Domino's Pizza (DPZ): Evaluating Growth Prospects Ahead of Q2 Earnings
AInvestWednesday, Jul 17, 2024 4:26 pm ET
2min read
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Domino's Pizza (NYSE: DPZ) is poised to release its Q2 earnings results tomorrow before the market opens, with an earnings call scheduled for 8:30 AM ET.

Analysts are anticipating a robust performance with EPS projected to grow 19% year-over-year to $3.66 and revenue expected to increase by 7% year-over-year to $1.10 billion, according to FactSet consensus estimates.

Recent Performance and Market Reaction

In the previous quarter, Domino's reported a significant EPS beat, driving the stock higher. Revenue for Q1 rose by 5.9% year-over-year to $1.08 billion.

A key driver behind this positive performance was the improvement in U.S. same-store sales (comps), which had been a weak spot in prior quarters. Q1 saw U.S. same-store comps increase by 5.6%, following a trend of improving comps from +2.8% in Q4, -0.6% in Q3, and +0.1% in Q2.

This growth in comps was bolstered by positive order counts in both carryout and delivery segments for the second consecutive quarter.

Strategic Initiatives and Marketing Efforts

Domino's has been proactive in its marketing and strategic partnerships to drive growth. The company's recent partnership with Uber Eats went live in Q1, adding a new channel to reach customers and boost sales.

This partnership is expected to continue ramping up throughout the year, supported by increased marketing spend and awareness efforts.

Another successful initiative has been the Emergency Pizza promotion, which has outperformed traditional buy-one-get-one (BOGO) offers.

This promotion significantly contributed to comps in both Q4 and Q1, highlighting its effectiveness in driving customer engagement and sales.

Expectations for Q2 and Beyond

As Domino's prepares to report Q2 results, several key factors will be under scrutiny:

U.S. Same-Store Comps:

While Q2 comps are expected to be slightly below Q1 levels due to the roll-off of the Emergency Pizza promotion, the ramp-up in Uber Eats sales is anticipated to partially offset this.

Additionally, the recent launch of New York Style Pizza could provide a positive impact on comps.

EPS and Revenue Trends:

Domino's has a strong track record of exceeding EPS expectations, with three consecutive double-digit EPS beats.

However, revenue results have been more variable. Investors will be looking for continued strength in EPS growth and solid revenue performance.

Market Dynamics and Stock Performance:

The stock has experienced a notable rally from around $340 in late October to above $525 in June.

However, it has pulled back in recent weeks, likely due to broader concerns about declining consumer transactions reported by some quick-service restaurant chains.

This pullback presents a potential opportunity for investors if Domino's can continue to demonstrate resilience and growth.

Conclusion

Domino's Pizza is at a crucial juncture as it prepares to release its Q2 earnings. The company's ability to sustain strong U.S. same-store sales, effectively leverage its partnership with Uber Eats, and maintain positive EPS and revenue growth will be key factors driving investor sentiment.

With a history of outperforming EPS expectations and innovative marketing strategies that resonate with consumers, Domino's is well-positioned to navigate the current market environment. -

However, the recent pullback in stock price suggests that investor expectations are tempered, providing a potentially attractive entry point for those confident in the company's long-term growth prospects.

As the earnings report unfolds, investors will closely monitor these developments to gauge Domino's ability to continue delivering strong financial performance and capitalize on emerging opportunities in the competitive quick-service restaurant industry.

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