Domino’s Pizza (DPZ) Made A Lot Of Dough For Investors In 2021, Could Get Tougher In 2022
2:54 pm Friday, December 31st, 2021
Domino’s Pizza (NYSE:DPZ) is not exactly rolling in the dough today, but it did get a huge price target increase from Argus this morning to $640 from $520. Most sell side firms are keeping relatively quiet with calls through this holiday week; as this price hike is in any case pretty substantial, we thought it worth flagging during today’s session. It also gives us an excuse to talk about one of the best QSR names out there.
After DPZ broke its string of 40+ positive US same store sales quarters when it reported Q3 results in October, investors may have been surprised to see that the stock nonetheless continued to charge to new highs. US same store sales in Q3 fell -1.9%. However, the company was lapping a monster +17.5% comp in the year-ago period.
In fact, that 3Q20 comp was the highest quarterly US comp ever achieved by DPZ since it became a publicly-traded company in 2004. The period that it covered predated the release of the vaccine and thus coincided with heavier stay-at-home trends that boosted pizza-buying action. The end of the long streak one year later may be discouraging, but factoring in the relative circumstances, investors seem to have been willing to give DPZ a pass on it.
The good news is that DPZ will be lapping a moderately less challenging year-ago comp of +11.2% when it reports Q4 results in February. We think that DPZ can start a new positive US comp streak in Q4.
That does not mean that we expect crystal clear sailing for Q4. DPZ has been pressured by a challenging staffing environment, including labor shortages and shortened store hours at some locations. Also, since the start of the pandemic, its comps had benefited from significant federal stimulus measures in the US, but that spigot has now dried up. DPZ is going to be lapping that stimulus over the next few quarters, which could present headwinds to comps. On the flip side, the emergence of the Omicron variant could result in DPZ reclaiming some of the market share it lost to eat-in restaurants in 2021.
In our view, store openings is an under-appreciated part of the DPZ growth story. The company is #1 in global QSR pizza sales. However, if you thought that there are already Domino’s stores on every corner, know that more are on the way. DPZ currently has nearly 6,500 US stores, but it sees potential to get to 8,000 locations. Plus, there is a significant international growth opportunity as well.
