🍕 Is Domino’s Set To Dominate Indefinitely?
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🍕 Domino's: The Pizzazz Of Pizza?
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Shares of pizza giant Domino's (DPZ) ended at an all-time high on Thursday. Why? The company's Q2 results were a strong beat versus analyst estimates. With sales returning back to over $1B for the second time in the last three quarters, the dominoes are falling exactly where Domino’s wants! (Tweet This)
P For Pandemic. P For Pizza!
Quick Service Restaurants have seen exponential growth across countries, particularly the US, and have been a big hit with the Millennials. The QSR chain that has become synonymous with the word "Pizza" is Domino's.
Q4 in 2018 saw Domino's clock revenues in excess of $1B. A slowing economy meant the revenues in three out of the four quarters of 2019, failed to cross the $1B mark. Then came the pandemic.
The stay-at-home trend meant that QSRs had to rely on takeaways and home deliveries since the dine-in outlets had to be shuttered. But Domino's, with its strong delivery network, was among the biggest beneficiaries during the pandemic.
2020 saw the company's EPS rise 29%, making it one of the best performers within the space. Shares appreciated 31% during that year. Investors promptly reaped the gains in early 2021 and the share prices fell somewhat.
The underlying concern was whether people would continue to order pizzas the way they did during the lockdown. Will the vaccinated people step out and look for other alternatives at the expense of the ubiquitous pizza? Turns out this worry wasn’t even worth it, as evident from Domino’s’ second quarter performance.
What Pizza Fatigue?
Although Domino's net income was lower year-on-year, other parameters beat expectations.
Key Stats From Q2:
Revenue: $1.03B Vs $972.3M expected
EPS: $3.12 Vs $2.87 expected
US same store sales growth of 3.5%
International same store sales growth of 13.9%
This all-round performance was fuelled by purchases involving more food items, price hikes and higher delivery fees. Even the management acknowledged there was no evidence of "Pizza Fatigue" and contrary to expectations, even areas with fewer restrictions enjoyed a higher sales growth. What’s more, Domino’s continued to grow at the expense of independent Pizzerias.
So where’s the catch? A major challenge that Domino's faced this quarter and is likely to face going forward is labor. Finding willing workers has been a struggle and the company is planning to implement higher wages across some corporate-owned markets during the second half of the year.
The labor shortage also precluded the company from opening more stores during the quarter. Also impacting new store openings were construction delays and equipment shortages due to the pandemic. These constraints notwithstanding, Domino’s managed to add 238 net new locations this quarter.
Domino's is also experimenting with delivery innovation. It has partnered with Nuro's driverless cars and is currently piloting it and proving the concept with select customers in Houston.
Challenges will come and go, but pizza is the perennial favorite that has stolen the hearts (as well as the bellies) of people. Domino’s seems well positioned to capture even more market share, unless the cheese bursts at the seams!
DPZ ended at $538.82, up 14.55%. Shares rose the most since February 2020.
Company Snapshot 📈
DPZ $538.82 +68.45 (+14.55%)
Analyst Ratings (30 Analysts) BUY 50% HOLD 47% SELL 3%
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Fun Fact of The Day 🌞
Companies such as Wholefoods, Starbucks, Microsoft, IBM make use of prison labour
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