Why Analysts Expect Domino’s Margin to Expand in 1Q17

In 1Q17, analysts expect Domino’s Pizza (DPZ) to post EBIT (earnings before interest and tax) of $115.7 million, which represents an EBIT margin of 18.8%. In 1Q16, the company had posted an EBIT margin of 18.3%.

Analysts are expecting sales leverage from positive same-store sales growth, increased revenue from franchised restaurants, and a decline in commodity prices to expand Domino’s margins.

Analysts are expecting the cost of sales to fall from 69% in 1Q16 to 68.4% of total revenue due to lower commodity prices and sales leverage. They also expect SG&A (selling, general and administrative) expenses to fall from 12.7% to 12.4% despite a rise in investment in e-commerce and other technological initiatives. During the quarter, analysts expect labor expenses to rise due to a rise in labor wages, offsetting some of the gains in EBIT margins.

In 1Q17, analysts expect Papa John’s (PZZA) and Yum! Brands (YUM) to post EBIT margins of 10.1%, and 30.3%. In 1Q16, the companies posted 10%, and 22.1%, respectively.

Analysts expect Domino’s Pizza to post EBIT margin of 18.8% in 2017 compared to 18.4% in 2016. The expansion of EBIT margin is expected to be driven by sales leverage from positive SSSG and lower commodity prices.

Next, we’ll look at Domino’s 1Q17 earnings estimate.