Domino’s Pizza Inc.’s international unit development has been slower this year than expected, but technological innovations and value pricing are boosting the business at home, Ritch Allison said Thursday on his first earnings call as the company’s CEO.
Allison, formerly president of Domino’s International division, succeeded longtime CEO Patrick Doyle, who retired on July 1 after eight years in the role.
“It's a little odd for all of us on quarterly earnings day to look around the room and not see Patrick, but his legacy and contribution to this wonderful organization will not be soon forgotten,” Allison said on the earnings call for the second quarter, which saw the brand pass 15,000 restaurants globally.
Allison said the domestic business performed especially well in the quarter ended June 17, with same-store sales increasing 6.9 percent.
“I am particularly pleased with the performance of our U.S. business, led by outstanding same-store sales and yet another quarter of solid, sustained momentum,” Allison said.
The company added 43 net new domestic stores in the quarter, bringing the U.S. total to 5,692 as of June 17.
“In the U.S. business, we see an opportunity for an 8,000-store Domino's business potential within the next 10 years,” Allison said. “We have had success gaining share. And while a lot of that share has come from the locals and the regionals, as we look forward we see an opportunity to take share broadly across the industry. And that confidence leads to our expectation that we have got strong unit-growth potential in the market.”
However, Allison and Jeffrey Lawrence, Domino’s chief financial officer, said international development was more plodding than expected.
“We recognize that our store growth internationally is slower than we expected for the first half of this year,” Lawrence told analysts. “We do not believe there is any structural or material market-specific reasons for the net store growth results for the first half of the year, and we reiterate our global net store count guidance of 6 percent to 8 percent annual growth over the next 3 to 5 years.
Domino’s international division added 113 net new stores during Q2, comprised of 148 store openings and 35 closures. The company had 9,430 units in its international markets as of June 17.
The Ann Arbor, Mich.-based pizza giant said its international division posted same-store sales growth of 4 percent in the quarter.
“Our International unit growth has admittedly been a bit slower than store norms during the front half of 2018,” Allison said, “but I continue to stress my confidence and expectation that this will normalize on a full-year basis.”
In mid-June, Domino’s opened its first unit in Kosovo, and that unit “set a new Domino's European record for opening-week volume,” Allison said.
Domestic growth led Domino’s to schedule the openings of three new supply-chain centers, the first of which will be in Edison, N.J., executives said.
Also in the second quarter, Domino’s introduced its latest technological innovation, the Domino’s HotSpots ordering platform, which feature non-traditional delivery locations including parks, beaches, local landmarks and other gathering spots.
“We are very pleased with the launch and customer reception,” Allison said. “We now have over 200,000 Domino's HotSpots delivery locations available nationwide, and I hope customers will continue reaching out to suggest new potential locations and can do so by visiting dominos.com/suggestahotspot.”
Allison added that the HotSpots, which are predominantly a third-quarter summertime promotion, help Domino’s position itself in the customers’ minds. “We want to be their pizza provider anytime, anywhere they want to access it,” he said.
He said the HotSpots are focused on existing delivery areas.
“When you start to venture outside of the existing delivery area,” Allison explained, “it can sometimes sound enticing because you may think it's an incremental order, but the cost of getting that pizza farther away from the store is a challenge.”
Domino’s is also continuing its focus on value pricing, Allison said.
“We're now in our ninth year at $5.99,” he said. “We have stayed on that, and I think in the minds of many customers when they think about $5.99 that's associated directly with Domino's. So we're continuing to stay focused on that on the delivery side of the business and then we've also got a very competitive value offering out there on the carryout side as well, which has been consistently for a while now that $7.99 large three [topping].”
For the second quarter, Domino’s net income rose 17.7 percent to $77.4 million, or $1.78 a share, from $65.7 million, or $1.32 a share, in the prior-year period. Revenues were up 24 percent to $779.4 million from $628.6 million in the same quarter last year.
Domino's Pizza, founded in 1960, has more than 15,100 stores in over 85 markets.
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