I don’t remember the number of Sundays I have craved for a slice of the yummy cheese-burst pizza from Domino’s (DPZ). Fondly termed in the industry as the pizza delivery expert, this food chain has not only pleased its customers with great taste but also investors with massive returns. Its stock has surged approximately 20% over the past year as a result of sustained growth in earnings and increasing confidence of investors. Domino’s has also created reasonable value for shareholders by ensuring a consistent dividend policy.
Sustainable results in the first quarter
When a company operates in a highly competitive industry, it can sustain and grow only by creating a separate identity for itself. Well, Domino’s has successfully implemented this dictum by becoming the go-to chain for offering unparalleled service when it comes to pizza delivery. For the first quarter of 2014, the company declared a same-store sales growth of 4.9% in domestic stores whereas its international division posted a growth of 7.4% in the same-store sales. The pizza making giant successfully met the analyst estimates with an EPS of $0.68 per share on a revenue of $453.90 million. The current figures suggest that Domino’s might comfortably achieve the fiscal 2014 estimates as set by the Street i.e an EPS of $2.84 on a revenue of $1.91 billion.
Robust performance on a global scale
One of the major markets for Domino’s Pizza is India as evidenced by the opening of the 700th outlet in the country. In India, Jubilant Foodworks runs the Domino’s franchise and it has delivered an impressive growth in the market on back of innovative products and clever marketing. Despite the fact the economy is going through a rough patch, store yield economics are still strong enough to sustain robust store growth and they are expanding into new cities. Besides India, one of the main contributors in the Asian region has been the Japanese markets where the company has seen steady growth.
One of the big wins that Domino’s scored recently was the agreement it signed in South Africa with a new master franchisee called TASTE Holdings. They are a publicly traded company that operates nearly 150 pizza restaurants under the Scooter's Pizza and St. Elmo's Pizza brands. This market is highly instrumental for Domino’s growth prospects because it offers similar population and consumer purchasing power metrics as India and thus, the company could leverage its positioning in India to create a similar ecosystem in South Africa.
Is Papa John’s better?
Going strictly by the results, it can be said the Papa John’s is an equally credible investment candidate. In the first quarter of 2014, Papa John’s also declared strong results that were in alignment with analyst estimates. Reporting an increase of 12.9% in revenue to $401.38 million, the company delivered a same-store sales growth of 9.6%. Talking of the share price movement, Papa John’s saw a growth of around 24% in the share price including a 52-week high of $55 in the last 12 months while Domino’s growth subsided to 20% from 82% it achieved in year 2012-2013.
Now, if we were to focus our attention on the presence enjoyed by both of these pizza giants then Papa John’s looks like a petty figure in front of colossal Domino’s. The latter operates more than 10000 stores in 70 countries and has plans to open 1500 new stores in the near terms as compared to Papa John’s which runs around 4000 stores in 32 countries with plans to open 1200 stores over the next six years.
The improvement in emerging economies like India, China, Japan, Brazil etc has pumped up consumer spending in these regions. As a result, there is a good probability that Domino’s will gain immensely from this surge owing to its wide presence. As it is trading at similar forward multiples as Papa John’s at around 20x, my advice would be to prefer Domino’s because of its global footprint.
I have already spoken about the massive presence that Domino’s enjoys across the globe and to topi it, the pizza giant has now released an ordering app for iPad, highlighting its commitment towards technology innovation. Besides being technologically sound the company also takes utmost care of its services in order to render a beautiful customer experience. A while ago I read an article on how the CEO of Domino’s India franchise designed the entire delivery system in order to deliver pizzas efficiently and without violating the legislation of the country. It is this planning and dedication that has helped this company in becoming the pizza delivery champion across the globe.
To conclude, I am not asking investors to disregard certain concerns over the financial health of the company or challenges it is facing in big markets. Domino’s is a fundamentally strong company that has effectively tackled competition to sustain value for shareholders and currently, it is available at a discount of around 9% to its 52-week high price. This price level provides an attractive entry point for investors.