Domino’s Pizza, Inc. (NYSE:DPZ) recently reported its second quarter with a year-over-year sales increase of 10% to about $414 million and an EPS growth of 21%. It was an upbeat quarter driven by the popularity of the fairly new Handmade Pan Pizza. And the results showed that the slow and steady approach could win the pizza wars.
Pan pizza proves patience
A previous attempt at a pan pizza was launched in test markets to little fanfare. So Domino’s went back to the pizza stone and came up with the Handmade Pan, which uses fresh dough compared to the earlier try’s frozen dough.
Pan pizzas used to carry a close association with competitor Pizza Hut, owned by Yum! Brands, Inc. (NYSE:YUM). Pizza Hut’s sales dropped 2% in the second quarter despite the launch of a new product similar to its best-selling Cheesy Crust pizza.
What took the air out of Pizza Hut’s dough?
Pizza Hut’s slump
When Yum! reported its second quarter, a company spokesman said the slip was due to its competitors offering better deals. It’s true that Domino’s and Papa John’s Int’l, Inc. (NASDAQ:PZZA) have offered deals closer to the Hot-N-Ready bargains from Little Caesars.
But where Pizza Hut really stumbles is in the product offerings. The Hut’s rolled out new crust styles, including the cheese pocketed Crazy Cheesy Crust. But the delivery menu options remain fairly barren with standard pizzas, the calzone wannabe P’zones, wings, two pastas, and a few breads.
But Domino’s Pizza, Inc. (NYSE:DPZ) has expanded its menu in a gradual rollout that’s taken place over years. Domino’s standard pizza offerings are joined by artisan pizzas, oven baked subs, five pasta dishes plus a customizable sixth option, and bread options that include stuffed cheesy bread with bacon and jalapeno.
There’s an old retail joke that says that Target’s the upscale Walmart. Domino’s Pizza, Inc. (NYSE:DPZ) is quickly becoming the upscale Pizza Hut — but without the related price hikes.
Comparing competitors
Papa John’s Int’l, Inc. (NASDAQ:PZZA) reported its second quarter on Tuesday and the highlights included a 9.6% revenue increase to $349.2 million. The menu at Papa John’s parallels Pizza Hut in categories, but has often been considered a higher quality. And there’s nothing that Papa likes better than special offers.
Domino’s Pizza, Inc. (NYSE:DPZ) and Papa John’s Int’l, Inc. (NASDAQ:PZZA) are similarly sized so here’s a metric comparison:
| Company | Market Cap* | EPS (ttm) | Revenue / YoY Growth | Total Number of Stores | Same Store Sales Growth (US) | Same Store Sales Growth (ex-US) |
| Domino’s | 3.54 B | 2.26 | $414 million / 10% | 10,440 | 6.7% | 5.8% |
| Papa John’s | 1.44 B | 2.73 | $349 million / 6.7% | 4,252 | 3.4% | 6.8% |
Source: Yahoo Finance and company press releases *Market caps from before market on August 7.
It’s difficult to compare Pizza Hut’s metrics to the others because of its big corporate owner. Pizza Hut is facing sales declines, but its somewhat protected inside the larger Yum! Brands, Inc. (NYSE:YUM) umbrella which also includes Taco Bell. The other pizza places don’t have that protection.
Foolish final thoughts
Domino’s Pizza, Inc. (NYSE:DPZ)’s execs used the second quarter conference call to make it clear that the company has no plans to hurry through any future. The menu items that have already launched make Domino’s stand out from the pack. My only concern at the moment is that the share price is near the 52-week high, which is almost double the 52-week low. Summer months always feature a sales slump for pizza joints and a weaker third quarter report could provide price dip that would make for a cheaper buy.
The article Slow and Steady Wins the Pizza Wars originally appeared on Fool.com and is written by Brandy Betz.
Brandy Betz has no position in any stocks mentioned. The Motley Fool owns shares of Papa John’s Int’l, Inc. (NASDAQ:PZZA). Brandy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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