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Domino’s 2Q sales fall short as rival delivery services bite

July 16, 2019
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In this Monday, July 15, 2019 photo a customer departs a Domino's location holding food items, in Norwood, Mass. Domino's Pizza Inc. reports earns Tuesday, July 16. (AP Photo/Steven Senne)
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In this Monday, July 15, 2019 photo a customer departs a Domino's location holding food items, in Norwood, Mass. Domino's Pizza Inc. reports earns Tuesday, July 16. (AP Photo/Steven Senne)

ANN ARBOR, Mich. (AP) — Domino’s Pizza said aggressive discounting by third-party delivery services like DoorDash is hurting its U.S. sales — and shows no sign of letting up.

U.S. sales at stores open at least a year rose 3% in the second quarter. That was below analysts’ forecast of 4.5%, according to FactSet. It was the third straight quarter that U.S. same-store sales have fallen short of expectations, Domino’s CEO Ritch Allison said.

Domino’s has its own drivers and doesn’t work with delivery services like UberEats and GrubHub, which are racing to sign up customers with referral bonuses and other deals. Those services have made it easier for consumers to order a wide variety of food beyond pizza; UberEats has occasionally offered free McDonald’s delivery, for example.

“We expect that behavior to continue for some period of time,” Allison said during a conference call with analysts. “While the economics of the business are still open to question for the long term, the near-term activity indicates investors are willing to lose a lot of money in the short term to drive market share.”

Domino’s shares fell 8.2% to $247.84 in afternoon trading Tuesday.

Allison said Domino’s is fighting back by opening more stores, which ensures faster delivery times and increases global market share. The company opened 158 net new stores internationally during the quarter and 42 net new stores in the U.S. Global retail sales were up 5% thanks to the rapid pace of store openings.

The new stores, however, are hurting same-store sales figures — a key metric of a retailer’s health — since business is spread across more stores. But Allison said the strategy is still the right one to ensure Domino’s dominance in the market.

“It’s an investment we and our franchisees are happy to make for long-term growth,” he said.

Some franchisees also raised food prices and delivery fees during the second quarter to combat lower customer traffic and higher wages, Allison said. Domino’s also is investing in technology to improve service, including a real-time GPS delivery tracker for customers and a test of autonomous delivery in Houston.

Revenue rose 4% to $811.6 million in the April-June period, which missed Wall Street forecasts. Six analysts surveyed by Zacks expected $833.2 million.

The Ann Arbor, Michigan-based pizza chain said net income was up 19% and earnings per share rose to $2.19 per share, surpassing analysts’ forecast of $2.

Allison thinks the pressure from delivery services will ease somewhat in the future, as some companies drop out of the market and discounts become less frequent.

“The 100th coupon that you get is probably less effective than the 2nd,” he said. “We don’t know what the ultimate demand will be, once the customer has to pay a price for the service that exceeds the service.”

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on DPZ at https://www.zacks.com/ap/DPZ

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