foreign currency headwinds.

Comps

Global retail sales (including total sales of franchise and company-owned units) were up 4.6% year over year. This compared unfavorably with 16.8% growth in the year-ago quarter. The uptick can be attributed to solid comps at international stores (up 1.5%) and domestic stores (up 7.9%). Excluding foreign currency impact, global retail sales increased 8.5%.

In the first quarter, comps at Domino’s domestic stores (including company-owned and franchise stores) improved 3.9%. This compared unfavorably with an 8.3% increase in the year-ago quarter.

At domestic company-owned stores, Domino’s experienced 2.1% comps growth year over year, lower than 6.4% registered in the year-ago quarter. Also, domestic franchise stores comps grew 4.1% compared with 8.4% in first-quarter 2018.

Comps at international stores, excluding foreign currency translation, were up 1.8%. This was comparatively lower than 5% increase recorded in the year-ago quarter.

Notably, the first quarter marked the 32st consecutive quarter of positive U.S. comparable sales and the 101th consecutive quarter of positive international comps.

Margins

Domino’s operating margin expanded 40 basis points (bps) year over year to 38.6% in the reported quarter. Increase in operating margin was driven rise in supply chain margin owing to positive impact of procurement savings. However, the net income margin contracted 20 bps to 11.1%. Moreover, company-owned store margins declined due to increase in labor expenses.

Balance Sheet

As of Mar 24, 2019, cash and cash equivalents totaled $83.1 million, up from $25.4 million as of Dec 30, 2018. Long-term debt at the end of the first quarter was $3,447.8 million, down from $3,495.7 million as of Dec 30, 2018. Inventory amounted to $45.7 million at the end of the first quarter.
Cash flows from operating activities summed $97 million as of Mar 24, 2019. In the quarter under review, Domino’s has spent $12.2 million on capital expenditures.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Domino's Pizza has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Domino's Pizza has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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