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Financing

Domino’s sales have surged in recent weeks

Results changed dramatically as consumers adjusted their behavior, but international sales have been weaker.
Photograph courtesy of Domino's Pizza

Domino’s same-store sales hit overdrive in recent weeks as consumers settled into new patterns, emptied their cupboards of food, downloaded the company’s smartphone app and began receiving their stimulus checks.

Same-store sales rose 7.1% in the U.S. over the past four weeks, the company said Thursday, a significant improvement over the prior weeks, when sales slowed after the coronavirus shutdown took hold. Same-store sales rose 1.6% in the first quarter ended March 22.

Yet sales growth was uneven throughout the day. Sales were down “dramatically” in late-night as colleges have closed and sports events have been put on hold. Sales were also more “pressured” on weekends.

Sales on weekdays during lunch and dinner were up strongly, however, as families stayed home.

“There was a lot of pantry loading as the pandemic came to the U.S.,” CEO Ritch Allison said on the company’s first quarter earnings call  Thursday. “People start getting tired of cooking. Also, I think we—and I suspect a lot of the industry—are seeing some near-term impact from some of the stimulus dollars.”

Executives stressed that “it’s really early” and difficult to know how much the shift in patterns is permanent. But, CFO Jeff Lawrence said, “One of the things about the COVID-19 pandemic: It’s upending a lot of the patterns we have historically seen in our business and across the restaurant industry.”

Another shift was toward more digital orders. Toward the end of the fourth quarter, executives said, about 70% of sales came through the company’s app and website. In recent weeks, 75% of sales were digital, and reached 80% at points, Allison said.

“Customers are coming into the digital channel as we go into that contactless space,” Allison said. Domino’s now has 100% contactless delivery.

Executives also said order size has increased substantially, even as event-driven pizza orders have vanished. They speculated that perhaps some consumers are making larger orders so they have leftovers for the next day.

Despite the surge in sales, Domino’s warned of a $30 million “headwind” in the current quarter from various investments the company is making, but also weaknesses in international markets.

While U.S. sales have surged, international sales have been weak. Same-store sales outside the U.S. were down 3.2% in the first three weeks of the second quarter, Domino’s said.

That puts Domino’s on a trajectory it hasn’t been on in decades: one in which same-store sales could decline internationally. The Ann Arbor, Mich.-based pizza chain has enjoyed a remarkable string of 105 straight quarters of same-store sales growth. It hasn’t had a decline in international same-store sales since Bill Clinton’s first term as president.

In addition to the weak same-store sales, many of the company’s restaurants in international markets remain closed. As of April 21, 1,750 international stores were closed, and total retail sales growth was down 19%.

The company is estimating that the decline will cost it $5 million in revenues this quarter from lower royalties.

Performance internationally varies greatly by market, executives said. “Some markets are seeing major declines in same-store sales,” Allison said, as store hours and service levels are restricted. “Others have seen a strong recovery and steady gain in same-store sales.”

Domino’s also expects to spend $15 million on bonuses to front-line workers at corporate stores, increased giving and investments in supplies, such as face masks and gloves for workers at corporate and franchise locations.

Executives said one thing they won’t do is cut pay for employees.

“This is not the time to lower the rate we pay our valuable team members,” Lawrence said. “Look, I’m a finance guy. I think about efficiency. Right now, it’s not about that. It’s about hiring more people, paying them more and giving them jobs. We’ll leave it for another day on getting efficient on the labor rate.”

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