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Should investors avoid Domino shares next week?


Dominos Pizza (NYSE:DPZ) shareholders have had a brutal 2022 so far, with shares down more than 25% since early January. The fast-food giant saw impressive growth during the early stages of the pandemic, but that pace of expansion has slowed.

The revenue picture is also muddled by soaring costs on everything from transportation to labor to ingredients like cheese. And, of course, every major restaurant chain is trying to gain market share in the critical area of ​​home delivery.

These concerns will be front and center when Domino’s announces its latest results in a few days. Let’s take a closer look at a few metrics from that April 28 report that could determine whether the stock rebounds from its rocky start to 2022.

Image source: Getty Images.

Sales trends

Domino’s does not publish near-term sales outlook, but most investors who follow the stock expect to see a slight increase in earnings. Sales are expected to rise about 5% to $1 billion, according to these projections.

There is a lot of noise in the pizza chain’s net sales, which will be impacted by fluctuations in exchange rates and a comparison with unusually strong growth during previous phases of the pandemic. For a better on-demand read, watch comparable store sales, which rose 1% in the prior quarter in the U.S. and 2% internationally.

Domino’s needs these numbers to stay in positive territory to support its ambitions to significantly increase its number of stores worldwide over the next few years. Slow growth could reflect growing competition as nearly every restaurant chain today is pumping money into their home delivery network.

Prices and costs

Its franchise model shields Domino’s from much of the inflation that plagues the industry today. But franchisees will always be pressured by rising input, labor and transportation costs.

Look for the chain to pass on almost all of these costs in the form of higher prices or reduced portions in some cases. Ideally, however, delivery and takeout volumes will not be affected by the change.

Watch these numbers for signs that Domino’s is increasing sales, but only at the expense of shrinking market share. Ideally, the company can handle both higher prices and growing volumes so that its operating margin continues to set the pace in the industry.

DPZ Operating Margin (TTM) Data by YCharts

Look forward

Most investors will be closely watching comments from CEO Ritch Allison and his team on near-term growth prospects. Wall Street pros currently peg sales gains at around 7% in 2022, about the same increase as the previous full year.

If management’s comments change that prediction on Thursday, expect the stock price to react accordingly. Still, investors shouldn’t read Domino’s forecast for 2022 too much, even if it turns more pessimistic.

The company looks forward to many more years of expanding its store base, both in the mature US market and internationally. This progress will be the main driver of long-term returns for investors.

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Demitri Kalogeropoulos has no position in the stocks mentioned. The Motley Fool owns and recommends Domino’s Pizza. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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