Catalyst for Domino’s revenue growth
In the last part of this series, we saw that Domino’s had a strong quarter, with global same-store sales growing by 10.6% year-over-year and a revenue growth of 13%. The strong quarter was a result of higher sales from distribution channels, the addition of new units, and higher international royalties, according to the company.
Domino’s also faced higher commodity costs for cheese and meat, which led to a decline in operating margin by 80 basis points (one basis point is one hundredth of a percentage). These costs affected company-operated margins but didn’t affect DPZ franchise revenue due to a mark-up to franchises, according to management.
There are many catalysts to this growth, such as new menu offerings through product innovation, advertising, and promotional campaigns, pricing, and mix of offerings. All of these catalysts led to an increase in ticket (average amount spent by a customer) and traffic (number of customers).
During fiscal 2014, Domino’s added specialty chicken to its menu in the second quarter. This move, combined with advertising, resulted in higher traffic and ticket for the company, according to management. Specialty chicken is a side dish along with pizza.
This change increases the average amount paid by a customer, resulting in a higher average check. This is similar to ordering a combo meal at McDonald’s (MCD), which has a 4% weighting in the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY also includes ~1.5% of Yum! Brands (YUM) and 3% of Starbucks (SBUX).
Two key important drivers for a restaurant’s revenue are same-store sales and unit growth. Let’s see Domino’s unit growth in the next part of this series.