Domino's delivers -- for shareholders
Will the company's shares remain as tasty as its pizza?
Shares of Domino's Pizza (DPZ) skyrocketed more than 11% in early trading Tuesday after the pizza delivery chain posted better-than-expected fourth quarter earnings.
Net income at the Ann Arbor, Mich. company rose 27.9% to $30.9 million, or 52 cents a share, versus $24.2 million, or 40 cents a share, in the year earlier period. Revenue rose 4.5% to $501.7 million. Wall Street analysts expected earnings of 49 cents on sales of $514.1 million.
The results were impressive across the board. U.S. same-store sales grew 6.8% during the fourth quarter, while sales at international stores opened at least a year rose 4.7%. This comparable sales growth indicates that Domino's efforts to improve the quality of its food have paid off, and it came at the expense of rival Papa John's International (PZZA), which gave a disappointing 2012 earnings outlook late last year.
Shares of Domino's have nearly doubled over the past year as the chain successfully navigated an uncertain economy and the highest cheese prices in 25 years. Papa John's shares rose about 26% during the same time. Both companies will benefit from an expected decline in the price of milk and from rising consumer confidence.
Giving its long range outlook, Domino's now expects international same-store sales to rise 3% to 6%, ahead of a previous forecast of a 3%-5% increase. Sales at U.S. stores opened at least a year are projected to rise 1% to 3%, unchanged from an earlier estimate. The good news, though, is largely factored into the stocks of Domino's and Papa John's.
The average one-year price target on Domino's is $35.10, below the $37.31 where it recently traded. Papa John's stock is expected to gain about 6% during the next 52 weeks, rising to $39.23. Domino's shares are pricey, though, trading at a trailing multiple of 21.22, near their five-year high. Papa John's multiple is 16.62.
Fans of both companies may experience financial indigestion if they try to gobble up their shares.
Freelance writer Jonathan Berr prefers the taste of Papa John's pizza. Sorry Domino's. He doesn't own either stock.
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The company plans to close stores and lay off employees, and says it needs to make some deeper changes.
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