On Friday, Wells Fargo adjusted its financial outlook for Domino's Pizza (NYSE:DPZ), reducing the price target to $420 from the previous $450, while maintaining an Equal Weight rating on the stock. The revision follows the company's recent performance indicators and market trends.
Domino's Pizza's third-quarter results in the U.S. showed comparable sales growth of 3%, which included a 1.6% increase from pricing and a 1.4% rise due to orders and product mix. However, the report noted intensifying competitive pressures beginning in August. The carryout and delivery segments experienced a slowdown, with carryout growing by 5.4% and delivery by 1.3%, marking a quarter-over-quarter decrease of 250 and 140 basis points, respectively.
Internationally, Domino's saw weaker performance with a 0.8% increase, which represented a deceleration of around 130 basis points quarter-over-quarter. Factors contributing to this slowdown included challenging macroeconomic conditions and geopolitical issues, with Domino's Pizza Enterprises (DPE) showing softer results.
Despite the softer international performance, the company managed to expand its net units by 4%. Additionally, the collaboration with Uber (NYSE:UBER) is tracking in line with plans, contributing approximately 2.7% to the sales mix, an increase of 80 basis points compared to the second quarter, and adding 1.8% to same-store sales (SSS).
Looking ahead to the fourth quarter, Domino's anticipates one boost week with the launch of its EP 2.0 initiative. It was also noted that trends among lower-income customers, particularly concerning delivery, have softened.
In other recent news, Domino's Pizza experienced a series of significant developments. The company's third-quarter earnings per share reached $4.19, surpassing the estimated $3.65, despite weaker-than-expected comparable store sales growth. Stifel, a financial services firm, reduced its price target for Domino's Pizza shares to $470, maintaining its Buy rating.
Barclays, on the other hand, reduced its price target for Domino's shares to $370, maintaining an Underweight rating. Stephens maintained an Equal Weight rating, while RBC Capital initiated coverage with an Outperform rating.
Domino's reported a 3% rise in U.S. same-store sales for the third quarter, falling short of the projected 3.6% increase. Additionally, international same-store sales growth stood at 0.8%, not meeting the anticipated 2.9% growth. As a result, Domino's revised its annual global retail sales growth forecast down to 6% from the previously expected 7%. The company's strategic value promotions and partnerships with third-party marketplaces like DoorDash (NASDAQ:DASH) and Uber are expected to drive future growth.
InvestingPro Insights
To provide additional context to Domino's Pizza's current financial situation, let's examine some key metrics from InvestingPro. Despite the recent price target reduction by Wells Fargo, Domino's Pizza maintains a solid financial foundation. The company's market capitalization stands at $14.3 billion, with a P/E ratio of 25.4, indicating investors' continued confidence in its earnings potential.
InvestingPro Tips highlight that Domino's has raised its dividend for 11 consecutive years and maintained dividend payments for 13 years, showcasing a commitment to shareholder returns. This is particularly relevant given the company's recent performance challenges noted in the article. The dividend yield currently stands at 1.48%, with a significant dividend growth of 24.79% over the last twelve months.
While the article mentions intensifying competitive pressures and softer international performance, it's worth noting that Domino's remains profitable, with a revenue of $4.61 billion over the last twelve months and a gross profit margin of 28.44%. The company's ability to generate profits in a challenging environment aligns with the InvestingPro Tip that analysts predict the company will be profitable this year.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Domino's Pizza, providing deeper insights into the company's financial health and market position.
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