Domino's (DPZ) Stock Gain 15% in 3 Months: More Room to Run?
Domino's Pizza, Inc. DPZ continues to gain from solid digital ordering system, robust international expansion and other sales initiatives. In the past six months, the company’s shares have gained 15.2%, against the industry’s decline of 3.5%. However, the coronavirus pandemic, high costs and debt remain a concern. Let’s delve deeper.
Catalysts Driving Growth
Domino’s is investing heavily in technology-driven initiatives like digital ordering to boost sales. The company has partnered with Nuro — a robotics company offering autonomous delivery services. During the first-quarter 2020 conference call, the company announced that it moved to 100% contactless delivery model across the United Sates. Meanwhile, Domino’s 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.
During second-quarter 2020, the company initiated car-side delivery, enabling convenient and contact-free carryout experience for customers. Moreover, other digital enhancements in terms of ordering, selecting service methods, paying and tipping were implemented to enhance consumer experience.
Since Domino’s generates a chunk of its revenues from outside the United States, the company 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, courtesy of exceptional unit level economics. Notably, second-quarter 2020 marked the 106th consecutive quarter of positive same-store sales in its international business. Improvement in comps can be attributed to ticket growth. The company inaugurated 84 (39 net U.S. stores and 45 net new international stores) global net store openings during second-quarter 2020.
Moreover, the company reported robust domestic sales despite the coronavirus pandemic. Domestically, second-quarter 2020 marked the 37th consecutive quarter of positive same-store-sales. During the quarter, U.S comps benefited from increase in both ticket and order growth. Domino’s strong brand positioning through its versatile promotions portray it as a brand producing fresh high-quality pizzas, which are delivered on time.
In view of the unprecedented impact of coronavirus on its business and the Retail - Restaurants industry, the company has withdrawn fiscal 2020 guidance. Owing to the pandemic, markets in France, Spain, New Zealand, Panama and several others were completely closed, while markets in India and Saudi Arabia were temporarily shut down. Resultantly fewer than 600 stores were fully closed as on Jul 8, 2020. Moreover, unit developments slowed down owing to the pandemic.
A strong balance sheet will help the company tide over the ongoing crisis. At the end of Jun 14, 2020, the company’s long-term debt stood at $4.1 billion, almost flat sequentially. As a result, the company’s debt-to-capitalization of 401.9% compared with 478.9% at the end of Dec 29, 2019. Moreover, the company ended second-quarter fiscal 2020 with cash and cash equivalent of $248 million, which may not be enough to manage the high debt level.
Zacks Rank & Key Picks
Domino’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Papa John's International, Inc. PZZA, Chuy's Holdings, Inc. CHUY and El Pollo Loco Holdings, Inc. LOCO. Papa John's and Chuy's Holdings sport a Zacks Rank #1, while El Pollo Loco carries a Zacks Rank #2 (Buy).
Papa John's has a three-five year earnings per share growth rate of 8%.
Chuy's Holdings’ 2021 earnings are expected to improve 180%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
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