Domino's Pizza soars on earnings, long-term guidance, and capital return plan

Domino's Pizza, Inc. (DPZ) reported strong Q4 earnings for the fiscal year 2023. Shares broke above key resistance at the $40 area following the news. Investors want to see the stock hold gains in the $460 area.

DPZ reported diluted earnings per share (EPS) of $4.48, beating the consensus of $4.38. Revenue  rose by 0.8% year/year to $1.4 billion, in line with expectations.

The company's global retail sales growth (excluding foreign currency impact) was 4.9% for the fourth quarter and 5.4% for the entire fiscal year 2023. U.S. same-store sales growth was 2.8% for the fourth quarter and 1.6% for the entire fiscal year. International same-store sales growth (excluding foreign currency impact) was 0.1% for the fourth quarter and 1.7% for the entire fiscal year.

The increase in revenues during the fourth quarter was primarily driven by higher global franchise royalties and fees. The growth of global retail sales, along with higher supply chain revenues, also contributed to this increase. However, there was a decrease in U.S. franchise advertising revenues, offsetting some of these gains.

The company's net income decreased by $1.0 million, or 0.6%, in the fourth quarter of 2023 compared to the fourth quarter of 2022, primarily due to an increase in the company's provision for income taxes. Provision for income taxes increased in the fourth quarter of 2023 due to a higher effective tax rate.

Diluted EPS was $4.48 in the fourth quarter of 2023 compared to $4.43 in the fourth quarter of 2022, representing a $0.05, or 1.1%, increase. This increase was driven by improved operating results, an unrealized gain associated with the remeasurement of the company's investment in DPC Dash Ltd, lower net interest expense, and a lower weighted average diluted share count.

Income from operations increased by 3.4% for the fourth quarter and 6.7% for the entire fiscal year (excluding a pre-tax refranchising gain of $21.2 million recorded in the fourth quarter of 2022, income from operations increased by 13.0% for the fourth quarter and 9.7% for the entire fiscal year).

Despite the positive performance, U.S. company-owned store gross margin declined by 1.6 percentage points in the fourth quarter. Higher labor costs resulting from increased wage rates and insurance costs, as well as the relaunch of the Domino's Rewards program, were contributing factors. However, these challenges were partially offset by higher same store sales driven by increased customer transaction counts. Supply chain gross margin, on the other hand, increased by 2.7 percentage points, attributed to lower food costs and decreased market basket pricing to stores.

The company's long-term guidance for the period 2024-2028 includes expectations of 7%+ annual global retail sales growth, 1,100+ annual global net store growth, and 8%+ annual income from operations growth. These metrics exclude the impact of foreign currency.

In addition to the strong earnings report, the company's board of directors approved a 25% increase in the quarterly dividend to $1.51 per share and authorized an additional share repurchase program of $1.0 billion.

Overall, Domino's Pizza, Inc. reported strong Q4 earnings and positive long-term guidance, indicating a promising outlook for the company. The increase in dividend and share repurchase program also suggests the company's confidence in its future performance.

Investors should keep an eye on the company's ability to maintain its growth trajectory and navigate any potential challenges in the market. However, based on the current earnings report and long-term guidance, Domino's Pizza, Inc. appears to be on track for continued success in the coming years.