Here's Why Investors Should Retain Domino's (DPZ) Stock Now

Zacks Equity Research
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Shares of Domino's Pizza, Inc. DPZ have slumped 16.2% in the past year, compared with the industry’s decline of 19.4%. However, the stock has displayed some resilience, increasing 6.8% in the past month. The company’s sales-building efforts and expansion are likely to drive performance.

Key Catalysts

Domino’s has been investing heavily in technology-driven initiatives like digital ordering to bolster sales. In 2021, the company’s digital sales accounted for $6.6 billion in U.S. retail sales, an increase of more than 36% since 2019. Meanwhile, Domino’s digital loyalty program — Piece of the Pie Rewards — continues to contribute significantly to traffic gains. The extended ways to order a pizza have kept Domino’s at the forefront of digital ordering and customer convenience. The company has more than 29 million active members in its Piece of the Pie loyalty program. The company has almost 70 million customers enrolled in its loyalty database.

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Meanwhile, the company continues to witness growth in terms of its carryout and delivery businesses. It has been emphasizing the Car Side Delivery 2-Minute Guarantee with awareness campaigns. With less than two minutes of wait time, the technology has been embraced by its franchisees and operators. Further developments in this regard are likely, as it intends to boost drive-through-oriented customer experience.

During first-quarter fiscal 2022, the company initiated certain changes with respect to the $5.99 mix-and-match offerings. Priced at $6.99, the menu includes the addition of 32-piece Parmesan bread bites, six-piece wings and three-piece chocolate lava cakes. Although the initiative paves the way for increased costs in delivery orders, attributes such as variety, great taste and competitive pricing are likely to help the company achieve balanced growth across tickets and orders in the long haul.

The Zacks Rank #3 (Hold) company continues to focus on expansion efforts to drive growth. Meanwhile, in first-quarter fiscal 2022, it opened 213 stores, comprising 37 net new U.S. stores and 176 net new international stores. During the quarter under discussion, the company completed the purchase of 23 franchise stores in the Detroit DMA, thereby bringing its total company-owned store count to 400 in the United States. Solid store openings were witnessed in India, with the count rising to 1500. The company initiated its 500th store opening in the Middle East and North Africa. Other markets of store growth included China, Mexico, Spain, Turkey, Taiwan, Iceland and Guatemala. Going forward, the company is confident about its two to three-year outlook of 6% to 8% annual global net store growth.

Concerns

Inflationary pressures in commodity, labor and fuel costs continue to hurt the company. The industry players expect to witness higher costs due to labor and supply chain shortages for quite some time. The company has been witnessing labor challenges in a handful of markets. During the fiscal first quarter, the company’s total cost of sales amounted to $642.5 million compared with $594.5 million reported in the prior-year quarter. Going forward, the company anticipates fluctuations in commodity prices (including wheat) and fuel costs stemming from geopolitical risks and its impact on the overall macroeconomic environment.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are MarineMax, Inc. HZO, BBQ Holdings, Inc. BBQ and Arcos Dorados Holdings Inc. ARCO.

MarineMax sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 32.8%, on average. Shares of the company have declined 24.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MarineMax’s 2022 sales and EPS suggests growth of 16% and 21.5%, respectively, from the year-ago period’s levels.

BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have slumped 35.6% in the past year.

The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2. ARCO has a long-term earnings growth of 34.4%. Shares of the company have appreciated14.5% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 16.6% and 83.3%, respectively, from the year-ago period’s levels.


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