Domino's Pizza, the global leader in the pizza delivery industry, has reported its second-quarter 2024 financial results, showcasing the resilience of its business model and the strength of its strategic initiatives. Despite a challenging macroeconomic landscape, the company has managed to deliver solid performance, underscoring its ability to navigate through turbulent times.

In the second quarter of 2024, Domino's reported revenues of $1.10 billion, up 7.1% year-over-year, in line with analysts' expectations. The company's net income for the quarter stood at $142.0 million, while its annual net income for 2023 reached $519.1 million. Domino's operating cash flow for the quarter was $274.2 million, contributing to an annual operating cash flow of $590.9 million in 2023. The company's free cash flow for the quarter was $228.2 million, leading to an annual free cash flow of $485.5 million in 2023.

Business Overview

Domino's is the largest pizza company in the world, with more than 20,900 locations in over 90 markets as of June 16, 2024. The company operates two distinct service models within its stores, with a significant business in both delivery and carryout. Domino's is a highly recognized global brand, focusing on value while serving neighborhoods locally through its large worldwide network of franchise owners and U.S. Company-owned stores.

The company's business model is straightforward: Domino's stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by its technological innovations. Domino's generates revenues and earnings by charging royalties and fees to its franchisees, as well as by selling food, equipment, and supplies to franchisees through its supply chain operations primarily in the U.S. and Canada, and by operating a number of Company-owned stores in the United States.

In the international markets, Domino's generally grants geographical rights to the Domino's Pizza brand to master franchisees, who are charged with developing their geographical area and may profit by sub-franchising and selling food and equipment to those sub-franchisees, as well as by running pizza stores.

Quarterly Performance Highlights

Domino's second-quarter 2024 performance was marked by several key highlights:

Global Retail Sales Growth:

Excluding the impact of foreign currency, global retail sales grew 7.2% in the second quarter, driven by positive same-store sales growth in both the U.S. and international markets.

U.S. Segment Performance:

U.S. retail sales increased 6.8% in the second quarter, with same-store sales growing 4.8%. The company's U.S. franchise royalties and fees revenue increased 6.0% year-over-year, while U.S. franchise advertising revenue grew 12.1%.

International Segment Performance:

International retail sales, excluding foreign currency impact, increased 7.7% in the second quarter. International franchise same-store sales grew 2.1%, excluding foreign currency impact.

Supply Chain Segment:

Supply chain revenues increased 7.1% in the second quarter, primarily due to higher order volumes and an increase in food basket pricing to stores, partially offset by a shift in the relative mix of products sold.

Profitability and Cash Flow:

Income from operations increased 0.4% in the second quarter, while the company's operating cash flow and free cash flow remained strong at $274.2 million and $228.2 million, respectively.

Guidance and Outlook

Domino's remains confident in its ability to deliver on its strategic objectives, as evidenced by its guidance for the full year 2024:

• Global Retail Sales Growth: The company expects global retail sales growth of 7% or more, excluding the impact of foreign currency.

• Operating Income Growth: Domino's anticipates an 8% or more year-over-year increase in operating income, excluding the impact of foreign currency.

However, the company has temporarily suspended its long-term guidance for net store growth, primarily due to challenges faced by its master franchisee, Domino's Pizza Enterprises (DPE), in both openings and closures. Domino's now expects to fall below its previous target of 1,100 or more net new stores in 2024, with the impact expected to be limited to the international segment.

Despite this temporary setback, Domino's remains confident in its ability to drive long-term growth, with its largest expected growth markets of China and India remaining on track to deliver on their growth potential.

Financial Ratios and Liquidity

Domino's maintains a strong financial position, with a current ratio of 1.94 and a quick ratio of 1.81 as of June 16, 2024. The company's debt ratio stands at 2.70, indicating a moderate level of leverage. Domino's interest coverage ratio of 8.04 suggests a comfortable ability to service its debt obligations.

In terms of liquidity, Domino's had $283.7 million in unrestricted cash and cash equivalents as of June 16, 2024, along with $197.0 million in restricted cash and cash equivalents. The company also has access to $278.9 million in available borrowing capacity under its 2022 and 2021 Variable Funding Notes, providing ample liquidity to fund its operations and strategic initiatives.

Risks and Challenges

While Domino's has demonstrated resilience in the face of a challenging environment, the company is not without its risks and challenges. These include:

1. Macroeconomic Conditions: Domino's is susceptible to changes in consumer spending patterns and the overall economic climate, which could impact its sales and profitability.

2. Competitive Landscape: The pizza delivery industry is highly competitive, and Domino's faces competition from other national and regional pizza chains, as well as from alternative food delivery services.

3. Supply Chain Disruptions: Fluctuations in commodity prices, particularly for food and packaging materials, could affect the company's cost structure and profitability.

4. International Expansion Challenges: As Domino's continues to expand globally, it may face challenges in adapting its business model to local market conditions and managing its international operations.

5. Technological Disruption: The company's success is heavily dependent on its ability to maintain and enhance its technological capabilities, which could be impacted by rapid changes in the industry.

Conclusion

Domino's Pizza has demonstrated its resilience and adaptability in the face of a challenging macroeconomic environment. The company's solid second-quarter 2024 performance, driven by strong global retail sales growth, robust U.S. and international segment performance, and healthy profitability and cash flow, underscores the strength of its business model and the effectiveness of its strategic initiatives.

While the company has temporarily suspended its long-term guidance for net store growth due to challenges faced by its master franchisee, Domino's remains confident in its ability to drive long-term growth, particularly in its key markets of China and India. With a strong financial position, ample liquidity, and a focus on innovation and operational excellence, Domino's is well-positioned to navigate the current landscape and continue delivering value to its shareholders.