Breaking Down Domino's Pizza, Inc. (DPZ) Financial Health: Key Insights for Investors

Understanding Domino's Pizza, Inc. (DPZ) Revenue Streams

Understanding Domino's Pizza, Inc.’s Revenue Streams

The revenue streams of Domino's Pizza, Inc. are primarily derived from several key sources, including retail sales from Company-owned stores, franchise royalties and fees, supply chain revenues, and international franchise operations.

Breakdown of Primary Revenue Sources

• U.S. Company-owned Stores:
  • Q3 2024: $89.2 million
  • Q3 2023: $86.3 million
  • Three Fiscal Quarters 2024: $274.1 million
  • Three Fiscal Quarters 2023: $258.9 million
• U.S. Franchise Royalties and Fees:
  • Q3 2024: $144.1 million
  • Q3 2023: $138.3 million
  • Three Fiscal Quarters 2024: $442.2 million
  • Three Fiscal Quarters 2023: $410.5 million
• Supply Chain Revenues:
  • Q3 2024: $651.3 million
  • Q3 2023: $618.1 million
  • Three Fiscal Quarters 2024: $1,969.8 million
  • Three Fiscal Quarters 2023: $1,858.0 million
• International Franchise Royalties and Fees:
  • Q3 2024: $74.6 million
  • Q3 2023: $73.1 million
  • Three Fiscal Quarters 2024: $220.3 million
  • Three Fiscal Quarters 2023: $213.3 million
• U.S. Franchise Advertising:
  • Q3 2024: $120.9 million
  • Q3 2023: $111.5 million
  • Three Fiscal Quarters 2024: $356.2 million
  • Three Fiscal Quarters 2023: $335.7 million

Year-over-Year Revenue Growth Rate

In the third quarter of 2024, consolidated revenues increased by $52.8 million, or 5.1%, compared to the same period in 2023. For the three fiscal quarters of 2024, revenues rose by $186.1 million, or 6.0% year-over-year.

Contribution of Different Business Segments to Overall Revenue

Analysis of Significant Changes in Revenue Streams

In Q3 2024, the U.S. Company-owned stores generated a revenue increase of $2.9 million, or 3.4%, primarily driven by higher same store sales. The U.S. franchise royalties and fees increased by $5.8 million, or 4.2%, due to net store growth and higher same store sales. Supply chain revenues saw a notable increase of $33.2 million, or 5.4%, attributed to higher order volumes and increased food pricing.

Overall, the revenue from international franchise royalties and fees grew modestly by $1.5 million, or 2.0%, in Q3 2024, aided by an increase in the number of active international franchised stores despite foreign currency impacts. The U.S. franchise advertising revenues also surged by $9.4 million, or 8.4%, due to an increase in advertising contribution rates and higher sales.

A Deep Dive into Domino's Pizza, Inc. (DPZ) Profitability

A Deep Dive into Domino's Pizza, Inc. Profitability

Gross Profit Margin: In the third quarter of 2024, the consolidated gross margin was 39.2%, compared to 38.8% in the third quarter of 2023. For the three fiscal quarters of 2024, the gross margin was 39.3%, up from 38.6% in the same period of 2023.

Operating Profit Margin: Income from operations for the third quarter of 2024 was $198.8 million, representing an operating margin of 18.4%. In the same quarter of 2023, the operating income was $189.4 million with an operating margin of 18.4%. For the three fiscal quarters of 2024, the income from operations was $605.3 million, yielding an operating margin of 18.6%, compared to 18.3% in the same period of 2023.

Net Profit Margin: The net income for the third quarter of 2024 was $146.9 million, resulting in a net profit margin of 13.6%, slightly down from 14.4% in the third quarter of 2023. For the three fiscal quarters of 2024, net income was $414.7 million, corresponding to a net profit margin of 12.7%, compared to 11.8% for the same period in 2023.

Trends in Profitability: The gross margin has shown a consistent upward trend, with a notable increase of 0.4 percentage points in the third quarter and 0.7 percentage points over the three fiscal quarters of 2024. The operating and net profit margins have remained stable with slight fluctuations, indicating strong operational efficiency despite the competitive landscape.

Comparison with Industry Averages: In comparison to industry averages, Domino's gross margin of 39.2% in Q3 2024 is above the industry average of approximately 35% for quick-service restaurants. The operating margin of 18.4% is also higher than the average of 15% in the sector, showcasing superior cost management and revenue generation capabilities.

Operational Efficiency: Labor costs decreased by 0.7 percentage points to 31.1% in Q3 2024, attributed to enhanced productivity and increased customer transaction counts. Food costs remained stable at 29.0% for both Q3 2024 and Q3 2023, indicating effective cost management strategies.

Debt vs. Equity: How Domino's Pizza, Inc. (DPZ) Finances Its Growth

Debt vs. Equity: How Domino's Pizza, Inc. Finances Its Growth

Debt Levels:

As of September 8, 2024, the company reported a total long-term debt of $1.195 billion and a short-term debt of $0.0. The company has utilized variable funding notes for liquidity, with $278.9 million available under its 2022 and 2021 Variable Funding Notes, net of letters of credit issued of $41.1 million.

Debt-to-Equity Ratio:

The debt-to-equity ratio stands at 2.06, which is above the industry average of approximately 1.5. This indicates a higher reliance on debt for financing compared to peers in the industry.

Recent Debt Issuances and Credit Ratings:

In the third quarter of 2024, the company’s interest expense, net, amounted to $40.4 million, with a weighted average borrowing rate of 3.8%. The company's credit rating stands at Baa2 from Moody's, reflecting a stable outlook.

Balancing Debt and Equity Funding:

The company balances its debt financing with equity funding through share repurchase programs, which totaled approximately $190 million in the third quarter of 2024. They have also declared a quarterly dividend of $1.51 per share.

Assessing Domino's Pizza, Inc. (DPZ) Liquidity

Assessing Domino's Pizza, Inc.'s Liquidity

Current Ratio: As of September 8, 2024, the current ratio is calculated as 1.67, indicating a strong liquidity position. This is derived from current assets of $378.5 million and current liabilities of $226.5 million.

Quick Ratio: The quick ratio stands at 1.36, calculated with quick assets of $299.3 million and current liabilities of $226.5 million. This suggests that the company can cover its short-term obligations without relying on inventory sales.

Analysis of Working Capital Trends

Working capital as of September 8, 2024, is $174.4 million, excluding restricted cash and cash equivalents. The working capital trend shows a consistent increase over the past fiscal quarters, reflecting improved operational efficiency and revenue growth.

Cash Flow Statements Overview

Operating cash flow for the three fiscal quarters ending September 8, 2024, was reported at $605.3 million, an increase from $562.3 million in the same period of 2023. This reflects robust sales growth and effective cost management.

Investing cash flows showed an outflow of $80.0 million, primarily due to capital expenditures related to store expansions and improvements. Financing cash flows included $135.3 million in interest expenses, indicating ongoing debt management strategies.

Potential Liquidity Concerns or Strengths

As of September 8, 2024, the company has $189.1 million in unrestricted cash and cash equivalents, alongside $278.9 million available borrowing capacity under its variable funding notes. This strong cash position, combined with efficient working capital management, mitigates liquidity concerns.

However, the company must remain vigilant regarding potential fluctuations in cash flow due to economic conditions and business cycles. The ability to maintain positive operating cash flow is crucial for sustaining its financial health and meeting obligations.

Is Domino's Pizza, Inc. (DPZ) Overvalued or Undervalued?

Valuation Analysis

The valuation analysis for Domino's Pizza, Inc. (DPZ) includes key metrics such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, as well as stock price trends and dividend-related information.

Price-to-Earnings (P/E) Ratio

As of September 2024, the P/E ratio stands at 24.3, reflecting investor expectations regarding future growth.

Price-to-Book (P/B) Ratio

The P/B ratio is currently 9.2, indicating a substantial premium over book value, which suggests the market values the company significantly higher than its net assets.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is reported at 14.7, which compares favorably within the quick-service restaurant industry, suggesting reasonable valuation relative to earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

Over the last 12 months, the stock price has experienced a fluctuation from a low of $305.00 to a high of $435.00. As of the latest trading session, the stock is priced at $395.00, representing a 10.2% increase year-to-date.

Dividend Yield and Payout Ratios

The current dividend yield is 1.0%, with a payout ratio of 20%, indicating a conservative approach to returning profits to shareholders while retaining capital for growth.

Analyst Consensus on Stock Valuation

Analyst ratings for DPZ indicate a consensus of Buy, with a median price target of $420.00, suggesting potential upside from the current stock price.

Key Risks Facing Domino's Pizza, Inc. (DPZ)

Key Risks Facing Domino's Pizza, Inc.

Domino's Pizza, Inc. faces a variety of internal and external risks that could significantly impact its financial health. Understanding these risks is crucial for investors looking to gauge the company's resilience and potential for growth in 2024.

Industry Competition

The quick-service restaurant industry is highly competitive, with numerous players vying for market share. The company's ability to maintain its competitive edge is challenged by both established brands and new entrants. In the third quarter of 2024, the company reported a 3.1% increase in same-store sales in the U.S. and a 0.8% increase internationally, indicating a need for continuous innovation and marketing efforts to fend off competition.

Regulatory Changes

Changes in regulations, particularly those related to food safety and labor laws, pose risks to operational efficiency. The company has reported increased labor costs, which rose by 0.7 percentage points to 31.1% of sales in the third quarter of 2024 due to higher wage rates. Compliance with evolving regulations may result in increased operational costs, affecting profitability.

Market Conditions

Economic factors such as inflation and changes in consumer spending patterns can impact sales. The company experienced 5.1% growth in global retail sales in the third quarter of 2024, but continued economic uncertainty could threaten consumer discretionary spending. Additionally, the company reported a 4.2% increase in U.S. franchise royalties, which may not sustain if market conditions worsen.

Operational Risks

Operational risks related to supply chain disruptions can affect product availability and costs. The company reported a 12.4% increase in supply chain gross margin in Q3 2024, which may not be sustainable amid fluctuating commodity prices. The food basket pricing increased by 1.3%, impacting overall supply chain revenues.

Financial Risks

Financial risks include the company's significant debt obligations. As of September 8, 2024, the company had $278.9 million of available borrowing capacity under its variable funding notes. Interest expenses are also a concern, with net interest expense decreasing by 4.0% in the third quarter of 2024, yet any increase in borrowing costs could adversely impact financial stability.

Strategic Risks

The company's strategic decisions regarding expansion and franchising can also pose risks. As of September 8, 2024, the total number of stores was 21,002, but store closures in volatile markets could affect overall growth. The bankruptcy of the master franchisee in Russia has already led to the exclusion of that market from the company’s operations, demonstrating the potential volatility of international markets.

Mitigation Strategies

To mitigate these risks, the company has focused on enhancing its digital platforms and improving customer engagement. The increase in digital transactions has resulted in a 4.2% rise in franchise royalties. Furthermore, the company is actively adjusting its supply chain strategies to minimize disruptions and maintain cost efficiency.

Future Growth Prospects for Domino's Pizza, Inc. (DPZ)

Future Growth Prospects for Domino's Pizza, Inc. (DPZ)

Analysis of Key Growth Drivers

The primary growth drivers for the company include:

• Product Innovations: The introduction of new menu items and limited-time offers has consistently driven customer interest and sales.
• Market Expansions: The company reported a global net store growth of 72 stores in the third quarter of 2024, contributing to a total of 21,002 stores worldwide as of September 8, 2024.
• Acquisitions: Strategic acquisitions aimed at enhancing supply chain capabilities and expanding digital platforms.

Future Revenue Growth Projections and Earnings Estimates

Revenue for the third quarter of 2024 reached $1,080.1 million, a 5.1% increase compared to $1,027.4 million in the third quarter of 2023. For the three fiscal quarters ended September 8, 2024, total revenues were $3,262.5 million, up 6.0% from $3,076.4 million in the same period of the previous year.

Net income for the third quarter of 2024 was $146.9 million, representing a 13.6% margin, compared to $147.7 million or 14.4% in the same quarter of 2023.

Strategic Initiatives or Partnerships

The company has focused on technology enhancements, including:

• Digital Ordering Platforms: Investments in digital ordering technology have led to increased efficiency and customer engagement.
• Partnerships with Delivery Services: Collaborations with third-party delivery services to expand reach and improve service efficiency.

Competitive Advantages

The company maintains several competitive advantages that position it for sustained growth:

• Strong Brand Recognition: A well-established brand with a loyal customer base.
• Efficient Supply Chain: The supply chain gross margin increased 12.4% in the third quarter of 2024, reflecting strong procurement practices.
• Digital Engagement: A robust digital platform that drives sales through convenience and customer loyalty programs.

Overall, the company's focus on product innovation, market expansion, and strategic partnerships positions it well for future growth, supported by strong revenue and earnings performance metrics.