Domino's Q4 2023 report: Hot and fresh or cold and crusty?

Key Points

• Domino's Q4 earnings surpassed analyst estimates, with strong EPS and same-store sales growth.
• The company rewarded shareholders with a dividend hike and a new share buyback program.
• Analysts remain cautiously optimistic about Domino's future, projecting moderate growth in 2024.

Domino's Pizza Inc. NYSE: DPZ is a globally recognized pizza delivery brand recently gaining noteworthy attention. Domino's financial results for the fourth quarter of 2023 were reported, and the report exceeded Domino's analyst expectations. This positive performance has caught the interest of investors and consumers, sending Domino's stock price skyward on Monday morning. Can Domino's consistently deliver this delicious goodness, or was this a one-time anomaly? 

Domino's delivered: Breaking down Q4 earnings

Domino's earnings report for Q4 2023 exceeded analyst expectations and undoubtedly deserves closer scrutiny. The company reported an earnings per share (EPS) of $4.48, exceeding both analyst expectations of $4.38 and the Q4 2022 result of $4.43. This indicates that Domino's successfully generated more profit per share than analysts and the previous year's performance predicted. However, revenue reached $1.40 billion, falling slightly short of the anticipated $1.42 billion. 

Looking beyond the top line, we find positive news in same-store sales growth, a crucial metric reflecting the performance of existing stores. Same-store sales in the United States witnessed a 2.8% increase, exceeding the anticipated 2.2% growth. This indicates that existing stores in the U.S. are maintaining their customer base and experiencing growth. This is further reinforced by the 0.1% increase in international same-store sales (excluding currency fluctuations), showcasing the company's ability to maintain and potentially grow its customer base in overseas markets.

Sweetening the deal: Domino's announces dividend increase

In a move likely to excite income investors, Domino's recently announced a significant increase to its quarterly dividend. The company's Board of Directors, on February 21, 2024, approved a 25% hike in Domino's dividend, raising the per-share dividend from its previous amount of $1.21 to $1.51. This marks a clear commitment from Domino's to reward its shareholders for their continued investment.

The first dividend payment at this new, higher rate will be made on March 29, 2024, to shareholders on record as of March 15, 2024. This change signifies Domino's confidence in its financial performance and commitment to delivering value to its shareholders, alongside its core business focus.

Domino's investing in itself

Domino's is rewarding shareholders with more than just tasty pizza. Alongside a 25% dividend increase, the company's Board of Directors authorized a substantial new share repurchase program valued at up to $1.0 billion. This program effectively allows Domino's to buy back its shares from the market. This buyback plan supplements a previous authorization with $141.3 million remaining, resulting in a total authorized repurchase amount of $1.14 billion.

Why does this matter?

Share repurchases can benefit shareholders in several ways:

• Increased share value: When a company buys back its stock, its outstanding shares decrease. This can lead to an increase in the value of each remaining share.
• Earnings per share (EPS) boost: With fewer shares outstanding, earnings per share (EPS) can improve, making the company look more profitable.
• Signaling confidence: Share repurchases often signal that a company believes its stock is undervalued and has confidence in its future performance.

It's important to note that share repurchases have potential trade-offs, as the money used for buybacks could instead be invested in growth initiatives or distributed as dividends. You should carefully consider the company's strategy and financial position when evaluating the impact of a share repurchase program.

Peering into the oven: Domino's future outlook

Beyond the financial success achieved in Q4 2023, it is crucial to assess Domino's long-term prospects. The company has outlined strategic initiatives during its earnings call, demonstrating confidence in its current trajectory and projecting ongoing growth. These initiatives could potentially contribute to Domino's future financial success, including menu innovation, technological advancements to enhance the customer experience, and expansion into new markets. Additionally, Domino's expects to maintain positive momentum in annual retail sales growth, exceeding 7%, and net store growth. While these projections are promising, it's crucial to acknowledge that unforeseen market conditions and industry fluctuations can always impact these expectations.

Analyst 2024 expectations

While Domino's Q4 2023 performance exceeded expectations, investors are naturally curious about the company's prospects for the rest of 2024. Analysts generally hold a cautiously optimistic outlook for Domino's profitability in 2024. The current average analyst estimate for FY 2024 EPS sits at $15.85, ranging from $14.41 to $17.50. This indicates expectations of continued profitability, albeit with potential variations depending on various factors.

Analysts are cautiously optimistic about same-store sales growth in 2024, projecting moderate increases in the 2-3% range for both the US and international markets. This indicates expectations for continued customer base maintenance and potential growth within existing stores. Domino's has historically pursued a strategy of robust net store growth, and analysts anticipate the continuation of this strategy in 2024. This may lead to increased market penetration and expansion of the brand's presence.

Overall, analysts predict modest growth for Domino's in 2024, focusing on maintaining profitability, expanding its global footprint, and continuing its historical growth trajectory. However, it is crucial to remember that these are forecasts based on current information and can be subject to change depending on unforeseen market fluctuations, restaurant industry dynamics, how Domino's reacts to market competition, and the company's execution of its strategic initiatives.

Domino's Q4 2023 results delivered a satisfying outcome, exceeding analyst expectations with impressive earnings per share and strong same-store sales growth. The company announced a significant dividend increase to sweeten the deal, demonstrating its commitment to rewarding shareholders. Looking ahead, Domino's outlines ambitious future plans, including menu innovation, technological advancements, and potential market expansion. While unforeseen challenges may arise, analysts remain cautiously optimistic about the company's prospects for continued growth in 2024. Only time will tell if Domino's can maintain its momentum and keep delivering delicious results for investors and pizza lovers alike.