Domino's (DPZ): Comps Prospects Bright, Challenges Prevail

On Sep 5, we issued an updated research report on recognized pizza delivery company Domino's Pizza, Inc. (NYSE:DPZ) .

Prospects

We note that the pizza category is a fast growing segment in the U.S. quick-service restaurant industry and Domino’s ranks as the second-largest pizza chain in the world. Its solid brand positioning will thus help boost sales in the upcoming quarters.

Notably, Domino's revenues surpassed the Zacks Consensus Estimate in six of the last seven quarters. Moreover, the second quarter of 2016 marked the 21st consecutive quarter of positive same-store-sales domestically and 90th quarter of positive comps growth in the international segment. Going forward, its digital ordering system, focus on re-imaging and other sales initiatives are expected to help sustain the momentum.

Moreover, the company is working toward reducing its ownership of restaurants and is focusing more on re-franchising as it minimizes capital requirements and facilitates earnings per share growth and ROE expansion.

Additionally, the company’s commitment to expand presence in high-growth international markets bode well. Notably, many of its international franchisees continue to generate robust returns.

Risks

However, despite the weakening of the U.S. dollar against major foreign currencies in the recent past, the negative currency impact is a concern for Domino’s as it has sizeable international operations. In fact, the company anticipates foreign currency to have an $8 million to $12 million year-over-year impact on pretax earnings in 2016.

Moreover, Domino’s has undertaken a number of sales building efforts (like re-imaging of restaurants, implementation of technology), which offer long-term advantages. However, the costs involved are expected to continue to hurt margins in the near term. Also, performance-based incentives, compensation and labor costs are resulting in higher expenses and may further put margins under pressure.

Further, a soft consumer spending environment in the U.S. restaurant space is denting the company’s sales.

Zacks Rank & Stocks to Consider

Domino’s currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Papa John's International Inc. (NASDAQ:PZZA) , Del Taco Restaurants, Inc. (NASDAQ:TACO) and Wingstop Inc. (NASDAQ:WING) . All the three stocks carry a Zacks Rank #2 (Buy).

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DOMINOS PIZZA (DPZ): Free Stock Analysis Report

PAPA JOHNS INTL (PZZA): Free Stock Analysis Report

WINGSTOP INC (WING): Free Stock Analysis Report

DEL TACO RSTRNT (TACO): Free Stock Analysis Report

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