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Domino's performed better than initially expected with U.S. same-store sales decline of 2.9%.

Domino’s labor woes continue to chip away at pandemic-era gains

While the pizza chain posted better-than-expected Q2 earnings results, same-store sales declined 2.9%

Domino’s Pizza was once the superstar performer during the pandemic era, but over the last few quarters, labor pressures have caused a downturn in store hours, customer satisfaction, and overall earnings performance. The second quarter of 2022, which ended June 19, was no different, though the Ann Arbor, Mich.-based pizza chain performed better than initially expected with U.S. same-store sales decline of 2.9%.

While this was the first full quarter following the executive shakeup at Domino’s with former COO Russell Weiner now at the helm and Sandeep Reddy as CFO, it was largely a “stay the course” period for the pizza chain, which has slowly been improving performance. After announcing new measures last quarter to mitigate severe understaffing, like utilizing call centers to field phone orders, Domino’s experienced some improvements in store performance. The sales gap between the top 20% staffed stores and the bottom 20% staffed stores shrunk from 17% in Q1 to 11% in Q2, though many stores still needed to decrease normal store hours to mitigate staff shortages, which led to a decline in order counts.

“We expected this quarter to be challenged given the difficult labor market and inflationary pressures, especially with our delivery drivers,” Weiner said. “The quarterly results were consistent with the challenges we outlined at the time. We’re confident in our path to overcome obstacles and make our business stronger than ever.”

While the quarterly performance started off slow, sales were boosted by the Stranger Things mind ordering app promotion that kicked off in May and the return of boost week in June (half-off pizzas ordered online), which will return again before the summer is over, Weiner said.

CFO Sandeep Reddy said while he sees “opportunities to improve long-term profitability,” while labor issues persist, the company will likely take more menu price increases.

“We have successfully pulled many pricing levers,” Reddy said. “This has helped us cover some of the cost increases while also continuing to deliver to our consumers.”

While Domino’s struggles with delivery continue, carryout performance continues to gain momentum, which was especially boosted by the carryout tips, which were introduced in Q1 2022 as a reward for people who chose to pick up their pizzas themselves. The revenue mix shifted from 11% carryout to 14.6% carryout in the second quarter, and during boost week carryout had its strongest quarter in company history.

But Domino’s continued plan of accelerated development relies on the success of both the delivery and carryout business:

“The success of unit development is based on both businesses being fulfilled and the potential we have continues to be strong and give us more runway for development,” Weiner said. “Carryout should be incremental to delivery business. There’s no reason we can’t get to normalized unit development growth.”

Domino’s reported a 3.2% increase in company-wide revenues last quarter to $32.7 million, driven by higher supply chain revenues. The company’s net income decreased $14.1 million by 12.1%, or $2.82 earnings per share, down from $3.06 earnings per share in the same quarter in 2021 driven by lower operating income, particularly from company-owned stores.

Domino’s ended the quarter with 233 net store openings for a total of 19,294 restaurants systemwide.

Contact Joanna at [email protected]

Find her on Twitter: @JoannaFantozzi

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