Domino's Earnings: Strong Transaction Growth Encouraging as New Strategy Bears Fruit; Shares Pricey

We’re encouraged by wide-moat Domino’s first-quarter results, with the operator enjoying strong same-store sales growth of 5.6% in its home market, materially topping our 1% estimate. It had looked to us like the firm’s first quarter would be its weakest of the year given the challenging industry backdrop, so it was great to see 3.8% growth in comparable transactions, by our estimates and excluding the firm’s Uber Eats partnership (1.4% of sales, 67% incremental). Management left its full-year guidance largely unchanged despite that outperformance, with a cocktail of factors, from normalizing digital services fees to increasing investments and higher food cost inflation likely to drive margin normalization over the balance of the year. Nevertheless, the traction Domino’s has enjoyed from its loyalty program refresh and its partnership with Uber Eats should provide durable sales growth tailwinds. After digesting results, we plan to raise our $400 fair value estimate by a mid-single-digit percentage, though shares still look pricey at current levels.