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Has Domino’s Pizza Reached Its Peak?

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Domino’s earnings

Domino’s Pizza (DPZ) reported its 3Q15 earnings on October 8. The company reported adjusted earnings per share, or EPS, of $0.73, which missed analysts’ estimates of $0.74. After the earnings release, shares of Domino’s declined 5% to ~$102.6 on closing but recovered to $105.3 the following day.

Year-to-date, Domino’s has returned 11.2%. The iShares US Consumer Services ETF (IYC) has returned 3.5% over the same period. IYC holds ~10% of restaurant stocks in its portfolio, including 3% in Starbucks (SBUX) and 3.3% in McDonald’s (MCD).

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Series overview

  • Domino’s Pizza has been a popular pizza stock for many investors, especially after the company reformulated its pizza recipe in 2009–2010.
  • Since then, the company has returned about 623% compared to Papa John’s (PZZA) returns of 398% and a return of 41% by Yum! Brands (YUM), which owns Pizza Hut.
  • Over the past 20 quarters, Domino’s has delivered strong EPS growth of 20% but in 3Q15, the company’s EPS grew only 5.5%.
  • In this series, we will look at the impacts to Domino’s recent earnings, future expectations, and valuation of the company and its peers.

About Domino’s

Domino’s Pizza (DPZ) is a pizza restaurant that has about 11,600 restaurant units spread across 75 countries. According to the company’s filings, Domino’s serves about 1.5 million pizzas per day globally. The company opened its first franchised restaurant in 1965 and went international in 1983.

Domino’s menu mainly offers pizza with a choice of crusts, pasta, oven-baked sandwiches, chicken wings, sides of bread items, beverages, and desserts. The company also offers local toppings in various markets, such as spicy cheese in the Indian market and squid in the Japanese market.

According to market researchers the NPD Group and CREST, Domino’s had a 25% share of the US pizza delivery market as of December 2014. To learn more about Domino’s business, please read Investing in Domino’s Pizza – It’s All About the Dough.

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