An Earnings Smasher For The History Books
Domino’s Pizza (NYSE: DPZ) just delivered what can only be described as an earnings smasher. The company was expected to deliver solid results for the quarter, what with the stay-at-home mentality that has set in around the world, but to beat what were already aggressive targets is a sign of how strong stay-at-home trends are. I myself have plenty of experience in commercial kitchens, cooking isn’t a chore, but it’s nice to break up the routine with a hot fresh pizza delivered by the local Domino’s.
Revenue totaled $920.02 million across the company’s footprint. That’s a 13.4% increase from the same quarter last year and $6.4 million or 70 basis points above consensus. Strength was seen in all segments but Domestic (+16.1%) shone brightest. International sales cames in at +1.3%, both Domestic and International comp growth was well above consensus. The real surprise in the report comes on the bottom line. The company exceeded the consensus for GAAP revenue by $0.71 or 31%. That’s 31, not 31 basis points.
Growing, Growing, Growing
It is, without a doubt, the COVID-19 pandemic has had a positive impact on Domino’s revenue but it is not the only reason for growth. The company has been aggressively growing its footprint in Domestic and International markets adding 84 new stores in the last quarter. Discounting the impact of the new stores, global retail sales are up only 5.7%. This, of course, includes store-closures during the peak pandemic period. Based on reports the company is now operating at near 98% capacity including the addition of new stores.
“Revenues increased $108.4 million, or 13.4%, in the second quarter of 2020. This increase was primarily due to higher global retail sales resulting from U.S. same-store sales growth and an increase in U.S. store counts during the trailing four quarters, resulting in higher supply chain, U.S., U.S. Company-owned stores revenues.”
Looking forward, there are two things working in Domino’s favor that should help lift share prices. The first is that the company is on track to deliver a solid beat on this year’s consensus estimates. Today’s report brings the YTD total to 53% of the 2020 consensus target leaving the strongest quarter of the year still to come. This means the analysts will soon begin upping their estimates and targets and that is always a good thing for share prices. The second is that growth is expected on a YOY basis. Add in the fact the analyst’s estimates are likely too low and there is a high-probability this stock could see a prolonged uptrend develop.
Aggressive Dividend Growth Is In The Forecast
I will be honest, Domino’s dividend yield is not something to get excited about. At 0.75% it is barely beating the yield on the 10-year Treasury but it has several attractions Treasury Bonds don’t. The first is that the yield is growing, Domino’s has increased its distribution for the last 7 years and is a high-probability candidate for future increases. The company’s payout ratio is very low below 30% and cash flow/debt is no problem so there really is no reason not to expect another increase.
The exciting part is that Domino’s has been increasing its yield aggressively over the past 7 years. The 5-year CAGR is above 25% which, when applied to the current payout, is worth another 20 basis points. When you add in the fact the company is growing and delivering capital gains at the same time the yield doesn’t really matter, anything is the icing on the cake.
The Technical Outlook: Bullish
Domino’s Pizza has been in an uptrend since the middle of 2019, long before the pandemic set in, and that trend has only gained strength in recent months. Today’s news has the stock trading at a new all-time high in the pre-market session and confirming a strong signal in the indicators that has developed on the weekly charts. The weekly charts show a stock bouncing from key support at the 150-day moving average, a bounce that is confirmed by bullish crossovers in both MACD and stochastic. Assuming this rally takes hold, the targets for this move are in the $460 t0 $520 range. Targets that may be reached well before the end of the year.
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