On Monday, Bernstein SocGen Group made adjustments to Domino's Pizza's (NYSE:DPZ) financial outlook, reducing the price target to $440 from $460 while maintaining a Market Perform rating. The revision reflects concerns over the U.S. delivery sales, excluding UberEats, which have shown a negative trend after three quarters. This downturn is attributed to the vulnerability of the delivery business to economic fluctuations and rising competition.
The analyst noted that the delivery sales deterioration in the U.S. is significant, as trends turned negative after three consecutive quarters of growth. The report suggests that the delivery segment could face pressure as the effects of one-time benefits from aggregator channels like UberEats begin to wane. Despite these challenges, the carryout segment's steady growth and Domino's focus on value are expected to support the company's market share gains.
In terms of performance expectations, blended U.S. comparable sales (comps) are estimated at 2% for the fourth quarter of 2024 and approximately 4% for the fiscal year 2025. This outlook is based on the consistent three-year growth trends in carryout, which appears to attract price-sensitive consumers.
Internationally, the company is experiencing a slowdown, with comp sales deceleration to 0.8% and a revised guidance of 1-2% comp sales for 2025. The uncertainty surrounding unit growth and challenges in Europe and Asia, compounded by tensions in the Middle East, contribute to the cautious outlook for Domino's international sales recovery in the near term.
Despite the slower international sales, the impact on profits is mitigated by the fact that international business, while accounting for half of retail sales, represents less than a third of profits. The analyst also highlighted Domino's ability to refinance debt at lower rates, which has supported an aggressive share buyback program. The company has already purchased $190 million out of $215 million in year-to-date share buybacks in the third quarter alone, retiring about 1% of its market cap in that period.
In other recent news, Domino's Pizza has reported encouraging results in its third quarter 2024 earnings call. The company revealed a 6.6% increase in U.S. retail sales and a 5.1% growth in global retail sales for Q3, outpacing the quick-service restaurant pizza sector's growth. This marks the fourth consecutive quarter of same-store sales growth for the company, with a 3% increase in U.S. same-store sales. The company added 24 net new stores in the U.S., bringing the total to 6,930.
Internationally, retail sales grew by 6.5% in the first three quarters, despite falling short of expectations due to macroeconomic and geopolitical pressures. The company projects approximately 6% global retail sales growth and around 8% operating profit growth in 2024. Furthermore, Domino's anticipates 1% to 2% same-store sales growth in international markets for 2024 and 2025.
In response to market trends, the company has revised its global net store growth guidance to 800-850, down from 825-925. Despite facing challenges such as a slight decline in spending among lower-income customers, the company remains optimistic about its growth strategy. The recent launch of a new mac and cheese product and the expansion of delivery partnerships, including DoorDash (NASDAQ:DASH), are part of the company's ongoing value-focused initiatives.
InvestingPro Insights
Domino's Pizza's financial landscape presents a mix of challenges and strengths, as reflected in recent InvestingPro data. Despite the concerns raised by Bernstein SocGen Group regarding U.S. delivery sales, Domino's maintains a robust market position with a market capitalization of $14.84 billion. The company's revenue growth of 4.41% over the last twelve months and a quarterly growth of 5.14% in Q3 2024 suggest resilience in the face of economic pressures.
InvestingPro Tips highlight Domino's commitment to shareholder value, noting that the company has raised its dividend for 11 consecutive years and maintained payments for 13 years. This aligns with the article's mention of Domino's aggressive share buyback program, demonstrating a multifaceted approach to returning value to investors.
However, the InvestingPro data also reveals a P/E ratio of 26.39, which may be considered high relative to near-term earnings growth. This valuation metric could reflect the market's expectations for future performance, despite the current challenges in delivery sales and international markets outlined in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Domino's Pizza, providing deeper insights into the company's financial health and market position.
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