Domino’s Pizza (NYSE:DPZ) stock plummeted 18% in a matter of hours following the release of its Q2 earnings report last week, despite its revenue figures falling roughly in line with analyst expectations.
Sure, some investors may have hoped for figures surpassing Wall Street’s expectations, but the pizza maker still showed excellent bottom-line growth, up 29.8% year-over-year.
Moreover, on a per-share basis, the company recorded an EPS of $4.03, demonstrating a significant annual improvement and exceeding analysts’ consensus EPS estimate of $3.70.
While not spectacular, the company’s top-line growth was respectable. Revenue grew 7.1% in Q2 2024 to $1.1 billion, roughly in line with analyst expectations.
Sure, Domino’s results weren’t perfect in every way. However, the market’s response was arguably overdone, and investors should consider buying the dip in DPZ stock.
Why Domino’s Pizza stock collapsed
Of course, the financial markets don’t always behave as one might expect them to. Sometimes, the market will cherry-pick an unfavorable data point and overlook the positive results. This appears to be the case with Domino’s Pizza stock.
In this case, the market evidently, the market wasn’t too pleased with Domino’s Pizza’s expectation that the company “will fall 175 to 275 stores below its 2024 goal of 925+ net stores” internationally.
The company cited “challenges in both openings and closures being faced by Domino’s Pizza Enterprises (“DPE”), one of its master franchisees.” Addressing this concern, Domino’s Pizza assured that it’s “partnering closely with DPE as they work through this process and will provide further updates once it has more visibility into the effect on its annual global net store growth numbers.”
So, there’s the issue. The market hates a lack of “visibility.” After all, uncertain investors are scared investors.
However, Domino’s Pizza Chief Financial Officer (CFO) Sandeep Reddy offered some reassuring words for skittish shareholders. Per Barron’s, Reddy argued that the “stores being closed, including those in Japan and France, had very low volumes” and will “therefore have a very small drag on the company’s top and bottom lines”.
The actual impact to operating income is “really immaterial in the grand scheme of things”, he added. In other words, investors should stay calm and maintain a positive big-picture outlook for Domino’s Pizza.
We tend to concur with Reddy’s calm assessment of the situation. If Domino’s Pizza plans to close underperforming restaurants, this should benefit the company in the long run. Again, Domino’s Pizza’s bottom line looks firm, and the company’s same-store sales results aren’t too bad.
Consequently, if you have a contrarian streak and hunger for a tasty dip-buying opportunity, feel free to order up a few DPZ shares.
