Domino’s Pizza Remains an Attractive Long-Term Story

By Brian Nelson, CFA

On October 10, Domino’s Pizza (DPZ) reported mixed third quarter fiscal 2024 results with GAAP earnings per share coming in above expectations, while revenue came up short relative to the Street’s forecast. Excluding foreign currency impacts, global retail sales expanded 5.1% thanks to higher supply chain, U.S. franchise advertising and U.S. franchise royalties and fees revenues, while U.S. same store sales growth came in at 3%.

International same store sales growth, excluding foreign currency impacts, was 0.8%, while it grew global net stores by 72 in the quarter. Excluding foreign currency impacts, income from operations advanced 5.7% in the period thanks to gross margin dollar growth within supply chain and higher U.S. franchise royalties and fees. Net income fell 0.5% on a year-over-year basis due to higher provision for income taxes, while diluted EPS was $4.19 in the third quarter of 2024 versus $4.18 in the third quarter of 2023, a modest increase due to a lower share count.

Management commentary was upbeat in the press release:

Our third quarter results once again demonstrated that our Hungry for MORE strategy is resonating, despite a pressured global marketplace. In our international business, we are on track for our 31st consecutive year of same store sales growth, demonstrating our sustained long-term track record of success. In the U.S., we drove our 4th straight quarter of profitable order count growth, highlighting that our strategies are driving positive outcomes. The Hungry for MORE pillar of Renowned Value will be the primary focus for our business in near-term as we look to continue to create our own tailwinds around the world. Renowned Value is a competitive advantage for Domino’s and one where we are industry leaders. With the slate of initiatives we have in place, I am confident that we will continue to win and grow our market share across the globe for years to come.

Net cash from operating activities advanced to $446.9 million during the first three quarters of fiscal 2024, up from $422.1 million in the same period a year ago. Free cash flow came in at $376.1 million in the three fiscal quarters of 2024 versus $362.9 million in the same period last year. During the third quarter, the company repurchased and retired 443,302 shares of common stock for a total of $190 million, with a total remaining authorized amount for share buybacks of $926.3 million. 

ESG Matters

Image: Domino’s core values.

“Domino’s stewardship vision is to ‘feed the power of possible’ every day for the communities we serve, our people, and the planet. We do this with our pizza and by living our values every day. Fulfilling this vision requires focusing on those efforts that are most important to our business and stakeholders. We have four pillars of stewardship that guide our work (Stewardship Report).”

ENVIRONMENTAL FOOTPRINT

Focus on science-based climate targets and actions to reduce our greenhouse gas emissions, reduce water impact, and minimize waste.

RESPONSIBLE SOURCING

Increase supply chain transparency, maintaining our supplier standards and food safety requirements, enhancing our animal care standards, and addressing deforestation.

EMPOWERING PEOPLE

Create a company culture that provides a safe, inclusive, and diverse workplace, with development pathways and supportive benefits.

COMMUNITY IMPACT

Strengthen our commitment to local communities and national partners, while expanding support of new meaningful organizations.

Concluding Thoughts 

Looking to 2024, Domino’s expects approximately 6% annual global retail sales growth and approximately 8% annual income from operations growth as it seeks to expand global net store count by 800 to 850. For 2025, Domino’s expects a similar pace of expansion for annual global retail sales growth and annual income from operations growth. Its long-term guidance (2026-2028) calls for 7%+ annual global retail sales growth and 8%+ annual income from operations growth. The company ended the quarter with $4.98 billion in total debt and $189.1 million in cash and cash equivalents. Though Domino’s has a lofty net debt position, we like its long-term growth story, and the company remains a core idea in the portfolio of the Best Ideas Newsletter. 

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