Markets

Market Love For ‘A Tech Firm Delivering Pizzas’

Domino's

Domino’s got a big boost in its share price, care of a big up-vote from Morgan Stanley Analyst John Glass in the form of a raised rating to overweight from equal rate, citing “attractive valuation relative to slower-growing peers.”

The new rating came with a boosted price target to $283 from $268. Glass also argued with market analysts who forecast same store sales rate growth of 2 percent to 3 percent (a decline over the last two years’ 5 percent to 6 percent). Aggregators, the conventional wisdom on the Street says, will begin eating too far into Domino’s business in the near term. Glass ruled that prediction “too bearish based on history for a best-in-class operator.”

“There is some evidence based on third party data on DPZ’s 1Q19 app downloads that the market’s concerns over decelerating U.S. comps may be overdone,” Glass wrote in a note, also noting that Domino’s is better shielded from food-delivery rivals due to its larger and more diverse geographical footprint and anticipated price hikes in competing services.

The notes boosted investor interest on the street in Domino’s since the firm posted weaker than expected Q4 earnings — particularly in regards to comparable store sales growth. Same-store sales revenue grew 3.6 percent, well below the 6.6 percent forecast.

In its Q4 call with investors, Domino’s talked up plans to further invest in its technological advancements, most recently AI-based ordering  as well as of the importance its “fortressing” program, which refers to the push to expand rapidly in order to decrease delivery times — more stores mean smaller distances between pizza ovens and consumers.

“The most expensive thing that we do is take a pizza from point A to point B,” Domino’s President and CEO Richard Allison told investors on his most recent quarterly earnings call. “In addition to driving incremental sales for household, which we’ve talked about in the past, we are also looking to reduce the cost per delivery by being smarter about our scheduling and … using technology to make the flow of product from the store out to the customer more efficient.”

And those technological advances have been notably myriad over the last 24 months. Jim Cramer, host of CNBC’s “Mad Money,” observed on Twitter in 2017 — and many, many times since then — Domino’s is a tech company that delivery pizza (and “damned good and underrated” pizza at that), and it is a tagline that has attached itself to the company over the years. It is not entirely undeserved. Domino’s has experimented in a wide variety of innovations around voice ordering, text message ordering, emoji-based ordered — we could go on with the list, but as Domino’s CIO Kevin Vasconi wrote for CIO Review, Domino’s has over a dozen ordering platforms.”

“For Domino’s we have 15 different platforms where customers can order pizza,” he wrote. “To be a popular customer choice, organizations need to available anywhere, anytime and that’s where their mobile applications and platforms help them.”

Though technology is often awarded the credit or the blame for being a market disruptor, Vasconi noted, often the focus on the tech itself misses the point. The segment disruptor is the same thing it has always been, customer’s changing preferences and needs. The technology available can guide and expand those things — but at the end of the day the end point is the same when it comes to customer satisfaction. There are just more endpoints getting there.

“Choice and valued will never go out of fashion making it essential for CIOs to embrace technologies. Digital technologies can be fruitfully leveraged if and only if the employees are given freedom by the CIO to try and inject them into their company’s delivery model in the quest to conquer the changing dynamics of customer behavior.”

And, at least as of today (April 18) Domino’s technological plan is gaining purchase in the market, with a big assist from Morgan Stanley.  Shares of Domino’s gained nearly 4 percent in trading.

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