Domino's Pizza stock has been on a spectacular rise over the past decade. But can DPZ beat analyst expectations with its Q4 earnings report?
Investors holding Domino’s Pizza (NYSE: DPZ) stock are waiting for the company’s quarterly report coming out this Thursday with bated breath.
After several disappointing quarters, will the business be able to live up to their high expectations?
Back in the 2000s, many took Domino’s Pizza as a joke.
In a Saturday Night Live episode aired in 2005, Donald Trump, portrayed by Darrell Hammond and dressed as a giant pizza slice, is shooting a Domino’s ad.
He refers to the company as the best producer of the worst pizzas:
Personally, I think it’s the highest quality pizza of the low-quality pizzas.
In 2020, Trump is president, and Domino’s is the world’s largest pizza chain, with over 16,500 locations and customer satisfaction steadily nearing all-time highs.
Trading about $7.50 in January 2010, a share in Domino’s Pizza stock is worth more than $290 today. Does a 3,700% surge in a decade still sound like a joke to you, NBC?
But the stock market’s biggest surprise of the past decade is suddenly encountering new headwinds.
In July 2019, Domino’s Pizza stock fell sharply after the company published a rather disappointing Q2 financial report.
Revenue came in staggeringly low, while same-store sales – a key metric for restaurants – grew at a sluggish 3% in the U.S. and 2.4% internationally.
As a work-in-progress brand, we are constantly striving to improve in needed areas, execute our long-term strategy and build toward Dominant #1 – a goal I continue to feel we are built to achieve.
But while this statement sounded very promising, the company reported weaker-than-expected results in Q3 too.
This time, same-store sales rose only 2.4% in the U.S. – its worst growth rate since 2012. Company executives admitted that the competitive environment was making growth more difficult to achieve.
Frightened investors ran for the exits, causing the stock to slip lower yet again.
Domino’s Pizza management really deserves credit for following the latest trends.
In recent years, the company has been trying to embrace technology to stay competitive with DoorDash and UberEats. Artificial intelligence and autonomous driving are just two aspects of the company’s goal to improve efficiency.
The results of their efforts are quite impressive. The Domino’s app and website have already surpassed 20 million active users. The company gets more than 65% of its orders from digital channels.
But the question is: Are their results impressive enough for the business to finally live up to analysts’ expectations?
Currently, the pizza delivery giant is doing its best to win market share in the U.S. and expand to outside markets like Latin America and Asia.
Yet, since the growth pace has decelerated significantly in recent quarters, Domino’s’ management decided to lower sales expectations in both the short and medium-term.
Estimates for global sales gains were cut to 7-10%, compared to the previously predicted 8-12%.
The business can still generate healthy returns even if its sales are only slightly higher. But an ongoing market share battle between new delivery rivals may harm Domino’s by pressuring sales going forward.
Wall Street doesn’t seem too worried about another punishing earnings report. The majority of analysts remain optimistic about the company’s future.
Just this month, Goldman Sachs lifted their rating for Domino’s stock from “Hold” to “Buy” and upgraded its price target to $320.
On Thursday, it will become more clear whether or not the Domino’s comps figure could finally start stabilizing after six quarters of downfall.
If not, Wall Street may begin to change its tune.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
Last modified: September 23, 2020 1:35 PM