Is Domino's Pizza Worth Your Money?

Domino's Pizza (DPZ) announced second quarter ended June 30, 2016 total revenue of $547.3 million, up 12 percent year-over-year from $488.6 million during the same period last year.

Domino's Pizza declared second quarter of 2016 net income of $49.3 million or $0.98 per diluted share, up 7.4 percent year-over-year from $45.9 million or $0.81 per diluted share in second quarter of 2015.

Impressive growth

The global pizza-making company reported continued year-over-year growths in both its top and bottom lines primarily driven by significant customer traction for the company’s innovative pizza offerings coupled with the accelerated changing trend about food consumption from traditional home only foods to fast foods and that too in the company’s franchises.

Domino’s Pizza is believed to have a solid franchise model with consistently expanding year-over-year net company earnings.
However, the company witnessed sequential decline in its bottom line somewhat due to the strengthening US dollar and expanded hourly wages.

Domino’s Pizza has uniquely achieved positive sales growth for US same store sales for the past 17 years of the total 21 years of company operations from 1995 till 2015.
Is Domino
Image by skeeze / Pixabay
Moreover, the company has registered 22 successive years of attractive sales growth for the international same store company sales during the period.

The impressive and expanding customer traction for Domino’s Pizza delicious and competitively-priced pizza offerings has particularly enabled the company to continue to deliver significant and consistent top line and bottom line growths.

Strong momentum

Domino’s Pizza is believed to be an iconic brand with a global growth momentum comprising of over 12,600 stores that includes 50% domestic US stores with approximately 840 independent business holders in the country, owning a total of 5,216 stores and 50% international stores with about 7,476 consolidated global stores in more than 80 emerging and developed markets. Further, Domino’s Pizza is expected to have a record 22-year quarter-over-quarter successive same store sales expansion driven by a solid franchise model with profits delivered by attractive franchise royalties.

Also, Domino’s Pizza is ranked among the highest publicly-traded restaurant businesses by store amount. The global pizza-making company has achieved a total of 2,908 net international store count over the past 5 years from 2010 till 2015. Going forward, Domino’s Pizza is expected to have a significant potential to add 4,200 new stores in 15 superior growth markets alone while holding the top or net to the top market position in the highest growth markets.

The company’s solid franchise model is believed to add international net units in the range of over 5% to over 7%. Domestic US same store company sales is estimated to be in the range of over 2% to over 5% while, international same store company sales is forecasted to be in the range of over 3% to over 6%. Further, worldwide retail sales is estimated to be in the range of over 7% to over 11%. In addition, the attractive franchise model of Domino’s Pizza is expected to be a highly cost-effective store model having only nominal capital requirements and allowing the company to uniquely use free cash flows for executing well-planned share buyback programs while offering attractive dividends to the key stakeholders.

The consistently expanding domestic and global growth of Domino’s Pizza is expected to continue in the near-term and over the longer term as well, being supported by impressive customer traction for increasingly consuming fast foods and continuously changing consumption pattern from home-cooked food to fast foods in restaurants and their food franchises.

Conclusion

Overall, the investors are advised to “Hold” their position in Domino's Pizza, Inc. considering the company’s significant long-term growth prospects with an industry-leading PEG ratio of 2.22 but, currently weaker financial position with huge total debt of $2.21 billion against weaker total cash position of $22.3 million only, restricting the company to make future growth investments. The profit margin of 8.45% also seems attractive.
Published on Sep 12, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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