Domino's U.S. sales disappoint, shares fall 6 percent

(Reuters) - Domino's Pizza Inc DPZ.N reported a smaller-than-expected increase in quarterly same-store sales at company-owned stores in the United States on Tuesday, underscoring intensifying competition from Pizza Hut and food delivery upstarts in an overcrowded market.

A Domino's Pizza restaurant is seen in Los Angeles, California, U.S. July 18, 2018. REUTERS/Lucy Nicholson

Shares of the company fell 6 percent to $256.25 in trading before the bell after it reported growth of 4.9 percent in same-store sales at company-owned U.S. outlets and 6.4 percent at franchises, both below Wall Street expectations.

That also brought overall revenue in at $786 million, just below estimates of $788.1 million, according to I/B/E/S data from Refinitiv.

The dominance of Domino's and other national pizza chains like Papa John's PZZA.O and Yum Brands' YUM.N Pizza Hut is being chipped away by third-party food delivery services such as GrubHub Inc GRUB.N, Uber Technologies' UberEats and DoorDash.

Domino’s, long known as an industry leader in tapping technology to improve ordering and delivery processes, has stepped up efforts to better compete with these third-party delivery “disruptors”.

The biggest U.S. pizza chain said in April it would add online ordering for more than 150,000 new delivery “hotspots” at U.S. parks, beaches and other destinations that do not have traditional addresses.

The results also come against the backdrop of smaller rival Papa John’s struggles with the fallout of an acrimonious split with its founder that has hit sales and comparable sales forecast.

Papa John’s troubles, analysts have said, are expected to benefit Pizza Hut, Domino’s closest rival that has also been keeping pace through marketing campaigns and menu refreshes. Pizza Hut has also replaced Papa John’s as the official pizza of the National Football League.

International sales were a bright spot for Domino’s in the third quarter, gaining from the company’s efforts to offset intensifying competition in its U.S. market.

Domino’s said on Tuesday it opened 173 net new international stores in the latest reported quarter, compared with 59 net new U.S. stores.

Comparable store sales in the international business rose 3.3 percent, topping analysts’ average estimate of 3.17 percent.

Domino’s international business is wholly run by franchisees and the company gets a sizable chunk of revenue from ingredients and equipment it supplies them.

Supply chain revenue from its franchisees rose 10.7 percent to $445.1 million in the quarter, but slightly missed expectations of $449.1 million.

Total revenue rose about 22 percent to $786 million but fell short of estimates, only the second miss in at least two years.

The company’s net income rose to $84.1 million, or $1.95 per share, in the third-quarter ended Sept. 9, from $56.4 million, or $1.18 per share, a year earlier.

Analysts were expecting profit of $1.75 per share. The increase in earnings per share was also helped by share repurchases, the company said.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Sriraj Kalluvila