Domino's Is Gaining Momentum

Domino's is surging, with U.S. same-store sales jumping 2.8% and total U.S. retail sales (including new stores) rising 4.5%, both exceeding analyst expectations.

Consumers are flocking to Domino's for its value. The revamped loyalty program, with its significantly lower threshold for free food, is driving transaction growth, evidenced by a massive 2 million customer enrollments in Q4 2023.

These improvements come before the full impact of the Uber partnership kicks in. Launching this quarter, the partnership will fuel Domino's momentum throughout the year. By joining forces with Uber Eats, Domino's gains access to a $5 billion pizza marketplace catering to a higher-income clientele with less price sensitivity, with only 35% overlap with Domino's existing customer base. Assuming its 32% pizza market share holds steady, Domino's has the potential to capture an additional $1 billion in sales over the next three years.

The detailed note on the Domino’s opportunity is HERE.

See the store-level breakdown of the Uber partnership below:

A trend change in relative performance

Investors are shaking off Domino's past underperformance (compared to its discretionary peers) since March 2020, anticipating strong sales growth throughout the year. This shift reflects the principle: "stocks lead, and fundamentals follow." In simpler terms, investors are betting that the recent stock price increase will be followed by improved financial performance.

As a franchisor, Domino’s runs a capital-light business.  The business will generate $560 million in free cash flow on a capital base of $1.6 billion.  The capital requirement of this business is $100-110 million.  These are beautiful economics.

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