Domino's (NYSE:DPZ) Reports Sales Below Analyst Estimates In Q4 Earnings, But Stock Soars 5.4%

Full Report / February 26, 2024

Fast-food pizza chain Domino’s (NYSE:DPZ) missed analysts' expectations in Q4 FY2023, with revenue flat year on year at $1.40 billion. It made a GAAP profit of $4.48 per share, improving from its profit of $4.43 per share in the same quarter last year.

Domino's (DPZ) Q4 FY2023 Highlights:

  • Revenue: $1.40 billion vs analyst estimates of $1.42 billion (1.3% miss)
  • EPS: $4.48 vs analyst estimates of $4.40 (1.9% beat)
  • Free Cash Flow of $122.6 million, down 22.7% from the previous quarter
  • Gross Margin (GAAP): 38.4%, up from 36.8% in the same quarter last year
  • Same-Store Sales were up 2.8% year on year
  • Store Locations: 20,591 at quarter end, increasing by 711 over the last 12 months
  • Market Capitalization: $15.13 billion

Founded by two brothers in Michigan, Domino’s (NYSE:DPZ) is a globally recognized pizza chain known for its creative marketing and fast delivery.

The legendary brand was started in 1960 when Tom and James Monaghan purchased a small pizza store called DomiNick's. To fund the acquisition, Tom, an avid car collector and college student, raised capital by selling his prized collection.

Since then, Domino’s has evolved into a pizza powerhouse and expanded its menu to include specialty pizzas, lava cakes, and its delicious Bread Twists, which are “the best thing since sliced bread”.

Its success can be attributed to its innovative marketing and focus on delivering pizzas quickly. Some iconic stunts include its infamous “The Noid” mascot, the antihero and saboteur of quality, and delivery promise of “30 minutes or less”, which became a hallmark of the company's commitment to speed and customer satisfaction.

Domino’s true differentiator, however, is its dense network of stores and technology. The company’s “fortressing” strategy, which involves opening many stores in a concentrated area, improves delivery times and brand awareness, while its advanced computerized system streamlines ordering, empowering customers to know exactly when a pizza is assembled, put in the oven, and ultimately ready for pickup or delivery in their mobile app. These investments have enabled Domino’s to become the number one pizza brand by market share.

Traditional Fast Food

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Fast-food pizza competitors include public companies Papa John’s (NASDAQ:PZZA) and Pizza Hut (owned by Yum! Brands, NYSE:YUM) as well as private company Little Caesars.

Sales Growth

Domino's is one of the larger restaurant chains in the industry and benefits from a strong brand, giving it customer mindshare and influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 5.5% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was weak , but to its credit, it opened new restaurants and grew sales at existing, established dining locations.

Domino's Total Revenue

This quarter, Domino's revenue grew 0.8% year on year to $1.40 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 7.6% over the next 12 months, an acceleration from this quarter.

Number of Stores

When a chain like Domino's is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, Domino's restaurant count increased by 711, or 3.6%, to 20,591 locations in the most recently reported quarter.

Domino's Operating Retail Locations

Taking a step back, Domino's has rapidly opened new restaurants over the last eight quarters, averaging 5.3% annual increases in new locations. This growth is much higher than other restaurant businesses. Analyzing a restaurant's location growth is important because expansion means Domino's has more opportunities to feed customers and generate sales.

Same-Store Sales

Domino's demand within its existing restaurants has barely risen over the last eight quarters. On average, the company's same-store sales growth has been flat.

Domino's Year On Year Same Store Sales Growth

In the latest quarter, Domino's same-store sales rose 2.8% year on year. This growth was an acceleration from the 1.8% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Gross Margin & Pricing Power

Domino's gross profit margin came in at 38.4% this quarter. up 1.7 percentage points year on year. This means the company makes $0.37 for every $1 in revenue before accounting for its operating expenses. Domino's Gross Margin (GAAP)

Domino's has good unit economics for a restaurant company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see above, it's averaged a healthy 37.4% gross margin over the last two years. Its margin has also been trending up over the last 12 months, averaging 6.3% year-on-year increases each quarter. If this trend continues, it could suggest a less competitive environment where the company has better pricing power and more stable input costs (such as ingredients and transportation expenses).

Operating Margin

Operating margin is an important measure of profitability for restaurants as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

This quarter, Domino's generated an operating profit margin of 18.3%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

Domino's Operating Margin (GAAP)

Zooming out, Domino's has exercised operational efficiency over the last eight quarters. The company has demonstrated it can be one of the more profitable businesses in the restaurant sector, boasting an average operating margin of 17.6%. On top of that, its margin has improved, on average, by 1.4 percentage points each year, showing the company is strengthening its fundamentals.


Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q4, Domino's reported EPS at $4.48, up from $4.43 in the same quarter a year ago. This print beat Wall Street's estimates by 1.9%.

Domino's EPS (GAAP)

Between FY2019 and FY2023, Domino's adjusted diluted EPS grew 53.4%, translating into a decent 11.3% compounded annual growth rate. This growth is materially higher than its revenue growth over the same period and was driven by excellent expense management (leading to higher profitability) and share repurchases (leading to higher PER share earnings).

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 6.9% year-on-year increase in EPS.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Domino's free cash flow came in at $122.6 million in Q4, up 13.1% year on year. This result represents a 8.7% margin.

Domino's Free Cash Flow Margin

Over the last two years, Domino's has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 9.7%, quite impressive for a restaurant business. Furthermore, its margin has averaged year-on-year increases of 2.3 percentage points. This likely pleases the company's investors.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).

Domino's five-year average ROIC was 94.3%, placing it among the best restaurant companies. Just as you’d like your investment dollars to generate returns, Domino's invested capital has produced excellent profits.

Key Takeaways from Domino's Q4 Results

Although Domino's missed analysts' revenue estimates this quarter, we were glad its EPS beat expectations. The lower revenue was caused by fewer store openings than expected (394 new stores vs estimates of 433) while the higher profitability was driven by outperformance in its U.S. same-store sales growth, which clocked in at 2.8%, marking an acceleration from its 1.6% growth for all of 2023. 

Furthermore, the company's Board approved a 25% increase in its quarterly dividend to $1.51 per share and granted an additional $1.0 billion for its share repurchase program. Lastly, on December 7, 2023, the company shared its long-term estimates at its Investor Day; management forecasts 7%+ annual retail sales growth, 1,100+ annual net store additions, and 8%+ annual operating income growth for the foreseeable future.

Overall, this was a mediocre quarter for Domino's, but the market is likely happy about the company's accelerating U.S. same-store sales growth. The stock is up 5.4% after reporting and currently trades at $457 per share.

Is Now The Time?

Domino's may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We have other favorites, but we understand the arguments that Domino's isn't a bad business. Although its revenue growth has been a little slower over the last four years, its growth over the next 12 months is expected to be higher. And while its poor same-store sales performance has been a headwind, its new restaurant openings have increased its brand equity.

Domino's price-to-earnings ratio based on the next 12 months is 27.6x. There are things to like about Domino's and there's no doubt it's a bit of a market darling, at least for some investors. But it seems there's a lot of optimism already priced in and we wonder if there are better opportunities elsewhere right now.

Wall Street analysts covering the company had a one-year price target of $437.33 per share right before these results (compared to the current share price of $457).

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