Domino’s Long-Term Growth Outlook Looks Achievable

Image Source: Domino’s

By Brian Nelson, CFA

On April 29, Domino’s Pizza (DPZ) reported first-quarter results that came in better than expected. Global retail sales expansion, excluding foreign currency impacts, came in at 7.3% thanks in part to strong U.S. same-store sales growth of 5.6%. International sales growth, excluding foreign currency impacts, came in at 0.9%, and the firm had global net store growth of 164 units in the quarter.

Excluding foreign currency, the pizza giant put up income from operations growth of 19.4% in the quarter, a very nice showing, thanks to higher U.S. franchise royalties and fees and gross margin improvement within its supply chain.

Management had a lot to say about the quarter in its press release:

Our first quarter results demonstrated that our Hungry for MORE strategy is off to a strong start: delivering MORE sales, MORE stores, and MORE profits. The Renowned Value we created through our new and improved Domino’s Rewards loyalty program drove outsized comp performance, which flowed through to the bottom line with double-digit profit growth. Importantly, our growth in the U.S. came through positive order counts in both our carryout and delivery businesses for the second quarter in a row. Further, this order growth was across all income cohorts. In Q1 we also went live with marketing on Uber Eats, and we remain on track to exit the year at 3% or MORE of sales coming through this new channel. We are laser focused on driving franchisee profitability and store growth, which will fuel the Company’s ability to win and create meaningful long-term value for our shareholders.

Diluted earnings per share came in at $3.58 in the first quarter of 2024, compared to $2.93 in the first quarter of last year, a 22.2% advance. We’re huge fans of Domino’s asset-light business model. Net cash from operations advanced 7.7% on a year-over-year basis during the first quarter of 2024, while free cash flow edged up 8%, to $103.3 million. 

Domino’s continues to be shareholder-friendly, paying a nice quarterly dividend and buying back stock. As of March 24, it still had total remaining authorization on its buyback program of $1.12 billion. Looking to the firm’s long-term guidance, Domino’s is targeting 7%+ annual global retail sales growth, 1,100 annual global net store growth, and 8%+ annual income from operations growth. We think its targets are achievable.

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