Domino's Pizza suspended its 3-5 year guidance and issues new 2-3 year outlook
Shares of Domino's Pizza (DPZ) are on the rise on Tuesday after being down following quarterly results. During the company's earnings conference call, management explained that its revision in sales guidance was mostly due to adjusting to a shorter timeframe than any lack of confidence.
RESULTS: On Tuesday, Domino's Pizza reported third quarter earnings per share of $2.05 and revenue of $820.81M, both slightly below the respective consensus of $2.07 and $823.91M. The company also reported third quarter U.S. same store sales growth of 2.4%, international same store sales growth of 1.7%, and global net store growth of 214. Additionally, Domino’s Pizza announced new 2-3 year outlook, seeing global retail sales growth of 7%-10%; U.S. same store sales growth of 2%-5%; International same store sales growth of 1%-4%; and Global net store growth of 6%-8%.
TIMEFRAME ADJUSTMENT: During Domino's Pizza earning call, management explained that the company's long-term revision in sales guidance was mostly due to adjusting to a shorter, more relevant timeframe, namely to 2-3 years versus 3-5 years, than any lack of confidence. Additionally, the company highlighted the strong ticket growth in the U.S.
CEO COMMENTARY: "We believe that the evolving market conditions and the resulting uncertainty have reduced the relevance of a 3-5-year outlook. And in our view, the market is more dynamic now than it has ever been. The reality is that we don't have visibility into exactly how long some of these new entrants into the quick service delivery segment are going to benefit from the financial support of aggregators who are seeking to buy market share. These players are currently pricing below the cost to serve, offering free delivery or other deep discounts that are currently enabled by investor subsidies. So when we take all that into consideration, we no longer believe that a long-term outlook with a 3-5-year time horizon is that instructive to our investors. Therefore, we'll be using a 2-3-year time horizon for our outlook ranges for global retail sales growth, comparable unit sales in the U.S., comparable unit sales in our international business and also global unit growth. I want to be very clear. This is not a reactive decision but a proactive one to make our guidance more meaningful and more relevant to our investors in light of the current competitive landscape. […] So in closing, we're playing the long game at Domino's for our investors and most importantly, for our franchisees. We firmly believe that now is the time to go on offsets and to take advantage of our continuing strength to drive profitable growth, to expand our market share gap to the competition and to further solidify Domino's as the dominant pizza brand," Richard Allison. Domino's Pizza President and CEO, said.
Q3 RESULTS 'LARGELY SATISFACTORY': Following the company's quarterly results, Baird analyst David Tarantino lowered his price target for Domino's Pizza to $300 from $315, but reiterated an Outperform rating on the shares. The analyst told investors in a research note that he believes the company's third quarter results were "largely satisfactory" relative to most recent expectations, and its revised long-term guidance reflects a more realistic view in light of recent business trends and competitive forces. Tarantino remained optimistic that Domino's domestic comps can begin to stabilize in upcoming periods and views the stock's one-year-out risk/reward as favorable at current levels.
PRICE ACTION: In afternoon trading, shares of Domino’s Pizza have gained about 5% to $253.83.