What we think about Domino's Pizza (DPZ)
Domino's in Three Words: Pizza, Value, Convenience
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Background
Domino’s is the world’s largest pizza chain. Its more than 7,000 American and 14,000 international locations have been delighting hungry customers with baked dough, sauce, cheese, and toppings for 63 years.
99% of its locations are franchises. Domino’s lends the brand, sells the ingredients, and handles the marketing — while the franchise owner takes on all of the operations. American franchisees pay a 5.5% royalty of revenue to operate in a specific location and then an additional 6% of sales to fund national marketing campaigns like Super Bowl commercials. Domestic franchisees sign 10-year agreements and have traditionally had a 99% renewal rate. International franchisees pay an upfront license fee and a country-specific royalty rate that globally averaged around 3% of sales.
Domino’s also operates nearly 300 company-owned stores, which it uses as test hubs to try out new products and marketing campaigns. Both franchises and company-owned stores averaged around $1.5 million in annual sales last year. Altogether, the company did $4.7 billion in revenue in fiscal 2024. Collectively, that is around 1.5 million pizzas served every day.
Two-thirds of Domino’s sales are delivery while the other third are for carryout. Customers generally psychologically lock-in on either convenience or price, with only around 20% of customers switching between delivery and carryout for the majority of their orders.
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Recent Company Updates
February 24, 2025: Dominos' Cash Flow Dilemma: Are There Enough Slices to Feed Everyone?
Domino's reported in its recent results that same-store-sales grew 3.2% domestically and 1.6% internationally during 2024. After factoring in the 775 net new stores it opened, overall revenue grew 5.9% and free cash flow grew 5.5% for the full year (in constant currency).
And while that is certainly respectable growth, the company also announced it would be increasing its dividend by 15%; which represents more than three-times its FCF growth rate. Around half of the money it spent on share repurchases last year also went solely to cover the new share issued to executives through stock awards and options.
Domino's is already paying out more than 100% of its free cash flow on dividends and buybacks. Unless it grows its free cash flow at a faster rate in 2025, it will inevitably need to 1) spend less on buybacks this year (or reduce the new shares issued for executive compensation), 2) reduce its cash balance to fully-fund the buyback and dividend, or 3) take on debt to fund the buyback and dividend while maintaining the consistent cash balance.
This is still a well-made company who's been baking excellent shareholder returns for decades. But astute investors might also recognize that it's running out of slices to ensure that everyone's getting fed.
July 18, 2024:
Domino's Pizza: On Sale, But Still Not a Bargain