Domino’s Pizza (DPZ) is surviving and thriving in the post COVID-19 world. Domino’s revenues grew by 7.07% in the quarter ending on 30 September 2022.
Consequently, Domino’s quarterly revenues grew from $998 million on 30 September 2021 to $1.069 billion on 30 September 2022. Conversely, Domino’s quarterly gross profit fell from $506 million on 21 December 2021 to $381.85 million on 30 June 2022. Similarly, the quarterly operating income fell from $222.69 million on 31 December 2021 to $176.45 million on 30 September 2022.
Hence, Domino’s revenues are growing, but its income and gross profit are falling. Domino’s has more revenue and less money. I have to wonder how a company that makes less money and more revenue can survive?
How Much Money is Domino’s Making?
Domino’s (NYSE: DPZ) is generating some cash. It reported a quarterly operating cash flow of $176.74 million on 30 September 2022. The quarterly operating cash flow grew from $174.24 million on 30 September 2021. However, the quarterly operating cash flow fell from $184.54 million on 31 December 2022.
Conversely, Domino’s reported a quarterly ending cash flow of $20.43 million on 30 September 2022. The Quarterly ending cash flow fell from $44.54 million on 30 September 2021. However, the quarterly ending cash flow rose to $486.91 million on 30 December 2021.
Consequently, Domino’s had just $299.34 million in cash and short-term investments on 30 June 2022. The cash and short-term investments fell from $668 million on 30 September 2022. Thus, Domino’s cannot keep the cash it generates.
However, Domino’s can pay some debt. Domino’s total debt fell from $5.3 billion on 30 September 2021 to $5.138 billion on 30 September 2022. Domino’s reported a quarterly financing cash flow of -$137.54 million on 30 September 2022.
I think Domino’s is not making money because it has to share profits with franchisees. Hence, the company cannot keep cash.
What Value Does Domino’s Offer?
Notably, Domino’s Pizza (DPZ) had almost 6,600 US locations in 2022, Vetted Biz estimates. There were another 1,200 Domino’s in the United Kingdom and over 1,500 in India.
Domino’s operates over 17,000 franchise units in 90 countries, Nerdwallet estimates. The Domino’s franchises are popular because they are cheap for franchises. Nerdwallet estimates it costs between $145,000 and $500,000 to open a Domino’s. Additionally, the Domino’s net worth requirement for franchisees is low at $250,000.
In contrast, Moe’s Southwest Grill and Qboda both require franchisees to have a $1 million annual income, FoodTruckEmpire reports. Additionally, the initial investment for a Qboda is $871,000 to $2.034 million and an initial investment for a Moe’s is $475,000 to $1.1 million.
Hence, Domino’s operates an impressive footprint. However, that footprint does not translate into value. Domino’s total assets were $1.646 billion on 30 September 2022. Domino’s total assets shrank from $1.764 billion on 30 September 2021.
Domino’s Value is Limited
Domino’s has limited value because it does not own the locations. Instead, the franchises do. Hence, all Domino’s sells is a name and a pizza recipe. That’s not much value.
I think Mr. Market grossly overpriced Domino’s at $334.80 on 28 October 2022. Not even a $1.10 quarterly dividend makes Domino’s (DPZ) attractive to me.
Although Domino’s has scheduled nine $1.10 quarterly dividends through 30 December 2024. Domino’s offered a $4.40 forward dividend and a 1.31% forward dividend yield on 28 October 2022.
I advise investors to avoid Domino’s because it has an expensive stock and too many locations. I suspect Domino’s could be in the business of selling franchises instead of pizzas. That could make Domino’s a poor investment.
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