Domino’s Pizza’s earnings still fell short of expectations despite strong sales in the third quarter of 2020 as the company’s cost increased.
While pizza sales surged amid the pandemic, the health crisis still took a toll at Domino’s Pizza. The American pizza chain company would normally delight in higher sales. However, the share prices for Domino’s Pizza fell as costs for the firm increased.
Strong Pizza Sales
Last week, Domino’s Pizza revealed the company’s financial performance in the third quarter of 2020. Particularly, the company’s worldwide sales rose by 14.4 percent. Meanwhile, its sales in the US climbed by 17.5 percent on a year-over-year basis. Moreover, the company said more customers ordered amid the pandemic. They even exceeded the projected revenues by analysts, with $968 million. It is $15 million higher than the expected revenue based on analysts’ survey by Refinitiv.
Actually, in the recent quarter, the company launched new chicken wings on their menus. But as the demand for the new chicken wings increased, they did not even have to run any promotions for such a menu item.
“You haven’t seen us promote wings because we’re selling all the wings that we can get our hands on today,” chief executive Richard Allison said.
The CEO added that “our strong third-quarter results once again demonstrated our focus on value, service, quality, and innovation to meet customer needs.”
Domino’s Effect
However, Domino’s Pizza’s higher costs still undermined the company’s strong sales. CNBC reports that on Thursday, Domino’s Pizza shares dropped by six percent in the morning. In particular, its earnings per share fell below expectations with $2.49 per share vs. the projected $2.79 per share.
Just as Covid-19 has people buying more pizza, it has led to higher costs for everything from cleaning supplies to worker pay. Ingredient costs have also fluctuated: The company said cheese prices have been swinging wildly during the pandemic https://t.co/To1tyFFY8E
— CNN Business (@CNNBusiness) October 8, 2020
Meanwhile, CNBC further reports that as of October 5, less than 300 Domino’s Pizza chains all over the world remained closed. In the third quarter, the company had to also permanently shutter 126 restaurants.
Higher Costs
Despite the strong sales, Domino’s Pizza also had to spend more to deal with the challenges of the COVID-19 pandemic. For example, the company had to provide for personal protective equipment of employees and to boost wages for front-line staff. Moreover, the prices for the pizza ingredients rose as well, such as cheese, the company said.
Domino’s Pizza CFO Stuart Levy said that the impact from “safety and cleaning equipment, enhanced sick pay, and other compensations” amounted to $11 million.
