Domino's Pizza misses Wall Street sales expectations in 2nd quarter

Breana Noble
The Detroit News

Lower-than-expected same-store growth marked Domino's Pizza CEO Patrick Doyle's final months in leadership.

For the second quarter of 2018, Domino's reported Thursday a profit of $77.4 million, up 17.7 percent from the same quarter in 2017. Although the Ann Arbor-based pizza chain saw growth in its domestic and foreign stores, performance missed Wall Street expectations, sending shares down more than 2 percent by Thursday's close.

"As the momentum of our business grows, we continue to remain quite positive thanks to fundamentals and a steady proven quality," CEO Ritch Allison, who took over for Doyle on July 1, said during Thursday's earnings call.

Domino's Pizza CEO J. Patrick Doyle at the Domino's headquarters in Ann Arbor

Domino's reported $1.78 earnings per share for the second quarter, up from 34.8 percent for the same quarter in 2017. According to Zacks Investment Research, that beat analysts' estimate of $1.74 per share. Domino's $779 million revenue, however, missed predictions of $787 million.

Domino's domestic same-store sales, according to Consensus Metrix, just missed the 7-percent growth analysts had expected. Domestic sales were up 6.9 percent, bolstered by larger orders and increased membership to the company's Piece of Pie loyalty program.

The company did not provide details on the performance of its new HotSpots, an option in its app that delivers to places without residential addresses such as parks, beaches and sports arenas. The program includes more than 200,000 locations nationally.

"Getting a lead is one thing and keeping it is another," Allison said of Domino's digital platform. "That requires a nimble and aggressive mindset."

International same-store sales also fell short, jumping 4 percent, under the expected 5.3 percent.

Doyle's departure as CEO came after 29 consecutive quarters of domestic sales growth. Since taking over in 2010, he propelled Domino's to the No. 1 pizza chain in global sales. Two-thirds of its pizza sales now are done online and through its app, and the brand has stuck to keeping a majority of its offering under $5.99. Since the end of 2009, Domino's has added globally more than 800 locations, and its stock, adjusted for inflation, has grown 188 percent.

Doyle's exit is just one example of major leadership shakeups in the pizza industry. John Schattner, founder of Papa John's Pizza, resigned last week as chairman after admitting to using a racial slur during a conference call. NPC International, which owns Pizza Hut franchises, said last month that Steve Layt would take over its division for the YUM! Brands company.

Although Domino's sales missed expectations, a 50 percent increase in sales volume over the past five years has led the company to move up the building of two supply chain centers from 2019. Chief Financial Officer Jeff Lawrence said during the earnings call that they should be operational in 18 to 24 months and would increase the company's gross capital spending for the year by $20 million to $30 million. Domino's has not publicly said which centers are being accelerated.

"It is time to accelerate investments in supply-chain capacities," Allison said. "We're excited to provide great, fresh, high-quality dough to our franchisees."