Domino's Pizza Inc. (DPZ) posted strong third-quarter 2014 results with both earnings and revenues beating the Zacks Consensus Estimate.
Earnings of 63 cents per share comfortably beat the Zacks Consensus Estimate of 61 cents by 3.3% and rose 23.5% year over year. The upside was driven by strong revenues and lower share count. Share price of this pizza delivery company rose 11.3% in response to the better-than-expected results.
Quarterly revenues increased 10.5% year over year to $446.6 million and surpassed the Zacks Consensus Estimate of $436.0 million by 2.4%. Revenues were driven by strong comps — both in domestic and international markets. Higher supply chain revenues due to higher commodity prices and increased volumes also aided the top line.
Inside the Headline Numbers
Domino's Pizza’s domestic and international comps continued their positive momentum during the quarter.
The company’s domestic stores (including company-owned and franchised) comps were up 7.7% with company-owned and franchise comps rising 6.1% and 7.8%, respectively. The company’s domestic comps were better than the year-ago as well as the second-quarter comps of 5.4%.
International store comps recorded 7.1% growth (excluding foreign currency translation). Although lower than prior-quarter figure of 7.7%, International comps were better than the year-ago level of 5%.
Excluding the impact of foreign currency translation, global retail sales (total sales of franchise and company-owned units included) were up 12.4% year over year. However, including foreign currency translation impact, sales were up 13.8%. Increased order count and higher comps drove global retail sales during the quarter.
Domino’s Pizza’s operating margin remained flat year over year at 29.9% in the reported quarter due to a favorable change in the revenue mix, partly offset by higher food and commodity costs. In the quarter, the average cheese block price increased 18.6% year over year to $2.04 per pound.
Cheese and other commodity prices have been continuously rising in the U.S. Moreover, the U.S. Department of Agriculture expects the ongoing drought in California to continue to have a lasting effect on fruit, vegetable, dairy and egg prices. Domino's’ strong performance is commendable in the current scenario when other restaurant chains like Red Robin Gourmet Burgers Inc. (RRGB), Buffalo Wild Wings Inc. (BWLD) and Dunkin' Brands Group, Inc. (DNKN) are being adversely impacted by the commodity price increase.
Store Count
During the quarter, Domino’s Pizza unveiled 23 domestic restaurants while closing 9, thus bringing the domestic store count to 5,016. The company’s international store count came in at 6,265 at quarter-end with the opening of 160 units and closure of 14.
Share Repurchase
During the third quarter of 2014, the company repurchased 0.24 million shares of its common stock for approximately $17.4 million. As of Oct 7, 2014, the company had $132.7 million remaining under its $200.0 million share repurchase authorization program.
Guidance for 2014
For 2014, commodity costs are expected to increase 4% to 6% in 2014 versus 2013 levels, primarily due to the increase in cheese and pork prices.
Our Take
Domino’s Pizza has been posting impressive results for the past few quarters on the back of higher traffic at its restaurants and unit growth. The company’s international operations promise significant growth. We believe the company’s digital ordering system and its foray into the Pan Pizza and Specialty Chicken categories will help it to sustain the top-line momentum.
Domino’s Pizza currently carries a Zacks Rank #2 (Buy).
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