Domino’s Pizza Plunges as Earnings Fail to Deliver

Shares of Domino’s Pizza (DPZ) have plunged today after the company failed to deliver what investors had ordered.

Ceci n’est pas une Domino’s Pizza.

MarketWatch has the details:

Domino’s reported a quarterly profit of $30.6 million, or 53 cents a share, up from $26 million, or 44 cents a share, a year earlier. Excluding some tax impacts, the company reported earnings of 51 cents, up from 43 cents.

Revenue rose 6.9% to $404.1 million, as more pizza orders boosted its supply-chain business, and it added 126 new stores globally — nearly all overseas.

Wall Street analysts on average expected a per-share profit of 52 cents on revenue of $403 million, according Thomson Reuters.

Miller Tabak’s Stephen Anderson explains why investors are so gloomy:

DPZ's +5.5% domestic blended comp far outpaced the -1% domestic comp reported by Pizza Hut (owned by Yum! Brands (YUM)) last week, while the company's international units logged their 79th consecutive quarter of positive same-restaurant sales. Nevertheless, we think this is being overlooked in the pre-market by a weaker-than-expected margin that contributed to only the second quarterly earnings miss in the past two years.

We still anticipate above-peer same-restaurant sales growth both in the U.S. and overseas, reinvigorated unit growth in the U.S. (helped potentially by a new unit prototype), a more benign food cost environment, and incremental share buybacks will provide support EPS growth of at least 20% in the next two years. However, in light of the 57% year-to-date rally and the 138% gain from the June 2012 low, and as we model more difficult sales comparisons in the U.S. beginning in 4Q13 (lapping the introduction of pan pizza), we prefer to await a more significant pullback in DPZ shares.

Feltl & Co.’s Mark E. Smith–not to be confused with the Fall’s noted curmudgeon–agrees:

DPZ has a strong domestic business that is taking market share from its peers and an international business with ample room for growth over the next several years. We like DPZ's expected earnings growth rate, strong cash flow from the highly franchised business and the geographic diversification with market share gains in most markets. However, trading at 24x our new 2014 EPS estimate, we think the shares are fully valued. We would turn more positive if sales and earnings increased more than we expect or if the shares traded below $57 with no change in
fundamentals.

Shares of Domino’s Pizza have dropped 4.3% to $65.91 today, while Yum has declined 1.1% to $66.24 and Papa John’s International (PZZA) has fallen 1.1% to $71.28.