Back in 2010, the stock of Domino's Pizza (DPZ) was stuck in the teens. But with new management and a new pizza recipe, the company radically transformed itself into a growth machine. I think the stock can trade even higher as management continues to deliver results.
Back in April, Domino's reported first-quarter domestic same-store sales were up 14.5%, which marked the second consecutive quarter of double-digit comps. The company beat analysts' EPS estimates of $0.79 by $0.02, and earnings per share would have been $0.04 higher if not for the strong U.S. dollar. The international division reported a same-store sales increase of 7.8%, marking the 85th consecutive quarter of international same-store sales growth. Revenue rose 10.6% to $502 million.
The company ended the first quarter with a staggering 11,739 stores. With more than 95% of the world's population outside the United States, Domino's is a global growth machine. International store count has grown at an 8.2% annualized rate for the last four years, and the company now has more than 6,600 stores overseas.
In the developed world, such as the U.K., Japan and Spain, management believes it can get to more than 5,500 stores from the 3,297 operating currently. And in emerging markets, management has identified 3,750 locations, which would be up from the current 2,297. In the quarter, the company even opened locations in Azerbaijan and Cambodia. In the quick service restaurant category, Domino's is the fastest-growing pizza chain in the world.
In the U.S., Domino's is no slouch, either. With 5,084 stores at the end of the first quarter, the company estimates it has just a 25% market share. To gain more market share against the mom-and-pop pizza joints, management is fast-tracking Domino's re-image program. The company is transforming its locations from simply pizza factories to a more inviting and customer-friendly experience. Management has promised the re-image substantially will be completed by 2017.
Digital is also an important aspect of Domino's strategy. At the end of 2014, the company said 50% of its sales came from a mobile app on a phone or tablet. And the company has announced pizza-ordering apps for digital watches and on Samsung televisions.
While higher wages are a concern, as are commodity costs such as cheese, I think the company can keep up the momentum. Recent launches such as specialty chicken and oven-baked sandwiches have kept customers coming back for more.
Domino's stock currently trades at around 32x fiscal 2015 EPS estimates of $3.44. While I'm concerned about valuation, I would look to buy the stock on a pullback. I think Domino's management can continue to deliver.