Editors' pick: Originally published Oct. 18.
Hey Domino's Pizza (DPZ) , you're kidding us with these sales gains, right?
Amid burger chain Sonic (SONC) recently warning of tepid sales growth and Wall Street fretting over a sales slowdown at McDonald's (MCD) , Domino's just served up one of the most mind-blowing earnings reports in the fast food space so far this year. The pizza joint reported Tuesday that U.S. same-store sales surged 13% from the prior year, marking the 22nd straight quarter of gains. Earnings spiked 43.3% year over year to 96 cents a share, surpassing analysts' estimates of 90 cents.
Shares of Domino's rose as much as 3% in premarket trading.
For Domino's, its strong quarter -- against a backdrop of sluggish spending on fast food due to people eating more at home amid falling supermarket prices -- could be boiled down to several reasons.
First is a relentless focus on making pizza easier to order on mobile devices. "The company has been benefiting from a steadily growing online/digital ordering mix that currently represents over 50% of domestic orders, and it has a long runway for growth," pointed out Bank of America Merrill Lynch analyst Gregory Francfort in a recent note.
Secondly, Domino's arch-rival Pizza Hut (owned by Yum! Brands (YUM) ) continues to struggle with its marketing messages and digital ordering technology. That has allowed Domino's to take market share. Said Nomura analyst Mark Kalinowski, "We believe that continued woes by Pizza Hut in the U.S. -- which reported that its third-quarter same-store sales declined by 2% -- are largely Domino's gain, although Domino's certainly appears to be taking share from regional chains and independents as well."