Domino’s Pizza Inc. reported its first negative U.S. same-store sales result in 41 quarters on Thursday owing in part to staffing shortages, the pizza delivery company said.
Domino’s executives note that U.S. same-store sales for the same period last year grew 17.5%, the biggest jump since the company went public in 2004.
But more than that, Domino’s is dealing with some of the same staffing issues that are affecting other businesses.
“The decline in U.S. same-store sales this quarter was driven by lower order counts,” said Jessica Parrish, vice president, corporate controller and treasurer for Domino’s, according to a FactSet transcript of the earnings call.
“Our U.S. order counts during Q3 were pressured by a very challenging staffing environment, which had certain operational impacts such as shortened store hours or customer service challenges in many of our stores.”
The company also made a distinction between the results for its company-owned locations, which are “heavily urban and higher income” compared with franchise locations, which have a more diverse footprint.
And Domino’s said it got a boost from economic stimulus cash, with the positive effect of that money beginning to taper off.
“Recall that we incurred additional bonus pay in the third quarter of last year for frontline team members, and although we did make investments in frontline team member wage rates during Q3, we continue to experience staffing shortages in certain of our company-owned stores,” Parrish said.
Domino’s stock slid in premarket trading after the earnings announcement, but rebounded to a 1.7% increase as the day progressed.
“We believe this factor likely affected multiple restaurant concepts’ Q3 U.S. same-store sales, and could be an issue in Q4 as well,” wrote Kalinowski Equity Research in a note, referring to the staffing shortage.
Kalinowski rates Domino’s stock buy with a $588 price target.
“[W]e view staffing challenges (resulting in fewer operating hours, slower delivery times, etc.) as a near-term headwind that increases medium-term top line visibility as the issue is gradually addressed,” wrote Wedbush in a Friday note. Analysts note the new application and new-hire processes among the ways Domino’s has tackled the problem.
Wedbush rates Domino’s stock outperform with a $550 price target, down from $585.
“We believe the company’s ongoing investments in its store base, infrastructure, and technology remain positive catalysts and factors deserving of its premium multiple,” wrote MKM Partners.
“We also expect promotional activity to pickup once staffing normalizes, such as
the return of 50% off booster weeks.”
MKM rates Domino’s stock neutral with a $525 fair value estimate, up from $515.
Analysts are also on the lookout for any impact from the COVID-19 recovery, with more diners heading to restaurants.
“Focus from here will be on US comp trends as consumer mobility improves, the magnitude and duration of select cost pressures (guided to high end of commodity and G&A ranges), and the degree to which domestic unit development is impacted by macro factors,” wrote UBS.
“We continue to believe compelling value and unit economics, and a leading digital platform support Domino’s multiyear growth opportunity.”
UBS rates Domino’s shares neutral with a $535 price target.
Domino’s stock has gained 23% for the year to date while the S&P 500 index
has risen 18.9% for the period.