Domino's Pizza Sees Slower Sales Growth

Jon C. Ogg

Some restaurant chains seem as though they can grow forever. After a while, even the greatest growth stories will start to see normalized growth begin to takeover. That transition period can be a very painful experience for shareholders who have to watch the shares adjust from hyper-growth to normalized growth. Domino’s Pizza Inc. (NYSE: DPZ) is seeing that normalization in growth come to fruition and its shares are paying a price.

Domino’s is still largely considered as a pizza chain, but the food delivery and takeout giant has diversified its menu in recent years to increase its opportunity for sales. The food company reported that same-store sales rose by only 3% in the second quarter, down almost four percentage points from the second quarter in 2018.

The $811.6 million that was reported in revenues was up from $779.4 million in the second quarter of 2018, but it was less than the $837 million or so expected by analysts.

Net income of $92.4 million came to $2.19 in earnings per share. That compared to estimates of $2.02 in earnings per share and was up from $77.4 million (or $1.78 per share) a year earlier.

Domino’s blamed the revenue shortfall on a decline in U.S. company-owned revenue as the company already was selling 59 company-owned locations to franchisees.

The company’s internally owned and operated domestic same-store sales rose by just 2.1%, about one point slower than expected. Domestic franchise same-store sales rose 3.1%, and that was basically 1.5 points short of what had been expected. Domino’s reported that its international same-store sales rose just 2.4% outside of the currency impact.

The company reported that its second-quarter global net store growth was 200 stores, or 42 net new U.S. stores and 158 net new international stores.

Ritch Allison, Domino’s chief executive officer, said:

It was a good second quarter, particularly for global unit growth, as we continue to seek balanced retail sales growth through the blend of same store sales and store growth. As a work-in-progress brand, we are constantly striving to improve in needed areas, execute our long-term strategy and build toward Dominant #1 – a goal I continue to feel we are built to achieve.

Heading into earnings, Domino’s shares had generated a positive return of about 9.4% so far in 2019. That might sound impressive on most years, but the S&P 500 is up about 20% year to date. Domino’s shares were down more than 6% in early trading indications, but the shares were down 4% at $258.80 within about 10 minutes of trading on Tuesday. Its 52-week range is $231.28 to $305.34, and its consensus analyst target was $305.85 ahead of the earnings report.