Domino's International Gambit: Can Margin Pressures and Strategic Debt Sustain Long-Term Growth?

Domino's Pizza Enterprises has long been a poster child for global expansion in the quick-service restaurant (QSR) sector. But as the company navigates a complex mix of margin pressures, tax volatility, and rising input costs, investors must ask: Is its international strategy still a winning bet? Let's break it down.

The Good: Sales Growth and Strategic Momentum

In Q2 2025, Domino's reported 2.4% international same-store sales growth (excluding foreign currency impact) and 6.0% global retail sales growth in international markets. These figures, while modest, reflect the company's disciplined expansion—148 net new stores opened globally in the quarter, with 148 of those in international markets. The company's focus on high-density urban locations and partnerships with delivery aggregators like DoorDash and Uber Eats has helped it maintain competitive delivery costs, a critical edge in the pizza QSR sector.

The international supply chain also showed resilience, with gross margins improving by 0.5 percentage points year-over-year due to procurement productivity. Domino's has also leveraged its “Hungry for MORE” strategy to drive digital adoption, which now accounts for a growing share of orders.

The Bad: Margin Squeezes and Tax Headwinds

But don't let the sales numbers distract from the cracks. Domino's international margins are under siege. The company's effective tax rate jumped to 22.1% in Q2 2025 from 15.0% in the prior year, driven by a 6.8 percentage point unfavorable swing in equity-based compensation benefits. This alone shaved $27.4 million off pre-tax income—a direct hit to net earnings.

Meanwhile, rising input costs and insurance expenses are eroding profitability. U.S. company-owned store gross margins fell by 2.0 percentage points year-over-year, and international food basket costs are climbing. The company's investment in DPC Dash Ltd., a delivery tech venture, also backfired, contributing a $27.4 million pre-tax loss. While these investments aim to future-proof the business, they're creating short-term volatility.

Capital Allocation: Balancing Growth and Returns

Domino's 2025 $1 billion debt issuance is a double-edged sword. The proceeds are being used to refinance older, higher-cost debt, lower interest expenses, and fund international expansion. The company's net debt-to-EBITDA ratio stands at 4.7x, within its target range of 4-6x, but rising leverage remains a risk.

The capital is also fueling shareholder returns. In Q2 2025, Domino's repurchased $150 million in shares and paid $104.97 million in dividends. With $614.3 million in remaining buyback authorization, the company is clearly prioritizing capital efficiency. However, investors must weigh these returns against the sustainability of its international expansion.

The Long Game: Can Domino's Sustain Its Strategy?

The company's 2028 financial targets—$5.6 billion in revenue and $720.3 million in earnings—hinge on maintaining current growth rates. But here's the rub: Global pizza category growth is flattening, and Domino's is facing tougher year-over-year comparisons. In markets like the U.S., same-store sales growth is slowing (3.4% in Q2 2025), and international markets are grappling with inflation and regulatory headwinds.

The key to long-term viability lies in Domino's ability to:
1. Optimize unit economics through digital efficiency and delivery cost reductions.
2. Mitigate tax volatility by restructuring equity compensation or diversifying its tax footprint.
3. Control input costs via supply chain innovations, despite rising food basket prices.

Final Verdict: A Cautious Bull Case

Domino's has the tools to succeed: a robust supply chain, a digital-first strategy, and a disciplined approach to capital returns. But the margin pressures and tax risks can't be ignored. For investors, the stock offers a compelling mix of growth and yield, but only if the company can stabilize its international margins and execute its digital transformation without overextending.

Bottom line: If you're bullish on Domino's, consider a buy with a stop-loss to protect against margin slippage. But keep a close eye on its tax rate and input cost trends. In a world where every percentage point matters, Domino's needs to prove it can turn its international gamble into a long-term win.