Domino's stock soars more than 25% on earnings beat; pizza chain backs long-term outlook

Key Points
  • Domino's fourth-quarter earnings and revenue topped Wall Street's estimates.
  • The pizza chain reported U.S. same-store sales growth of 3.4%.
  • Domino's also backed its two-to-three year forecast.
A Domino's Pizza food delivery courier drives a moped away from a Domino's Pizza store in Hanwell, London.
Jason Alden| Bloomberg | Getty Images

Domino's Pizza stock soared more than 25% on Thursday after the company reported quarterly earnings and revenue that topped analysts' expectations after strong U.S. sales, despite increased competition.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $3.13, adjusted, vs. $2.98 expected
  • Revenue: $1.15 billion vs. $1.13 billion expected

The pizza chain reported fiscal fourth-quarter net income of $129.3 million, or $3.12 per share, up from $111.6 million, or $2.62 per share, a year earlier. Higher royalty revenue from franchisees and lower general and administrative expenses drove the increase in net income.

Excluding expenses from the company's recapitalization in 2019, Domino's earned $3.13 per share, topping the $2.98 per share expected by analysts surveyed by Refinitiv.

Net sales rose 6.3% to $1.15 billion, beating expectations of $1.13 billion.

Domino's reported U.S. same-store sales growth of 3.4%, topping Wall Street's estimates of 2.3%. The chain has been facing greater competition from the likes of UberEats and DoorDash, putting pressure on Domino's U.S. delivery sales.

"We certainly still saw a lot of aggregator promotion and activity both on your television and, you know, digitally. While we felt like that leveled off a bit, relative to [the third quarter], the pressure was certainly still there and quite intense," CEO Ritch Allison told analysts on the conference call.

The strong U.S. performance in the fourth quarter marked the first time in nearly two years that the pizza chain's same-store sales in its home market improved sequentially. Domino's reported U.S. same-store sales growth of 2.4% in the third quarter.

RBC Capital Markets analyst Christopher Carril wrote in a note to clients that the acceleration in U.S. same-store sales growth is "encouraging and evidence that incremental headwinds from said competition may be subsiding."

In response to the new competition, the pizza chain has been trying to grow its carryout sales and cut delivery times by strategically adding more U.S. locations. In 2019, restaurants open at least a year grew their carryout sales by 3.9%. Allison said that pizza chain is trying to drive more customers to place their carryout orders digitally, citing the opportunity for "smarter" ways to encourage customers to spend more.

Domino's added 141 net new U.S. restaurants in the fourth quarter.

Allison teased a new menu product coming this summer. He told analysts that the company decides to add products to look for incremental profits.

"We didn't sell salads to sell salads," he said. "We sold salads to sell pizza."

International same-store sales increased by 1.7% in the quarter, falling short of estimates of 2.1%.

Allison said that the fewer than 20 Chinese restaurants have closed temporarily in response to the COVID-19 outbreak. The company does not expect to see any long-term impact on its business, as China is still a relatively small part of its portfolio. The pizza chain had roughly 260 locations in China, as of November.

"With this virus, there is a slowdown in the early part of the year in store openings," he said.

The pizza chain also reaffirmed its two-to-three year outlook. Domino's expects U.S. same-store sales growth in a range of 2% to 5% and global retail sales growth of 7% to 10%.

Domino's market value has risen 33% this year to more than $15 billion. During trading Thursday, shares traded as high as $381.86, a 52-week high.

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