Domino's Earnings: Soft Traffic and Delivery Headwinds Weigh Down Shares; We See Opportunity

Domino's showed some signs of stabilization during its mixed first-quarter earnings, with 5.9% currency-neutral sales growth and 7.9% growth in operating profit driving a sharp pre-market pop (6%-7%) before earnings commentary drove a crushing share price reversal (down nearly 7% intraday). Traffic declines during the quarter and persistent pressure in the delivery business were sub-optimal if not entirely unexpected, with lower-income consumers trading out of the higher-cost delivery channel in favor of at-home meals. As we digest results, we expect to lower our $397 fair value estimate by a low-single-digit percentage due to expectations for top-line pressure to persist through the first half of 2024, in lieu of easing earlier in that year, but we view shares as quite attractive for long-term investors at a high-teens (17%-18%) percentage discount to our revised intrinsic valuation.