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Domino's Pizza Inc DPZ

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U.S. Pressure and Margin Headwinds Lead to Mixed Q3 Results for Domino's; Shares Still Look Pricey

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

Wide-moat Domino's reported mixed third-quarter earnings, with strength abroad countervailed by a sharp 470-basis-point sequential drop in restaurant margins to 19.8%. Labor market pressure remains acute, with the industry still short-staffed, wages up 9.9% year to date, and even the largest operators forced to close dining rooms and curtail operating hours, though we largely expected this in our previous forecast. Given the stickiness of wage hikes, we've modestly raised forecast labor expenditures through 2030 but still anticipate longer-term restaurant margins in the low-20% range as car-side carryout, a higher digital sales mix, and operational enhancements defend profitability. We expect to raise our fair value estimate by a low-single-digit percentage, given time value of money, and note that shares still look expensive at current prices.

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Company Profile

Business Description

Domino’s Pizza is a restaurant operator and franchiser with more than 18,350 stores across 93 countries. The firm generates revenue through the sales of pizza, wings, salads, and sandwiches at company-owned stores, royalty and marketing contributions from franchise-operated stores, and its network of 26 dough manufacturing and supply chain facilities, which centralize purchasing, preparation, and last-mile delivery for more than 6,800 units in the U.S. and Canada. With roughly $16 billion in 2020 system sales, Domino’s is the largest player in the global pizza market, ahead of Pizza Hut, Papa John’s, and Little Caesars.

30 Frank Lloyd Wright Drive
Ann Arbor, MI, 48105
T +1 734 930-3030
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Sep 30, 2021
Fiscal Year End Jan 2, 2022
Stock Type Cyclical
Employees 14,400