It has been about a month since the last earnings report for Domino's Pizza (DPZ). Shares have lost about 0.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Domino's Pizza due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Domino's Lags Q3 Earnings, Beats Revenue Estimates
Domino's reported third-quarter 2020 results, with earnings missing the Zacks Consensus Estimate but revenues beating the same. Earnings missed the consensus estimate after beating the same for trailing six quarters, whereas revenues surpassed the estimate for the four straight quarters.
The company also reported robust U.S. same-store sales. The third quarter also marked the 38th straight quarter of positive U.S. comparable sales and the 107th consecutive quarter of positive international comps.
Domino's results in the quarter benefited from solid digital ordering system and higher global retail sales.
Earnings & Revenues Discussion
Adjusted earnings in the quarter under review were $2.49 per share, which missed the Zacks Consensus Estimate of $2.49. However, the reported figure improved 21.5% on a year-over-year basis. The bottom line was primarily driven by higher net income.
Quarterly revenues improved 17.9% year over year to $967.7 million, which beat the consensus mark of $946 million. Robust same-store sales and increase in store count (during the trailing four quarters) both in the United States and international markets drove third-quarter revenues. The company opened 728 stores in the trailing four quarters. In the third quarter, the company opened 83 stores, comprising 39 net new U.S. stores and 44 net new international stores. International franchise revenues also improved.
Global retail sales (including total sales of franchise and company-owned units) improved 14.4% year over year in the third quarter. The upside can primarily be attributed to growth in sales at domestic stores (up 21.3%) and at international stores (up 7.7%). Excluding foreign currency impact, global retail sales increased 14.8%.
In the third quarter, comps at Domino’s domestic stores (including company-owned and franchise stores) improved 17.5%. Moreover, it was higher than the prior-year quarter’s improvement of 2.4%.
At domestic company-owned stores, Domino’s comps rose 16.6% year over year, higher than 1.7% in the year-ago quarter. Moreover, domestic franchise stores comps increased 17.5% compared with growth of 2.5% in the prior-year quarter.
Comps at international stores, excluding foreign currency translation, were up 6.2%. This was higher than improvement of 1.7% in the year-ago quarter.
Domino’s operating margin contracted 110 basis points (bps) year over year to 37.4% in the reported quarter. Moreover, the net income margin contracted 30 bps to 10.2%.
As of Sep 6, 2020, cash and cash equivalents totaled $330.7 million, up from $190.6 million as of Dec 29, 2019. Long-term debt at the end of the third quarter was $4,062.2 million, compared with $4,071.1 million as of Dec 29, 2019. Inventory amounted to $65.5 million at the end of the third quarter.
Cash flows from operating activities totaled $370.4 million at the end of third quarter. In the quarter under review, Domino’s incurred capital expenditures of $51.2 million.
The company declared quarterly cash dividend of 78 cents, to be paid out on Dec 30, 2020 to shareholders on record as of Dec 15.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.61% due to these changes.
Currently, Domino's Pizza has a great 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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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