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Domino's (DPZ) Beats Q2 Earnings as Domestic Comps Rise - Analyst Blog

Despite currency headwinds, Domino's Pizza Inc.DPZ posted better than expected second-quarter 2015 results. Share price fell 2.5%, possibly due to the concerns regarding currency headwinds, which would impact comps in the international market.

Earnings and Revenue Discussion

Adjusted earnings of 81 cents per share beat the Zacks Consensus Estimate of 80 cents by 1.25% and the year-ago quarter figure of 67 cents by 20.9%. The upside was driven by higher top line and margin expansion.

Domino's Pizza Inc. - Earnings Surprise | FindTheBest

Quarterly revenues increased 8.5% year over year to $488.6 million and surpassed the Zacks Consensus Estimate of $488 million by 0.2%. Increased domestic store revenues (franchised and company-owned units included), strong international sales and higher supply-chain revenues aided the top line.

Inside the Headline Numbers

During the quarter, Domino's Pizza's domestic stores (including company-owned and franchise stores) comps were up 12.8% with company-owned and franchise comps rising 12.5% and 12.8%, respectively. The company's domestic comps growth was substantially higher than the prior-year quarter's comps of 5.4%.

Comps in the international stores grew 6.7% (foreign currency translation excluded). However, the international comps were lower than the prior-year quarter comps growth of 7.7%.

The company reported the 17th consecutive quarter of positive same-store-sales domestically and 86th quarter of positive comps growth in the international segment.

Excluding the impact of foreign currency translation, global retail sales (including total sales of franchise and company-owned units) were up 14.9% year over year. However, including the foreign currency translation impact, sales were up 7.5%. Increased order count and higher comps drove the global retail sales during the quarter.

The company's operating margin expanded 130 basis points to 31.2% in the quarter, gaining from improved company-owned store operating margins which benefited from lower food costs, food cost leverage and fixed cost leverage. In the quarter, cheese costs declined 27.7% year over year to $1.59 per pound. As a result, the company's overall market basket decreased 8.9% from the prior-year quarter level.

Store Count

During the quarter, Domino's Pizza unveiled 22 restaurants while closing 8, thus bringing the domestic store count to 5,098. The company's international store count came in at 6,827 at quarter-end with 178 unit openings and 6 closures.

Share Repurchase & Dividend

During the quarter, the restaurateur repurchased 0.6 million shares worth $68.1 million. On Jul 15, 2015, the board of directors increased the company's share repurchase authorization, bringing the total to $200.0 million.

During the quarter, Domino's declared a dividend of 31 cents per share to be paid on Sep 30, 2015 to shareholders of record as on Sep 15.

Outlook

Domino's expects cheese and chicken prices to increase on an average in the second half of 2015 than in the first. However, commodity prices are expected to be down 4% to 6% in 2015 from the 2014 levels. The company maintained its G&A expenses projection in the range of $200 million to $275 million for 2015.

Management continues to estimate that foreign currency could have a $14 million to $20 million negative impact on pre-tax earnings in 2015.

Our Take

Domino's Pizza has been posting impressive results for the past few quarters on the back of higher traffic and unit growth. We believe that the company has compelling growth drivers like digital ordering and menu innovation, which will sustain the revenue momentum, moving ahead. Store level economics of Domino's Pizza is relatively strong. This Zacks Rank #2 (Buy) company's robust international operations also promise immense growth prospect.

Other Stocks to Consider

Other stocks that are currently performing well in the restaurant industry are Red Robin Gourmet Burgers Inc. RRGB , Dave & Buster's Entertainment, Inc. PLAY and Zoe's Kitchen, Inc. ZOES . All these stocks sport a Zacks Rank #1 (Strong Buy).

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ZOES KITCHEN (ZOES): Free Stock Analysis Report

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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.


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

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