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.