Domino’s Pizza released its quarterly earnings report and the numbers were better than many investors had anticipated. Earnings per share reached $2.20, which was higher than the anticipated earnings of $2.09 per share.
After the announcement, Domino’s shares actually went up six percent in premarket trading. However, revenue and same-store sales growth still fell short.
Domino’s total revenue was $836 million as opposed to the $849.60 million investors were expecting. And same-store sales growth reached 3.9% instead of the anticipated 4.22%.
Domino’s aggressive growth strategy
Cowan analyst Andrew Charles argued that Domino’s “fortressing” strategy is the reason for the drop in same-store sales. This strategy involves opening new stores near existing stores and restructuring the delivery territories.
Domino’s first introduced this strategy in 2010 as a way to decrease delivery times and keep customers happy. In 2018, the fortressing strategy hurt U.S sales by one to 1.5 points but Domino’s executives felt the long-term growth strategy was worth it.
And this may be what Domino’s has to do to remain competitive in the market. The company not only has to compete with other pizza companies but also with third-party delivery services like Grubhub and DoorDash.
At the company’s investor meeting in January, it shared that it plans to reach 25,000 locations worldwide by 2025. Domino’s currently has 16,000 global locations and grew by 200 locations in 2018, with most being opened overseas. In the U.S., many of Domino’s store locations are franchises.
Domino’s has 10,000 stores located outside the U.S., which shows how dependent the company is on its international business. Company executives plan to add another 5,000 international stores in the coming years.
But Domino’s isn’t the only pizza company that continues to grow. Both Pizza Hut and Papa Johns continue to grow and expand their storefronts.
And third-party delivery services will only continue to gain traction in the coming years. There is the risk that if Domino’s continues to open new stores then the market could become oversaturated.
Analysts seem to be mostly divided over Domino’s future growth prospects. The company is growing its stores at a rapid pace but sales continue to slow. So the question is whether or not Domino’s will be able to maintain its momentum in the coming years.