Domino's Delivers But Macro Headwinds Are Front And Center
In summary, strong same-store sales growth overall and higher margins, but lighter than expected revenues and unit growth results vs. FactSet estimates. U.S. company-owned stores were bright, while international and advertising were drags.
- Comps - U.S. and Company were ahead of estimates, while Franchise and International missed. Total global retail sales growth of +5.0%.
- Revenues - Mostly ahead of estimates for U.S. stores and royalties/fees, while Supply Chain and International missed slightly. U.S. franchise advertising was notably lower than expected.
- Margins - G&A as a percentage of sales was slightly higher than expected, but an operating margin of 18.3% beat estimates by 50 bps.
- Unit growth - Slightly lower overall store count of 20,591 vs. 20,638 estimate. U.S. company-owned lower while franchised was higher. International was behind consensus for net openings.
- 4Q24 Results EPS $4.48 vs. $4.43 a year ago - Growth was driven by improved operating results (+$0.64), unrealized gain on investment (+$0.10), lower interest expense (+$0.07) and lower share count (+$0.07)
- Revenue $1.40B vs FactSet $1.42B consensus; U.S. same-store sales +2.8%; International same-store sales +0.1% excluding F.X.
- The board authorized an additional $1.0B share repurchase program subsequent to the quarter, plus $141.3M remaining from prior authorization, for a total of $1.14B
- Raised quarterly dividend by 24.8% to $1.51/share
Industry Traffic
Month to date in February 2024, Casual Dining traffic was down (-5.9%), bringing the 2-year to (-2.6%) slowing 590bps MoM (to date)
Month to date in February 2024, Quick Service traffic was down (-6.3%), bringing the 2-year to +1.2, slowing 376bps MoM (to date)
McDonald's Traffic
Month to date in February 2024, McDonald's (MCD) traffic was down (-9.2%), bringing the 2-year to +3.6, slowing 440bps MoM (to date)
Starbucks Traffic
Month to date in February 2024 Starbucks SBUX) traffic was down (-17.2%), bringing the 2-year to (-3.1%) slowing 280bps MoM (to date)
Yum China Delivered in 2023 Challenging Backdrop in 2H24"
Adding YUMC to the LONG Bias LIST
Positive Themes:
- Strong system sales growth of 21% for Q4 and full year 2023, driven by new unit growth and recovery in same-store sales.
- Record operating profit of $1.1 billion in 2023 (excluding special items), up 79% versus the prior year. The core operating margin also improved significantly.
- Aggressive expansion plans - opened a record 1,697 net new stores in 2023. Aims to open 1,500-1,700 stores in 2024 and reach 20,000 stores by 2026.
Negative themes:
- Facing a tougher consumer environment in 2024 with more rational spending. Launching promotions and value offerings to maintain traffic.
- Cycling a solid 1H23 performance with temporary benefits that won't repeat, so expect core operating profit to be relatively flat year-over-year in 1Q24 and muted growth in 2Q24.
- Foreign exchange headwinds negatively impacted reported earnings growth. Expect continued FX impact in 2024.
