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Domino's Pizza (DPZ) Misses on Q1 Earnings, Stock Down

Domino's Pizza Inc. DPZ posted dismal first-quarter 2016 results, with both earnings and revenues missing the respective Zacks Consensus Estimate. Consequently, the company’s shares lost almost 9.9% yesterday. 

Earnings and Revenue Discussion

Adjusted earnings of 89 cents per share missed the Zacks Consensus Estimate of 97 cents by 8.3%. However, earnings climbed 9.9% year over year driven by strong sales, which offset headwinds from higher interest expenses and negative currency translations.

Quarterly revenues increased 7.4% year over year to $539.2 million but missed the Zacks Consensus Estimate of $543 million by 0.7%. The improvement was primarily backed by higher supply chain revenues. Increased domestic franchise and company-owned store revenues, and higher international revenues on the back of growth in both comps and store count also led to the upside in revenues. However, negative foreign currency translation somewhat offset the increase.

Comps

Excluding the impact of foreign currency translation, global retail sales (including total sales of franchise and company-owned units) were up 11.7% year over year, benefitting from strong domestic same-store sales. However, including the impact of foreign currency translations, sales were up 7.3%.

During the quarter, the company’s domestic store (including company-owned and franchise stores) comps were up 6.4%, comparing unfavorably with 14.5% growth in the year-ago quarter, mainly due to intense competition. The company experienced year-over-year comps growth of 4% at company-owned stores, compared with a 15.9% jump in the last year quarter. Domestic franchise comps grew 6.6%, lower than 14.4% growth in the prior-year quarter.

Comps at international stores grew 7.9% (foreign currency translation included) and were better than the prior-quarter improvement of 7.8%.

Margins

The company’s operating margin declined 30 basis points (bps) to 31% in the quarter owing to a rise in total cost of sales. In the quarter, cheese costs declined almost 4.5% year over year to $1.47 per pound. As a result, the company’s overall market basket decreased 1.5% from the prior-year quarter level.

Domino's currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the same industry worth considering include Carrols Restaurant Group, Inc. TAST, Dave & Buster's Entertainment, Inc. PLAY and Darden Restaurants, Inc. DRI. All three stocks sport a Zacks Rank #1 (Strong Buy).

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DOMINOS PIZZA (DPZ): Free Stock Analysis Report
 
DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
CARROLS RESTRNT (TAST): Free Stock Analysis Report
 
DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report
 
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