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Domino’s U.S. same-store sales rise 6.3%

But the stock fell as investors worried about competition from delivery services.
Photograph courtesy of Domino's

Domino’s same-store sales rose 6.3% in the quarter ended Sept. 9, the company said on Tuesday, making it the 30th straight quarter of positive growth in the key industry metric.

But that didn’t stop investors from bidding down the price of the company’s stock, which fell 5% in morning trading.

The company missed on some Wall Street revenue targets. And there was a sense among some investors that Domino’s didn’t do enough to take advantage of weakened competitors—notably Papa John’s, where same-store sales have fallen in the 10% range after controversy surrounding founder John Schnatter.

Domino’s stock, which peaked at more than $300 a share in August, is down 16% since then.

 “Sales fail to capitalize on woes at Papa John’s,” Maxim Group analyst Stephen Anderson wrote in a note Tuesday.

Yet speaking on the company’s third-quarter earnings call Tuesday morning, executives said that the market isn’t so simple, and they dismissed the potential impact of Papa John’s sales decline.

“Pizza is a very fragmented category,” CEO Ritch Allison said. “If we have a competitor donating share, it doesn’t simply fall into our pocket. We’ve got to earn it. And sometimes it doesn’t fall into the pizza category at all.”

While he didn’t mention Papa John’s by name, he noted “that competitor has a relatively small share in the category. The impact on the overall landscape is not as heavy as some would assume.”

Domino’s sales growth has been considerable. The company said that it has closed just seven locations in the U.S. this year thus far and has opened 140. The store closure count is remarkably small for a chain with more than 5,700 domestic restaurants.

And some of the chain’s stores are packed. “A lot of our stores in the U.S. are really busy,” Allison said. “We’ve got stores on a Friday or Saturday night where we have a tough time putting an incremental pizza in the oven they’re so busy.”

The sales strength is giving Domino’s an advantage in the competition for drivers. Low unemployment and mounting competition for employees from ride-sharing services and delivery companies have made hiring more challenging.

But Allison said that Domino’s business strength means its drivers can make more with the company than they can at other businesses.

Allison, who took over this summer for longtime CEO Patrick Doyle, said that the company’s marketing strategies have helped drive sales. The company’s pothole-filling campaign, for instance, as well as its new Hotspots program delivering pizza to parks, stadiums and other places, have helped generate attention.

“That’s more effective than the LTO, product-of-the-month approach,” Allison said. “It differentiates us not only in the pizza category but in all of quick service. It helps us generate healthy traffic and order counts.”

Allison said the company has more “consistent” value that drives sales over time rather than just over a few-month period. He noted that the company has had its $5.99 Mix and Match deal for about nine years and a $7.99 offer for carryout for multiple years.

“The key with value is consistency,” he said. “It’s really hard to offer those price points in the market if you’re not driving volume growth over time. You can’t do it for a quarter and then jump back out of it again.”

Revenues at the Ann Arbor, Mich.-based company rose 22.1% to $142.3 million in the period. Net income rose 49.2% to $27.7 million, while diluted earnings per share was $1.95, up 65.3%.

International same-store sales rose 3.3%—they have now risen for 99 straight quarters, and the company now has more than 9,000 restaurants outside of the U.S.

Yet Domino’s showed some weakness, including a same-store sales decline in Europe. “We have work to do in a few key markets,” Allison said.

He said the company will use the “proven playbook” it has used in the U.S. business, combining customer insight, alignment with franchisees, technology and innovation and a focus on value and transaction growth.

“We are a work-in-progress brand,” Allison said. “We will never rest until we achieve the dominant, No. 1 spot in all our markets.”

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