[Overseas Stocks Spotlight] "Domino's Pizza Shows Strong Performance as D2C Platform Gains Attention Despite COVID-19"

[Asia Economy Reporter Eunmo Koo] Domino's Pizza (Dominos’s Pizza·DPZ US), the number one company in the North American pizza market, posted results exceeding market expectations in the second quarter of this year despite the impact of the novel coronavirus (COVID-19), as the role of its D2C (Direct to Consumer) platform was highlighted.

According to Shinhan Financial Investment on the 18th, Domino's Pizza's sales in the second quarter of this year reached $920 million, growing 13.4% compared to the same period last year, slightly surpassing the market expectation of $910 million. Earnings per share (EPS) also increased by 36.5% to $2.99 due to a temporary tax refund effect, exceeding market expectations by 33.5%.

Hyunji Lee, a researcher at Shinhan Financial Investment, analyzed in a report on the same day, “Despite the COVID-19 pandemic, the sales growth rate expanded, reaffirming the effect of proactive D2C investments.” The number of stores in the U.S. and overseas increased by 39 and 45 respectively, bringing the total number of stores to 17,173.

First, U.S. store sales increased by 15.1% to $330 million. As lockdown measures intensified, demand for food delivery continued to rise, and the same-store sales growth rate in the U.S. reached 16.1%, which is 14.5 percentage points higher than the previous quarter. In particular, with the role of the D2C platform emphasized, the proportion of digital orders increased to 75-80%.

Distribution sales grew by 15.3% to $540 million. This business covers the entire pizza manufacturing process from dough to ingredient distribution, and steady growth continued alongside increased pizza orders. Overseas royalty income declined by 12.5% to $50 million, reflecting the impact of store closures in parts of Europe and the Middle East, showing a sluggish performance.

The benefits of increased D2C orders are expected to continue. Shinhan Financial Investment estimated this year’s sales at $4.01 billion, a 10.9% increase from last year. Researcher Lee predicted, “Post-COVID-19, the increase in D2C platform orders, the effect of new menu launches, market share expansion due to restructuring of food and beverage stores, and normalization of overseas stores following renewed lockdowns will sustain solid sales growth.” Profitability improvement is also anticipated. Lee explained, “Operating margin is expected to rise by 0.3 percentage points to 17.7%, influenced by order efficiency from D2C platform expansion and reduced distribution margins due to logistics facility expansion.”

However, despite the upward revision of EPS estimates, the valuation remains a concern. Lee stated, “Since the pandemic outbreak, Domino's Pizza has been spotlighted as a beneficiary stock, and its stock price has overwhelmingly outperformed the index returns,” adding, “As a result, the valuation has entered a burdensome range.” The current stock price is at 32.9 times the 12-month forward price-to-earnings ratio (PER), which is at the upper end of the valuation range over the past five years. Lee forecasted, “While Domino's will continue to serve as a defensive stock during the second wave of COVID-19, its relative stock performance compared to other consumer goods sectors will be limited.”

This content was produced with the assistance of AI translation services.