Domino's Pizza Q2 earnings: Uber Eats partnership seen as a potential catalyst for growth
A boost for Domino's Pizza is expected to be seen as soon as Q4.
Domino's Pizza (DPZ) is betting big on its exclusive partnership with UberEats (UBER).
Shares of the pizza giant are moving higher in intraday trading on Monday, following the pizza giant's Q2 quarterly results. Revenue of $1.02 billion missed analysts' average estimate of $1.07 billion, while profit of $3.08 per share beat expectation of $3.05, according to Refinitiv data.
On a call with investors, the company's executives shared potential catalysts to drive sales growth. They include that 12-month partnership with the delivery giant UberEats, tech innovation, lower food costs, and the relaunch of its loyalty app, among others.
The initial test with UberEats is set to begin in the fall for US consumers in four pilot markets and is expected to reach markets across the country by the end of this year as it makes its debut into the delivery, aggregated marketplace.
CEO Russell Weiner said the the company aims to compete for its "fair share of this market over time" and believes there is an opportunity for roughly $1 billion of incremental sales in the US from the partnership.
"Our momentum will build starting in Q4 and will significantly impact the performance of our business in 2024 and beyond," Weiner said. In Q2, US same-store sales grew 0.1%. Year-to-date, shares are up roughly 13%.
The company hopes to target a higher-income customer with the partnership.
On the call, Weiner said, "By participating in aggregated marketplace, we'll drive net incremental orders in the long term by tapping into a new group of consumers" that are willing to pay "premium" prices.
Orders placed on the UberEats platform will be delivered by Domino's delivery workers, but CFO Sandeep Reddy also explained how royalties will work.
"Tech fees [are] based on order counts, so every incremental order that actually comes through the platform, a tech fee will apply, same with any other order," Reddy said. The rest of royalties will be included in its reports, he added. "It's really the food sales as well as the delivery fee, so our calculation of same-store sales and retail sales will include those."
As far as service fees or charges that Uber takes, they won't appear on Domino's side, only Uber's.
The company is also homing in on tech innovation to drive delivery sales, including its recently announced pinpoint delivery, allowing customers to order pizza wherever they are.
The cost of food trending lower is also providing a potential boost to the company's top line. In 2023, the food basket is up 1% year-to-date, but was down 2.4% last quarter. It also could provide a boost to profitability for franchisee owners.
"If the current level of food basket deflation that happened in Q2 continues — it's mostly driven by cheese by the way — we should continue to see material upside on the food basket as we go through the balance of the year. This makes a huge difference to profitability of our franchisee. And I think that helps repair some of the pressure that they took last year in their profitability," CFO Reddy said.
Another catalyst is relaunch of its updated loyalty program, set to go out in September.
"One of the things that's going to be true in the new loyalty program is we're going to recognize that a carryout customers ticket lower, and so the hurdle for getting points will be lower. Secondarily, we want to engage people at all levels ... There'll be points at various levels from a redemption standpoint. So we think this is a truly new and improved program for our customers and a profitable one for our franchisees," Weiner said on the call.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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