Domino's Pizza Inc. (DPZ, Financial) started fiscal 2015 on a solid note, with better-than-expected first-quarter results. On the back of sizzling comparable-store sales, or comps, growth global retail sales climbed 10.4% year over year to $502.0 million, trumping analysts’ estimates by $12.87M. International comps grew 7.8% year over year, and domestic comps grew 15.9% and 14.4% at company-owned stores and franchised outlets, respectively. The foreign currency headwinds were more than wiped off by the strong performance.
Total cost of sales as a percentage of sales contracted 110 basis points, or bps. Operating margin also improved 110 bps to 31.3% on the back of 230 bps improvement in company-owned store operating margins.
As a result of rebuts top-line growth, expansion of margins and reduced share count, earnings came in at $0.81 per share, beating estimates by $0.01 per share. Earnings grew by 19.1% year over year.
What next?
About 50% of sales in the U.S. now come via digital ordering channels. In order to bolster this, Domino’s recently unveiled three highly innovative new ordering platforms, Pebble and Android Wear smartwatches as well as the ability to now order on a smart TV through partnership with Samsung. The strategic investments in technology have paid off well and will continue to drive sales, going forward.
In international markets, about 40% sales come through digital channel. So, there’s a lot of scope for growth in digital ordering in the international markets and the company is sharing best practices with all master franchisees. Currently only about 60% international franchises are using common point of sale program –Â Domino’s PULSE. Extending this to all international locations will provide further boost to growth.
Over the past four quarters, the international division has grown by 658 stores, despite closure of36 stores in Peru. The company is working on re-entering the Peru market. In the domestic market, Domino’s opened 93 new net stores during past four quarters.
The company feels that there’s a potential for 1,000 new stores in domestic market alone. Additionally, what’s more striking is that some stores are becoming capacity constrained, which means that they are getting more orders than they can serve.
And of course, the philosophy of doing with minimum menu items but doing it in a big way is helping the growth. Also, only about 20% to 25% of stores in the U.S. have been reimaged and these stores are churning out better numbers compared to non-remodeled ones. So this is another area of growth.
Wrapping up
Domino’s has been growing store count at almost 2 per day and is delivering strong performance. For example, the company clocked 21consecutive years of comps growth at international locations and 16 consecutive quarters of positive same stores sales in domestic market.
Significant opportunities exist for expanding store counts both in domestic as well as international market. Also, the company’s entry into Pan Pizza and Chicken category will also fuel growth in the long run.
So, if you are looking for a decent pick in the restaurant industry, Domino’s Pizza should not be missed.
