Domino's Is Built For A Value War—It's Crushing Competitors With Margin Headroom, Ad Firepower: Industry Headwinds 'Are Tailwinds For Us'

Quick service restaurant (QSR) company Domino's Pizza Inc. DPZ says that it is structurally equipped to win as consumers increasingly chase value.

Check out the current price of DPZ stock here.

What Happened: During its second quarter earnings call on Monday, the company’s CEO, Russell Weiner, declared that “When consumers are looking for value, that’s actually a big pro for us because I think we’re set up… better than anybody else to get through this.”

Weiner further believes that while these trends are headwinds for other brands, “they end up being tailwinds for Domino’s,” due to its integrated supply chains.

According to Weiner, rather than using discounts as a defensive move, the company is using its pricing strategy to drive growth. “We’re doing it because we think we can grow. And I think other folks are doing it because they’re on defense. And a little bit treading water,” Weiner said.

The company credits its ability to thrive when margins are under pressure to its cost structure and scale. This includes its supply chain, strong franchise profitability, and an outsized ad budget.

“We have best-in-class franchise economics,” CFO Sandeep Reddy says, adding that the company’s advertising budget was now the biggest among pizza QSRs, aimed at supporting and driving value to the company’s franchisees.

Weiner also laid out four principles behind Domino's promotional pricing, starting with consistency, data-driven price testing, staying aligned with consumer income, something he calls “talk value.” He says, “If consumers aren’t getting a raise, they don’t want you to.”

Why It Matters: Domino's value-focused strategy stands out as more Americans opt to cook at home, now at the highest level since the COVID-19 pandemic.

Several other fast food giants are feeling the heat as a result, with McDonald’s Corp. MCD CEO, Chris Kempczinski, saying during the company’s recent first quarter earnings call, that low-income diners were down “nearly double digits,” with middle-income consumers falling just as much.

Burger King’s parent company, Restaurant Brands International Inc. (NYSE: QSR), missed its sales estimates during the first quarter, as it notes that customers were steering their inflation-hit dollars towards groceries.

Domino’s released its second quarter results on Monday, reporting $1.15 billion in revenue, ahead of consensus estimates at $1.14 billion. The earnings per share (EPS) stood at $3.81, which, however, fell short of estimates at $3.93.

Price Action: The stock is down 0.80% on Monday, trading at $462.24, following its earnings results. and is down another 0.91% after hours.

According to Benzinga’s Edge Stock Rankings, Domino’s scores well on Momentum, but does poorly across other metrics. It has a favorable price trend in the long term. Click here for deeper insights into the stock, alongside its performance relative to peers and competitors in the QSR space.

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