Tuesday, a solid day for the markets overall with the S&P 500 up 1.2%, and Russell 2000 rising 2.77%, was also good for many restaurants. The big winners for names with market caps in excess of $100 million include Dine Brands Global (DIN) (+8.3%), BJ's (BJRI) (+7%), Cheesecake Factory (CAKE) (+6.7%), Ruth's Chris (RUTH) (+6.3%), Brinker (EAT) (+5.8%), Cracker Barrel (CBRL) (+5.6%), and Denny's (DENN) (+5.3%).
However, it was one of the day's losers, Domino's Pizza (DPZ) (-3.2%), that had perhaps the most interesting day. It was one of just a handful of restaurant names in negative territory for the day, but it then reported some interesting data after the market closed which sent shares higher in after-hours trading.
The company reported that U.S. same store sales rose 14% during the first eight weeks of the second quarter. Since the first quarter ended on March 22nd, that puts the reported period smack dab into the quarantine. In addition, the company reported a material acceleration later in that eight-week period. While it was quite obvious that takeout/delivery has ramped up given that it has been many consumers' only choice during the "lockdown", this is material evidence. International sales, however, did not have the same experience. At one point nearly 2400 locations were closed temporarily.
What happens after sit-down restaurants are in reopen mode remains to be seen. Capacity limitation issues and consumer behavior will tell the tale, but for its part Domino's was uncertain as to how long the "tailwind" it has been experiencing will last. If consumers remain fearful, you could make the argument that takeout and delivery will be the new "sit-down". But then again, memories and fears can quickly fade. Does anyone even remember the Hong Kong flu of 1968-1969, which reportedly killed at least one million around the world, and 100,000 in the U.S.? I'd never even heard of that pandemic until last week.
Next up for DPZ will be second quarter earnings, scheduled to be released on July 16th. The company is expected to earn $2.04/share on revenue of $870 million. While estimates for the quarter have dropped - three months ago, pre-pandemic it was expected to earn $2.34 - knowing what we know now about how life has changed during the pandemic, two bucks+ in earnings seems quite remarkable if that's what Domino's can deliver (pun intended).
DPZ, which is up 23% year-to-date, the second-best performer next to Wingstop (WING) (+38%), and one of just four restaurant names in positive return territory for the year, currently trades at 30x next year's consensus earnings estimates. All else being equal, that seems expensive, but it's about the company's average price earnings ratio for the past seven years, and perhaps not ridiculous for a restaurant name whose net profit margin is in excess of 11%.
