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Domino's Delivers Mixed Earnings

By:Thomas Westwater

And, what to expect with McDonald's upcoming earnings report

  • Domino’s Pizza rises as investors digest a mixed pie of earnings.
  • McDonald’s earnings are on tap as market mulls consumer strength.
  • Earnings figures weigh on the Dow Jones and S&P 500.

DPZ reported mixed second-quarter fiscal results before the opening bell on Monday, leading to a $7 per share, or about 1.65%, increase in its stock price through early afternoon trading. That move comes amid a generally upbeat start to the U.S. trading week as investors prepare for key central bank decisions.

While revenue missed analysts’ expectations at $1.02 billion compared to $1.07 billion, earnings per share (EPS) came in at $3.08 per share against $3.05 per share. The company’s same-store sales—a closely-watched sales metric that excludes sales at new locations—were reported at +0.1%, which was short of the +0.2% that analysts expected.

What's ahead for the U.S. pizza leader?

The executive team is taking an unusual approach to acquiring new customers through the rest of the fiscal year by focusing on its delivery experience in established areas vs. expanding into untouched markets where competitors are already present. This strategy makes sense given the slowdown in its same-store sales, and investors appear to agree with management, given the share-price reaction.

Earlier this month, Domino's is making a foray into third-party delivery services by forming a partnership with Uber Eats (UBER) and privately held Postmates, which is aimed at reviving its slowing delivery segment. Customers can expect to see the new option in the Uber app starting this fall for selected pilot areas. Investors will closely monitor the results later this year.

DPZ tastylive chart

A cursory look at the daily technical chart shows the relative strength index (RSI) is firmly in overbought territory. However, this doesn’t mean that prices are due to contract in the short term. In Fact, it indicates healthy upward momentum and buying, which may continue with prices above its key moving averages.

McDonalds earnings on tap

McDonald’s (MCD) is set to report earnings figures Thursday. The golden arches brand represents a considerable proxy for discretionary spending in the United States, and the market will be closely watching its numbers because of that.

A quick side note: the market seems encouraged by a big rebound at the box office due Barbenheimer, evidenced by the reaction in AMC’s stock price. Will that effect radiate across the discretionary landscape or is the hill in rate hikes too steep for Americans’ pocketbooks?

Analysts expect a $2.88 billion operating profit on $6.3 billion in revenue, according to Bloomberg, and EPS of $2.78 on an adjusted basis. Revenues and EPS in the most recent quarter were $5.9 billion and $2.63, respectively.

Outside of headline numbers, analysts are watching same-store sales figures and international sales, with the latter potentially being throttled by higher inflation abroad. Labor costs and the performance of menu items, such as the Crispy sandwich, is also in the spotlight.

The numbers from McDonald’s may have broader market implications outside of its share price. As the largest U.S. fast food service provider, a considerable miss may spook discretionary spending stocks or perhaps even the broader market. Alternatively, a beat could bid the market higher, particularly the Dow Jones (/YM) and S&P 500 (/ES).

MCD chart tastylive

As with Domino's, the McDonald’s chart is showing the stock price above its major moving averages, although its RSI is trending just above its mid-line. The earning’s reaction may change this narrative. If so, look for the recently supportive 50-day simple moving average (yellow line) to hold on a down move. To the upside, the 300 psychological level may serve as a gauge of how much strength exists in the move.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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