Domino's (DPZ) Banks on Digital Initiatives, Debts High
Domino's Pizza, Inc. DPZ is likely to benefit from strong digital ordering system, menu innovation, and international expansion efforts. However, coronavirus-related woes along with high debt levels are headwinds.
Let’s discuss the factors highlighting why investors should hold on to the stock for the time being.
Factors Driving Growth
Domino’s is focusing on various sales-building initiatives to stay afloat during the pandemic. The company is investing heavily in technology-driven initiatives like digital ordering to boost sales. It has started driverless pizza delivery services in Houston, TX. To this end, the company has partnered with Nuro, a robotic company, for delivery services. The extended ways to order a pizza has thus kept Domino’s at the forefront of digital ordering and customer convenience. Moreover, other digital enhancements in terms of ordering, selecting service methods, paying and tipping were implemented to boost consumers’ experience. Also, the company’s digital loyalty program — Piece of the Pie Rewards — continues to contribute significantly to traffic.
The company continues to innovate aggressively across all aspects of its business — including GPS, e-bikes, AI in-store technology, great food and an evolving digital experience. In 2020, the company rolled out GPS driver tracking across its store in the United States. Apart from this, enhanced make-line and cut-table technology and AI-enabled forecasting are being rolled out for better matching of demand with capacity. Notably, the initiatives are likely to enhance speed, accuracy and efficiency of services in the upcoming periods.
In terms of menu additions, the company rolled out some new products. The company launched new chicken wings with improved sauces on Jul 7, 2020. It also unveiled two new specialty pizzas, namely Cheeseburger pizza and Chicken Taco pizza, on Aug 24, 2020. Notably, the items have been witnessing positive customer feedback.
Since Domino’s generates a chunk of revenues from outside the United States, it is committed to accelerating presence in high-growth international markets to boost business. The company’s international growth continues to be strong and diversified across markets, courtesy of exceptional unit level economics. The company inaugurated 175 (36 net U.S. stores and 139 net new international stores) global net store openings during first-quarter fiscal 2021.
Concerns
In view of the unprecedented impact of coronavirus on its business and the restaurant industry, the company has not provided any earnings guidance for 2021. The company announced that the coronavirus pandemic will continue to hurt international markets for some time. Due to uncertainties and dynamic nature of the crisis, the company continues to monitor the pandemic to operate and survive amid such trying times. In the past year, shares of the company have gained 9.7% compared with the industry’s 45.6% growth.
Coming to the balance sheet, the company’s long-term debt, as of Mar 28, 2021, stood at approximately $4.12 billion (almost flat sequentially). The company ended the fiscal first quarter with cash and cash equivalent of $267.7 million compared with $168.8 million in the previous quarter. Although cash and cash equivalent has increased sequentially, it might still be difficult to manage high debt level.
Zacks Rank & Key Picks
Domino's currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Dine Brands Global, Inc. DIN and Texas Roadhouse, Inc. TXRH, each sporting a Zacks Rank #1.
Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.
Dine Brands’ 2021 earnings are expected to surge 268.7%.
Texas Roadhouse has a three-five year earnings per share growth rate of 10%.
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