July 24, 2023: Domino’s Pizza, Inc. has reported its second-quarter fiscal 2023 results, revealing a mixed performance with earnings surpassing expectations but revenues falling short of projections. The company experienced a decline in its top line due to reduced supply-chain revenues, lower market basket pricing, and decreased order volumes. Additionally, franchising several U.S. company-owned stores in Arizona and Utah contributed to the revenue lag. As a result, the company’s revenue amounted to $1,024.6 million, missing the consensus estimate of $1,065 million by 3.8%.
On the positive side, Domino’s exceeded the Zacks Consensus Estimate for adjusted earnings per share (EPS), reporting $3.08 compared to the expected $3.04. This marked a 9.2% increase from the prior-year quarter’s figure of $2.82. Despite the revenue challenges, the company improved its bottom line, delivering higher profits to investors.
Domino’s, like other restaurant chains, raised menu prices and delivery fees over the past year to mitigate rising labor and raw material costs. However, these higher prices have impacted consumer demand, leading some cost-conscious customers to cut back on spending, especially for expensive items like pizza and chicken wings. This trend has affected the company’s total revenue, which fell by 3.8% in the second quarter.
Despite the revenue challenges, Domino’s has improved its gross margins by focusing on cost reductions. The company’s gross margin expanded by 320 basis points (bps) year over year, reaching 39.5% in the second quarter. Supply chain costs, a burden on earnings in recent quarters, declined by nearly 6%, providing relief and contributing to the higher gross margins. Investors have shown positive interest in the company’s profitability, causing its shares to rise by 2% after the earnings announcement.
However, Domino’s continues to face challenges in the delivery business, which is expected to remain under pressure in the third quarter. To address this, the company plans to introduce an updated loyalty program in September and is actively seeking benefits from its recently announced partnership with Uber Eats. The collaboration aims to expand its customer base by allowing users to place orders through Uber’s food-delivery apps, providing a potential avenue for growth.
In summary, Domino’s Pizza has encountered revenue obstacles due to higher prices impacting consumer demand. However, the company’s focus on cost reductions and strategic partnerships may help mitigate challenges and drive profitability in the future. Investors should closely monitor the company’s efforts to attract customers through its collaboration with Uber Eats and the effectiveness of its loyalty program as potential indicators of future growth.