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Is Domino's (DPZ) Poised to Ride on the Growth Trajectory?


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Robust domestic and international comps growth, solid brand positioning, global expansion, digitalization, and focus on re-imaging bode well for Domino's Pizza, Inc. DPZ . In the past six months, the company's shares have gained 10.7% compared with the industry 's 12.5% growth. However, the lower-than-expected top line over the trailing four quarters has been a major concern. Let's delve deeper.

Growth Catalysts

Since Domino's generates a chunk of its revenues from outside the United States, it remains committed to accelerating presence in high-growth international markets to boost business. Meanwhile, the company's international growth continues to be strong and diversified across markets, driven by exceptional unit level economics. Notably, the first quarter of 2019 marked the 101st consecutive quarter of positive same-store sales in its international business. Domino's inaugurated 829 net new stores in international markets in 2017 and 1,058 in 2018. In first-quarter 2019, the company opened 200 net new stores.

Many international franchisees continue generating robust returns. Apart from the established markets such as Canada, Japan, Italy, the U.K., Ireland, Switzerland and South Korea, the emerging markets like Brazil, China, Indonesia and Turkey have been witnessing solid growth. Australia, Russia, New Zealand and Saudi Arabia are also gaining momentum. Additionally, the company completed the conversion of Pizza Sprint stores to Domino's stores in South Africa and Germany. This should further drive its revenues.  Meanwhile, India remains a market of immense growth potential. In fact, Domino's India operations are one of the fastest growing operations in its global system.

The Zacks Rank #3 (Hold) company is investing heavily in technology-driven initiatives like digital ordering to boost sales. In 2017, its AnyWare suite of ordering platforms that allow customers to order from various ordering apps and platforms such as Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and via a Pizza emoji on text, grew significantly. Meanwhile, its digital loyalty program - Piece of the Pie Rewards - continues to contribute significantly to traffic gains. The extended ways to order a pizza has thus kept Domino's at the forefront of digital ordering and customer convenience.

Concerns

Domino's top line missed the Zacks Consensus Estimate in the trailing four quarters. In first-quarter 2019, its revenues improved 6.4% year over year to $836 million but missed the consensus mark of $844 million.

Further, Domino's has considerable international presence and is therefore highly vulnerable to fluctuations in exchange rates. Strengthening of the dollar against certain currencies, including the British pound, is likely to impact the company's results. In 2017 and 2018, foreign currency had negative impacts of $1 million and $1.1 million on royalty revenues, respectively. The company expects foreign currency impact of $5-$10 million on royalty revenues in 2019.

Key Picks

Some better-ranked stocks in the same space are The Habit Restaurants, Inc. HABT , BJ's Restaurants, Inc. BJRI and Chipotle Mexican Grill, Inc. CMG . While Habit Restaurants currently sports a Zacks Rank #1 (Strong Buy), BJ's Restaurants and Chipotle Mexican Grill carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Habit Restaurants, BJ's Restaurants and Chipotle Mexican Grill's long-term earnings are likely to witness growth of 20%, 14.5% and 19.2%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Business , Stocks
Referenced Symbols: BJRI , CMG , HABT , DPZ



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