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Category: Domino's Pizza and Stock Market
Last updated: 14 June 2020 Stock price: $378.15 On this page we will look to provide more details, often not covered by mainstream financial websites of Domino's pizza. One of the world's largest pizza franchise restaurants with revenues topping $3.6 billion in their 2019 fiscal year.
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About Domino's Pizza
Domino’s is the largest pizza company in the world based on global retail sales, with more than 17,000 locations in over 90 markets around the world as of December 29, 2019. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Although we are a highly recognized global brand, we focus on serving neighborhoods locally through our large global network of franchise owners and U.S. Company-owned stores.
The Company is primarily a franchisor, with approximately 98% of Domino’s stores currently owned and operated by independent franchisees. Franchising enables an individual to be his or her own employer and maintain control over all employment-related matters and pricing decisions, while also benefiting from the strength of the Domino’s global brand, operating system and financial resources. The Domino’s business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees. Domino’s generates revenues and earnings by charging royalties and fees to our franchisees.
Royalties are ongoing percent-of-sales fees for use of the Domino’s® brand marks. The Company also generates revenues and earnings by selling food, equipment and supplies to franchisees through our supply chain operations, primarily in the U.S. and Canada, and by operating a number of our own stores. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza® brand to master franchisees. These master franchisees are charged with developing their geographical area, and they may profit by sub-franchising and selling food and equipment to those sub-franchisees, as well as by running pizza stores.
We believe that everyone in the system can benefit, including the end consumer, who can purchase Domino’s menu items for themselves and their family conveniently and economically. The Domino’s business model can yield strong returns for our franchise owners and Company-owned stores. It can also yield significant cash flows to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures. We have historically returned cash to shareholders through dividend payments and share repurchases.
The Company is primarily a franchisor, with approximately 98% of Domino’s stores currently owned and operated by independent franchisees. Franchising enables an individual to be his or her own employer and maintain control over all employment-related matters and pricing decisions, while also benefiting from the strength of the Domino’s global brand, operating system and financial resources. The Domino’s business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees. Domino’s generates revenues and earnings by charging royalties and fees to our franchisees.
Royalties are ongoing percent-of-sales fees for use of the Domino’s® brand marks. The Company also generates revenues and earnings by selling food, equipment and supplies to franchisees through our supply chain operations, primarily in the U.S. and Canada, and by operating a number of our own stores. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza® brand to master franchisees. These master franchisees are charged with developing their geographical area, and they may profit by sub-franchising and selling food and equipment to those sub-franchisees, as well as by running pizza stores.
We believe that everyone in the system can benefit, including the end consumer, who can purchase Domino’s menu items for themselves and their family conveniently and economically. The Domino’s business model can yield strong returns for our franchise owners and Company-owned stores. It can also yield significant cash flows to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures. We have historically returned cash to shareholders through dividend payments and share repurchases.
Quick facts about Domino's Pizza
- Domino's Pizza is listed on the New York Stock Exchange under share code ticker: DPZ
- Domino's Pizza market capital: $14.8 billion (as at 12 June 2020)
- Number of employees of Domino's: 13 100
- Number of stores in the USA: 6 126
- Revenues in 2019: $3.62 billion
- Earnings per share in 2019: $9.56
- Shares in issue: 40.776 million
- Dividends paid during 2019: $2.60
- Cash on balance sheet: $190.6 million
The industry according to Domino's Pizza
The U.S. QSR pizza category is large and fragmented. From 2014 through 2019, the U.S. QSR pizza category has grown from $34.8 billion to $37.8 billion. It is the second-largest category within the $279 billion U.S. QSR sector. The U.S. QSR pizza category is primarily comprised of delivery, dine-in and carryout, with carryout and delivery comprising the two largest segments. In the U.S., we compete primarily in the delivery and carryout segments of the pizza industry, and we are the dollar market share leader for delivery and second-largest dollar market share leader for carryout. Delivery segment dollars of $11.0 billion in 2019 (up from $10.2 billion in 2014) account for approximately 29% of total U.S. QSR pizza. The four industry leaders, including Domino’s, account for over 61% of U.S. pizza delivery, based on reported consumer spending, with the remaining dollars going to regional chains and independent establishments. From 2014 to 2019, the carryout segment grew from $16.9 billion to $18.8 billion. The four industry leaders, including Domino’s, account for approximately 51% of the carryout segment. (Source: The NPD Group/CREST®, year ending November 2019).
In contrast to the U.S., international pizza delivery is relatively underdeveloped, with only Domino’s and two other competitors having a significant global presence. We believe that demand for pizza and pizza delivery is large and growing throughout the world, driven by international consumers’ increasing emphasis on convenience, and our proven success of more than 35 years of conducting business abroad.
In contrast to the U.S., international pizza delivery is relatively underdeveloped, with only Domino’s and two other competitors having a significant global presence. We believe that demand for pizza and pizza delivery is large and growing throughout the world, driven by international consumers’ increasing emphasis on convenience, and our proven success of more than 35 years of conducting business abroad.
Business Segments of Domino's Pizza
We operate, and report, three business segments: U.S. stores, international franchise and supply chain.
U.S. Stores
Our U.S. stores segment consists primarily of our franchise operations, which consist of 5,784 franchised stores located in the United States. We also operate a network of 342 U.S. Company-owned stores. During 2019, our U.S. stores segment accounted for $1.27 billion, or 35% of our consolidated revenues. Directly operating Domino’s stores contributes significantly to our ability to act as a credible franchisor. We also use our Company-owned stores as test sites for technological innovation and promotions as well as operational improvements. We also use them for training new store managers and operations team members, as well as developing prospective franchisees. While we are primarily a franchised business, we continuously evaluate our mix of U.S. Company-owned and franchise stores. As of December 29, 2019, franchised stores represented 94% of our total store count within our U.S. stores segment
International Franchise
Our international franchise segment is comprised of a network of franchised stores in more than 90 international markets. At December 29, 2019, we had 10,894 international franchise stores. During 2019, this segment accounted for $241.0 million, or 7% of our consolidated revenues. The principal sources of revenues from those operations are royalty payments generated by retail sales from franchised stores. Our international franchisees employ our basic standard operating model and adapt it to satisfy the local eating habits and consumer preferences of various regions outside the U.S. Currently, the vast majority of our international stores operate under master franchise agreements. We believe Domino’s appeals to potential international franchisees because of our recognized brand name and technological leadership, the moderate capital expenditures required to open and operate our stores and our system’s desirable store profitability. Stores in eight of our top ten international markets in terms of store count are operated by master franchise companies that are publicly traded on stock exchanges as noted in the below table. The following table shows our store count as of December 29, 2019 in our top ten international markets, which accounted for approximately 63% of our international stores as of that date.
Supply Chain
Our supply chain segment operates 19 regional dough manufacturing and food supply chain centers in the U.S., one thin crust manufacturing center, one vegetable processing center and one center providing equipment and supplies to our U.S. and certain international stores. We plan to continue investing in additional supply chain centers and capacity initiatives in the future, including two additional regional dough manufacturing and food supply chain centers that are expected to open in fiscal 2020. We also operate five dough manufacturing and food supply chain centers in Canada. Our supply chain segment leases a fleet of more than 800 tractors and trailers. During 2019, our supply chain segment accounted for $2.10 billion, or 58% of our consolidated revenues. Our centers produce fresh dough and purchase, receive, store and deliver quality food and other complementary items to substantially all of our U.S. stores and most of our Canadian franchised stores. We regularly supply over 6,600 stores with various food and supplies. 6 We believe our franchisees voluntarily choose to obtain food, supplies and equipment from us because we offer the most efficient, convenient and cost-effective alternative, while also offering both quality and consistency. Our supply chain segment offers profit-sharing arrangements to franchisees who purchase all of their food for their stores from our centers. These profit-sharing arrangements generally offer participating franchisees and Company-owned stores with 50% (or a higher percentage in the case of Company-owned stores and certain franchisees who operate a larger number of stores) of their regional supply chain center’s pre-tax profits. We believe these arrangements strengthen our ties to and provide aligned benefits with franchisees.
U.S. Stores
Our U.S. stores segment consists primarily of our franchise operations, which consist of 5,784 franchised stores located in the United States. We also operate a network of 342 U.S. Company-owned stores. During 2019, our U.S. stores segment accounted for $1.27 billion, or 35% of our consolidated revenues. Directly operating Domino’s stores contributes significantly to our ability to act as a credible franchisor. We also use our Company-owned stores as test sites for technological innovation and promotions as well as operational improvements. We also use them for training new store managers and operations team members, as well as developing prospective franchisees. While we are primarily a franchised business, we continuously evaluate our mix of U.S. Company-owned and franchise stores. As of December 29, 2019, franchised stores represented 94% of our total store count within our U.S. stores segment
International Franchise
Our international franchise segment is comprised of a network of franchised stores in more than 90 international markets. At December 29, 2019, we had 10,894 international franchise stores. During 2019, this segment accounted for $241.0 million, or 7% of our consolidated revenues. The principal sources of revenues from those operations are royalty payments generated by retail sales from franchised stores. Our international franchisees employ our basic standard operating model and adapt it to satisfy the local eating habits and consumer preferences of various regions outside the U.S. Currently, the vast majority of our international stores operate under master franchise agreements. We believe Domino’s appeals to potential international franchisees because of our recognized brand name and technological leadership, the moderate capital expenditures required to open and operate our stores and our system’s desirable store profitability. Stores in eight of our top ten international markets in terms of store count are operated by master franchise companies that are publicly traded on stock exchanges as noted in the below table. The following table shows our store count as of December 29, 2019 in our top ten international markets, which accounted for approximately 63% of our international stores as of that date.
Supply Chain
Our supply chain segment operates 19 regional dough manufacturing and food supply chain centers in the U.S., one thin crust manufacturing center, one vegetable processing center and one center providing equipment and supplies to our U.S. and certain international stores. We plan to continue investing in additional supply chain centers and capacity initiatives in the future, including two additional regional dough manufacturing and food supply chain centers that are expected to open in fiscal 2020. We also operate five dough manufacturing and food supply chain centers in Canada. Our supply chain segment leases a fleet of more than 800 tractors and trailers. During 2019, our supply chain segment accounted for $2.10 billion, or 58% of our consolidated revenues. Our centers produce fresh dough and purchase, receive, store and deliver quality food and other complementary items to substantially all of our U.S. stores and most of our Canadian franchised stores. We regularly supply over 6,600 stores with various food and supplies. 6 We believe our franchisees voluntarily choose to obtain food, supplies and equipment from us because we offer the most efficient, convenient and cost-effective alternative, while also offering both quality and consistency. Our supply chain segment offers profit-sharing arrangements to franchisees who purchase all of their food for their stores from our centers. These profit-sharing arrangements generally offer participating franchisees and Company-owned stores with 50% (or a higher percentage in the case of Company-owned stores and certain franchisees who operate a larger number of stores) of their regional supply chain center’s pre-tax profits. We believe these arrangements strengthen our ties to and provide aligned benefits with franchisees.
The menu of Domino's Pizza
We offer a menu designed to present an attractive, quality offering to customers, while keeping it simple enough to minimize order errors and expedite order-taking and food preparation. Our basic menu features pizza products with varying sizes and crust types. Our typical store also offers oven-baked sandwiches, pasta, boneless chicken and chicken wings, bread side items, desserts and soft drink products. International markets vary toppings by country and culture, such as a squid topping in Japan or spicy cheese in India, and often feature regional specialty items, such as a banana and cinnamon dessert pizza in Brazil
Trademarks of Domino's Pizza
We have many registered trademarks and believe that the Domino’s mark and Domino’s Pizza names and logos, in particular, have significant value and are important to our business. Our policy is to pursue registration of our trademarks and to vigorously oppose the infringement of any of our trademarks. We license the use of our registered marks to franchisees through franchise agreements.
Employees of Domino's Pizza
As of December 29, 2019, we had approximately 13,100 employees in our Company-owned stores, supply chain centers, World Resource Center and regional offices. None of our employees are covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Competition of Domino's Pizza
The global pizza delivery and carryout segments, as well as the broader QSR sector, are highly competitive. In the U.S., we compete against regional and local companies as well as national chains Pizza Hut®, Papa John’s® and Little Caesars Pizza®. Internationally, we compete primarily with Pizza Hut®, Papa John’s® and country-specific national and local pizzerias. We generally compete on the basis of product quality, location, image, service, technology, convenience and price. Our business and those of our competitors can be affected by changes in consumer tastes, economic conditions, demographic trends and consumers’ disposable income. We also compete with other food, food delivery and order and delivery aggregation companies. We compete not only for customers, but also for employees, drivers, suitable real estate sites and qualified franchisees
Seasonality of Domino's Pizza's earnings
The Company’s business is not typically seasonal.
Domino's Pizza (NYSE:DPZ) stock performance
The following comparative stock performance line graph compares the cumulative shareholder return on the common stock of Domino’s Pizza, Inc. (NYSE: DPZ) for the five-year period between December 31, 2014 and December 31, 2019, with cumulative total return on (i) the Standard & Poor’s 500 Index (the “S&P 500”) and (ii) the peer group, the Standard & Poor’s 400 Restaurant Index (the “S&P 400 Restaurant Index”). Management believes that the companies included in the S&P 400 Restaurant Index appropriately reflect the scope of the Company’s operations and match the competitive market in which the Company operates. The cumulative total return computations set forth in the performance graph assume the investment of $100 in the Company’s common stock, the S&P 500 Index and the S&P 400 Restaurant Index on December 31, 2014.
The image above shows that Domino's Pizza's total return has easily outperformed that of the S&P 500 and the S&P 400 restaurant index over the last 5 years.
Our latest Domino's Pizza (DPZ) stock valuation (24 April 2020)
So what is Domino's Pizza (NYSE: DPZ) stock worth based on the release of their latest earnings report? Based on Domino's Pizza's 1st quarter 2020 earnings report our valuation model provides a target price (full value price) at $193.20 a stock. We therefore believe that the stock is overvalued.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $193.20. Thus we see a good entry point into Domino's stock at $173.90 or below. We believe that Domino's stock will pull back in coming weeks and months to levels closer to our target price (full value price).
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $193.20. Thus we see a good entry point into Domino's stock at $173.90 or below. We believe that Domino's stock will pull back in coming weeks and months to levels closer to our target price (full value price).