Financing

Domino's sees better times ahead

The pizza chain, which saw another decline in same-store sales, expects sales to improve later this year and into 2024. But profitability is already better.
Domino's earnings
Domino's has a number of initiatives coming designed to get more people to order pizza. | Photo courtesy of Domino's.

Domino’s U.S. same-store sales declined 0.6% in the third quarter, the company said on Thursday, as its typically strong delivery business continued to lose customers. For the past two-plus years, the Ann Arbor, Mich.-based chain has lost a lot of the customers it gained during Americans’ quarantine-related pizza binge.

Yet the pizza chain believes things are about to get better, thanks to a handful of initiatives designed to get customers to order more often. Domino’s said it expects sales to be positive in the fourth quarter and into 2024.

Perhaps more important, profitability for its franchisees is improving. Domino’s on Thursday said it now expects average cash flow per restaurant to be $155,000, after having previously said it expected the number to be $150,000.

“The sales improvements we expect to realize in Q4 and even more significantly in 2024 will flow through a more efficient model for Domino’s and our investors,” CEO Russell Weiner told investors on Thursday.

Domino’s same-store sales have been weak coming out of the pandemic, largely due to delivery challenges. Driver shortages, inflation, competition from third-party delivery and a shift back to in-person dining all conspired to hurt the company’s traffic. While carryout demand soared, it wasn’t quite enough to make up for the lost delivery services.

The company has taken some aggressive steps lately to change that. It recently inked a deal with Uber Eats to join the third-party delivery service’s marketplace, the first time Domino’s agreed to join one of the services, which it has called its biggest competitor.

Domino’s has joined the Uber Eats marketplace in Las Vegas and plans to do so in Houston, Miami, Detroit and Seattle in the next few weeks. “We’re all really watching closely in these pilot markets,” Weiner said, noting that the company is not marketing the services in these locations. “This is really more to test out what I call the handshake between two large platforms.”

“We just need to make sure the technology works,” he added. The company has argued that joining those platforms could generate $1 billion in incremental sales per year.

A bigger effort is its loyalty program. Domino’s recently upgraded Domino’s Rewards, and will let customers start earning points when they spend less and will let them redeem those points earlier. “We have a national deal for $7.99,” Weiner said. “Prior to this change, you couldn’t get the national deal and loyalty points. So this has been a really nice way to bring in lighter users and carryout customers.”

Executives said on Thursday that it’s having a better-than-expected result. “In the short-term, folks are interacting with the loyalty program and our innovation at a higher level than I expected coming in,” Weiner said.

The loyalty program changes, along with new pepperoni stuffed cheesy bread and its “emergency pizza” promotion offering a free medium two-topping pizza anytime a customer orders one online, are expected to drive sales in the fourth quarter. The Uber Eats deal is expected to push sales next year.

As for profitability, that’s better thanks largely to improved costs. Staffing, which had been a problem coming out of the pandemic, has improved enough that the company’s delivery times have reached pre-pandemic levels. Food costs, which soared last year, are also improving.

Franchisee profits at Domino’s had reached $170,000 per store in 2020 and 2021. But they plummeted last year to $139,000. Company executives just last month, however, said the improving cost outlook led to projections of an increase this year to $150,000. One month later, that’s up to $155,000.

The improving outlook has plenty of franchisees opening new locations, and few locations closing. Only one restaurant closed over the past three months. Franchisees opened 26 in the U.S. The company now has 6,762 locations in the U.S. and another 13,435 internationally.

Maybe more to the point, some of the permitting and other issues that had slowed development previously appear to be disappearing. “They definitely have a very strong appetite for unit development,” CFO Sandeep Reddy said.

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