Domino's Scale-Based Cost Advantage Shouldn't Falter Despite Near-Term Pain

Domino’s and the broader pizza industry have felt the heat from ongoing delivery sales pressure, while persistent industry promotional activity to lure wallet-stretched consumers has further thrown the pizza giant off balance. Nevertheless, we’re still optimistic about Domino’s pizza category dominance. This is reinforced by menu innovation and a marketing cadence that smaller peers struggle to match. Paired with a strong international franchisee base, this strategy has driven 7.2% constant-currency system and 3.2% comparable sales growth on average over the past seven years, outpacing our 3.2% estimate for the global pizza category. As many competing chains have succumbed to the pizza vertical's competitive intensity and shuttered units, we don't expect Domino's to ease up on investing behind its brand and expanding its footprint, despite the near-term weakness. As such, we expect roughly 4.4% system growth versus 3.8% for the vertical over the next five years.