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Domino’s Stock Fell after Disappointing Q3 Results

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  • Domino’s had a disappointing third-quarter performance.
  • The company missed analysts’ expectations.

Domino’s Pizza (DPZ) announced weaker-than-expected third-quarter results. The company’s third-quarter sales and earnings were below analysts’ expectations. The same-store sales growth also missed analysts’ estimates. Domino’s stock fell more than 5% in the pre-market following its disappointing quarterly performance.

As expected, Domino’s bottom-line growth showed a sharp sequential deceleration. Notably, the company’s EPS rose 10% and 19% in the first and second quarters, respectively. However, the EPS growth rate slowed down to about 5% in the third quarter. Lower-than-expected sales, a higher tax rate, and tough YoY (year-over-year) comparisons remained a drag.

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Domino’s third-quarter results

Domino’s posted total revenues of $820.8 million—up 4.4% YoY. Adding new stores and positive same-store sales supported the top line. Moreover, the higher supply chain and global franchise revenues drove Domino’s sales. However, the company’s revenues fell short of analysts’ estimate of $823.9 million. Domino’s added 214 stores in the third quarter—40 in the US and 174 in international markets.

The same-store sales in the US rose 2.4%, which was lower than analysts’ expectations. Meanwhile, the company’s international same-store sales fell short of the estimate but rose 1.7%. Third-party delivery aggregators’ aggressive activity continued to drag the US comps.

Domino’s net income increased 2.7% YoY due to a rise in royalty revenues from franchised stores in the US and international markets. The growth in supply chain volumes drove the net income higher.

Domino’s EPS of $2.05 increased 5.1% YoY due to the higher net income and lower outstanding share count. However, the higher tax rate stalled the growth.

Stock underperformed

So far this year, Domino’s stock has underperformed its peers. The stock has fallen 2.3% on a YTD basis as of Monday. In comparison, Papa John’s (PZZA) and Yum! Brands (YUM) shares have risen 35.6% and 23.7%, respectively. Meanwhile, the S&P 500 has risen 17.2%.

Domino’s underperformance stems from its weaker-than-expected sales over the past several quarters. Including the third-quarter sales miss, Domino’s missed analysts’ estimates in the last five quarters.

In comparison, analysts expect Papa John’s third-quarter sales and earnings growth rate to outpace Domino’s. Analysts expect Papa John’s top line to increase 6% in the third quarter. The company’s EPS will likely increase by about 9% in the third quarter.

Yum! Brands’ better-than-expected financial performance in the first half of the year drove its stock higher. However, analysts expect the company’s revenues and EPS to fall in the third quarter.

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