Domino's Earnings Get Sliced
Melanie Lindner, 10.16.07, 4:20 PM ET
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Domino's slice of the pizza industry pie might be shrinking.
On Tuesday, Domino's Pizza (nyse: DPZ - news - people ) released disappointing third quarter results causing its stock price to drop. The company's profit fell a staggering 55% from the comparable period of 2006, which Domino's attributes to increased interest expenses from higher borrowing under the company's new debt facility and rising commodity costs, like dairy. (See: Dean Done In By Dairy)
Domino's Chairman David Brandon said: "Unprecedented cost pressures and a weak consumer environment negatively impacted our domestic results in the quarter, which made striking the right balance between increasing prices, while operating in a period of declining traffic, very difficult."
Domino's Pizza slid 13.6%, or $2.18, to $14.38 in Tuesday afternoon trading.
In the spring of 2007, Domino's stock reached an all-time high, trading over $30 for more than two months. However, in early May, the pie maker announced that its free cash flow was badly suffering, and reached a five year low in the period ending March 31. Domino's stock dropped more than 60% on the news and hasn't recovered to its previous state since. (See: Domino's Fails To Deliver)
In spite of Tuesday's announcement, Ashley Reed Woodruff of Friedman, Billings, Ramsey still believes that Domino's stock "continues to look very inexpensive." While international same-store sales were strong, rising 8.3% to $28.6 million from $26.2 million in the third quarter of 2006, Woodruff called Domino's same-store sales and distribution revenues "disappointing" and believes that "the turnaround in sale-store sales has now been pushed out until the first quarter of 2008."
Citigroup analyst Glen Patraglia insists that Domino's is still the "leading player in the pizza delivery market" with two competitors, Yum! Brands (nyse: YUM - news - people )' Pizza Hut and Papa John's (nasdaq: PZZA - news - people ) trailing closely behind.
John Glass of CIBC World Markets believes the pizza industry is currently in a weak state due to macroeconomic factors like high energy prices and interest rates as well as "increasing commodity costs, particularly cheese, weighing on company-store profitability."
Yum! Brands gained 53 cents, or 1.4%, to $37.43 and Papa John's lost 61 cents, or 2.5%, to $23.50 in Tuesday afternoon trading.
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