Domino's delivers growth as restaurant industry struggles

October 18, 2016 7:37 AM EDT

A worker carries a pizza for delivery as he exits a Domino's pizza store in Sydney, Australia, August 12, 2015. REUTERS/David Gray/File Photo

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By Lisa Baertlein

(Reuters) - Domino's Pizza Inc (NYSE: DPZ) on Tuesday said share buybacks and a greater flow of customers helped deliver a large quarterly profit jump, despite intense competition that is pressuring its leading rivals.

Shares in the company jumped 7.6 percent to $163.62, a record intraday high.

Sales at domestic franchise units open at least one year were up 12.9 percent for the third quarter ended Sept. 11. Analysts had expected a rise of 9.4 percent, according to polling firm Consensus Metrix.

Foreign same-store sales rose by 6.6 percent.

The world's biggest pizza delivery chain held U.S. prices largely steady during the quarter, which helped lure customers, company executives said. Franchisees at some other chains, including Dunkin' Donuts, saw business soften after they raised prices to help offset higher labor costs.

Executives said Domino's online and mobile phone ordering capabilities, which increase convenience, continue to bolster sales. Its loyalty program, promotions and newly renovated stores also helped during the latest quarter, they added.

Wall Street analysts are tempering growth expectations for restaurant companies, including McDonald's Corp (NYSE: MCD) and Dunkin' Brands Group Inc (NASDAQ: DNKN), due to intensifying competition from upstart chains and meal-kit sellers as well as grocery stores, where prices for beef and some other staples have sharply fallen.

"Domino's posted the best Q2 domestic same-store sales growth of the 25 largest restaurant chains in the U.S. — and now looks poised to do so again in Q3, likely by a wide margin," Nomura restaurant analyst Mark Kalinowski said in a client note.

Its main rival, Yum Brands Inc's (NYSE: YUM) Pizza Hut, has been struggling and reported a 2 percent decline in U.S. same-store sales for the latest quarter. Small "mom and pop" pizza restaurant operators, who have fewer financial resources to weather higher costs and competition, also have been closing, executives said.

Domino's net income jumped almost 25 percent to $47.2 million, or 96 cents per share, topping the average analyst estimate of 90 cents per share, according to Thomson Reuters I/B/E/S.

The Ann Arbor, Michigan-based company had 12 percent fewer shares in the latest quarter, compared with the year-earlier period, which helped lift per-share earnings.

Total revenue climbed 17 percent to $566.7 million, beating analysts' average estimate of $542.6 million, helped by increased sales of pizza ingredients and other supplies to franchisees.

There were 5,273 domestic Domino's outlets at the end of the quarter and 7,979 units abroad.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Martina D'Couto and W Simon)

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