Domino's Pizza, Delivering What The Market Ordered

Nothing Not To Like In Domino’s Second Quarter 

Shares of Domino's Pizza NYSE: DPZ look ready to continue what has been a very strong uptrend. The second-quarter results were everything the market could ask for and more including growth, better-than-expected results, positive comps vs 2019, a robust outlook, and accelerated capital returns to shareholders. The stock may be highly valued 35X its earnings but that price tag brings a lot to the table. 

Domino's Has A Robust Second-Quarter 

Domino's had a robust quarter any way you look at it. The company's net consolidated revenue of $1.03 billion is up 12% from last year and beat the consensus by 600 basis points. This is on top of last year's 13% revenue gain as well, proving that COVID tailwinds continue to blow. On a 2-year basis, company revenue is up 27% but there is one small negative detail that we should point out. U.S. company-owned comp-store sales fell 2.6% in the quarter but that was offset by franchise sales and international sales. On a comparable store basis, US sales are up 3.5% while International sales are up 13.9% with both segments up double digits in the 2-year comparison.

U.S. quarterly franchise sales improved by 3.9% to drive a 3.5% gain with the two-year comparison topping 16% for both company-owned and franchised stores. On an international basis, sales are up 13.9% from last year and 1.3% from 2019 due to the combined effects of increased store counts and the COVID shutdowns. The takeaway for the international segment is that increasing store counts have it levered for revenue and earnings acceleration as the European reopening continues. The company reports global net store growth of 238 stores so strong revenue growth should continue for the next few quarters at least. 

Moving down to the bottom line the results are a little mixed but still better than the consensus estimate. The company's net income decreased by 1.7% on a YoY basis but that was due to higher provisions for income taxes related to stock-based compensation and not any fundamental flaw in the business. This affected both the GAAP and the adjusted earnings but both beat their consensus targets by nearly a quarter dollar. The GAAP and adjusted EPS are also both slightly higher on a year-over-year basis due to a lower net share count resulting from share repurchases. The take-away is that revenue was strong and earnings are strong and would have been stronger if not for one-time costs unrelated to fundamental business operations.

Domino's Delivers More Than Pizza To Shareholders

Domino's has been buying back shares and paying a dividend for years and continued that trend at the end of the second quarter. The company declared the $0.94 quarterly dividend which is in line with the previous and authorized a new share repurchase program. The share repurchase program is worth up to $1 billion of the company's stock or about 5.5% of the market cap. As for the dividend, the stock yields about 0.8% with shares trading near $500 but the attraction lies in the safety and the outlook for growth more than anything else. There is a slight risk in the balance sheet because leverage is moderately high and coverage is relatively low but cash flow and balance sheet conditions are also both improving. Based on the history of payments, the outlook for earnings, and the most recent dividend increase the next one should be double digits.

The Technical Outlook: Domino's Pizza Is Ready To Continue The Trend

Shares of Domino's Pizza rocketed up by 7% at the open confirming the uptrend in a textbook display of strength. In our view, this stock is on its way up to the $340 range and probably fairly quickly.