Dominos Pizza, Inc. - Zacks Investment Research

[Pages:8]May 25, 2016

Dominos Pizza, Inc.(NYSE: DPZ)

$122.52 USD ( As of 05/24/16 )

Zacks Rank 3-Hold Style:Value: Growth:

Momentum:

VGM:

Data Overview

52 Week High-Low 20 Day Average Volume Beta Market Cap Dividend / Div Yld Industry Industry Rank Current Ratio Debt/Capital Net Margin Price/Book (P/B) Price/Cash Flow (P/CF) Earnings Yield Debt/Equity

Summary

$140.01 - $101.62 1,088,046 0.61 6.14 B

$1.52 / 1.24% RETAIL-RESTRNTS

80 / 265 (Top 30%) 1.88 NA%

8.52%

Domino's Pizza's first-quarter 2016 earnings of $0.89 per share beat the Zacks Consensus Estimate by 8.3%. However, earnings increased 9.9% year over year driven by strong sales, which offset headwinds from higher interest expenses and negative currency translations. Despite missing the consensus mark by 0.7%, revenues increased 7.4% year over year. The improvement was primarily backed by higher supply chain revenues. Increased domestic franchise and company-owned store revenues, and higher international revenues. The company has been posting positive comps over the past three quarters, and its digital ordering system, focus on re-imaging and other sales initiatives are expected to help it sustain the top-line momentum. However, higher food costs and expenses related to sales initiatives are likely to remain headwinds. Also, currency headwinds are expected to keep profits under pressure.

NA

21.18 Elements of the Zacks Rank

3.32% -1.26

Agreement Estimate Revisions (60 days)

Value Score

P/E (F1) P/E (F1) Rel to Industry PEG Ratio P/S (F1) P/S (TTM) P/CFO P/CFO Rel to Industry EV/EDITDA Annual

30.21 3.45 1.89 2.60 2.73

21.18 9.79

17.72

100%

83%

Q1 (Current Qtr) Revisions: 6 Up: 0 Down: 6

Q2 (Next Qtr) Revisions: 6 Up: 1 Down: 5

Magnitude Consensus Estimate Trend (60 days)

100%

F1 (Current Year) Revisions: 8 Up: 0 Down: 8

100%

F2 (Next Year) Revisions: 6 Up: 0 Down: 6

Growth Score

Proj. EPS Growth (3-5 yrs) Hist. EPS Growth (Q0/Q-1) Qtr CFO Growth 2 Yr CFO Growth Return on Equity (ROE) NI - CFO / Total Assets Asset Turnover

18.22% 2.33 3.30

736.90 -10.00%

-11.95 2.75

60

30

7 Current

Days Days Days

Q1

-3.12%

60

30

7 Current

Days Days Days

Q2

-2.25%

60 30

7 Current

Days Days Days

F1

-2.87%

60

30

7 Current

Days Days Days

F2

-2.64%

Upside Zacks Consensus Estimate vs. Most Accurate Estimate

Momentum Score

1 week Volume change 1 week Price Cng Rel to Industry (F1) EPS Est 1 week change (F1) EPS Est 4 week change (F1) EPS Est 12 week change (Q1) EPS Est 1 week change

1.18% 0.17% 0.00% -2.87% 1.76% 0.00%

Most Accurate:

0.93 Most Accurate:

0.87 Most Accurate:

4.06 Most Accurate:

4.80

Zacks Consensus: 0.93 Zacks Consensus: 0.87 Zacks Consensus: 4.06 Zacks Consensus: 4.80

Q1

0.00% Q2

0.00% F1

0.00% F2

0.00%

Surprise Reported Earnings History

Reported: 0.89 Estimate: 0.97 Q End 03/16

Reported: 1.15 Estimate: 1.13 Q End 12/15

Reported: 0.67 Estimate: 0.74 Q End 09/15

Reported: 0.81 Estimate: 0.80 Q End 06/15

Average 4 Qtr Surprise

? 2016 Zacks Investment Research, All Rights Reserved

10 S. Riverside Plaza Suite 1600 ? Chicago, IL 60606

The data on the front page and all the charts in the report represent market data as of 05/24/16, while the reports text is as of 05/25/2016

Overview

Headquartered in Ann Arbor, MI and founded in 1960, Domino's Pizza Inc., through its subsidiaries, operates as a pizza delivery company in the United States and internationally with more than 12,500 locations in more than 80 markets. The company sells and delivers pizzas under the Domino's Pizza brand.

The company operates and reports through the following three business segments: domestic stores, international franchise and supply chain.

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Reasons To Buy:

Strong Brand Position: The pizza category is a fast growing segment in the U.S. quickservice restaurant industry. Domino's ranks as the second-largest pizza chain in the world. The company is the market leader in the delivery segment in the U.S. and ranks second in the carry-out segment. The company has enhanced the strength of its brand through marketing affiliations with companies such as The Coca-Cola Company.

Domino's solid digital ordering system, focus on re-imaging of stores and other sales initiatives would help it to sustain top-line momentum.

Solid International Expansion: Since Domino's earns a chunk of its revenues from

outside the U.S., it remains committed to accelerate its presence in high-growth

international markets to boost its business. Domino's has witnessed 88 consecutive quarters of positive same-store sales in its

international business. The company has opened 768 stores in international markets in 2015 and has more than 7,000 stores

outside the U.S.

Many of the international franchisees continue to generate robust returns. Apart from established markets such as Canada, Japan, the UK, Ireland, Switzerland and South Korea, emerging markets like Brazil, Indonesia and Turkey have been posting strong growth. Australia and New Zealand are also gaining momentum.

Meanwhile, India remains a market of immense growth potential. Domino's Pizza India operations are the fastest growing operations in its global system. Moreover, the company's entry into Milan, Italy, the birthplace of pizza, in 2015 is expected to spur growth as Italians are known to eat pizza seven times a month. Besides Italy, the company opened stores in five new markets of Azerbaijan, Cambodia, Georgia, Portugal and Belarus in 2015.

Franchising Strategy Safeguards Earnings: Domino's has a wide franchise network, both domestically and internationally. Reducing its ownership of restaurants and focusing more on re-franchising minimizes the company's capital requirements and facilitates earnings per share growth and ROE expansion. In addition, free cash flow continues to grow, thus allowing reinvestment for increasing brand recognition and shareholder return. In fact, the company has increased its dividend by 25% in 2014 and 24% in 2015, after initiating regular dividends in 2013.Moreover, Domino's is less affected by inflation as a result of franchising compared to other pizza companies with global operations.

Initiatives to Boost Sales: Since Domino's earns a chunk of its revenues from outside the U.S., it remains committed to accelerate its presence in high-growth international markets to boost its business. Domino's has witnessed 88 consecutive quarters of positive same-store sales in its international business. The company has opened 768 stores in international markets in 2015 and has more than 7,000 stores outside the U.S.

Many of the international franchisees continue to generate robust returns. Apart from established markets such as Canada, Japan, the UK, Ireland, Switzerland and South Korea, emerging markets like Brazil, Indonesia and Turkey have been posting strong growth. Australia and New Zealand are also gaining momentum.

Meanwhile, India remains a market of immense growth potential. Domino's Pizza India operations are the fastest growing operations in its global system. Moreover, the company's entry into Milan, Italy, the birthplace of pizza, in 2015 is expected to spur growth as Italians are known to eat pizza seven times a month. Besides Italy, the company opened stores in five new markets of Azerbaijan, Cambodia, Georgia, Portugal and Belarus in 2015.

Digital Initiatives, Online Ordering: The digital wave has hit the U.S. fast casual restaurant sector as more and more restaurants are deploying technology to enhance guest experience. Domino's is also investing heavily in technology-driven initiatives like digital ordering to boost sales. After launching digital ordering domestically in 2008, the company developed an online ordering platform in 2010. Online ordering offers Domino's a competitive advantage, especially when it comes to smaller players in the market. In 2013, the company has enhanced its system that enabled customers to place orders in about 30 seconds. During 2010-2014, the company also launched mobile applications that begun covering most of the smartphones and tablets in the U.S. market. In 2014, the company launched a voice ordering application.

In 2015, the company launched new ordering platforms, which include order via Pebble and Android Wear smartwatches as well an ordering app for Smart TVs through a partnership with Samsung. Also, customers can order though Twitter. In Jul 2015, Dominos became the first pizza company to introduce Domino's Tracker App for Apple Watch, thereby bringing order tracking capability to the devices. In late 2015, Domino's announced the design and launch of the DXP (Delivery Expert), a purpose-built pizza delivery vehicle, as well as Piece of the Pie Rewards, its first digital customer loyalty program in 25 U.S. markets.

Digital leadership is helping the company to expand its brand in the domestic market as well as overseas. At the end of 2015, the company generated over 50% digital sales in the US..More than half of the national television campaign topics were directly related to digital initiatives. Further, nearly 45% of its international sales come from digital channels.

Reasons To Sell:

Currency Headwinds: Dominos has considerable international presence and is therefore highly vulnerable to fluctuations in exchange rates. A surging U.S. currency makes the products more expensive overseas and the company suffers a loss of

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Higher food costs and costs related to boost sales are expected to keep

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revenues while converting overseas unit sales back to dollars. Hence, foreign exchange translation has been hurting the results of the company over the past few quarters and the company expects it to have a significant negative impact on revenues in the near term too. The company expects foreign currency to have an $8 million to $12 million negative year-over-year impact on pretax earnings in 2016.

profits under pressure. Also, foreign exchange translation is expected to negatively impact profits in the rest of 2015.

Cost Issues to Put Pressure on Margins: Domino's has undertaken a number of sales building efforts (like re-imaging of restaurants, technology initiatives), which offer long-term advantages but the costs related to which are expected to continue to dampen margins in the near term. Also, performance based incentives and compensation result in higher costs.

Meanwhile, avian flu in some parts of the U.S is expected to hamper the supply of chicken, which is a key ingredient for the company, thereby resulting in a further increase in chicken costs.

Challenging Macro Environment: The restaurant industry has been experiencing low consumption over the last few quarters. Despite moderate improvement in economic growth, consumers are increasing their spending only modestly as an increase in jobs in 2015 is yet to translate into significantly higher wages. Higher health care costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S. As a result, Americans are unwilling to spend much on dispensable items, which is pulling down the company's sales.

Last Earnings Report

Domino's Pizza Misses on First Quarter Earnings

Quarter Ending 03/2016

Domino's Pizza Inc. posted dismal first-quarter 2016 results, with both earnings and revenues missing the respective Zacks Consensus Estimate.

Earnings and Revenue Discussion

Report Date Sales Surprise EPS Surprise Quarterly EPS

Apr 28, 2016 -0.71% -8.25% 0.89

Adjusted earnings of $0.89 per share missed the Zacks Consensus Estimate of $0.97 by

Annual EPS (TTM)

3.52

8.3%. However, earnings climbed 9.9% year over year driven by strong sales, which offset

headwinds from higher interest expenses and negative currency translations.

Quarterly revenues increased 7.4% year over year to $539.2 million but missed the Zacks Consensus Estimate of $543 million by 0.7%.

The improvement was primarily backed by higher supply chain revenues. Increased domestic franchise and company-owned store

revenues, and higher international revenues on the back of growth in both comps and store count also led to the upside in revenues.

However, negative foreign currency translation somewhat offset the increase.

Comps

Excluding the impact of foreign currency translation, global retail sales (including total sales of franchise and company-owned units) were up 11.7% year over year, benefitting from strong domestic same-store sales. However, including the impact of foreign currency translations, sales were up 7.3%.

During the quarter, the company's domestic store (including company-owned and franchise stores) comps were up 6.4%, comparing unfavorably with 14.5% growth in the year-ago quarter, mainly due to intense competition. The company experienced year-over-year comps growth of 4% at company-owned stores, compared with a 15.9% jump in the last year quarter. Domestic franchise comps grew 6.6%, lower than 14.4% growth in the prior-year quarter.

Comps at international stores grew 7.9% (foreign currency translation included) and were better than the prior-quarter improvement of 7.8%.

Margins

The company's operating margin declined 30 basis points (bps) to 31% in the quarter owing to a rise in total cost of sales. In the quarter, cheese costs declined almost 4.5% year over year to $1.47 per pound. As a result, the company's overall market basket decreased 1.5% from the prior-year quarter level.

Recent News

Domino's Introduces Second Round of Pizza Delivery Vehicles ? May 16, 2016

Pizza operator Domino's Pizza is also investing heavily in technology-driven initiatives to boost sales. Earlier this week, the company announced that it will introduce another 58 DXP (Delivery Expert) vehicles across 23 markets in the U.S. this summer, bringing the total number of DXP vehicles to 155. The DXP is a specially designed pizza delivery vehicle with a built-in warming oven behind the driver's door, which can accommodate around 80 pizzas, along with other items. The first launch of DXPs took place in 2015.

Domino's Introduces Zero-Click Ordering ? Apr 6, 2016

Domino's Pizza has introduced the easiest way for customers to order their pizza, named Zero-Click Ordering. The new Zero Click app for iOS and Android platforms was made available from April 6. is available beginning today and allows customers to easily place their

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Easy Order.

On downloading the app and linking it to a Domino's Pizza Profile, the saved Easy Order is automatically re-ordered without a click. However, customers will also have a 10-second countdown timer before the order is placed, in case guests don't want to order.

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Industry Analysis Zacks Industry Rank: 80 / 265 (Top 30%)

Top Peers

ARCOS DORADOS-A (ARCO) BRAVO BRIO RSTR (BBRG) BJS RESTAURANT (BJRI) BLOOMIN BRANDS (BLMN) BOB EVANS FARMS (BOBE) BOJANGLES INC (BOJA) BUFFALO WLD WNG (BWLD) CHEESECAKE FACT (CAKE) CRACKER BARREL (CBRL)

Industry Comparison Retail-restrnts | Position in Industry: 19 of 55

Industry Peers

Market Cap # of Analysts Dividend Yield

Growth Score

Hist. EPS Growth (3-5 yrs) Proj. EPS Growth (F1/F0) Curr. Cash Flow Growth Hist. Cash Flow Growth (3-5 yrs) Current Ratio Debt/Capital Net Margin Return on Equity Sales/Assets Proj. Sales Growth (F1/F0)

Value Score

Cash/Price EV/EBITDA PEG Ratio Price/Book (P/B) Price/Cash Flow (P/CF) P/E (F1) Price/Sales (P/S) Earnings Yield Debt/Equity Cash Flow ($/share)

Momentum Score

Daily Price Chg 1 Week Price Chg 4 Week Price Chg 12 Week Price Chg 52 Week Price Chg 20 Day Average Volume (F1) EPS Est Wkly Chg (F1) EPS Est Mthly Chg (F1) EPS Est Qtrly Chg (Q1) EPS Est Mthly Chg

DPZ 6.11 B 12 0.74%

18.22% 17.54% 14.60% 15.70%

1.88 NA% 8.52% -10.00% 2.75 6.52%

9.56 17.72

1.89 NA

21.18 30.21

2.60 3.32%

-1.26 4.33

-0.96% 0.17% -8.82% -8.39% 11.79% 1,061,684 0.00% -2.87% 1.76% -2.97%

X Industry 424.19 M 7 0.00%

-

14.43% 14.71% 11.52%

8.10% 0.85

31.78% 5.05% 9.94% 1.45 5.68%

-

-6.47 10.88

1.56 3.36 10.17 21.69 1.17 4.10% 0.21 1.45

-

-0.04% -0.01% -5.49% -5.18% -14.61% 276,158 0.00% 0.00% 0.14% -0.45%

S&P 500 18.01 B 14 1.74%

-

8.06% 6.77% 4.10% 8.05%

1.38 41.37%

9.42% 16.33%

0.55 2.68%

-

2.92 11.26

1.80 2.91 12.03 17.77 2.20 5.54% 0.68 5.33

-

-0.20% 0.00% -1.68% 6.54% -5.19%

0 0.00% 0.18% 0.84% -0.19%

ARCO 947.43 M 2 1.72%

44.69 9.25 NA 3.19

16.06 25.44

0.35 4.00%

2.22 0.28

156.25% 172.00% 690.12%

NA 0.91 68.91% -0.25% -17.75% 1.84 -8.93%

2.27% 4.75% 11.94% 71.10% -14.61% 519,860 0.00% 414.29% 800.00%

NA

BBRG 102.87 M 3 0.00%

BJRI 1.04 B 13 0.00%

-22.22 8.60 0.78 1.86 3.63

10.94 0.25

9.43% 0.82 1.67

-1.20 9.24 1.21 3.39 7.10 21.69 1.03 4.68% 0.31 4.07

1.53% -2.45% 4.47% -0.47%

0.21 45.11%

1.01% 17.89%

1.76 0.25%

25.25% 22.10% 22.99% 14.85%

0.60 23.81% 5.05% 13.03%

1.40 10.80%

1.89% 2.84% -5.53% -10.37% -49.24% 84,742 0.00% -0.50% -0.50% -2.67%

-0.49% 0.41% -2.89% -2.56% -5.85% 208,288 0.00% 0.15% 3.27% 0.00%

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Zacks Rank Education

The Zacks Rank is calculated from four primary inputs: Agreement, Magnitude, Upside and Surprise.

Agreement This is the extent which brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of estimates being revised higher, the better the score for this component.

For example, if there were 10 estimate revisions over the last 60 days, with 8 of those revisions up, and the other 2 down, then the agreement factor would be 80% positive. If, however, 8 were to the downside with only 2 of them up, then the agreement factor would be 80% negative. The higher the percentage of agreement the better.

Magnitude This is a measure based on the size of the recent change in the current consensus estimates. The Zacks Rank looks at the magnitude of these changes over the last 60 days.

In the chart to the right, the display shows the consensus estimate from 60-days ago, 30-days ago, 7-days ago, and the most current estimate The difference between the current estimate and the estimate from 60-days ago is displayed as a percentage. A larger positive percentage increase will score better on this component.

Upside This is the difference between the most accurate estimate, as calculated by Zacks, and the consensus estimate. For example, a stock with a consensus estimate of $1.00, and a most accurate estimate of $1.05 will have an upside factor of 5%.

This is not an indication of how much a stock will go up or down. Instead, it's a measure of the difference between these two estimates. This is particularly useful near earnings season as a positive upside percentage can be used to help predict a future surprise.

Surprise The Zacks Rank also factors in the last few quarters of earnings surprises. Companies that have positively surprised in the recent past have a tendency of positively surprising again in the future (or missing if they recently missed).

A stock with a recent track record of positive surprises will score better on this factor than a stock with a history of negative surprises. These stocks will have a greater likelihood of positively surprising again.

Zacks Style Score Education

The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to focus on the best Zacks Rank stocks that best fit their own stock picking preferences.

Academic research has proven that stocks with the best Growth, Value, and Momentum characteristics outperform the market. The Zacks Style Scores rate stocks on each of these individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than a C; and so on.

As an investor, you want to buy stocks with the highest probability of success. That means buying stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B.

Value Score Growth Score Momentum Score VGM Score

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Disclosures

The analysts contributing to this report do not hold any shares of this stock. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts' personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market.

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