![]() First, sales growth has been limited, with revenues rising just 1% last quarter. Falling Commodity Prices Will Add Near-Term Momentumĭomino's stock has slumped significantly due to a pair of related concerns. The franchisees, such as Alsea, are making a ton of money operating Domino's stores - particularly in comparison to other brands they may also control - and as such are highly motivated to put more capital into the concept which effortlessly increases revenues and profits for the Domino's corporate parent as well. Given the highly attractive unit economics of the Domino's model for its franchisees, it sits in a great position. Alsea also just opened the first Domino's in Uruguay recently, signifying its willingness to pursue whole new countries for the pizza chain. This has now grown to 154 stores at the end of 2022, with more coming soon. Chang's, which they operate in Latin America and Spain.ĭespite running a multitude of different brand concepts, Alsea has repeatedly put a huge chunk of its overall expansion capital into Domino's, seeing it as a powerful brand that can scale well across a huge chunk of Latin America.įor one example of this, Alsea operated just 17 Domino's in Colombia in 2018. Alsea can invest new capital into its various licensed brands, including Starbucks ( SBUX), Burger King ( QSR), Chili's ( EAT), and P.F. ![]() As of year-end 2022, it had 4,447 units in total, including 1,370 of Domino's. I am a shareholder of Mexico's Alsea ( OTCPK:ALSSF) (MEX:ALSEA) which is the largest franchise restaurant chain in Latin America. A great deal of the company's growth in recent years has come from foreign markets. He also points out other positive metrics, such as the 99% annual franchisee retention rate, which suggests that the average store will last for decades and that Domino's should enjoy much more stable than usual cash flows as compared to the broader restaurant industry.Īnother positive factor is how well Domino's has fared internationally. While Domino’s typically runs at stronger restaurant margins and lower buildout costs than its competitors, strong store-level sales suggest a meaningfully higher franchisee return even at identical margin structures and buildout costs, an advantage that we view as reflective of the firm’s strong brand." against $1.2 million at Papa John’s and $860,000 Pizza Hut, per Euromonitor and our calculations), resulting in impressive franchise-level EBITDA just shy of $140,000 in 2022. To this effect, Domino’s sports higher average unit sales than peers ($1.3 million in the U.S. "Comparable sales, which operate as "flows," accrue over time in higher average unit volumes ("stocks"), allowing franchisees to generate more EBITDA at the same operating margin-improving their cash-on-cash returns and underpinning a strong growth narrative. Here's Morningstar's Sean Dunlop explaining why Domino's has a wide competitive moat: And there's certainly no shortage of rival pizza brands out there. Restaurants are a notoriously difficult business to establish much of a competitive moat in. What Gives Domino's So Much Sticking Power? So it's worth diving into Domino's here and see if shares might be a compelling opportunity after the significant drawdown. That said, Domino's earnings results haven't been particularly bad it's not like sales have collapsed or anything. ![]() Now that the economy has reopened, there are more food options out there, so Domino's has to compete more aggressively for business. People stuck at home ordered a lot of delivery pizza. Some of this is likely related to the same pandemic-related dynamics that have hit so many industries. Since 2021, however, Domino's has cooled back off, with the stock dropping from above $500 back to $300. ![]() Shares went up as much as 50x from the lows: After struggling through the 2008 financial crisis amid lackluster sales and poor brand positioning, Domino's brought in a charismatic CEO who turned everything around. Coldsnowstorm/iStock Unreleased via Getty Imagesĭomino's Pizza ( NYSE: DPZ) is one of the most remarkable corporate comeback stories in recent American history.
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