Domino's Pizza: Outlook for the Berkshire Holding After Q1 Drop

Key Points

• Berkshire Hathaway has stood by its position in Domino's Pizza for more than a year amid the stock's weak performance.
• Domino's shares took a significant tumble after the company's latest earnings report, as macro factors and competition hurt sales.
• Domino's is expanding while customers close down stores, but it is questionable whether the juice in this stock is worth the squeeze.

Warren Buffet's Berkshire Hathaway NYSE: BRK.B isn’t afraid to take stakes in companies that the market is sour on. One of these names is Domino’s Pizza NASDAQ: DPZ. Berkshire initiated a position in Domino’s during Q3 2024, purchasing 1.3 million shares.

Despite the stock being essentially flat from then to the end of 2025, Berkshire has more than doubled its position to over 3.4 million shares.

This is indicative of Berkshire’s long-term investment style, with the company continuing to buy a stock it sees value in despite the market voting against it.

Notably, Domino’s is starting off 2026 in a bad way, with shares down nearly 20%. Much of this decline is due to the firm’s latest earnings report, which caused the stock to tank nearly 9% in one day. After a difficult quarter, here’s where Domino’s stands going forward.

Domino’s Misses, Lowers Guidance for 2026

In Q1 2026, Domino's posted revenue of $1.15 billion, slightly below expectations of $1.16 billion. Overall, sales increased by 3.5% year over year. However, the company’s adjusted earnings per share miss was more significant. The figure fell by almost 5% YOY to $4.13. Analysts anticipated $4.29, which implied a decline of just 1%.

Notably, U.S. same-store sales increased by just 0.9%. This indicates that new store openings drove the vast majority of Domino’s growth. While new stores are a legitimate growth driver, they don’t provide an “apples to apples” comparison and say less about the health of a business. A company can boost sales simply by opening stores, but that doesn’t mean existing stores are performing well.

Adding insult to injury, Domino’s lowered its guidance for the full year. The company sees its same-store sales growing by “low single digits” in both U.S. and international markets. This compares to past expectations of 3% in the U.S. and 1% to 2% internationally. While “low single digits” aligns with this, it is still seen as a downgrade, as any growth above 0% would be within the new guidance.

Weak Consumer, Elevated Competition Hit Domino's

Domino’s attributed its poor performance to multiple factors. As described by the company, consumer sentiment hit lows not seen since the COVID pandemic. Despite Domino’s focus on affordability, low consumer sentiment is damaging to restaurant companies. This lines up with Domino’s low same-store sales growth, suggesting that customers made fewer repeat purchases. Still, since the beginning of 2023, the figure has averaged around 2.3%, indicating that it is reasonable to expect a recovery.

Additionally, competitors offered better deals to consumers, targeting an area that Domino's has historically led. However, Domino’s top rivals are also facing distress as they look to compete on price. Pizza Hut (a Yum! Brands NYSE: YUM subsidiary) plans to close 250 stores in 2026. Meanwhile, Papa John's International NASDAQ: PZZA is looking to close 300 stores in North America during 2026 and 2027 combined. On the other hand, Domino’s plans to open more than 175 stores in the U.S. in 2026.

Lower prices favor scale. Companies have to offset lower sales per order with higher order volume to generate greater revenue. Among this group, Domino’s is the only one increasing its scale. This raises questions about Pizza Hut and Papa John’s ability to sustainably match Domino’s prices when they are reducing store counts.

Domino's: Long-Term Value Doesn’t Equal Long-Term Outperformance

Domino's has grown its free cash flow by a compound annual rate near 16% since Q1 2023. Currently, its valuation implies long-term free cash flow growth of less than half of this. Strong free cash flow growth came despite revenue declining in 2023 and growing by only around 5% in 2024 and 2025. Because Domino's has seen large margin improvements, free cash flow has risen much faster than sales. Notably, the firm’s free cash flow margin is up around 400 basis points since Q1 2023.

Domino's is a leader in the mature pizza market. Thus, it is difficult to say the firm should expect to generate growth that is materially higher than in the recent past. This makes continued margin expansion vital to the stock’s outlook. Domino’s affordable pricing and its ability to continue opening new stores support future margin expansion.

The MarketBeat consensus price target on Domino’s sits near $421, implying more than 20% upside in shares. However, targets moved down considerably after the firm’s latest report, with the average of immediately updated targets sitting near $407.

Ultimately, there is likely some value in Domino's shares. However, it feels unlikely that this name in a mature industry would deliver better long-term performance than the S&P 500 Index at current levels. It will be interesting to see what Berkshire Hathaway does with its Domino’s position over the coming quarters, with Warren Buffet now retired.