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What Contributed to Domino’s Pizza’s Revenue Expansion in 4Q15?

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Revenue sources

Domino’s Pizza (DPZ) earns its revenue from domestic company-owned restaurant sales, royalties and franchise fees collected from domestic and international restaurants, and revenue from its supply chain.

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Revenue growth in 4Q15

In 4Q15, DPZ recorded an overall revenue growth of $98.2 million from its 4Q14 revenues of $643 million. The growth in revenues was mainly driven by four factors. First, 4Q15 had one more week than 4Q14, which increased the revenues by $49.7 million. Second, there was an increase in company-operated restaurant sales due to an increase in the total number of restaurants and a positive same-store sales growth. Third, the revenues from the supply chain were boosted by a higher same-store sales growth in the United States and higher equipment sales in the wake of the company’s global re-imaging program. Fourth, royalties collected from franchisees also grew, with an increase in both the unit count and the same-store sales growth. However, the growth in revenues from international franchised restaurants was offset by the strong dollar.

You could gain exposure to DPZ by investing in the iShares S&P Mid-Cap 400 Growth ETF (IJK), which has invested 1.1% of its portfolio in DPZ. IJK has invested 0.71% in Panera Bread (PNRA), 0.62% in Dunkin’ Brands (DNKN), and 0.43% in Buffalo Wild Wings (BWLD).

Outlook for 2015

With unit growth and same-stores sales growth expected to be positive, analysts are expecting the fiscal 2016 revenue to be at $2.4 billion, a growth of 18.3% from $2 billion in 2015. The re-imaging program, which is to run for another couple of years, is expected to increase supply chain revenues.

Revenues for restaurant companies such as DPZ are generally driven by same-store sales growth and unit growth. Although unit growth was a major contributor to revenue growth between 4Q14 and 4Q15, we’ll start with same-store sales growth in our next article. Same-store sales growth increases revenue without increasing the capital expenditure, which is significant in the long run.

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