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

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1Q17 EBIT margins

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%.

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Factors that could expand DPZ’s margin

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.

Peer comparisons

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.

Outlook

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.

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