Despite the prevailing challenging restaurant environment, Domino's Pizza, Inc. DPZ has managed to hold its own. The company’s revenues and earnings have surpassed the Zacks Consensus Estimate in each of the trailing five quarters.
Moreover, the company has been reporting positive same-store-sales domestically and internationally for the past 25 and 94 consecutive quarters, respectively. Going forward, the company’s initiatives on the digital front, focus on re-imaging and other sales boosting strategies are expected to help sustain the excellent comps trend and drive growth.
Growth Drivers
Domino’s continues to boost sales through regular limited time offers. Also, the company’s remodeling initiative is anticipated to continue enhancing its potential as a brand and augment guest experience. The recent launch of bread twists is also expected to favorably impact the company’s performance third-quarter 2017 onwards.
Meanwhile, Domino's world-class digital ordering platforms like Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and ordering via a Pizza emoji on text should further continue to increase digital orders. Notably, the extended ways to order a pizza has kept it in the forefront of digital ordering and customer convenience.
The company is also working toward reducing its ownership of restaurants and is focusing more on re-franchising as it minimizes capital requirements and facilitates earnings per share growth as well as ROE expansion.Markedly, Domino's recently completed recapitalization deal also makes cash available for potential special dividend and share repurchases, depending upon the board’s approval.
Apart from these initiatives, Domino’s commitment to expand presence in the high-growth international market to boost its business bode well. The company’s international growth continues to be strong and diversified across markets, driven by exceptional unit level economics.
Potential Headwinds
Though the company’s sales-building efforts are impressive and should offer long-term advantages, costs related to the same could continue hurting margins in the near term. Also, higher labor costs might pressurize the margins.
Furthermore, given its sizeable international operations, Domino’s is exposed to risks of fluctuations in currency exchange rates that could negatively impact the results of the company.
Also, a challenging industry backdrop remains a potent cause of concern for some restaurant chains like The Cheesecake Factory Inc. CAKE, BJ’s Restaurants, Inc. BJRI, Jack in the Box, Inc. JACK and others. Though pizza giants such as Domino’s have been comparatively faring well so far, the continued slowdown in the industry at large might hamper their prospects, going forward.
Bottom Line
Regardless of certain headwinds, Domino’s operational advantages, given its market share and scale, along with insistent focus on innovation and execution of growth strategy are anticipated to aid the stock in maintaining its solid performance.
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