Domino's (DPZ) Stock Falls Despite Q3 Earnings & Sales Beat

Domino’s Pizza, Inc. DPZ posted robust third-quarter 2017 results, with both earnings and revenues beating the Zacks Consensus Estimate.

However, shares of the company declined nearly 4% in yesterday’s trading session reflecting investors’ concerns regarding decelerating comps growth.

Performance in Detail

Adjusted earnings of $1.27 per share beat the Zacks Consensus Estimate of $1.22 by 4.1%. Further, the bottom line climbed 32.3% year over year on strong sales and a lower share count.

Meanwhile, adoption of new accounting standards for share-based compensation have reduced tax expenses and added as much as 7 cents to Domino's earnings in the reported quarter.

Quarterly revenues jumped 13.6% year over year to $643.6 million and surpassed the Zacks Consensus Estimate of $630.8 million by over 2%. The improvement was on the back of higher supply chain revenues as well as increased same store sales, and store count growth at both domestic and international markets.

Comps

Global retail sales (including total sales of franchise and company-owned units) were up 14.5% year over year. The uptick was primarily owing to strong comps from international stores. Excluding foreign currency impact, global retail sales increased 14.2%.

During the quarter, the company’s domestic stores (including company-owned and franchise stores) comps increased 8.4%. This compared unfavorably with 13% growth in the year-ago quarter and 9.5% growth in the previous quarter.

The company experienced year-over-year comps growth of 8.4% at domestic company-owned stores, lower than 13.8% comps growth in the year-ago quarter and 11.2% growth in the last quarter. Also, domestic franchise stores comps grew 8.4%, lower than comps growth of 12.9% and 9.3%, in the year-ago quarter and the preceding quarter, respectively.

Comps at international stores, excluding foreign currency translation, grew 5.1%. This was better than the prior quarter improvement of 2.6% but lower than the year-ago quarter rise of 6.6%.

Margins

Domino’s operating margin increased 10 bps year over year to 30.8% in the quarter under review.

Also, the net income margin rose 50 bps to 8.8%. The rise in the company’s net income was primarily driven by an increase in comps growth and store count as well as higher supply chain volumes. The adoption of the new equity-based compensation accounting standard too drove net income. However, the same was somewhat offset mainly due to higher general and administrative expenses from investments in technological initiatives.

Domino's Pizza Inc Price, Consensus and EPS Surprise

Domino's Pizza Inc Price, Consensus and EPS Surprise | Domino's Pizza Inc Quote

Zacks Rank & Upcoming Releases

Domino’s carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other firms in the restaurant space, McDonald's Corporation MCD and Chipotle Mexican Grill, Inc. CMG are slated to release their third-quarter numbers on Oct 24. The Zacks Consensus Estimate for the quarter’s earnings is pegged at $1.74 for McDonald's and $1.78 for Chipotle.

Dunkin' Brands Group, Inc. DNKN is scheduled to report its quarterly numbers on Oct 26. The Zacks Consensus Estimate for the quarter’s bottom line is pegged at 63 cents.

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