Domino's Pizza posts mixed Q4 earnings report, same-store sales miss estimates
Domino's Pizza (DPZ) posted fiscal fourth-quarter earnings Thursday before market open that mostly missed estimates. Shares of the pizza chain were down more than 11% in early trading following the results and the earnings call with investors.
The Michigan-based company posted U.S. same-store sales, up 0.9%, far less than analyst estimates of 3.94%. This past quarter, the company navigated implementing higher prices in the U.S. and their effect on same-store sales, potential consumer trade-down, and the impact of inflation on the cost of goods.
Here's what Domino's Pizza reported, compared to Wall Street expectations, per Bloomberg consensus estimates:
Revenue: $1.39 billion versus $1.43 billion expected
Adjusted earnings per share: $4.43 versus $3.97
U.S. same-store sales: up 0.9% versus up 3.64% expected
Franchise-owned stores: up 0.8% versus up 3.4% expected
Co-owned stores: up 3.4% versus 3.13% expected
International same-store sales: up 2.6% versus up 3.93% expected
In the full 2022 fiscal year, global same-store sales for Domino's Pizza grew 3.9%. In the U.S., sales fell 0.8% and international sales grew only 0.1%.
In the fourth quarter, demand for the pizza chain seemed to slip as consumers responded negatively to recent price hikes. Last October, executives announced plans to raise prices around 7% in the fourth quarter, along with plans to increase the price of its Mix & Match deal to $6.99, up from $5.99.
Domino's CEO Russell Weiner called the global brand a "work-in-progress" in unprecedented times. He said "there is no better way to describe this period in our history."
In the fourth quarter, the company saw net store growth of 361 stores, with 43 opening in the U.S. and 318 internationally. In total, 465 locations opened, while 95 stores closed. Throughout fiscal 2022 overall, the brand opened a total of 1,276 stores and closed 244.
Year to date, shares of Domino's Pizza are mostly flat.
Domino's CEO Weiner weighed in on its delivery business in the fourth-quarter, optimistic that it remains ahead of its biggest competitors, such as Pizza Hut (YUM) and Papa John's (PZZA), in the pizza delivery category, despite recent challenges of labor and commodity inflation.
He said: "We experienced significant pressure on our U.S. delivery business in 2022 and focused our efforts on creating solutions. We also drove continued momentum in our U.S. carryout business and achieved strong international store growth. Over half of our orders in the U.S. now come through the carryout channel, and we are #1 in both the delivery and carryout QSR pizza segments. Our brand and company are better positioned than ever to win in the marketplace and create meaningful value for our shareholders."
Some analysts believe Domino's should reconsider adding third-party delivery.
UBS Analyst Dennis Geiger considers the Michigan-based pizza chain among "the most topical & debated stocks" in its coverage "given concerns around the sales & earnings growth trajectory, but with opportunity for sizable upside" with an emphasis on momentum toward "historical growth levels."
Earlier this month, Domino's Pizza introduced loaded potato tots with three flavor options, including Philly cheese steak, cheddar bacon, and melty 3-cheese. Geiger said the firm expects "modest contribution" from the recent addition, plus "1-2 new menu items per year still the playbook." UBS has a Buy rating and $410 price target.
Looking out to the full 2023 fiscal year, Peter Saleh of BTIG said "We estimate that Domino’s has the highest level of menu pricing in more than a decade (over 7%) right now, with potentially more coming, and lapping the lost operating days should add 150-200 bps of comparable sales. The higher pricing and moderating commodity inflation should translate into restaurant margin improvement this year, reversing the over 800 bps gap to its historical average that ranks as the worst among our quick-service coverage."
He later said that inflation that hit the overall cost of goods for the company "peaked." In particular, deflation of cheese, down 10% from the average price last year. If this trend continues, it could help lower the company's overall commodity basket this year, he said. BTIG has a $460 price target and Buy rating.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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