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What to expect from Domino's earnings on Tuesday

Heidi Chung
Reporter
Domino’s Pizza boxes at one its locations in Hialeah, Fla. The pizza chain said Monday, April 16, 2018, that its drivers can meet customers at beaches, parks and landmarks to hand over pizza, cheesy bread or chicken wings. In all, Domino’s said it can deliver to 150,000 outdoor locations in the United States, including under the Gateway Arch in St. Louis, or the beaches of Siesta Key, Fla. (AP Photo/Alan Diaz, File)

Domino’s ( DPZ) is set to release its third-quarter earnings before market open on Tuesday, and both investors and Wall Street analysts will be paying close attention to domestic and international same-store sales, performance of delivery “Hotspots,” and any possible benefits from the controversy surrounding rival Papa John’s.

Shares of Domino’s Pizza have been on a tear this year — up nearly 49%. But while some analysts are expecting Domino’s to deliver on its report, others fear that the stock may have run a little too far, too fast.

Maxim Group recently reiterated its Hold rating and raised its 12-month price target to $305 from $285, which is nearly a 10% move higher from Monday’s opening price. “We expect a slight beat on 3Q18 results, but given the magnitude of the rally in [Domino’s] shares earlier this year, we prefer to wait for a deeper pullback in the share price,” analyst Stephen Anderson told Yahoo Finance.

Eye on the competition

A big area of focus remains whether Domino’s benefited from the recent drama surrounding Papa John’s.

“We expect best-in-class performance to continue for the company’s US operations regardless of current woes at Papa John’s (PZZA) and lackluster performance at Pizza Hut (owned by Yum Brands [YUM]),” Anderson said in a note to clients.

Wells Fargo, however, predicts gains. “We expect investors to focus on potential share gains [Domino’s] may have picked up at the expense of a large, U.S. competitor.”

Nevertheless, Evercore ISI explained, “While brand issues with Papa John’s should benefit competitors like DPZ, in the U.S., we estimate that only 38% of Domino’s locations overlap with Papa John’s on a zip code basis, and only 25% of locations are within a 1 mile radius of a Domino’s store.”

Another key metric will be in focus as well — same-store sales both internationally and domestically. After lackluster numbers in the second quarter, investors will be looking to see whether or not same-store sales were better-than-expected in the third quarter.

Analysts are forecasting a growth of 6.4% for domestic same-store sales and 3.2% for international same-store sales.

Hotspots

Domino’s launched delivery “Hotspots” in April of 2018, and analysts will be expecting to hear how the new initiative performed over the third quarter.

 “Hotspots” allows customers to get food delivered to places other than homes and businesses, including stadiums, beaches, parks and more.

“We expect the most closely watched, debated items in this quarter to be Hotspots, voice ordering, and international unit growth. Hotspots likely helped 3Q comp, but might prove to be more of a seasonal program,” analyst Matt McGinley of Evercore ISI said in a research note.

And Baird analyst David Tarantino said, “Factors that may have supported comps above our forecast and closer to consensus include … company specific initiatives (e.g., Q2 introduction of hot spots may have added to top-line momentum).”

Analysts polled by Bloomberg are expecting earnings of $1.75 per share on $791 million in revenue.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter @heidi_chung.

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