In this article, we’ll be looking at the EBIT (earnings before interest and tax) margins of the pizza companies under review in this series. The EBIT margin measures a company’s efficiency, which directly affects its EPS (earnings per share) and stock price.
Yum! Brands outperformed its peers by posting an EBIT margin of 31.5% in 3Q17. The company posted an EBIT margin of 21.2% in 3Q16. YUM’s refranchising of its company-owned restaurants, sales leverage from its positive SSSG (same-store sales growth), lower labor expenses, and falling occupancy and other operating expenses led to the expansion of its EBIT margin.
Yum! Brands was followed by Domino’s Pizza with its EBIT margin of 18.3% in 3Q17. The company posted an EBIT margin of 17.8% in 3Q16. The expansion of Domino’s EBIT margin was the result of its lower cost of sales, which fell due to leverage from its positive SSSG and growth in its global franchise business. Some of the expansion was offset by higher labor expenses, G&A (general and administrative) expenses, and increased delivery costs for its supply-chain business.
Papa John’s EBIT margin contracted from 7.9% in 3Q16 to 7.8% in 3Q17. Its EBIT margin contracted due to a contraction in the margins of its domestic company-owned restaurants and its North American commissaries. The restaurant margins of its domestic company-owned restaurants contracted due to an increase in delivery costs. The margins of its North American commissary contracted due to increased delivery expenses and startup expenses associated with the opening of its new Quality Control Center in Georgia.
For the next four quarters, analysts expect Yum! Brands, Domino’s, and Papa John’s to post EBIT margins of 35.9%, 18.6%, and 8.6%, respectively.
Next, we’ll have a look at these pizza companies’ 3Q17 EPS.