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Will Domino’s Stock Punish Investors With a Brutal Q4 Earnings Report?

Last Updated September 23, 2020 1:35 PM
Valerie Medleva
Last Updated September 23, 2020 1:35 PM
  • Domino’s Pizza is getting ready to report its Q4/year-end 2019 earnings on Thursday.
  • The company’s stock is ranging close to record highs.
  • Wall Street is bullish on DPZ, but what should investors expect from the pizza giant?

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?

Domino’s & the Donald Get the Last Laugh

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?

New Headwinds for Domino’s Stock

Domino's Pizza stock price
Domino’s Pizza has been one of the stock market’s biggest surprises over the past decade. | Source: Yahoo Finance 

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.

Domino’s CEO Ritch Allison conceded the need for improvement :

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.

They’re Trying to Step Up Their Game – But Is It Enough?

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?

What to Expect on Thursday

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.

What Wall Street Is Saying About Domino’s Stock

Wall Street doesn’t seem too worried about another punishing earnings report. The majority of analysts remain optimistic about the company’s future.

Domino's analyst rating history
Domino’s analysts remain bullish on the stock. | Source: Markerbeat.com 

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.