Categories Analysis, Consumer

Domino’s Pizza (DPZ) thrives on high demand for home delivery in COVID era

In the domestic market, digital sales accounted for about 75% of total revenue in the second quarter

Most restaurant operators in the US are looking at an uncertain future, though the curbs on people’s movements have been lifted in many areas. But it is a different story at fast-food chains like Domino’s Pizza, Inc. (NYSE: DPZ). The company has witnessed a spike in sales since the onset of the pandemic, mainly due to the shelter-in-place orders that brought a major shift in people’s eating-out habits.

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After crossing the $400-mark for the first time, Domino’s stock will likely remain at the current levels in the coming weeks. As of now, the stock is a safe bet and most analysts believe it has good investment potential. The latest data shows the positive momentum is limited to the domestic market as the performance in overseas markets was affected by store closures and unfavorable exchange rates. 

Comparable Sales Surge  

A 16% comparable sales growth in the domestic market pushed up second-quarter revenues to $108 million, which also benefitted from a marked improvement in the supply chain as the company continued to add more stores. Meanwhile, the growth in global retail sales was partially offset by store closures. International same-store sales have grown consistently for more than a decade now. The key second-quarter numbers exceeded the market’s projection, continuing the recent trend.

Domino's Pizza Q2 2020 earnings alphagraph

In the U.S, the demand for pizza delivery surged to a record high during the shutdown as households found it more convenient to have their favorite fast-food brands, like Domino’s and Papa John’s (PZZA), home-delivered than eating out in restaurants. While it is an encouraging trend as far as the companies are concerned, the momentum might not be sustained once normalcy returns to the markets.

Tapping the Opportunity

Determined to make hay while the sun shines, Domino’s has made several digital enhancements and hired more employees in the past few months, while also innovating the menu. There will be continued efforts to leverage people’s desire to have their food served through contactless means and to convert new customers into active members by extending the loyalty program.

Recently, the company came out with customer-friendly options like car-side pickup, a delivery service that is considered to be safer and more convenient. It also launched a pizza registry for marriage events postponed due to the pandemic. The company opened 125 new stores in the second quarter, nearly three times more the number of outlets it closed during the period. In the U.S, digital channels account for nearly 75% of the sales.

CFO Retires

Domino’s will soon be having a new finance head, with Jeffrey Lawrence deciding to retire as executive vice president and the chief financial officer later this year, ending his association with the company spanning about two decades. Lawrence will be serving as an advisor to the CEO until his successor is identified.

“During the pandemic, we continued to attract new customers for our brand while focusing on safety, convenience, and value. We also note that existing customers, many of whom are our best-in-class loyalty program, continue to order in larger order sizes… The accelerated levels of demand we saw during the middle of the quarter remained elevated through the end of the quarter with no discernible drop-off,” said Lawrence in his opening statement at the earnings conference call.

Looking forward to listening to management/analysts’ comments on Q2 results? Stay tuned here for Domino’s Q2 2020 earnings call transcript  

The virus-related selloff came at a time when Domino’s stock was at an all-time high, dragging it down to the pre-peak levels in early March. However, the slump was short-lived and the stock bounced back pretty quickly as the COVID-linked sales growth boosted investor sentiment. The shares hit a record high this week, crossing the $400-mark for the first time.

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