Domino’s Reports Mixed Q3 Earnings with Revenue Miss

Domino’s Pizza Stock

Domino’s Pizza, Inc. (NYSE:DPZ) recently released its third-quarter fiscal 2023 financial results, presenting a mixed performance, with earnings surpassing the Zacks Consensus Estimate while revenues fell short. The company experienced a decline in its top-line figures, although the bottom line demonstrated a substantial increase in comparison to the prior year. Following this announcement, the stock faced a 2.6% decline in pre-market trading.

Earnings & Revenue Highlights

In the third quarter, Domino’s reported adjusted earnings per share (EPS) of $4.18, exceeding the Zacks Consensus Estimate of $3.29. This marked a significant 49.8% increase compared to the $2.79 reported in the same quarter of the previous year.

However, revenues for the quarter reached $1,027.4 million, falling short of the consensus estimate of $1,052 million, and reflecting a 3.9% decline from the previous year. This decrease can be attributed to reduced revenues from the supply chain and U.S. company-owned stores. The refranchising of 114 U.S. company-owned stores in Arizona and Utah further contributed to the revenue decline. Supply-chain revenues were impacted by a reduction in the company’s market basket pricing to stores and a decrease in order volumes.

Comps & Sales

Global retail sales, including both franchise and company-owned units, rose by 5.3% year-over-year in the fiscal third quarter. This increase was primarily driven by higher international store sales, which grew by 9.8% compared to the previous year. U.S. store sales showed a modest growth of 0.9% year-over-year. Excluding foreign currency effects, global retail sales increased by 5.1% from the previous year.

On the other hand, comparable sales (comps) at Domino’s domestic stores, encompassing both company-owned and franchise stores, decreased by 0.6% from the previous year. The company’s projections had anticipated a 0.8% decline year-over-year.

Within domestic company-owned stores, Domino’s comps grew by 2.9% year-over-year, a notable improvement compared to a 1.9% decline in the same period of the previous year. However, the company’s estimate for this metric was 4%.

Domestic franchise store comps fell by 0.7% year-over-year, in contrast to a 2.2% rise during the prior year quarter. Our model had suggested a 1% decline.

Comps at international stores, when foreign currency translation is excluded, saw an improvement of 3.3% year-over-year, compared to a 1.8% decline in the same quarter of the previous year.

Margins & Financial Position

Domino’s experienced a 310-basis-point expansion in its gross margin during the fiscal third quarter, reaching 38.8%. Our estimate had projected this figure to be 39.4%.

The net income margin also demonstrated strong performance, with a 500-basis-point increase to 14.4% from the prior year. Our estimate had predicted this margin to be 11%.

As of September 10, 2023, Domino’s held cash and cash equivalents totaling $80.8 million, showing an increase from $60.4 million at the start of the year. The company also had $277.8 million in available borrowing capacity under its 2021 and 2022 variable funding notes, net of letters of credit issued, totaling $42.2 million.

Long-term debt (excluding the current portion) at the end of the fiscal third quarter was $4,931.9 million, a slight decrease from the $4,944.7 million recorded in the previous quarter. Inventory amounted to $69.7 million, compared to $65.6 million at the end of the second quarter of fiscal 2023.

The capital expenditure for the quarter amounted to $59.3 million, an increase from the $38 million in the prior quarter.

In the third quarter, Domino’s repurchased and retired 229,860 shares at a cost of $90 million. As of September 10, 2023, DPZ reported having $199.5 million available under its repurchase program.

The company’s management announced a cash dividend of $1.21 per share, to be paid out on December 29, 2023, for shareholders of record as of December 15, 2023.

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