Continue to Site

    Domino’s Disappoints, But Doesn’t Lose its Drive

  • Despite a lackluster Q2, Domino's doubles down on digital and expansion.

    Domino’s
    Domino's may be down but it's far from defeated.

    Domino’s took a tumble during the second quarter of 2018 with revenues and same-store sales falling short of Wall Street expectations.

    The No. 1 pizza brand in America released its earnings report Wednesday evening, causing stocks to backslide 3 percent from $284 at the closing bell to $275 at the open Thursday. It gained back a little ground following the investor call Thursday and closed at $276.50.

    Investors had estimated revenues to reach $787 million, which would represent a 25 percent boost from the same quarter in the previous year. Instead, Domino’s raised revenues 24 percent to $779.4 million with earnings per share at $1.87.

    The company eked out a 6.9 percent boost in domestic same-store sales, just below Wall Street’s forecast of 7 percent, per Consensus Metrix. The gap was even more pronounced on the international side, which posted 4 percent same-store sales growth compared to predictions of 5.3 percent.

    The earnings call reviewed the final quarter under the leadership of CEO J. Patrick Doyle, who is largely credited with the company’s turnaround success. Even after a somewhat disappointing quarter, Domino’s stocks were trading at 23 times greater than $11.90, which was the going rate when Doyle began in March 2010. His successor, Ritch Allison, took the reigns July 1, and needless to say, he has some big shoes to fill.

    “It's a little odd for all of us on quarterly earnings day to look around the room and not see [Doyle], but his legacy and contribution toward this wonderful organization will not be soon forgotten,” Allison said at the start. He joined the company in 2011 and most recently served as president of Domino’s International. “For me personally, I am grateful for his influence and mentorship and my progression toward the honor of succeeding him,” he added.

    Domino’s continues to be the digital leader of the pizza category—if not fast food overall—and its Hotspots delivery program was a popular topic of discussion for investors on the call. In April, the company activated Hotpots across the U.S., which allowed customers to receive delivery orders from nonresidential locations such as sports fields, parks, and landmarks. The program launched with 150,000 Hotspots and has already grown to more than 200,000. Domino’s has even created a unique URL (dominos.com/suggestahotspot) to crowd-source and increase its Hotspots. That same month the chain announced a pizza-themed mobile game to reward loyal fans with points toward free pizza, plus a voice-recognition function to receive and process phone orders.

    These new programs are innovative—if not necessary—maneuvers to stem the rise in delivery beyond the pizza category. Thanks to third-party services, all types of restaurants and cuisines are eating into delivery, which was once a realm nearly exclusive to pizza.

    “We continue to demonstrate our ability to invest and innovate in a flexible manner to maintain our unquestioned digital leadership position within this category. Getting a lead is one thing, keeping it is another. And that demands an aggressive and nimble mindset around investments toward this area,” Allison said.

    Although the program was launched in the spring, Allison clarified that Hotspots was a third-quarter project, hinting that industry hawks can expect a more aggressive push from Domino’s in the coming months.

    The company’s system grew by 43 units in the U.S. with 44 store openings and only one closure. Allison also spoke of an ambitious plan to grow its domestic presence by nearly 40 percent.

    “We see an opportunity for an 8,000-store Domino's business potential within the next 10 years,” Allison said. “We've had success gaining share. And while a lot of that share has come from the locals and the regionals, as we look forward, we see an opportunity to take share broadly across the industry and that confidence leads to our expectation that we've got strong unit growth potential in the market.”

    Currently, Domino’s locations number 5,650, meaning the chain would have to open 2,350 new locations over the next decade, or roughly 60 net stores each quarter.

    Read More