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While Domino’s dominated the pizza category at the height of the pandemic, the company’s numbers began to slip in the third quarter of 2021.

Is Domino’s status as the leading pizza chain beginning to slip?

Domino’s Pizza reported a U.S. same-store sales decrease of 3.6% as outgoing CEO Ritch Allison notes ‘2022 is shaping up to be a challenging year’

Domino’s Pizza continues to struggle as the company reported U.S. same-store sales decline of 3.6% for the first quarter ended March 27,2022, attributable to challenges faced industry-wide like price and commodity inflation, uncertain global political circumstances, and labor shortages.

While Domino’s dominated the pizza category at the height of the pandemic — with the Ann Arbor, Mich.-based company seeing its strongest sales performance in a decade in the third quarter of 2020 — the company’s numbers began to slip in the third quarter of 2021. To offset some of the inflation challenges, Domino’s changed its $7.99 carryout deal to be digital-only last quarter, and in March, bumped up its iconic $5.99 Mix and Match deal to $6.99.

“2022 is shaping up to be a challenging year,” outgoing CEO Ritch Allison said during Thursday’s earnings call. “We faced significant inflationary cost pressures […] Stores close to fully staffed did much better as compared with stores not as fully staffed. We continue to believe that consumer demand for Domino’s remains very strong.”

In fact, it seems that the demand outweighed the results during the first quarter of 2022. When operating hours portfolio-wide are added up, U.S. stores were cumulatively closed the equivalent of almost six days across the entire U.S. business due to staffing challenges that required many stores to close early, Domino’s confirmed during Thursday’s earnings call. For a brand that’s known for being available to pizza fans all the time, this was not a positive outcome.

“The only person more disappointed than the person who can’t order Domino’s is the franchisee,” incoming CEO Russell Weiner said. “We take so much pride in being the last to close and first to open. […] Closing six days this quarter is not part of our DNA.”

Domino’s might be feeling the effects of the industry-wide labor crunch even more than their peers as the company is one of the last holdouts to use its own fleet of drivers instead of partnering with third-party delivery. To address these issues, Domino’s will be returning to its core store hours across the board and will be more heavily advertising its driver positions as career opportunities, especially since most franchisees or general managers began as drivers themselves.

But will Domino’s finally begin using third-party delivery services? Although Weiner said “nothing is off the table” when it comes to improving delivery experiences and numbers, there was no indication otherwise.

Other strategies for boosting numbers include re-introducing boost weeks (50% off all pizzas for online orders) and rerouting phone orders to call centers to free up staff timing. Even though Domino’s has always been known as a tech innovator, surprisingly, Papa John’s appears to be ahead of the game, as the smaller pizza rival recently overhauled its call center with AI-backed PapaCall.

“We’ve overcome more difficult customer issues before,” Weiner said. “We’re going to be back to being the same Domino’s delivery experience as we’ve always been soon.”

Despite the optimism, Domino’s performance was up and down for the first quarter and incoming CEO Russell Weiner expects the challenges to continue for the rest of the year, which might be offset by positive sales momentum in international Domino’s markets, particularly India.

“We expect margins for the rest of 2022 to be pressured,” new CFO Sandeep Reddy said Thursday. “We'll be working on several initiatives to drive improved profitability. These include exploring further optimization of our consumer pricing architecture in the United States.”

Domino’s reported a 2.8% increase in company-wide revenues last quarter to $27.5 million, driven by higher supply chain revenues. The company’s net income decreased 22.8% to $26.8 million, or $2.50 earnings per share, down from $3.00 earnings per share in the same quarter in 2021 driven by lower operating income from company-owned stores.

Domino’s ended the quarter with 213 net store openings for a total of 19,061 restaurants systemwide.

Contact Joanna at [email protected]

Find her on Twitter: @JoannaFantozzi

TAGS: Finance
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