Restaurants

Domino's shares rebound after company announces CEO retirement, weak fourth-quarter results

Key Points
  • Domino's Pizza announced that CEO Ritch Allison will retire and COO Russell Weiner will replace him.
  • The company also reported quarterly results that missed expectations on most metrics, sending the stock sharply lower.
  • U.S. same-store sales rose just 1% in the quarter, dragged down by weak performance by Domino's company-owned restaurants.

In this article

An employee carries an order for a customer at a Domino's Pizza restaurant in Detroit.
Sean Proctor | Bloomberg | Getty Images

Domino's Pizza on Tuesday announced a C-suite shake-up and quarterly results that missed expectations on most metrics, sending the stock sharply lower.

The pizza chain posted fourth-quarter earnings and revenue that fell short of analysts' expectations and also announced that CEO Ritch Allison plans to retire. Chief Operating Officer and U.S. President Russell Weiner will succeed him as head of the company, effective May 1.

After falling about 8% in trading earlier Tuesday morning, Domino's shares closed flat.

Here's what the company reported for the quarter ended Jan. 2 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $4.25 vs. $4.28 expected
  • Revenue: $1.34 billion vs. $1.38 billion expected

The pizza chain reported fourth-quarter net income of $155.7 million, or $4.25 per share, up from $151.9 million, or $3.85 per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings per share of $4.28.

Net sales dropped 1% to $1.34 billion, missing expectations of $1.38 billion. The company said currency fluctuations, an extra week in 2020 and advertising incentives from promotions contributed to the fourth quarter's decline in revenue.

U.S. same-store sales rose just 1% in the quarter, dragged down by weak performance by Domino's company-owned restaurants. Analysts were expecting U.S. same-store sales growth of 2.9%, according to StreetAccount estimates.

After demand for Domino's pizza and wings soared during the early days of the pandemic, the company has faced tough year-over-year comparisons. It has also had to reckon with a labor crunch that has resulted in shortened hours for some U.S. locations. Allison told analysts on the company's conference call that staffing challenges intensified in the fourth quarter. Locations with the top 20% of staffing levels reported same-store sales of nearly 6%, he said.

"We believe that the sale we saw in Q4 2021 and it seems so far in 2022 for the U.S. business are not indicative of the demand our great brand is capable of generating," Allison said.

He shared that the omicron variant hurt January sales, largely due to a shortage of delivery drivers. He said the company believes that delivery driver staffing will be an issue in the short term, although Domino's is conducting a full assessment of the labor market for any additional actions it can take to mitigate the shortage.

Outside the U.S., the chain's performance also disappointed. International same-store sales rose 1.8% in the quarter, falling short of StreetAccount estimates of 6.6%.

The company added 468 net new locations during the quarter. More than 80% of those new restaurants are located outside the U.S.

In January, the company reiterated its two- to three-year outlook of global retail sales growth of between 6% and 10% and net unit growth of between 6% and 8%.

The chain doesn't provide quarterly or annual earnings forecasts, but it did say it expects costs for ingredients to climb anywhere from 8% to 10% in 2022, roughly three to four times the inflation for a normal year.

Leadership shake-up

After he steps down as CEO, Allison will continue to serve as an advisor until July 15, when he officially retires. He plans to remain on the company's board until the annual shareholder meeting on April 26. Allison has been CEO of the pizza chain since July 2018.

His successor, Weiner, has worked for Domino's since 2008, when he helped kickstart the company's turnaround plan as chief marketing officer. He has served as COO and U.S. president since July 2020.

The company also announced it has tapped Sandeep Reddy as its next chief financial officer, effective April 1. Reddy is currently serving as CFO of Six Flags, although he announced on Monday that he will resign March 27. Prior to Six Flags, he served in the same role for Guess. Domino's previous CFO Stu Levy resigned in May after less than a year on the job.

"With Russell as CEO and with the addition of Sandeep as CFO, supported by the rest of our leadership team, I am comfortable and confident stepping aside, knowing that Domino's has strong leaders who are passionate and committed to our business," Allison said in a statement.

Cowen analyst Andrew Charles wrote in a note to clients that he views the management shuffle as a positive change for the pizza chain.

"We believe new leadership will bring welcomed change to Domino's, and help the brand better evolve given digital strides by the rest of the restaurant industry," he said.

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Correction: Domino's net sales dropped 1% in the fourth quarter of 2021. A previous version misstated the year-over-year change.