Domino's Coverage Skimped on the Meat

Investors need to consider more than a questionable first-quarter profit when deciding how to play the pizza chain stock.
By Marek Fuchs ,

Domino's (DPZ) - Get Report is, in a word, a Godforsaken mess. OK, that's more than a word, but you get the point. The Associated Press, much to The Business Press Maven's chagrin, did not.

Look at this headline, which ran Tuesday night: "Domino's Pizza shares up after company reports 1Q profit." The

AP

began its lead

with the same claim before launching into a second clause that rendered news of that big rise as meaningless as gills on a bird:

"Shares of pizza delivery chain Domino's Pizza Inc. rose Tuesday after the company reported a big rise in first-quarter profit, helped by expenses that weighed down the year-ago results."

After a breathless headline and first clause of the lead momentarily tricked The Business Press Maven into thinking that Domino's has fixed its problems, which are crust-deep everywhere but overseas, we get this:

"Before the market opened Tuesday, Domino's said a recapitalization in 2007 led to far lower results in the year ago quarter. Excluding those expenses, the company's profit would have fallen in the 2008 first quarter."

That headline profit? It was worth as much as a two-week-old anchovy on the secondary market.

They Just Don't Get Domino's!

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We then hear that U.S. same-store sales were down more than 5% before hearing from an analyst that they'll probably fall further because of a spate of lower-priced offerings. But then, referencing the meager 21-cent rise, we get this all's-well-if-it-goes-up-a-few-ticks summary in the kicker: "Still, investors seemed to focus on the company's international sales results and its profit rise."

If The Business Press Maven seems to be curbing his enthusiasm, it is because the stock's roughly 1% rise happened on a day in which the market moved within just two points of that. Could this have just been one big and misguided buyer and not the plural "investors" allegedly drawn to the stock by "profits?" You bet your ultimate deep dish it could.

Don't think this is a wire service thing, either. Look how

Reuters

captures the messy truth

right in its lead and, unlike the

AP's

story, even mentions the estimate miss: "Domino's profit misses estimates, U.S. sales weak."

Look, this is no doubt a tough environment for restaurant stocks, which operate in a tough business. Some, like

McDonald

's

(MCD) - Get Report

and

Yum Brands

(YUM) - Get Report

, are doing well. Others, like

Wendy's International

,

(WEN) - Get Report

are being taken over. And then there is Domino's, saddled with a bunch of problems that should not be obscured by a profit in name only.

Contrast the

AP

story with one by Bob O'Brien from

Barron's

. With his off-putting sense of himself, The Business Press Maven is always loath to hand the microphone over to other journalists. But we have a saying in journalism that if we were better writers, we could have said the same thing in fewer words. Look at how O'Brien

captures the complexity and confusion

at Domino's in a short, lively paragraph:

"Domino's Pizza (DPZ) has more mixed messages than an anchovy and M&M pizza. Talking on the conference call following (yet another) earnings miss, the pizza palace's management said it might have chased away customers by raising prices too much the last two years. So it was now going to emphasize value. While introducing a line of premium-priced -- i.e., more-expensive -- pizzas. It said earlier this year it would move aggressively to cull under-performing franchisees that it said were damaging its reputation ... and thus far has closed exactly 22 of those, or roughly one-half of one percent of its 4600 franchises. And it took more than four months to fill its vacant chief financial officer position. How long does it take to identify a good candidate, given that the job presumably involves counting pizzas? After missing earnings targets in three of the last four quarters, the management that promised last quarter to turn things around promptly got the year off to a fast start ... by missing earnings targets. Perhaps there's a reason the stock has fallen 15% in a month, and more than 60% from last May's high. Oh, and Domino's made another promise: it's going to sell a lot more pizzas at lunch. Get the office door: it's Domino's."

O'Brien, The Business Press Maven will deliver you pizza any day. You served investors well.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;

click here

to send him an email.

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