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Domino’s stock plunges due to weak international sales

Stock falls more than 8 percent despite continued strong domestic sales

Investors worried about slowing international sales sent Domino’s Pizza Inc. stock tumbling more than 8 percent on Tuesday.

International same-store sales increased 2.6 percent in the fiscal second quarter, which ended June 18. That was the 94th quarter of positive same-store sales outside the U.S.

Yet it was also the weakest result for those international markets since 2003, according to Maxim Group Analyst Stephen Anderson. And it was below the company’s expectations. Domino’s expects international same-store sales to rise 3 percent to 6 percent every quarter.

“Our sales performance softened below what we’ve come to expect from the best international model in QSR,” CEO Patrick Doyle said on the company’s second quarter earnings call on Tuesday. “They are issues that are easily categorized as correctable. We’re confident we can get the topline performance in this business to levels we’re used to.”

Domino’s stock decline sent it below $200 per share for the first time since May. The company’s stock had been on a remarkably strong trajectory starting in 2009 when stock traded below $3 a share at one point. Heading into trading on Tuesday, the stock had been up 35 percent year to date.

The company’s valuation has investors looking for any sign of a downturn, and the international same-store sales was one such concern. One of the weaker international markets was the United Kingdom, where same-store sales increased 2.4 percent in the first quarter. 

The U.K. is a delivery-heavy market, and the results spurred concern that growing delivery usage in the restaurant industry there is taking business away from Domino’s. That could be increasing worries that the same thing could happen in the U.S., where restaurants are rapidly adding delivery.

Still, Doyle said, “We’re simply not seeing that affecting our business at this point” even though delivery companies in the U.K. have been advertising more heavily recently.

He said the company’s problems there are “more about making sure we’re getting our value right, our offering right. That’s more the issue. Those are things we can control. 

Doyle said that the company is “sharing best practices and learnings” and are “working together to improve top-line results in the U.K. We’re highly confident we will do so.”

So far, Domino’s sales have not shown any weakness from the growing number of delivery providers in the U.S.

Domestic same-store sales increased 9.5 percent in the second quarter, the 25th straight quarter of growth and the 10th time in the past 11 quarters that same-store sales have increased at least 9.5 percent.

The Ann Arbor, Mich.-based pizza chain has generated that sales growth in large part by concentrating on technology, making it easier for customers to order their pizza.

The company has invested heavily in technology over the years. That has made it easy for customers to order their pizza. Domino’s established an “Easy Order” that simplifies the process and enabled the chain to bring its ordering technology to devices like smart watches and televisions and cars.

The ease of ordering has made Domino’s an easier choice, Doyle said. “Larger players are taking share from smaller players,” he said. “We’ve been doing better than the rest of the large players the last few years.”

The sales results continue to provide an incentive to franchisees to build locations. Domino’s opened 39 domestic locations in the second quarter, and over the past four quarters the chain has opened 193 units. Domino’s had 5,438 units as of June 18. 

Internationally, Domino’s has added 1,088 locations over the past four quarters, including 178 in the second quarter. The new locations means Domino’s now has 14,217 units worldwide.

“While our [international] same-store sales are not as strong, our unit-level return on investment is extremely healthy,” Doyle said. 

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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