Financing

Domino's franchisee profits are recovering this year

Price increases and slowing inflation have combined to improve cash flow among the pizza chain’s operators this year.
Domino's profits
Per-store EBITDA at Domino's is expected to increase 8% this year. | Photo: Shutterstock.

Sales may be slow to recover at Domino’s, but that isn’t the case when it comes to franchisee cash flow.

That, at least, is according to company executives. Speaking to investors at the Piper Sandler Growth Frontiers Conference on Wednesday, they said that typical store EBITDA, or earnings before interest, taxes, depreciation and amortization, is expected to be $150,000 this year.

That would be up 8% compared with the year before.

And executives are hopeful that the company’s new deal with Uber Eats will only improve that cash flow going forward.

Domino’s recently said it would start offering its pizzas on the third-party delivery platform’s marketplace, though it will do the deliveries itself. Sandeep Reddy, Domino’s CFO, said that the company will not offer its deals on that marketplace and also expects to charge customers a premium.

“These are expected to be accretive, frankly, to margins, because they’re not going to be inclusive of the national promotions, which are in our own channels,” Reddy said, according to a transcript on the financial services site Sentieo. “So from a profitability standpoint, I think it’s going to be really accretive to profit growth in ’24 and beyond once we are fully live on the aggregator platform.”

Domino’s sales thrived for years and then surged during the pandemic once consumers, sitting at home in quarantine, shifted much of their spending to delivery. But as delivery sales fell in late 2021 because of a driver shortage and then in 2022 because of inflation, operator profits took a hit.

Per-store EBITDA, for instance, hit $170,000 in 2020 and 2021. But it then declined to $139,000 in 2022.

Domino’s is one of the few franchises to publicly disclose franchisee cash flow, which it has done for years. Franchisee profitability is vital in a franchise system because operators that generate strong profits are more likely to follow through on remodel plans and will be more likely to develop new locations.

The pizza chain still believes that building new locations will be key in many of its markets going forward, because new locations can generate more carryout growth as customers are less likely to travel far to pick up their own pizza. And executives believe it speeds delivery times, which will help sales over time.

As such, improving franchisee EBITDA, executives say, will help with the chain’s development plans. Reddy believes the improving cashflow will spur more development.

“We were expecting to start seeing an inflection in the fourth quarter and moving into 2024,” Reddy said. “This just creates even more incentive for development to accelerate beyond that.” Reddy said he is “super bullish” on the company’s plans.

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