Domino's focused on winning the value battle, no matter who wins the White House
07/24/2024 22:49With consumers tightening their belts, the pizza chain is fighting to get more eaters in the door.
Domino's Pizza (DPZ) aims to win over consumers with its value proposition, regardless of the economic or political environment.
"No matter who's in the White House, no matter who's in Congress ... as long as the cards are dealt and everyone's dealt the same deck, as long as our competition and us, we've got the same parameters, I think we win," CEO Russell Weiner told Yahoo Finance.
In Q2, Domino's US same-store sales slightly missed expectations with a 4.8% growth, compared to estimates of 4.92%.
Its US company-owned businesses saw same store sales growth come in at 4.5%, versus the anticipated 6.08%. Franchisees were up 4.8%, versus the 4.87% expected.
With ongoing deals like its $6.99 mix and match, which include various options like pizza, pasta, chicken, and desserts, or a $10.99 large 3-topping New York Style Pizza, which Weiner (a New Yorker) said is adding incremental customers, Domino's is trying to compete for dollars as eating out becomes increasingly expensive.
The company "purposely" raised prices when it needed to a couple of years ago, Weiner said, "then we stopped," unlike many fast food competitors. Many chains are now introducing value meals to get consumers back.
"Our value is not whiplashing people, it's always been here, where it can be count on and you can get what you want," Weiner said, pointing to the company's growth across all income cohorts. It also posted positive growth in order counts for delivery and carryout last quarter.
As consumer confidence in the US trends lower, he expects consumers to keep coming.
"We've found ourselves during good times and bad now. As we continue to grow as a brand, we're [in a] pretty steady state through different economic times," Weiner said.
Morningstar analyst Sean Dunlop said the company is "pretty well positioned to compete in an environment like this."
"The average check for Domino's is about $22.50, you can feed somewhere between two and three people," he said, calling pizza as a category a "pretty good per meal value."
However, Domino's shared a pullback on international growth guidance when it reported Q2 results last Thursday. Coupled with a slight miss on its US results, its shares moved lower, down 21% in the last month alone.
Q2 results "did not live up to our elevated expectations" Baird analyst David Tarantino wrote in a note to clients. Yet he's "optimistic" about the "bigger picture," calling the top line results as "fairly solid on an absolute/relative basis."
"Domino's has the drivers in place to sustain standout comparable performance in upcoming periods amid an otherwise challenging macroeconomic backdrop," he wrote.
UBS analyst Dennis Geiger said that US same store sales could potentially end the year with low-single digit growth, "particularly in this unforgiving market." But the company has "compelling catalyst path," with third-party delivery partnerships (like UberEats), menu innovation like New York style pizza, and gains from year two of its loyalty program.
BTIG analyst Peter Saleh called the dip after earnings an opportunity to buy.
"We think Domino's is executing its domestic strategy brilliantly, gaining market share and driving traffic with all income groups, while the broader industry is struggling." Saleh added that "traffic growth is a direct result of the rewards program change last year."
As it looks to keep prices low, Weiner is aware of new changes that could impact that ability, like higher wages in California.
It's important to note Q2 "benefitted from 1.5%" of price increases, "which was inclusive of high single digits [increase] in California," CFO Sandeep Reddy said on the call.
"We haven't had closures [in California], we haven't had a layoff our drivers, like some of our competition has, but it's a long haul, and in the short term, you're definitely going to lose orders when you increase prices," Weiner said.
As repercussions of the higher wage begin to come to fruition, Yahoo Finance previously reported one McDonald's franchise owner made the decision to close one location.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].