Domino's Stock up 57% in the Past Year: More Upside Left?

Shares of Domino's Pizza, Inc. DPZ have surged 57.3% in the past year against the industry's 7.2% fall. The company is benefiting from the Hungry for MORE strategy. Furthermore, the emphasis on expansion, barbell strategy and sales-building initiatives bodes well. However, inflationary pressures are a concern.

Let's delve deeper.

Factors Driving Growth

The company emphasizes the Hungry for MORE strategy to drive growth. The initiative drove sales, new store openings, and significant profit growth in the fiscal first quarter. The company's U.S. market witnessed a strong performance with double-digit profit growth across all income cohorts, particularly among lower-income groups, due to the brand's value offerings.
The company focuses on providing delicious food, highlighted through attractive food photography and targeted marketing. Key initiatives include a pan pizza campaign and the launch of New York-style pizza, catering to customers preferring a thinner crust. The new product is integrated into Domino's Mix & Match offer and rewards program, thereby enhancing customer value.

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Operational excellence is vital for consistent food quality. In 2024, Domino's introduced the MORE Delicious Operations program, including three product training sprints focused on dough, assembly, and cooking. The first sprint on dough was rolled out across all U.S. stores, resulting in more pizzas delivered with improved delivery times.
More focus on value strategy and innovative propositions like Emergency Pizza bode well. The Domino's Rewards program continues to drive growth with increased active members and higher redemption rates. New redemption tiers have engaged more customers and increased franchisee profits.
Domino's is implementing a barbell strategy and expanding into the aggregator marketplace to drive growth. The company's launch into the aggregator space, particularly with Uber Eats, is on track to achieve 3% or more of sales by 2024-end. Initial results show that the move is meeting expectations, with a higher percentage of single-user transactions on Uber Eats compared to Domino's channels.
The aggregator space is also becoming more promotional, with customers responding better to deals than to everyday low prices. Domino's is fine-tuning its marketing spend and offers to maximize effectiveness in this channel. It focuses on driving profitable transactions through Uber Eats while maintaining the best values on its platforms.

Concerns

The company is exposed to market risks from commodity price fluctuations. Significant price increases, possibly due to inflation, could adversely impact global and U.S. economies, negatively affecting Domino's business, financial condition and operational results. It expects a prolonged high inflationary environment for food and labor. For 2024, DPZ anticipates that supply chain margins will remain roughly flat compared with the previous year's tally, considering an inflationary food basket with a full-year increase projected between 1% and 3%.

Zacks Rank & Key Picks

Domino's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
Wingstop Inc. WING sports a Zacks Rank #1 (Strong Buy) at present. It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has surged 112% in the past year.

The Zacks Consensus Estimate for WING's 2024 sales and earnings per share suggests a rise of 27.5% and 36.7%, respectively, from the year-ago levels.

Brinker International, Inc. EAT sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT's shares have risen 85.4% in the past year.

The Zacks Consensus Estimate for EAT's 2024 sales and EPS indicates 5% and 41.3% growth, respectively, from the year-earlier actuals.

El Pollo Loco Holdings, Inc. LOCO currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO's shares have risen 5.2% in the past year.

The Zacks Consensus Estimate for LOCO's 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from the prior-year figures.

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