I think it’s fairly safe to assume that most of you reading this are giant fans of pizza. As a takeaway foodstuff pizza has near unsurpassed versatility, and can be had warm, cold and/or three days old. People use pizza to do amazing things such as cure hangovers and feed unexpected house-guests. They also use pizza to make serious money, however that requires investing in Domino’s Pizza Enterprises Ltd, or ASX:DMP.
For those of you who have followed the fortunes of Domino’s since we first wrote about the stock in October 2015 this news comes as no surprise. Domino’s had been talking a huge game regarding their role in the future of the Australian fast-food industry throughout most of 2014 and 2015, even hinting that the Golden Arches should be wary of the rise of the business (as well as the rise of their delicious cheesy stuffed crusts). All jokes aside, Domino’s have very sneakily (yet strategically) dropped the word ‘pizza’ from their official branding and now refer to themselves as ‘Domino’s’ in all corporate communications and marketing. They’ve accordingly branched out into non-pizza chicken and pork dishes, and perhaps most ominously for the drive-through powerhouses (Macca’s, KFC and Hungry Jacks) have started trialling 10 minute delivery, to be rolled out nationally within 3 years. Spicy.
Have a look at the share price for ASX:DMP below. They’ve had quite an interesting price history, driven in part by investors failing to agree on how much of the future earning potential of the group is already reflected in the share price. That’s a tricky question indeed, as first half revenue increased a massive 30% to $445 million, with Same Store Sales (SSS) up 14% on average. Any way you look at it those results are huge, with prices swinging sharply upward following the announcement. ASX:DMP was trading at just under $60 at the time of writing, compared with $40 when they first flew across the BLI radar in October 2015.
We could sit around and discuss quite a few reasons why the Domino dominance is likely to continue, but here are a few of the best:
- Debt to Equity (the ratio of what Domino’s has borrowed compared to what it owns) has remained at around 25% over the last year, showing the recent growth surge hasn’t been fuelled by getting into huge amounts of debt
- Driver GPS tracking (you can follow the global co-ordinates of your pizza in real time as it gets delivered) has been a massive hit with customers, and has complemented new SMS ordering capability helping to drive best-ever customer satisfaction results
- Domino’s remains completely on board with health-driven macro trends in the fast food industry, with a strategy in place to ensure all ingredients are preservative, colour and additive free by 2017. Domino’s also supports an eco-friendly bike fleet of over 300 riders for delivery in high density regions.
- Domino’s have opened an innovation lab (you read that correctly) to continually develop successful new food items such as Burger Pizza, the Mille Crepe Cake and Potato Prawn Gratin. (These have launched in international Domino’s stores but sound pretty awesome and delicious so hopefully they come to Oz eventually).
- 22 successful digital innovation projects landed in 2014-2015, the most notable including Pizza Mogul (seriously, google that one) as well as “pay by photo” technology where you can snap a picture of your credit card to make a pizza payment.
On a personal note, I can remember the times when Domino’s pizza was renowned for being greasy, cold and shit. To think that they still managed to turn a decent profit when every pizza was tainted with the flavour of sadness and artificial pepperoni is amazing, and makes me think that now they sell genuinely good pizza (faster than anyone else) not much can stand in their way.
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