Domino's PizzaDPZ

The company reported a mixed second quarter, with revenue of 1.19 billion dollars slightly beating expectations while earnings of 4.07 dollars per share fell short. The most concerning detail was U.S. same-store sales, which grew just 0.1 percent. This indicates that existing stores are barely selling more than they did a year ago as consumers pull back on spending.

However, the company continues to expand its footprint, opening 209 net new stores globally during the quarter. This aggressive expansion is vital because it helps the business grow even when individual store sales are flat. Management noted that total order counts are still growing, which is a key sign that the brand is not losing customers to rivals, even if those customers are spending less per visit.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• US sales growth stalls: Same store sales in the US, which tracks performance at locations open at least a year, grew by just 0.1% this quarter. This is a sharp drop from the 3.4% growth seen in the same period last year and shows the company is struggling to increase spending at existing locations.
• Store expansion continues: The company added 209 net new stores globally this quarter, which helps offset the slower sales growth at older locations. This expansion included 183 new international spots and 26 in the US, bringing the total global store count to 22,531.
• Supply chain margins steady: The margin for the division that supplies dough and ingredients to stores rose to 12.0%, up from 11.8% a year ago. Productivity gains in how the company buys and moves goods helped protect profits even as the cost of the food basket, the price of ingredients the company sells to its stores, rose 2.2%.
• Cash returns to owners: Domino's spent $156.2 million to buy back its own shares this quarter and declared a quarterly dividend of $1.99 per share. These moves return cash to shareholders, though free cash flow for the first half of the year fell 5.5% to $313.6 million due to the timing of advertising payments.
• Management outlook: The company expects its food basket pricing to rise 2.2% for the quarter, and it continues to operate within its historical leverage ratio of four to six times. This debt level, which currently sits at 4.3 times its earnings before interest and taxes, is how management balances funding new growth while returning cash to investors.

Our take: This was a soft quarter defined by nearly flat sales at existing US stores. While the company is still successfully opening new locations at a steady clip, the 0.1% growth in established stores suggests it is getting harder to win more business from current customers, which creates a drag on the long-term growth story.