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Domino's Pizza (DPZ)
Domino's Pizza Stomps Rivals With Strong Third Quarter Profit
Pizza delivery chain Domino's Pizza (DPZ: Charts, News, Offers), the recognized world leader in pizza delivery, today announced its third quarter profit rose 77 percent compared to the prior year. This announcement is another piece of good news on top of the gains that the stock has seen over the past few days. However, Domino's is not the only pizza company that is gaining traction. The Yum! Brands, Inc. (YUM: Charts, News, Offers), which owns Pizza Hut also announced 18 percent profit growth at the beginning of October with strong growth in China. Its other rival, Papa John's International, Inc. (PZZA: Charts, News, Offers) is also seeing good stock price recovery, as well as growth in Russia. Is this a general recovery in the restaurants industry and a sign that things are getting better? Or perhaps these companies are simply seeing short-term improvements?
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Domino's Pizza is well-known for its 30-minute guarantee, where their customers would receive their pizzas for free if it was not delivered within 30 minutes of ordering (note: this guarantee was dropped in 1993 due to several lawsuits based on reckless driving incidents). According to the company, the third quarter profit gain was due to its aggressive cost-cutting and debt reduction initiatives. So far this year, the company has paid off approximately $140 million in long-term debt and substantially lowered its interest expense. This helps offset their declining revenue which continues to fall by 7 percent to $302.7 million from $323.6 million from a year ago, missing analysts' prediction on $308.9 million. Domino's Chairman and Chief Executive Officer, David A. Brandon said, "We did a good job of anticipating the economic downturn in the U.S. and we cut costs before the economy weakened. We have been intensely focused on controlled overhead spending throughout the past three years. As a result, we are now in a position to invest in our business; invest in our franchisees; invest in our marketing; invest in our technology; and expand our global footprint. We're making excellent progress... and we're in a great position to take full advantage of all of the opportunities we will encounter when domestic consumer spending improves and we return to a more normalized economic environment."
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Although profit gain on cost-cutting looks good on paper, it is not a strong indicator that the company will do better over the next few quarters. Many companies have gone through the same process of reporting higher profit on cost-cutting, but haven't seen their revenue catch up. This ultimately results in less horsepower under the hood -- making revenue growth even more challenging once the cost-cutting fuel runs out. In any case, it does look like Mr. Brandon is looking in the right places, and perhaps Domino's is well-positioned for growth, but only time and Domino's ability to execute its strategy will tell if the company can leverage this momentum and keep moving in the right direction.
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And to revisit our question about whether or not this is an indication that the restaurants industry is recovering as a whole, it's probably too early to tell. Over the long term, restaurants industry tends to be slightly stronger than the S&P 500 as a whole. So far this year, the restaurants industry has been underperforming by significant amount, approximately 15%. However, shorter trend within the most recent month shows promise with restaurants outperforming the S&P 500 by approximately 1%.
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Other Stuff Related to Domino's Pizza:
Domino's Pizza, Inc. Partners With GamesThatGive On-line Game Charity -- Domino's increases its online presence by partnering with a gaming website that allows consumers to help raise money for their favorite charity. Perhaps something for the iPhone soon?
Pizzas and Prevention – MFD and Domino's partner to deliver more than just pizza -- Domino's maintain its face time with sponsorships through various outlets, including strong presence on sports venues such as NFL and NASCAR.
Domino's Pizza may become first fast-food chain to list on Indian bourses; mulls IPO for dilution of PE equity -- Domino's may become the first publicly traded fast food chain to list on India's stock exchange.
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More Stocks in the News:
Cisco To Buy Wireless Firm Starent For $2.9B In Cash -- The acquisition tsunami continues to gain strength as the economy recover. The latest deal involves Cisco (CSCO: Charts, News, Offers) gobbling up Starent Networks (STAR: Charts, News, Offers).
U.S. Stocks Retreat as Whitney Downgrades Goldman Sachs Shares -- Goldman Sachs (GS: Charts, News, Offers) was downgraded by Meredith Whitney to"neutral" pulling down the S&P 500 Index.
BofA agrees to give U.S. more details on Merrill -- Problem continues for the banking giant, Bank of America (BAC: Charts, News, Offers). Today it agreed to give federal authorities more information about its Merrill Lynch merger.
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