Domino’s shares rise as investors look past sales miss, executives outline steps to ease staffing issues
Domino’s in Denmark
Francis Dean
Domino’s Pizza tried to reassure investors Thursday that it has more growth ahead despite snapping a longtime streak for U.S. same-store sales growth.
Investors listened, sending shares up 2% in morning trading after the stock fell as much as 5% before the market opened.
Domino’s earned $3.24 per share during the third quarter, topping the $3.11 per share expected by analysts surveyed by Refinitiv.
Despite slowing U.S. same-store sales growth, analysts found bright spots in the company’s earnings report.
“[U]nit development continues to be a significant driver of growth,” BTIG analyst Peter Saleh wrote in a note to clients Thursday. “[M]omentum has returned to bring the current pace to 6.5%, margin performance was respectable given the sales results and the company has been aggressively repurchasing its stock recently.”
The pandemic brought skyrocketing demand for Domino’s pizza in its home market, but as consumers were vaccinated and states relaxed restrictions, investors began to worry about pizza fatigue. Last quarter, despite facing tough comparisons, U.S. same-store sales still rose 3.5%.
The company’s third quarter, however, saw its domestic same-store sales turn negative for the first time since 2011. U.S. same-store sales shrank by 1.9%, although the metric was up by 15.6% on a two-year basis. StreetAccount expected the company to report U.S. same-store sales growth of 1.8%.
CEO Ritch Allison said “a very challenging staffing environment” put pressure on U.S. transactions. Some locations had to shorten hours, for example. Executives said they are taking steps to improve their labor challenges, including rolling out a new applicant tracking system and updating franchisees on ways to most efficiently use their workers’ time.
“There is no doubt that we will continue to experience challenges with Covid, with staffing and other factors. We also expect inflationary headwinds to continue impacting Domino’s and the broader restaurant industry over the coming quarters, but we will face all of these challenges and headwinds from a position of strength,” Allison told analysts.
Allison also said U.S. sales were hurt by the waning impact of stimulus checks, which had mostly tapered off by the third quarter this year.
The decline in U.S. demand led the pizza chain to fall short of Wall Street’s revenue estimates. Analysts surveyed by Refinitiv had forecast net sales of $1.04 billion, but Domino’s reported $998 million in revenue for the quarter.
Outside the U.S., the company’s business is faring much better. International same-store sales climbed 8.8% in the quarter, up 15% on a two-year basis.
Although Domino’s shares were down more than 5% at one point in premarket trading Thursday, the stock has climbed 27% this year, bringing its market value to $18 billion.
