On Thursday, Barclays adjusted its outlook on Domino's Pizza (NYSE:DPZ) shares, reducing the price target to $370 from $380 while maintaining an Underweight rating. The decision follows Domino's mixed third-quarter results, which highlighted weaker-than-expected comparable store sales growth.
The company's U.S. comparable store sales (comp) did not meet internal expectations and were a focal point of concern, despite aligning with the lowered anticipations of the buy-side market. Notably, Domino's management cited competitive pressures that led to a slowdown in August, though they did not comment on September's performance, with the third quarter ending on September 8, 2024.
International comps also fell short of the company's plans, raising alarms as Domino's signaled a scaling back of unit growth. This is particularly significant considering that international sales contribute equally to the company's global revenue, although U.S. and international profits are split approximately 70% to 30%.
Reflecting on industry dynamics, Domino's CEO compared the current market competition to the historic "burger wars," indicating that the pizza industry is now engaged in a similar battle for value. Despite this, Domino's continues to outperform its quick-service restaurant (QSR) peers in the U.S. market on comparable store sales.
The management team expressed optimism for the remainder of 2024, banking on two major U.S. comp drivers: the partnership with Uber (NYSE:UBER) initiated in the first quarter and the revamped loyalty program introduced in the fourth quarter of 2023. These initiatives are expected to drive higher comparable store sales relative to competitors in both delivery and carryout channels.
Looking ahead to 2025, Domino's anticipates that the addition of DoorDash (NASDAQ:DASH) as a delivery partner will further expand its growth avenues. This strategy is part of the company's effort to achieve positive traffic growth in both delivery and carryout segments, contrasting with the broader QSR sector's expectations of continued traffic declines.
In other recent news, Domino's Pizza reported a 3% rise in U.S. same-store sales for the third quarter, falling short of the projected 3.6% increase. The company also saw an 8.3% rise in foot traffic during the same period. However, the international same-store sales growth stood at 0.8%, not meeting the anticipated 2.9% growth.
Domino's has consequently revised its annual global retail sales growth forecast down to 6% from the previously expected 7%. Despite these challenges, the company's third-quarter earnings per share reached $4.19, surpassing the estimated $3.65.
Various analyst firms have provided their insights on Domino's performance. Stephens maintained an Equal Weight rating on the company, while RBC Capital initiated coverage with an Outperform rating, citing potential for improvement in profitability despite challenges.
Piper Sandler cut the company's stock target ahead of the third-quarter earnings, anticipating slightly lower domestic same-store sales growth. Evercore ISI also adjusted its financial outlook for Domino's, reducing the price target due to lower U.S. same-store sales growth estimates.
InvestingPro Insights
Despite Barclays' reduced price target, Domino's Pizza (NYSE:DPZ) continues to demonstrate financial resilience. According to InvestingPro data, the company's revenue growth stands at 2.28% over the last twelve months, with a more robust 7.14% growth in the most recent quarter. This aligns with management's optimism for future growth driven by strategic partnerships and loyalty program enhancements.
InvestingPro Tips highlight that Domino's has raised its dividend for 10 consecutive years, showcasing a commitment to shareholder returns even in challenging market conditions. This is particularly noteworthy given the competitive pressures mentioned in the article. Additionally, the company's liquid assets exceed short-term obligations, indicating a strong financial position to navigate the current "pizza wars" and invest in growth initiatives.
While the article discusses concerns about comparable store sales, it's worth noting that Domino's maintains a high EBITDA valuation multiple, suggesting investor confidence in its long-term earnings potential. This could be attributed to the company's strategic moves, such as the Uber partnership and the upcoming collaboration with DoorDash.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide deeper insights into Domino's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.