By Mark Kalinowski
Published on May 12, 2020 at 12:00 AM
With this report, we upgrade our rating on the shares of Domino’s (DPZ) to Buy (from Neutral). Our upgrade is based on multiple factors, including: (1) we raise our Q2E U.S. same-store sales forecast by +190 basis points, to +8.6% — not only above sellside consensus (according to Consensus Metrix) of +6.8%, but also the new “highon-the-sell-side” forecast, (2) this summer’s new U.S. product launch could prove to be a hit, (3) while we are not modeling a meaningful international sales rebound, it could happen as more countries come back on line with their operations (for example, as of late April, only about 70% of Domino’s France stores were back open), (4) Domino’s company-owned stores (which represent about 2% of the worldwide store base, but which we calculate generate approximately 10%-11% of worldwide operating profits) should see their operating margins helped by lower cheese costs over Q2E-Q4E, and (5) while we are not predicting another massive shutdown of stores/lockdown orders/etc. for 6-12 months from now, if COVID-19 issues lead to such a circumstance several months from now — particularly over winter 2020-21; winters are relatively friendlier to respiratory viruses — Domino’s delivery & carryout focused business model should be more resistant than nearly all other business models in the restaurant industry.
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By Mark Kalinowski
Published on May 6, 2020 at 12:00 AM
Earlier today, Papa John’s (PZZA; Buy, $76.16) reported Q1 EPS of $0.15, short of our $0.40 forecast and sell-side consensus (according to Consensus Metrix) of $0.41. However, the difference largely results from an accounting change in which “adjusted (non-GAAP) financial results… no longer present certain financial assistance provided to the North American system in the form of royalty relief and discretionary marketing fund investments as Special charges.” For Q1 2020, the impact to adjusted EPS from this change was -26 cents. In other words, excluding this change, Q1 EPS would have been $0.41 — one cent above our projection and matching consensus.
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By Mark Kalinowski
Published on April 30, 2020 at 12:00 AM
Earlier today, McDonald’s (MCD; Neutral, $183.93) reported Q1 EPS of $1.47, short of our $1.52 forecast and sell-side consensus (according to Consensus Metrix) of $1.55. SG&A/Revenues of 12.5% (versus our 11.7% projection) accounts for the difference between Q1 EPS and our EPS estimate. However, part of this SG&A relates to non-recurring costs, such as $40 million for the company’s cancelation of its biannual worldwide convention, and $20 million for “payments of contractual obligations as [McDonald’s] reduced the scope and ongoing spend in R&D work of certain restaurant technology.”
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