Domino’s Pizza Slips 7% On 3Q EPS Miss

Shares of Domino’s Pizza fell about 7% on Thursday after reporting lower-than-expected 3Q earnings of $2.49 per share. Analysts had anticipated earnings of $2.71 per share. However, the world’s largest pizza chain’s 3Q revenues came in at $967.7 million, higher than the Street estimates of $943.8 million.

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Domino’s Pizza (DPZ) reported global retail sales growth of 14.4% year-over-year in 3Q or 14.8% excluding foreign currency impact. U.S. same store sales grew 17.5% year-over-year, driven by customer ordering behavior in the stores during the pandemic. The international business also posted same-store sales growth of 6.2%.

The company’s operating margin decreased to 37.4% in 3Q from 38.5% in the prior-year quarter, due to higher investments relating to the COVID-19 pandemic. The company blamed “higher COVID-related labor and supplies costs” for lower margins in the quarter. DPZ’s operating margins also saw additional pressures from higher food costs.

Meanwhile Domino’s CEO Richard Allison revealed that he expects elevated costs to continue during the pandemic. (See DPZ stock analysis on TipRanks)

Following the 3Q results, Stephens analyst James Rutherford said he is “impressed” with Domino’s U.S. same-store sales growth and noted that the company’s international same-store sales growth of 6.2% was above his 2.0% forecast and the Street consensus of 2.2%. He maintained his Buy rating on the stock with a price target of $450 (12.2% upside potential).

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 15 Buys and 9 Holds. The average price target of $432.45 implies upside potential of 7.8% to current levels- with shares already surging 36.5% year-to-date.