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Domino's Pizza Smashes Expectations for the Fourth Quarter

Domino's Pizza (NYSE: DPZ) handily beat estimates for sales and earnings when it reported fourth-quarter results on Thursday. The stock was up 17% in pre-market trading.

The shares have been one of the better performing restaurant stocks in recent years, but 2019 saw competition from third-party deliverers (Uber Eats) pressure comparable store sales. The better-than-expected fourth quarter provided much-needed validation for Domino's "fortressing strategy."

Image source: Domino's Pizza.

Robust earnings growth caps off a strong quarter

Global retail sales growth was a strong 7.6% for the quarter. That was driven in part by growth in U.S. same-store sales of 3.4%, with international comps up 1.7%. Also, Domino's opened 492 net new stores during the quarter.

Even better was the performance on the bottom line. Earnings shot up 19.1% to $3.12 for the quarter, finishing the year up 14.5% to $9.56. This was driven by strong margin performance, which improved to 38.9%, up 70 basis points over the year-ago quarter.

Overall, the positive results show that management's fortressing strategy to open more stores closer together is helping to combat competition and drive higher efficiency across the pizza chain. Management had blamed its weaker-than-expected comp-sales performance last year to the rollout of this strategy, as a short-term price to pay for long-term gain.

Management reaffirmed the two-to-three-year outlook for global retail sales growth to be up 7% to 10%, U.S. same-store sales growth of 2% to 5%, international same-store growth of 1% to 4%, and global net unit growth of 6% to 8%.

Investors also must have liked the 20% increase in the dividend payout to $0.78 per share.

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John Ballard owns shares of Uber Technologies. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.


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