When you’re in the mood for pizza, who do you call? For many these days, its Domino’s (DPZ), and a look at the company’s chart proves it:
Domino’s Pizza has been a stock market darling for the last half a decade. In the five-year period to September 2020, shares of the company are up over 230%, and what’s more, they largely continued to increase in value through the worst of the coronavirus crash. Since its beginnings in 1960, Dominos has grown to become the largest pizza company in the world based on global retail sales, with 16,528 stores operating across 80+ countries. The company has become one of the most ubiquitous pizza stops in the United States and has consistently found creative ways to differentiate their products and services. At last check, in addition to your typical pizza-joint fare, Dominos locations also sold wings, pasta, bread bowls, oven baked sandwiches, and desserts. In 2019, Dominos generated $689.6M in EBITDA on $3.6 billion in global revenues, 87% of which came from franchise fees and supply chain revenues. Digging deeper into that number reveals that a whopping 58% of Domino’s revenues was generated by its “Supply Chain” segment, which consists of sales of ingredients and equipment to franchised Domino’s locations. This highlights the degree to which Domino’s can continue to increase its revenues alongside its franchised restaurant count.
Interestingly, Domino’s was incredibly prepared for the coronavirus pandemic that made landfall in early 2020. Back in 2019, Domino’s was already testing methods to allow customers to pick up their pie without employee contact and without ever entering the physical store. So, when the pandemic hit, and customers were unable to enter stores, Domino’s was ready with a solution.
From this perspective, Domino’s is a member of a club of businesses that had already invested heavily in technology aimed at enhancing and accelerating the customer experience. The company has worked to expand the platforms through which customers can order their favorite pie, even going so far as to introduce “touchless ordering”, where customers who open the Domino’s app, do nothing for 10 seconds, and have their most frequent order sent to their favorite location. This investment has paid dividends for Domino’s, which estimates that 65% of its 2019 orders were digital, compared to a 5% to 10% average for your typical quick-service restaurant.
All this innovation comes with a price. At the time of writing, shares of Domino’s were trading at a lofty 34.3 Price to Earnings ratio, which makes the shares quite expensive relative to the S&P 500, which was trading at 22.2. However, Domino’s continues to deliver, reporting year over year revenue growth of 13.3%, year over year EPS growth of 19%, and a profit margin of 11.1% at its last earning report. Strong financial performance, and a pre-existing passion for technology-enhanced customer experience make Domino’s an interesting asset for investors who are looking for companies that have positioned themselves well to succeed in the post-pandemic era.
Source: Domino’s Q4 2019 10Q
Source: Domino’s Q4 2019 10Q
Source: Dominos Q2 2020 10Q