Domino's delivers on domestic sales, falls short internationally

An employee places a cooked pizza into a delivery box inside a Domino's Pizza Group Plc store.
Jason Alden | Bloomberg | Getty Images

Shares of Domino's Pizza whipsawed in early morning trading on Tuesday after the company posted the highest domestic same-store sales growth of the top 25 U.S. restaurant chains, but fell short of international same-store sales estimates.

Domestic same-store sales growth rose 12.2 percent in the fourth quarter for the pizza chain, well above KFC, which now has the second-highest same-store sales growth, having posted growth of 4 percent.

Domino's ongoing U.S. "success" can be attributed to multiple factors, Mark Kalinowski, an analyst with Nomura-Instinet, wrote in a research note Tuesday. He cited Domino's digital strength as more consumers opt to order pizza digitally, its "single-brand focus," effective marketing, efforts to improve the quality of its food, and its Piece of the Pie Rewards loyalty program, which was rolled out nationally in late 2015, as the engines of its growth.

While domestic same-store sales exceeded expectations, with company-owned stores posting growth of 13.7 percent against estimates of 10 percent and franchised locations growing same-store sales 12.1 percent versus forecasts of 9.8 percent, international same-store sales were lower than expected.

International same-store sales grew 4.3 percent. Wall Street had expected same-store sales to be up 5.8 percent.

"It's possible that same-store sales for UK-based Domino's Pizza may have contributed to the shortfall," Kalinowski said. "That large franchisee plans to release its results for 2016 on March 9. In any case, Domino's overall international same-store sales have now achieved positive territory in 92 straight quarters."

Domino's reported fourth-quarter earnings of $1.48 per share on $819.4 million in revenue, exceeding estimates of $1.44 per share on $782.2 million in revenue, according to Thomson Reuters.

For the year, the company reported profit of $214.7 million, or $4.30 per share. Revenue was reported as $2.47 billion.

"The results for the quarter and year support our view that Domino's should be a core consumer holding because of its same-restaurant sales momentum, solid franchise returns and unit growth potential — 10.2 percent expansion the past 12 months — and a virtuous cycle of competitive advantages fueled by its growing scale," Chris O'Cull, an analyst with KeyBanc wrote in a research note Tuesday. "We believe Domino's is on the cusp of achieving decisive advantages over regional chains in several countries."

The company updated its three-to-five year outlook, bumping its domestic same-store sales estimate to a range 3 percent to 6 percent from a prior estimate of 2 percent to 5 percent. However, international same-store sales estimates remained the same, with growth estimated to be between 3 percent and 6 percent.

Domino's doesn't provide quarterly or annual earnings estimates.