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Domino's (DPZ) Rides on Strong Comps, Macro Challenges Ail

Domino's Pizza, Inc. DPZ will likely benefit from solid comps growth, a loyalty program and the Uber partnership. This and the emphasis on unit-expansion efforts bode well. However, uncertain macroeconomic environments are a concern.

Let’s delve deeper.

Factors Driving Growth

Domino's continues to impress investors with solid global comps growth. During the fiscal fourth quarter, global retail sales (including total franchise and company-owned units) rose 4.9% on a year-over-year basis. The upside was driven by higher international store sales (up 5.2% year over year) and global net store growth. U.S. store sales increased 4.5% year over year. Without foreign-currency adjustments, global retail sales increased 4.9% from the prior-year quarter’s levels. At domestic company-owned stores, Domino’s comps gained 5.9% year over year. Domestic franchise store comps rose 2.6% year over year as well.

The increase in U.S. same-store sales in the fiscal fourth quarter was driven by transaction growth from its new loyalty program, inclusive of a benefit from Emergency Pizza promotion, pricing of approximately 1% and a 0.4% sales mix from Uber. For the fiscal 2024, DPZ anticipates its U.S. comp to surpass the 3% long-term guide due to expected significant catalysts in Uber and loyalty.

The company’s international growth continues to be strong and diversified across markets, courtesy of exceptional unit-level economics. During the fiscal fourth quarter, the company added 92 net new stores in the United States, thereby bringing the total U.S. system store count to 6,854 stores. During the quarter, its international business added 302 net new stores.

Looking at the long-term outlook (2024-2028), DPZ anticipates adding more than 1,100 net stores, with 175 in the United States and 925 internationally. DPZ expects to increase net store growth each quarter over the prior year’s levels, particularly as it laps the one-time closures experienced in 2023. Significant growth is anticipated in the later half of 2024. DPZ foresees slightly less than half of this growth coming from China and India.


Domino's, which shares space with McDonald's Corporation MCD, The Wendy's Company WEN and The Cheesecake Factory Incorporated CAKE in the Zacks Retail - Restaurants industry — are pursuant to uncertainties stemming from a challenging macro environment.

The persistent inflationary pressures on commodity and labor expenses are challenges for the company. Industry peers anticipate prolonged periods of elevated costs due to labor shortages. Domino's has encountered labor-related difficulties in certain markets. In the fiscal fourth quarter, general and administrative expenses increased by 10.4% year over year to $144.4 million, primarily due to increased labor costs. The company foresees a continued high-inflation environment for food and labor costs in the foreseeable future.

A Brief Review of the Other Stocks

McDonald's is benefiting from menu price increases, marketing campaigns, and digital and delivery growth. Looking ahead to 2024, McDonald's expects comps growth to align with historical averages of 3% to 4% in the U.S. and international operated market segments. Notable initiatives such as Festive Wins in the U.K. and the 30-days, 30-deals campaign in Australia enhanced customer engagement and loyalty. The company reported success with reasonable pricing and Monopoly promotions in various countries, achieving significant milestones in loyalty program membership and sales. With plans to expand its core menu offerings and maintain cost-effective options, MCD aims to drive further growth through solid marketing strategies.

Wendy's is benefiting from higher average checks, strategic pricing actions, and product innovations. The company anticipates this momentum to persist in the future, projecting global same-restaurant sales growth in the 3-4% range for the fiscal 2024. It is also investing in digital initiatives, allocating funds to deploy digital menu boards in U.S. company-operated restaurants and enhance global digital menu board capabilities. The advancements aim to improve order accuracy, enhance crew experience and boost sales through upselling and consistent merchandising execution. Wendy's is optimistic about the impact of these technologies on customer and crew experiences and anticipates global digital sales to exceed $2 billion in 2024. Wendy's is focusing on breakfast offerings to drive incremental sales, introducing new items like breakfast burritos and Cinnabon Pull-Aparts.

Cheesecake Factory is benefiting from unit expansion efforts, improved traffic and a favorable menu mix.  The company emphasizes the Cheesecake rewards program, reporting increased member activity and ongoing testing to enhance membership enrollment and engagement. CAKE also focuses on its FRC-related differentiated concepts and emerging brands to drive growth. It plans to open up to 22 new restaurants in the fiscal 2024, including expansions of Cheesecake Factory, North Italia, Flower Child and FRC establishments.


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