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For the past several years, Domino’s Pizza Inc. executives have railed against rival U.S. food-delivery apps like DoorDash Inc.
DASH,
Grubhub and Uber Eats. The apps were losing money, and their aggressive free-delivery and discount offers to customers were unsustainable, they said. They argued that the pizza chain’s own delivery model — which unlike the apps had its drivers hauling pizzas to customers and returning to a single store — was more centralized, more predictable and thus economically superior.
But at a conference with an analyst on Wednesday, which broadly highlighted recovering consumer demand, Domino’s
DPZ,
chief financial officer offered what some analysts considered an unexpected clarification: The door to working with third-party deliverers was not fully shut.
For customers, any potential collaboration would mean more ways to get pizza delivered, as the food-delivery industry tries to recover from difficulties attracting drivers after the pandemic’s job-market upheaval. And one analyst on Thursday called any possible partnership a possible “catalyst” for the stock.
“If we see that on a long-term basis, the incrementality of the opportunities is greater than the risk, then that calculus leads us to actually partnering with third-party aggregator,” Domino’s CFO Sandeep Reddy said at the conference. Domino’s executives over the years have used the term “aggregator” to refer to outside delivery services working with restaurants.
“This is the evaluation process I’m describing in the United States, but it’s not unique to the United States,” he continued. “It’s one that we’ve done in every single market internationally where we are partnering with aggregators and that business is now $1 billion in size.”
The analyst, Brian Bittner at Oppenheimer, pressed for more detail: The company was constantly evaluating those options? The door wasn’t closed?
“Absolutely. You’re correct,” Reddy said.
Earlier during the conference, Reddy said the backdrop for consumers ordering out was improving. And he expressed optimism about an upgraded loyalty program set to debut in the fall.
“I mean, the macro, especially in 2022, was very challenging from a consumer standpoint,” Reddy said. “So we saw declines in real disposable income that definitely did impact the delivery segment. But I think as we moved into 2023, we’ve seen that kind of inflect and real disposable incomes are beginning to grow again, especially with inflation coming down, job growth and wage growth basically continues to hold up pretty well.”
“So, typically you’ll see demand being a lagging indicator but I think the macro is what it is and it looks like it’s actually better than it was looking last year,” he said.
Shares of Domino’s Pizza Inc. jumped 5.9% on Wednesday. The stock was on pace Thursday to notch their biggest gains since October.
“Management believes the health of its core consumer is showing signs of improvement relative to 2022, and anticipates the upcoming loyalty relaunch and the e-commerce platform upgrade to represent tangible accelerators for comps,” Bittner and Oppenheimer analyst Michael Tamas said in a research note on Thursday. “As for third-party partnerships, management surprisingly stated that the option remains open and is still being evaluated — a potential catalyst for shares.”
An upgrade from Stifel also helped lift Domino’s shares on Thursday.
“Our upgrade reflects our belief that over the next 12 months, the company will stabilize delivery sales and continue growing carryout sales to new record levels,” analysts there said. “Better sales performance, lower commodity costs, and higher labor productivity should boost franchisee profitability, sparking greater unit growth.”
