Article

Domino's 12 percent sales growth driven by top-in-class marketing

Third quarter 2010 earnings see possibly the most gains from transparent-themed TV spots started in 2009. 

October 18, 2010

Domino's third quarter 2010 earnings report led with the happy news of almost 12 percent same-store sales growth on the domestic side, the company's sixth consecutive quarter of positive comps.  

The biggest reason for the increase, company CEO Patrick Doyle said, is that the effectiveness of the revamped recipe and “Oh Yes We Did” campaign started late 2009 are now hitting full stride. Indeed, follow-up TV spots seek to capture the same candidness as this initial admittance of sub-par product, and it appears the approach has paid off.   

"We're 10 months into the strategy and it continues to work," Doyle said on the earnings conference call. "In short, we're a new Domino's. … even though we’ve been at this for 10 months, we’re still getting new customers. They continue to call and to try the new pizza. And we're maintaining strong repeat sales from the bigger base of customers we’ve built up throughout the year."

It's hard to overstate the emphasis Doyle put on the advertising campaign, which the CEO attributed directly to the company's double-digit same-store sales gains. Doyle claimed the ads run in the third quarter – which included the gutsy "Show Us Your Pizza" spots, wherein one Domino's customer submitted an unappetizing picture of pizza stuck to the inside-top of a cardboard box – tested in the top 5 percent of all ads tested by the company's ad research firm in the past five years.

He also presented his company's value price positioning – two medium pizzas for $5.99 each – as strong traffic builders that allow franchises the flexibility to upsell additional toppings, a flexibility he believes Pizza Hut's fixed priced points don’t allow for.

The numbers

Domestic same store sales growth for the third quarter ended Sept. 12, 2010 were 11.7 percent, compared to a 2 percent contraction in third quarter 2009. Internationally, same store sales were up 7 percent, up from 2.7 percent growth in the corresponding quarter of 2009.

Net income was down 6.9 percent for the third quarter versus the prior-year period, at $16.6 million in Q3 2010 from $17.8 million in Q3 2009.  Management noted that the third quarter net income comparison was impacted by certain items affecting comparability.   “The decrease was primarily the result of comparison to large gains recorded in q3 2009 related to debt repurchases,” CFO Michael Lawton said.

Year-to-date net income was $64 million, up 14 percent from $56 million for the three quarters ended Sept. 6, 2009. 

Revenueswere up 15 percent, to $347 million from $303 million in third quarter 2009. Year to date, revenues reached $1.1 billion, up 16 percent from $941 million for three quarters ended Sept. 6, 2009.

Lawton ended the numbers reportage section of the phone call by citing heartening signals of growth for the industry.

“I'm very encouraged by the current situation in the credit market, as illustrated with recent deals being completed withing the resto sector,” he said. “These deals are getting done at higher levels of leverage with … lower sales momentum than Domino's.”