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Domino's Analysts, Post-Earnings: Things Could Get Worse. Here's What to Weigh.

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Want to take a bite of Domino's (DPZ) shares?

Not to be cheesy, but on Tuesday one clear negative and one clear positive that investors need to weigh emerged.

On the negative side, analysts seem to be growing cautious. On the positive side, management disclosed an important factor regarding the stock.

Let's start with the earnings results out Tuesday morning.

Earnings and Revenue

Earnings per share came in at $2.04, missing expectations of $2.07. The company posted revenue for the quarter of $820 million, missing estimates of $824 million. Same-store-sales growth was 1.7%, missing estimates of 2.9%.

The stock fell as much as 6% to start Tuesday.

The Negatives

It's plain to see that Domino's same-store-sales miss was severe.

A slight sales miss for any company is usually viewed in a broader context before an investor concludes what a quarterly earnings report means for a company's long-term earnings power.

But this same-store-sales miss was 1.2 percentage points. That's not nothing. And Morgan Stanley analysts, in an early September note, had touted Domino's' "near-term sales-driving initiatives" as one reason to believe in the quarter just reported.

Those initiatives include "delivery insurance" for failed deliveries and discounts after 9 p.m. to grow market share in the evening hours.

And while the company upheld its three- to six-year goal of achieving 3% to 6% same-store sales growth in its outlook, it introduced something that made one analyst shudder. Management said it now expects same-store-sales growth for the next two to three years to range from 2% to 5%.

Now, some analysts, while maintaining their current estimates and valuations, are beginning to wonder whether the guidance, mixed with the rough quarter, is a precursor for more pain.

"We wonder how much more confidence [the executives] have on 2-3 year outlooks versus 3-5 year outlook?" Goldman Sachs analyst Katherine Fogertey wrote in a note out Tuesday.

"Is it possible (and is it likely) that comps in each region are below the 2-3 year outlook for a couple quarters, or do they view 2% and 1% same-store-sales as the baseline for U.S. and international respectively?

"Do they expect to rebound to the 3-5 year outlook over time? While they did suspend this guidance, does this imply that they no longer expect to return to 8-12% top-line growth over time?" The 8% to 12% same-store-sales growth goal is an even longer term one.

Cowen analyst Andrew Charles wrote, "We find the timing of the new guidance introduction strange, as the company fiercely defended the prior 3-5 year range at the Sept. 6 investor meeting." 

By mid-morning, the tone on the stock reversed.

The Positive

The stock rose 4.68% to $253.84 by the end of the day.

On the earnings call with analysts, management said it would go through with a $1 billion share buyback program. Management did not provide a timeline for the return of the amount to shareholders, but the announcement clearly encouraged investors.

What Investors Must Weigh

It's possible that Domino's and its analysts will have to revise revenue forecasts downward, which would likely mean lower earnings forecasts.

The company could get operating costs down, but it may be difficult to fully offset the lower revenue. If earnings start to coming in lower than expected, earnings per share could go lower.

But if management can execute its buyback program, its share count would fall. Earnings may lag what investors currently expect, but earnings per share may rise.

The key to decipher:

With possibly lower earnings and a lower share count, where will earnings per share land and what stock price would properly reflect that result? 

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