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Why Domino's Latest Earnings Report Left Investors With Indigestion

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Domino's (DPZ) posted a poor quarter and the negative points are aplenty, as the company's overall sales growth is currently in question. 

The stock fell 5.64% to $228.56 a share Tuesday.

The company posted revenue for the quarter of $820 million, missing estimates of $824 million. Earnings per share came in at $2.04, missing expectations of $2.07. Same-store-sales growth was 1.7%, missing estimates of 2.9%. Here were the most worrisome points that have investors eating elsewhere:

Same-Store-Sales Miss

The magnitude of the miss was high.

Domino's missed estimates on the key retail metric by 1.2 percentage points. Behind the number, Domino's has been pushing what Morgan Stanley analysts call a "near-term sales-driving initiatives."

With near-term being the operative phrase, investors wanted to see a solid quarter now in order to know that the micro strategy is working or that management is executing. One of those initiatives is to offer "delivery insurance." Anything that happens to a customer's order, like a fallen pizza box on the road or a botched pizza pie, is insured. Stores are also offering a 20% off sale after 9 pm to capture more market share at that time. 

With these initiatives in place, investors wanted to be sure of the same-store-sales trajectory. With the huge miss, they're quite unsure. 

Same-Store-Sales Outlook

Nothing is horribly wrong here, but there is cause for caution. 

The company has touted a three to six year outlook for 3% to 6% same-store-sales growth. The company guided for the metric to be 2% to 5% for the next two to five years, while maintaining guidance of 3% to 6% same-store-sales growth for the longer three to six year period. 

The weaker shorter-term outlook mixed with the very weak quarter may put a ceiling on expectations for same-store-sales growth, at least for now. 

U.S. Store Growth 

Sure, Domino's is growing internationally, but it's very focused on the U.S. 

The number of U.S. stores grew 2.4% year-over-year for the quarter, missing expectations of 2.45%. Domino's sees about 90% of its revenue from the America's and doesn't expect that number to change. Meanwhile, Europe and Asia don't exactly represent growth markets for Domino's anymore. Investors need to see continued solid growth at home. 

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