Domino's Pizza

In the second quarter, Domino's delivered 3% global constant-currency sales growth, propelled by 4.6% unit growth. US comparable sales increased 0.1%, but international fell 0.1%. Company-owned unit-level margin dipped to 11.4%, down 420 basis points from the prior year.

Why it matters: Domino's comparable sales outlook has dimmed as macroeconomic angst follows years of intensifying delivery competition. To lure consumers, the pizza giant is pushing aggressive promotions. Along with rising costs, these pressures have dented unit-level profits. We now forecast 2.1% global comparable sales growth on average over the next decade, down from 2.6% prior. Our more conservative estimate assumes that delivery competition stays intense, with expanded consumer options limiting Domino's ticket and traffic growth over the long haul. On the back of weaker franchisee profits, we've cut our decade-long global unit growth forecast to 3.3% from 3.8% previously. From where we sit, we think management will prioritize franchisee profits over aggressive US penetration while expanding more cautiously abroad.

The bottom line: We've trimmed our fair value estimate for wide-moat Domino's to $369 per share from $412. We maintain our Medium Uncertainty and Exemplary Capital Allocation Ratings. Even with our reduced outlook, we believe Domino's remains a formidable competitor, with a scale-driven cost advantage that should defend its value proposition and support innovation, driving long-term global pizza category share gains. We view shares as modestly undervalued, trading at a 12% discount to our intrinsic valuation. We surmise investors are overstating how specific these industry pressures are to Domino's, as we expect comparable sales to recover to a modest 2.5% after a near-term hit.

We've raised our fair value estimate for Domino's to $372 per share from $369, attributable to the time value of money benefit. Our valuation implies a fiscal 2026 enterprise value/EBITDA of 15.5 times.

We still believe Domino’s has room to grow, with our forecast calling for 4.4% system sales growth over the next decade. In the US segment, which drives 76% of operating profit, including its supply chain business, we see 3.1% system sales growth on average, driven by 2% comparable sales growth and a more modest 1.1% unit growth in more mature markets.

We view the firm’s foray into delivery aggregators as a near-term boost that should steady delivery losses, given Domino’s ability to reach incremental users, supported by an outsize marketing budget and reliable service on the platform. At the same time, we think Domino’s remains primed to maintain its attractive value proposition, which, coupled with growing engagement from its over 37 million loyalty members, should drive continued traffic gains. Persistent product innovation should support traffic-driving excitement and modestly lift average check.

We expect international (24% of operating profit) to lead the growth charge with average system sales growth of 5.8%, propelled by 4.1% unit and 2.1% comparable sales growth. We see unit expansion driven by a healthy development pipeline in underpenetrated markets, with strong master franchisees accelerating openings, particularly in China and India, which management expects to account for nearly half of new stores.

Our conviction is corroborated by strong unit-level economics. In China, master franchisee DPC Dash reports impressive one-year payback periods in newly penetrated cities. The banner only operated around 1,315 units in 60 cities at the end of 2025, and expansion is likely to target cities outside major hubs that boast lower buildout and labor costs. This pales in comparison with more-established Western limited-service operators in the region, such as KFC (12,700) and McDonald’s (7,709), suggesting room to grow. In India, Jubilant has reported attractive paybacks of 2.0-2.5 years, which should propel continued expansion, in our view. Despite Domino’s position as the limited-service unit leader, we believe growth remains compelling as Western brands have historically been underpenetrated in the country. We believe a compelling value proposition, supported by Jubilant’s scaled supply chain, which we view as a hurdle to entry, alongside a dense population that is conducive to delivery, should continue to support expansion. However, we don’t think Domino’s will achieve its international development goals for 5,500 new units added in total over 2024-28, as closures and a slower cadence of new openings impact its Domino’s Pizza Enterprises franchisee following aggressive expansion efforts during the pandemic. Even so, we suspect greater attention to unit-level profitability to unlock more measured growth, averaging about 730 international openings annually after 2026, as our estimate still remains more conservative than management's estimate of 925.

We expect Domino’s low-single-digit international comparable sales growth to persist, in part due to its strong master franchisee base. Roughly 80% of international stores are operated by publicly traded firms, which we believe are well capitalized and can deliver menu innovation to meet local tastes, invest consistently in deploying Domino’s tech and facilitating loyalty adoption, and benefit from shared global insights and collaboration with corporate. As a testament to this strength, the segment has impressively posted more than 30 years of comparable sales growth.

Overall, we forecast that Domino’s operating margin can improve to 21.5% in 2035 from 19.2% in 2025. We think additional upside could stem from an improvement in US company-owned restaurant margins to 16.2% from 14.3% as the operating environment normalizes and additional tech-driven efficiencies take hold.

We assign Domino’s a wide moat rating, supported by its intangible assets and cost edge. The firm is the world’s largest pizza operator, with more than $20 billion in system sales annually, capturing a 19.1% (up from 15.4% in 2016) share of the global limited-service pizza market, ahead of Little Caesars (6.7%), Pizza Hut (5.3%), and Papa John’s (5.6%). We think the firm’s positioning is impressive in a competitive market with low barriers to entry and minimal switching costs. We see the firm’s leading standing and share gains as a reflection of brand strength, corroborated by comparable sales outperformance, attractive unit-level economics, and international expansion.

Domino’s cost edge stems from its in-house supply chain leading to procurement benefits, fortressing strategy lowering last-mile delivery costs, and scale to spread investments in technology, marketing, and menu development over its sales base. Our view is supported by returns on invested capital, including goodwill of 61% over the past decade, well above our 7% weighted average cost of capital. We expect the firm will continue to outearn its cost of capital over a 20-year horizon.

We believe Domino’s ability to propel comparable sales growth ahead of input cost inflation and peers serves as a testament to its brand cachet. Over the past decade, Domino’s has lifted comparable-store sales by 5% in the US, outstripping our 3.9% estimate for annual US labor and food cost inflation. By contrast, Papa John’s has lifted US comparable sales by just 2% while Pizza Hut's have been flat. We attribute this strength to Domino’s success in catering to evolving consumer preferences and keeping the brand relevant with a reliable experience that emphasizes product, customer service, and a compelling value perception. Over 70% of current menu items have been introduced since 2008, supporting traffic and average ticket growth as the firm expanded its fare from a very simplified pizza menu, while maintaining discipline around operational simplicity and quality. The firm has also met consumers where they are, with over 85% of US sales stemming from digital channels, up from about 60% in 2018 and ahead of around 18% for the US restaurant industry (according to Circana). We contend that Domino’s relentless push to make the brand more convenient and compelling without abandoning its affordable pricing has reeled in more consumers, driving traffic-led sales gains.

Domino’s ability to drive comparable sales growth has supported healthy unit-level economics for franchisees, strengthening the brand’s perception in the eyes of franchisees and unit development. Domino’s 2025 domestic average unit volume (AUV) was around $1.4 million, topping Papa John’s ($1.1 million) and Pizza Hut ($0.8 million). We believe higher AUV results in better fixed-cost leverage at the store level. Coupled with lower buildout costs, we estimate US franchisee payback periods to be around three years for Domino’s, ahead of the four- to six-year average for restaurants, including Papa John’s and Pizza Hut, making franchisees more compelled to expand Domino’s units.

We believe Domino’s demonstrated international portability underscores the brand’s prowess, with its nearly 15,000-unit global footprint outpacing Pizza Hut (13,600) and Papa John’s (2,600). We suspect deeper international penetration is supported by agreements with well-capitalized master franchisees such as Alsea, Jubilant FoodWorks, and Domino’s Pizza Enterprises, who manage other major brands like Starbucks, Burger King, Chili’s, and Popeyes. These partners are crucial for building a formidable international presence by having ample resources to support operations, adapt menus to local tastes, and invest in digital enhancements. With the support of these partners, Domino’s holds leading limited-service pizza dollar share in Australasia (54% share), Asia-Pacific (31%), Western Europe (14%), and Latin America (10%), while ranking second in the Middle East and Africa (10%) and Eastern Europe (4%), with meaningful share gains observed in all but one market since 2016.

Turning to the firm’s cost advantage, Domino’s vertically integrated supply chain, with 25 manufacturing and distribution facilities, pools commodity purchases across the US and Canada systems, lowering food costs at the store level and supporting competitive pricing and healthier restaurant margins for the network. 99% of franchisees participate in the in-house network (according to the firm), underscoring its value as a lower-cost alternative to traditional suppliers. We also believe last-mile distribution costs are lower from a denser store footprint and higher AUV than peers. Additionally, we think the company’s fortressing strategy enhances delivery efficiency to consumers by creating shorter service radii, cutting delivery times, and enabling drivers to handle more orders.

Domino’s scale allows it to secure more favorable pricing on concentrated, single-brand national advertising and invest in technology and data platforms that lead to higher system and franchisees returns than smaller peers. Over the last five years, Domino’s spent $2.5 billion on advertising, compared with $1.1 billion at Papa John’s and probably materially less at small, local competitors. This marketing drives traffic and supports unit-level economics. Domino’s has invested ahead of the curve in order-sequencing algorithms, artificial intelligence pricing tools, geofencing, driver and order tracking, and high-speed ovens, which enhance operational efficiency and are rolled out at scale. The firm’s 37 million-plus active loyalty members, which is comparable to McDonald’s (46 million 90-day active members) and Starbucks (36 million), helps drive traffic through personalized offers and direct consumer engagement. This data advantage from scale leads to lower customer acquisition costs and richer insights for marketing, menu development, and operational decision-making.

Domino’s fortressing strategy should help lift higher-margin carryout sales and shorten delivery routes, bolstering convenience, lowering costs, and strengthening its appeal on third-party delivery platforms.

Domino's scale-based cost advantage should help the firm deliver compelling value to win consumer loyalty.

Domino’s capacity to deploy tech improvements, deliver menu innovation, and engage its swelling loyalty base underpins ongoing comparable sales growth.

With an outsize reliance on in-house delivery at the store level and company-run supply chain operations at the corporate level, persistent labor inflation could crimp profitability.

Consumers may increasingly shun the pizza category in favor of healthier alternatives, particularly as GLP-1 penetration rises.

Near-term closures and a reconfiguration of expansion plans in select international markets—where overexpansion, pricing missteps, and macro headwinds have pressured unit economics—are clouding the firm’s growth trajectory.