Domino’s Pizza Inc. reported a 14.5-percent same-store sales increase in the U.S. during the first quarter ended March 22, its best quarterly sales performance in at least 65 quarters, the company said Thursday.
Domino’s cited remodeling, marketing and new menu items, as well as employment growth and overall growth in the pizza sector, for its sales strength during the first three months of the year.
“There’s a lot of different things coming together that are all happening at once,” CEO Patrick Doyle said in an earnings call Thursday morning. “That’s strengthening the brand in the minds of consumers, which is building some pretty phenomenal momentum in the business.”
According to Mark Kalinowski, analyst at Janney Capital Markets, Domino’s same-store sales results marked its best performance in a single quarter since at least 1998, before quarterly earnings records can be publicly accessible.
International same-store sales rose 7.8 percent, the 85th straight quarter that Domino’s overseas sales grew.
Domino’s sales results helped boost net income 14.4 percent, to $46.3 million, or 81 cents a share, from $40.5 million, or 71 cents, the previous year. Total revenue rose 10.6 percent, to $502 million, from $453.9 million the previous year.
Domino’s sales surge pushed the company’s stock nearly 10 percent higher in early Thursday trading, helping it reach new all-time highs. The company’s stock has been on a strong run since falling into the low single-digits in the immediate aftermath of the 2008 financial crisis.
An investor who bought $1,000 worth of Domino’s stock on Jan. 1, 2009, would have more than $24,000 today.
Doyle spent much of the earnings call explaining the company’s sales increase. Kalinowski said its growth will likely be the highest in the restaurant industry for the quarter.
Doyle suggested that the company has been disciplined about introducing new menu items, such as its line of specialty chicken products.
“We’re launching fewer things in a bigger way, and are doing that very thoughtfully and purposefully, so we can execute that in stores continues to be a fundamental strength for us,” he said. “We had the best same-store sales in the restaurant industry in the first quarter so far. I think our approach on this is working awfully well.”
Doyle said the pizza category is growing by roughly 2 percent to 3 percent, but Domino’s is taking market share. The company continued to expand the methods its customers can use to order pizzas in the first quarter, including a smartwatch app and an app on Samsung Smart TVs. Roughly half of domestic orders now come through digital channels, Doyle noted.
Doyle also suggested that job growth is playing a big role in the company’s success.
“The employment market looks awfully healthy out there,” he said. “And we’ve said it many times and it continues to be true: Employed people buy more pizza than unemployed people.”
Domino’s profit margins during the quarter benefited from lower cheese prices. The company paid $1.54 per pound for cheese in the quarter, falling from $2.16 per pound the previous year. Its overall commodity basket has fallen 5.9 percent.
Domino’s operating margin rose to 31.3 percent in the first quarter, from 30.2 percent the previous year.
Franchisee margins have also improved. Doyle said that franchisees’ cash flow last year was $89,000 per unit, a record for the company. Operators are building new restaurants, adding 22 U.S. locations in the quarter and 93 units over the past 12 months. Internationally, the company’s unit growth is booming. Operators added 140 locations in the first quarter, and have added 658 new units over the past 12 months.
Domino’s sales growth has helped it handle challenges the industry is facing, particularly higher wages due to minimum wage hikes in many states and overall wage pressure.
“It’s very manageable when you’re generating this level of topline growth,” Doyle said. “We’re very comfortable with the environment. It’s certainly something we can manage through.”
He added that the minimum wage is just a starting wage, and many of the chain’s employees are drivers who make higher wages due to tips.
But company’s sales improvement is also generating some issues, including capacity constraints at high-volume units. Some locations in the system were not built to handle the volumes they are receiving.
“Our highest volume stores are a little capacity constrained,” Doyle said. “Those stores need to add new equipment, new ovens.
“That’s the highest quality problem you will ever face, and certainly something we know how to deal with. But some stores are seeing volumes they frankly weren’t built for when they opened 10-12 years ago.”
Contact Jonathan Maze at [email protected].
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