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Taking a Tour with This Pizza Delivery Expert

February 28, 2014 | About:
abirk

abirk

3 followers

The other day I was watching an interesting cricket match, when suddenly my doorbell rang: it was the pizza boy! Everyone knows that a pizza makes a good round of cricket more exciting! Although obesity is accelerating its pace, pizza is an all-time favorite among people of all ages. Domino's Pizza (DPZ), the pizza delivery expert, is always there for its valued customers to deliver happiness in the form of delicious pizza pies.

Founded in 1960, Domino’s Pizza is an international pizza delivery corporation in the U.S., and operates its business in three segments: domestic stores, domestic supply chain and international. The company has more than 10,000 stores around the globe, and they are as diverse as the communities they serve.

Tracking the Performance

During its latest quarter (fourth quarter) ended December 2013, the recognized world leader in pizza delivery reported strong results. For the fourth quarter versus the prior year period, revenues were up 5.0%. The reasons behind this growth are higher supply chain revenues, higher international revenues, and higher domestic franchise and company-owned store revenues. Net Income was also up 18.9% for the fourth quarter versus the prior year period.

Fourth quarter diluted EPS was 78 cents, up 21.9% over the company’s EPS in the prior year quarter. Diluted EPS, as reported, was $2.48 for fiscal 2013, up 29.8% over the as reported EPS in the prior year. Diluted EPS, as adjusted, was $2.45 for fiscal 2013, up 21.3% over the as adjusted diluted EPS in the prior year. A chart has been provided below to show the EPS growth in detail.

The company repurchased and retired 297,203 shares of its common stock under its open market share repurchase program for approximately $20.2 million, or an average price of $68.11 per share, during the fourth quarter of 2013. During fiscal 2013, the company repurchased and retired 1,666,435 shares of common stock for a total of approximately $97.1 million, or an average price of $58.29 per share. Further, Domino’s repurchased and retired 221,481 shares of its common stock for approximately $15.1 million, or an average of $68.32 per share subsequent to the fourth quarter of 2013 and through Feb. 18, 2014.

Company’s Growth

Domestic same store sales of this pizza delivery expert grew 3.7% during the quarter versus the year-ago period, and 5.4% for the full year, continuing the positive sales momentum in the company’s domestic business. The international division also posted strong results with same store sales growth of 7.0% during the quarter and 6.2% for the full year.

Further, Domino’s had global net store growth of 631 stores in 2013, comprised of 58 net new domestic stores, and a record 573 net new stores internationally.

Domino’s faces stiff competition from Papa John's (PZZA) and Yum! Brands (YUM) (Pizza Hut). In terms of international net unit growth, Domino’s is far ahead from its peers.

From the above graph it can be seen that during the 2010-2013 period, the company's number of international net units increased more than that of Papa John's and Pizza Hut (Yum!) over the same period.

Positive Outlook

On Feb. 12, 2014, the board of directors approved an increase in the company’s open market share repurchase program, resulting in a total remaining authorized amount of additional share repurchases of $200.0 million. Further, the board of directors declared a 25-cent per-share quarterly dividend for shareholders of record as of March 14, 2014, to be paid on March 28, 2014. This dividend represents a five cent, or 25% increase from the previous 20 cents per share quarterly dividend.

Domino’s expects that in the near future its global net units will be +4% to +6%. Domestic same store sales will be +2% to +4%. International same store sales and global retail sales will be +3% to +6% and +6% to +10% respectively.

Due to Domino's larger size, the company is able to offer a standalone smartphone application for ordering pizza. Domino’s apps are available for approximately 95% of smartphones. In addition, Domino’s iPhone and Android apps are higher rated on iTunes and Google Play than Pizza Hut and Papa John’s. This pizza delivery expert has launched pizza profiles online, where customers can save information, and reorder their favorite order in as few as five clicks or 30 seconds. In fourth 2013, the company’s digital orders were over 40% of total sales.

No one can imagine a pizza without Coca-Cola. This perfect combination remains a long-term favorite among customers. Keeping customers’ favoritism in mind, Domino’s has finalized a new multi-year contract with The Coca-Cola Company (KO) on Jan. 16, 2014.

To create a niche among customers, Domino’s is constantly innovating new ideas technologically. On Jan. 7, 2014, the company partnered with Ford (F) to make its mobile app available for all vehicles with Ford's SYNC Applink system, which allows Ford drivers to order a pizza from Domino's with quick voice commands. This partnership will strengthen Domino’s position in comparison to its peers.

Dominating the Indian Market

India is becoming more and more popular for pizza makers. Most of the revenues come from the Indian market. Indian people like spicier food. Therefore, Domino’s caters pizza as per Indian tastes and preferences. Since 1998, Domino’s has been dominating the Indian market. As of 2012, Pizza Hut had 310 locations, and Papa John's has only 36 locations. As of Oct. 31, 2013, Domino's India had 650 restaurants across 137 cities.

Charts from Dominosbiz.com

From the above chart, it can be seen that in top 10 markets of Domino’s, India is positioned second. Recently, in an interview Domino's CEO J. Patrick Doyle said that India will top UK as Domino's second-largest market in the next few years.

On a Concluding Note

The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, an increase in net income, largely solid financial position with reasonable debt levels by most measures, and good cash flow from operations. Domino’s also has a strong brand, and the number of stores it has opened internationally (and continues to open) shows that it is the leader of the underdeveloped pizza delivery business. These strengths make Domino's Pizza a tasty investment choice.


Rating: 4.4/5 (11 votes)

Comments

kfh227
Kfh227 premium member - 9 months ago

From a FCF perspecitve, it looks expensive.

Also, what is going on with Total Equity?

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