Domino’s Q3: Expect Sharp Slowdown in EPS Growth


Oct. 7 2019, Updated 1:50 p.m. ET

  • Domino’s is scheduled to announce its third-quarter results on Tuesday.
  • The same-store sales growth and new stores will support the company’s sales. However, the EPS faces tough YoY comparisons.
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What to expect from Domino’s earnings

Domino’s Pizza (DPZ) is scheduled to report its third-quarter results on Tuesday. We expect the company’s revenues to continue to benefit from same-store sales growth and the addition of new stores. However, US comps might remain under pressure.

Notably, Domino’s bottom line has grown at an astonishing rate over the past several quarters due to positive comps, margin expansion, and share buybacks. However, the company’s earnings growth rate will likely show a steep sequential deceleration in the third quarter.

Domino’s bottom line is up against the toughest YoY (year-over-year) comparison in the third quarter. During the third quarter of 2018, the company’s adjusted EPS rose 53.5% due to strong revenue growth and share repurchases.

We think that revenue growth and share buybacks could continue to drive Domino’s bottom line. However, tough YoY comparisons could restrict the earnings growth rate.

Analysts’ expectations

Analysts expect Domino’s to post revenues of $824.2 million in the third quarter, which implies a YoY growth of about 5%. Same-store sales and store growth could continue to support the top line. Higher supply chain revenues could drive the company’s revenues. However, headwinds stemming from third-party delivery aggregators’ aggressive activity could continue to pressure US comps.

Analysts expect Domino’s to post an adjusted EPS of $2.07 in the third quarter, which implies a YoY growth of 6.2%. The forecast reflects a steep moderation in the growth rate on a sequential basis. Notably, Domino’s bottom line has increased at a strong double-digit rate for the past several quarters. The company’s bottom line increased by about 19% during the last reported quarter and beat analysts’ expectations by a wide margin.

Revenue growth, lower interest expenses, and share buybacks could drive Domino’s adjusted EPS in the third quarter. However, tough YoY comparisons and the higher tax rate will likely remain a drag.

Domino’s shares have significantly underperformed the broader markets and its peers on a YTD (year-to-date) basis. Domino’s stock has fallen about 2.4% YTD. In comparison, Papa John’s (PZZA), McDonald’s (MCD), and Yum! Brands (YUM) shares have risen 33.6%, 19.2%, and 24.7%, respectively. Meanwhile, the S&P 500 has risen 17.8%.

Domino’s underperformance is partly due to its lower-than-expected revenues in the second quarter. Also, the company missed the same-store sales growth expectations.


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