Domino’s Pizza Enterprises (DPZUF, Financial) shares have done phenomenally. The company is very profitable and has been expanding its presence in overseas markets.
The company has 89.4 million shares, the stock trades for 66.41 Australian dollars ($49.76) and the market cap is AU$5.937 billion. Earnings per share were 92 cents and the price-earnings ratio is 72. The dividend is 73 cents and the dividend yield is 1.1%. It is an expensive stock but Domino’s Australia is in a growth situation.
Revenues for the trailing 12 months were AU$751.98 million and were AU$244.73 in 2013. Now that is growth! Earnings per share grew from 41 cents to 92 cents. Shares outstanding did not grow much over that time frame so shareholders were not diluted. Operating cash flows were AU$128.47 million, capital expenditures were AU$113.87 million and free cash flow was AU$14.6 million. As you can see, management is plowing money into property, plant and equipment, as it should in any growth situation.
According to Morningstar, return on equity is 23.56% and return on invested capital is 14.6%. Fantastic profitability. At the end of July, cash was AU$60.3 million and accounts receivables was AU$72 million. The liability side shows: AU$150.6 million in payables, AU$36.3 million in loans and AU$285.5 million in debt. Very solvent. I got the idea to research the company by looking at Wasatch International’s holdings on its SEC filings.
Domino’s Limited does business in three main areas: Australia and New Zealand, Europe and Japan. According to the Annual Report, there are 1,535 franchised stores and 448 corporate stores. Revenues for the regions in 2016 were: 28.8% Australia and New Zealand, 28% Europe and 43.2% Japan. Though Japan has the highest sales, it is not the most profitable division. Of the AU$167.2 million in Ebitda, 54.8% came from Australia and New Zealand, 16.8% from Europe and 28.4% from Japan.
Management has a goal of 1,200 stores in Australia and New Zealand, up from 900, by 2025. The three largest shareholders are: Somad Holdings with 26.3%, FIL Management with 12.04% and Hyperion with 9.03%. Somad is based in Perth, Australia, and FIL in Hong Kong. The stock is down AU$14 from its all-time high of AU$80 set in August. If you woul invested in the stock 10 years ago, you would have earned a staggering 38.2% annual rate of return. Wow!
I find the international menu to be quite interesting. There are offerings of lamb, prawns, chicken tandoori, chicken peri peri and hollandaise sauce. I have never had lamb on a pizza but it sounds delicious. There is also a gluten free option. Look at this link to see what some of Limited’s stores look like in Australia. Very trendy. They look more like microbreweries in hip towns.
What is the secret to Domino’s success? Part of it is, I believe, the company’s quick delivery. Delivery times matter in food and probably matter even more in pizza. Have you every waited a long time at a restaurant for your food? How much longer was the restaurant in business? Domino’s seems to have mastered this concept. This article does a good job explaining Enterprises.
So is the stock a buy? Maybe. I do not like expensive stocks but Domino’s Limited has earned my respect. The company is well managed and they have got the pizza game figured out. Pizza looks easy but it is not. Limited is growing organically and through mergers and acquisitions. The company is what we call a “disruptor.” It is disrupting other pizza shops because it can deliver a quality product at the speed of light.
Disclosure: We do not own shares.
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