Domino’s Pizza, Inc. DPZ could record further stock price growth, in my view, after its 44% rise in the past year.
The pizza delivery company is investing in new technology, expanding internationally and making changes to its business model.
New technology
The company is investing in new technology to improve the ordering experience for its customers. For example, in its fiscal 2019 fourth quarter, the business introduced GPS delivery-tracking in over half of its U.S. stores. This provides its customers with more accurate details on when their order will be delivered, which could help to differentiate Domino’s from its sector peers. It plans to roll out the technology across the rest of its U.S. stores in upcoming quarters.
In addition, the business is developing a driverless delivery service. This could increase the reliability of its delivery service in upcoming years, reduce its costs and may improve the company’s competitive position.
Growth strategy
The business plans to open three new distribution centers in fiscal 2020. They could improve its productivity and efficiency, which may boost its financial performance.
Domino’s expects to introduce new menu items in fiscal 2020 that are focused on lower price points. They could improve its order volume among value-focused consumers and help to broaden its appeal to a wider range of customers.
It is also increasing its investment in staff training. This could increase their efficiency and provide an improved ordering service for customers.
International expansion
Domino’s opened 351 new international stores in the fiscal 2019 fourth quarter. This increased its total number of international stores to over 17,000, which could catalyze its financial performance, since its international stores recorded a 9% rise in sales in fiscal 2019 compared to the previous year.
The company opened stores in 2019 in countries where it previously had no presence, such as Bangladesh and the Czech Republic. This suggests there is room for the business to open new stores in international markets to increase the size of its potential customer base. This may also help to diversify the company away from the U.S., thus reducing its overall risk.
Potential challenges
The company faces a highly competitive food delivery marketplace. Many of its competitors are seeking to grow their revenue without concern for their short-term profitability. This could limit Domino’s potential to increase its margins over upcoming quarters.
Additionally, the business reported higher costs such as rising minimum wages, increasing rents and rising insurance premiums in the U.S. in its fiscal 2019 fourth quarter. They could act as a drag on its profitability.
In response, Domino’s is seeking to increase the efficiency of its operations to reduce the amount of time it takes for its pizzas to be delivered to its customers. This could increase the satisfaction of its customers and lead to a higher degree of loyalty at a time when there is an increasing number of online food delivery options available for consumers.
Even though Domino’s faces an increasing amount of competition, its 6.8% fourth quarter U.S. retail sales increase represented a faster pace of growth than the wider restaurant industry. This suggests that its strategy is enabling it to overcome the threat of a saturated quick service restaurant industry in the U.S.
Prospects
Market analysts forecast that the business will report a 14% rise in its earnings per share in fiscal 2020. Its price-earnings ratio of 38 is high, but the improvements it is making to its strategy could catalyze its stock price in upcoming years.
Disclosure: The author has no position in any stock mentioned.
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