We remain Neutral on restaurant company
Domino's Pizza Inc.
). While we have a favorable view of the company's results in the
second quarter of 2013, strong brand positioning in the U.S.
pizza delivery segment, a strong overseas presence and traction
in digital ordering, a sluggish macro-environment and higher
prices for cheese keep us on the sidelines at the current level.
Why the Reiteration?
On Jul 23, 2013, Domino's Pizza's second-quarter 2013 adjusted
earnings of 57 cents per share beat the Zacks Consensus Estimate
by 1.8% and the year-ago quarter's earnings by 21.3%. Earnings in
the quarter received a boost from the higher top line.
Revenues grew 10.1% year over year mainly bolstered by higher
same-store sales, improved supply-chain and royalty revenues as
well as unit expansion. Higher traffic, increasing order count
and better menu offerings increased comps during the quarter.
Revenues also came ahead of the Zacks Consensus Estimate by 1.7%.
Domino's is the market leader in the pizza delivery segment in
the U.S. and ranks second in the carry-out segment.
Internationally, it is the second largest pizza delivery service
based on the number of units and sales.
Domino's has an extremely strong exposure in the international
market. Apart from this, investments in technology-driven
initiatives like digital ordering have played a major role in
driving its sales over the last three years.
However, despite these enthusiastic facts, some concerns prevent
us from being too optimistic on the stock. Both a sluggish
macro-environment and higher cheese prices can be a drag on the
winning momentum of Domino's. In fact, the company's operating
margin in the second quarter contracted 10 basis points owing to
the rise in food costs, which offset the higher volumes.
Domino's Pizza currently carries a Zacks Rank #2 (Buy). Other
players in the restaurant industry, which look attractive at
current levels, include
The Wendy's Co.
AFC Enterprises Inc.
Burger King Worldwide Inc.
), all carrying a Zacks Rank #2 (Buy).
AFC ENTERPRISES (AFCE): Free Stock Analysis
BURGER KING WWD (BKW): Free Stock Analysis
DOMINOS PIZZA (DPZ): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
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