Categories Earnings, Retail

Hoping to get a better slice of Domino’s this quarter

The last time Domino’s Pizza (DPZ) reported earnings, it was kind of a mixed bag. While the company managed to beat the earnings consensus, investors were left disappointed by slower growth in both the US and international markets.

The Michigan-based pizza giant gradually losing its dominance in the market has been an area of concern for investors for some time. The company’s share of the pizza delivery market has slowly been ticking down at a regular pace from 29% in 2015 to 27% in 2017. However, thanks to a steady carry-out business, the company has been able to keep up its comparable sales, and in turn its profits.

In 2017, Domino’s reported a 30% jump in net income on an 8% increase in sales, as comparable sales came at a modest 8%. During the same period, rivals Pizza Hut (YUM) and Papa John’s (PZZA) reported much lower comparable sales of 2% and 0% respectively.

Domino's Pizza van outside shop
Image Courtesy: Jaggery

Domino’s Pizza is scheduled to post its next quarterly update before market hours on Thursday when Wall Street expects the pizza giant to post around $1.77 per share in earnings. With the cost of ingredients, including cheese, expected to increase this quarter, the company aims to maintain its growth targets by improving its store base to key locations as well as new ones.  The company has projected a 6-8% rise in store base this year, which is quite achievable given the fact that it picks small and efficient plots for store launches.

In 2017, Domino’s reported a 30% jump in net income on an 8% increase in sales, as comparable sales came at a modest 8%. During the same period, rivals Pizza Hut (YUM) and Papa John’s (PZZA) reported much lower comparable sales of 2% and 0% respectively.

The at-home economy model followed by Domino’s is most likely to improve in the coming years, as smartphones make going anywhere outside your front door redundant. Just like Amazon (AMZN). However, increased competition in the delivery services market from numerous newly-cropped applications including UberEats, GrubHub (GRUB) andPostmatesis apparently making customer retention a bit more challenging than earlier for Domino’s.

That said, it may be argued that Domino’s is still the market leader in the pizza delivery market, despite the slip in market share. Investors will be keenly watching the company’s sales growth, store base and market share information this quarter. Meanwhile, a dip in the comparable sales, if it happens, will not be taken lightly by investors.

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