Dominos Pizza, Inc.(NYSE: DPZ)

Transcription

1 May 27, 2016 Dominos Pizza, Inc.(NYSE: DPZ) $ USD ( As of 05/26/16 ) Data Overview 52 Week High-Low $ $ Day Average Volume 895,341 Beta 0.61 Market Cap 6.17 B Dividend / Div Yld $1.52 / 1.24% Industry RETAIL-RESTRNTS Industry Rank 95 / 265 (Top 36%) Current Ratio 1.88 Debt/Capital NA% Net Margin 8.52% Price/Book (P/B) NA Price/Cash Flow (P/CF) Earnings Yield 3.34% Debt/Equity Summary Zacks Rank 4-Sell Style:Value: Growth: Momentum: VGM: Domino's Pizza s first-quarter 2016 earnings of $0.89 per share missed 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 momentum. However, higher labor costs is likely to remain a headwind. Despite the weakening of the U.S. dollar in 2016 compared to the prior year, currency headwinds are expected to keep profits under Elements of the Zacks Rank Agreement Estimate Revisions ( days) Value Score 100% 83% 100% 100% P/E (F1).33 P/E (F1) Rel to Industry 3.36 PEG Ratio 1.90 P/S (F1) 2.61 Q1 (Current Qtr) Revisions: 6 Up: 0 Down: 6 Q2 (Next Qtr) Revisions: 6 Up: 1 Down: 5 F1 (Current Year) Revisions: 8 Up: 0 Down: 8 F2 (Next Year) Revisions: 6 Up: 0 Down: 6 P/S (TTM) 2.74 P/CFO Magnitude Consensus Estimate Trend ( days) P/CFO Rel to Industry 9.77 EV/EDITDA Annual Growth Score Proj. EPS Growth (3-5 yrs) 18.22% Hist. EPS Growth (Q0/Q-1) 2.33 Qtr CFO Growth 3. Q1-3.12% Q2-2.25% F1-2.87% F2-2.64% 2 Yr CFO Growth Return on Equity (ROE) % Upside Zacks Consensus Estimate vs. Most Accurate Estimate NI - CFO / Total Assets Asset Turnover 2.75 Momentum Score 1 week Volume change % 1 week Price Cng Rel to Industry -1.40% Most Accurate: 0.93 Zacks Consensus: 0.93 Q1 0.00% Most Accurate: 0.87 Zacks Consensus: 0.87 Q2 0.00% Most Accurate: 4.06 Zacks Consensus: 4.06 F1 0.00% Most Accurate: 4.80 Zacks Consensus: 4.80 F2 0.00% (F1) EPS Est 1 week change 0.00% (F1) EPS Est 4 week change -2.87% Surprise Reported Earnings History (F1) EPS Est 12 week change -2.99% (Q1) EPS Est 1 week change 0.00% Reported: 0.89 Estimate: 0.97 Reported: 1.15 Estimate: 1.13 Reported: 0.67 Estimate: 0.74 Reported: 0.81 Estimate: 0.80 Average 4 Qtr Surprise Q End 03/16 Q End 12/15 Q End 09/15 Q End 06/ Zacks Investment Research, All Rights Reserved 10 S. Riverside Plaza Suite 10 Chicago, IL 6

2 The data on the front page and all the charts in the report represent market data as of 05/26/16, while the reports text is as of 05/27/2016 Overview Headquartered in Ann Arbor, MI and founded in 19, 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. Zacks Equity Research: DPZ Page 2 of 7

3 Reasons To Sell: Currency Headwinds: Dominos has considerable international presence and is therefore highly vulnerable to fluctuations in exchange rates. Though the dollar weakened slightly in 2016 compared to the previous year, the negative currency impact is still significant. 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 this year also. The company expects foreign currency to have an $8 million to $12 million negative year-over-year impact on pretax earnings in Higher costs related to boost sales are expected to keep profits under pressure. Also, foreign exchange translation is expected to negatively impact profits in the rest of Cost Issues to Put Pressure on Margins: Domino s has undertaken a number of sales building efforts (like re-imaging of restaurants, implementation of technology), 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. The Affordable Care Act, commonly known as Obamacare, would continue to have an adverse impact on restaurant operators. The Affordable Care Act requires employers to extend health benefits. The law entails restaurants with 100 or more full-time equivalent employees to offer health care coverage to substantially all full-time employees and their dependents beginning this year. Meanwhile, from the beginning of 2016, the Affordable Care Act was implemented for organizations with 50 to 99 full-time-equivalent employees. Employers will have to suffer penalties if they do not follow these rules. These will increase costs for restaurant operators thereby hurting margins. Soft Consumer Spending Environment: The restaurant industry has been experiencing low consumption over the last few quarters. Despite an improvement in economic growth and somewhat lower energy prices, consumers are increasing their spending only modestly as an increase in jobs this year is yet to translate into significantly higher spending power. 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 dine out, which is pulling down the company s sales. Risks 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 Moreover, Domino s is less affected by inflation as a result of franchising compared to other pizza companies with global operations. 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 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 seconds. During , 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, and extended it to more markets in May The company also introduced Piece of the Pie Rewards, its first digital customer loyalty program in 25 U.S. markets in The company also launched a global online ordering platform, known as GOLO, as well as deployed the Pulse point-of-sales system across the globe. Around 20 markets use GOLO and % of our stores outside of the U.S. are currently utilizing Domino's Pulse. In 2016, the company added two more ordering platforms Apple Watch and Amazon Echo, which would further boost digital orders. Digital leadership is helping the companyto 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. Last Earnings Report Domino's Pizza Misses on First Quarter Earnings Domino's Pizza posted dismal first-quarter 2016 results, with both earnings and revenues missing the respective Zacks Consensus Estimate. Quarter Ending 03/2016 Report Date Apr 28, 2016 Sales Surprise -0.71% Zacks Equity Research: DPZ Page 3 of 7

4 Earnings and Revenue Discussion Adjusted earnings of $0.89 per share missed the Zacks Consensus Estimate of $0.97 by 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. Annual EPS (TTM) 3.52 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 year over year improvement was primarily backed by higher supply chain revenues. Increased domestic franchise and companyowned 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 EPS Surprise -8.25% Quarterly EPS 0.89 The company s operating margin declined 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 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 and allows customers to easily place their 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. Zacks Equity Research: DPZ Page 4 of 7

5 Industry Analysis Zacks Industry Rank: 95 / 265 (Top 36%) 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: 42 of 55 Industry Peers DPZ Market Cap 6.08 B # of Analysts 12 Dividend Yield 0.74% Growth Score Hist. EPS Growth (3-5 yrs) 18.22% Proj. EPS Growth (F1/F0) 17.54% Curr. Cash Flow Growth 14.% Hist. Cash Flow Growth (3-5 yrs) 15.70% Current Ratio 1.88 Debt/Capital NA% Net Margin 8.52% Return on Equity % Sales/Assets 2.75 Proj. Sales Growth (F1/F0) 6.52% Value Score Cash/Price 9.02 EV/EBITDA PEG Ratio 1.90 Price/Book (P/B) NA Price/Cash Flow (P/CF) P/E (F1).33 Price/Sales (P/S) 2.61 Earnings Yield 3.34% Debt/Equity Cash Flow ($/share) 4.33 Momentum Score Daily Price Chg -1.00% 1 Week Price Chg -1.40% 4 Week Price Chg -9.23% 12 Week Price Chg -8.85% 52 Week Price Chg 11.63% 20 Day Average Volume 1,072,952 (F1) EPS Est Wkly Chg 0.00% (F1) EPS Est Mthly Chg -2.87% (F1) EPS Est Qtrly Chg -2.99% (Q1) EPS Est Mthly Chg -2.97% X Industry S&P M B % 1.74% % 8.05% 14.85% 6.77% 11.52% 4.10% 8.10% 8.05% % 41.31% 5.05% 9.40% 9.94% 16.27% % 2.66% % 5.50% % 0.49% -0.94% 0.00% -3.08% -0.62% -5.06% 5.92% % -2.62% 279, % 0.00% 0.00% 0.22% 0.08% 0.84% -0.45% -0.20% ARCO BBRG BJRI M M 1.05 B % 0.00% 0.00% NA % 8.96% 4.62% % 1.53% 25.25% % -2.45% 22.10% % 4.47% 22.99% NA -0.47% 14.85% % 45.11% 23.81% -0.25% 1.01% 5.05% % 17.89% 13.03% % 0.25% 10.80% 0.87% 1.52% -0.34% 0.96% 8.51% 0.% 6.45% -1.86% -2.16% 69.23% % -4.91% % % -5.64% 521,067 88, , % 0.00% 0.00% % -0.50% 0.15% % -0.50% 3.27% NA -2.67% 0.00% Zacks Equity Research: DPZ Page 5 of 7

6 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 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 days. In the chart to the right, the display shows the consensus estimate from -days ago, -days ago, 7-days ago, and the most current estimate The difference between the current estimate and the estimate from -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. Value Score Growth Score Momentum Score VGM Score 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. Zacks Equity Research: DPZ Page 6 of 7

7 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. Zacks Equity Research: DPZ Page 7 of 7