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Domino's (DPZ) Stock Gains 31% Year to Date: More Room to Run?

Domino's Pizza, Inc. DPZ is likely to benefit from its strong digital ordering system, menu innovation and solid international expansion. So far this year, the shares of the company have gained 31% compared with the Retail - Restaurants industry’s 10.5% growth. However, coronavirus-related woes along with high debt levels remain potent headwinds.

Let’s delve deeper.

Factors Driving Growth

Domino’s is focusing on various sales-building initiatives to stay afloat during the pandemic. The company is investing heavily in technology-driven initiatives like digital ordering to boost sales. It has started driverless pizza delivery services in Houston, TX. To this end, the company has partnered with Nuro — a robotic company for the delivery services. The extended ways to order a pizza has thus kept Domino’s at the forefront of digital ordering and customer convenience. Moreover, other digital enhancements in terms of ordering, selecting service methods, paying and tipping were implemented to boost consumer experience. Also, the company’s digital loyalty program -- Piece of the Pie Rewards – continues to contribute significantly to traffic.

In terms of menu additions, the company rolled out some new products. It launched chicken wings with improved sauces on Jul 7. It also unveiled two new specialty pizzas, namely, Cheeseburger pizza and Chicken Taco pizza, on Aug 24. Notably, the items have been garnering positive customer feedback.

Since Domino’s generates a chunk of revenues from outside the United States, the company is committed to accelerating presence in high-growth international markets to boost business. The company’s international growth continues to be strong and diversified across markets, courtesy of exceptional unit level economics.

Notably, third-quarter 2020 marked the 107th consecutive quarter of positive same-store sales in its international business. Improvement in comps can be attributed to ticket growth. The company inaugurated 83 (44 net U.S. stores and 39 net new international stores) global net store openings during third-quarter 2020.

Apart from established markets like China, Japan and Germany have been seeing solid growth. Meanwhile, the company is working diligently to revive its operations in India and Spain through store re-openings.

Concerns

Owing to the unprecedented impact of coronavirus on its business, Domino’s has withdrawn fiscal 2020 guidance. As of Sep 6, 2020, fewer than 400 international stores were temporarily closed owing to the crisis. Nonetheless, the company continues to regularly monitor the situation so as to operate and survive amid such trying times.

Coming to the balance sheet, the company’s long-term debt, as of Sep 6, 2020, stood at approximately $4.1 billion (almost flat sequentially). During the fiscal third quarter, debt-to-capitalization came in at 459.1% compared with 469.4% at the end of Jun 14, 2020. Moreover, the company ended third-quarter fiscal 2020 with cash and cash equivalent of $330.7 million, which may not be enough to manage the high debt level.

Zacks Rank & Key Picks

Domino’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Brinker International, Inc. EAT, Red Robin Gourmet Burgers, Inc. RRGB and Fiesta Restaurant Group, Inc. FRGI. Brinker sports a Zacks Rank #1, while Red Robin and Fiesta Restaurant carry a Zacks Rank #2 (Buy).

Brinker has a trailing four-quarter earnings surprise of 116.6%, on average.

Red Robin has a three-five year earnings per share growth rate of 10%.

Fiesta Restaurant’s earnings in 2021 are expected to surge 418.8%.

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Dominos Pizza Inc (DPZ): Free Stock Analysis Report
 
Brinker International, Inc. (EAT): Free Stock Analysis Report
 
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