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Why Domino's Pizza sales are starting to go ice cold

Domino’s Pizza (DPZ) is being attacked by the aggregators!

Or in non-corporate jargon — the upstart third-party delivery services such as GrubHub (GRUB) and Uber Eats which are bringing people their fast food of choice on demand. Up until a few years ago, it was either pizza or Chinese food available on the fast-food delivery circuit.

“But most certainly in the short term what we saw from the aggregators was a big increase in advertising spend and push around free and discounted deliveries,” Domino’s Pizza CEO Richard Allison told Wall Street analysts on a conference call Wednesday.

Allison was doing his best job in explaining to the investment community why — despite U.S. same-store sales rising for the 32nd straight quarter — they were perhaps a little lighter than expectations.

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Allison said the discounting by the third-party services drove new orders among consumers in urban and suburban markets. “I think [this] led to a slightly greater impact on our same-store sales growth than perhaps it did in previous years.”

Domino’s Pizza was a stock market darling under former CEO Patrick Doyle. The stock surged from about $100 at the start of 2015 as Doyle simplified Domino’s menu and rolled out a host of mobile ordering features. When Doyle dropped the mic on the CEO gig, so to speak, on June 30, 2018, Domino’s stock was trading around $300.

Sluggish stock performance

Under Allison, the stock has mostly been range bound. At its closing price of $292 on Tuesday, the stock remains below the all-time high above $300 and under the price when Doyle exited as CEO.

In large part, that sluggish performance could be attributed to Domino’s slowing U.S. same-store sales at the hands of more aggressive food aggregators. Domino’s U.S. same-store sales have trended lower since a peak in the third quarter of 2016 (+13.6%), notching a so-so 3.9% growth rate in the first quarter of this year.

Interestingly, Allison doesn’t appear inclined to chase the food aggregators down the rabbit hole of offering aggressive discounts.

“As we think about our longer view and what we ultimately do about it, it's really unchanged frankly, if not reiterated,” Allison said.

Allison added, “So it's hard to imagine that the current approach is sustainable over the long term, but we don't know, we'll have to see how that plays out. What's clear for us is that our strategy has to remain the same and that's to continue to fortress the markets that we operate in. That helps us win on service, it helps us win with our drivers by getting a more runs — and it helps us to continue to build that very important and profitable carryout business that we've been talking to you about for a long time.”

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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