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Domino's Is Doing Just Fine Amid Bruising Delivery War

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Domino's Is Doing Just Fine Amid Bruising Delivery War

The stock of Domino's Pizza (NYSE: DPZ) broke out 25 percent on Thursday,  hitting a record high with quite a dramatic style. The pizza chain has managed to beat fourth-quarter forecasts and hike its dividend despite a delivery war raging across the restaurant industry.

Fourth Quarter Results

Comparable sales for delivery improved in the latest quarter and were positive. The pizza delivery company earned $3.13 per share, better than Zacks's estimate of $2.93, being an increase of 19%, Revenue increased 6% to $1.15 billion which is above forecasts of $1.12 billion. US. same-store sales grew 3.4% and international same-store sales rose 1.7%, excluding currency moves. Domino's forecasted its 2 to 3 year outlook in the range of 7%-10% for global retail sales growth, 2%-5% when it comes to U.S. same-store sales growth, and 1%-4% range for international sales growth.

The general picture is that the company's takeout business was "on fire." More than half of them in the U.S. are using GPS technology, helping even to cut back on the three to six months' time it normally takes for a driver to learn a route. So no wonder stock price went up as there seems to be quite a bit to rejoice in: both in top and bottom figures, as well as in the strategical aspect.

Competition – Delivery Wars

CEO Ritch Allison said that rival deliverers' onslaught of advertising and incentives showed signs of easing, though he warned of "continued headwinds in delivery" and difficulty in forecasting.

The stocks of its rival Papa John's International Inc (NASDAQ: PZZA) rose 2.3% and Pizza Hut parent Yum! Brands Inc (NYSE: YUM) fell 1% on Thursday.

Third-party competitors have no choice but to keep advertising and Domino's "might get hit by a few stray bullets along the way" of this firing squad. And there is Grubhub Inc (NYSE: GRUB), DoorDash, Postmates and Uber Technologies Inc's (NYSE: UBER) Uber Eats that are also taking a piece of the delivery pie.

But Domino's entrenched network of stores, where food-prep protocols are nailed down and often repeated, make for more predictable operations, efficient order turnaround and a stable profit. And Domino's rivals cannot always count on that sort of consistency due to the fact that their drivers run orders from all kinds of restaurants.

Outlook

The strong earnings come amid a broader debate regarding how to survive in a restaurant landscape where food delivery is more widely available than ever.

As technology shapes competition in delivery, Domino's is set to keep finding new ways to strengthen its carryout business. And by prioritizing delivery over takeouts and drive throughs, what restaurants are doing is in fact steering customers to a higher-cost business, therefore creating a new profit engine. Domino's aims to continue to "fortress" more markets this year. And fortressed stores are expected to result in cut delivery times by around two to three minutes and consequently, lower delivery costs. So, by the looks of it, it seems Domino's both built and protected its fortress quite well during these aggressive delivery wars and has good odds of being on the winning side, without getting too bruised.

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Image by Andreas Riedelmeier from Pixabay

 

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