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Chapter 1: What is the main topic discussed in this episode?
We have a new chapter in AI's most powerful partnership. You're listening to Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm John Quast, and I'm joined today by Fool contributors Matt Frankel and Rachel Warren.
We have some news in AI, and we don't want to bludgeon you with it, but when these companies are growing as fast as they are, we have to talk about it when there's a significant development, and there is, and we're going to get to that. But first, we wanted to kick off our show We are in earnings season.
One of our companies just reported this morning, and that's Domino's Pizza, reporting its first quarter 2026 results this morning. The stock is down. We do want to look at this company because as the largest pizza chain in the world, it can really tell us a lot about what's going on in the world and in the state of the economy. Rachel, what did the Q1 results show us?
Yeah, this is one of those companies that you could look at as something of a bellwether for consumer spending, certainly within the food industry. So, Q1 results, they actually missed on both the top and bottom lines, although not by that much. So, adjusted earnings came in at $4.13 per share against the $4.28 expected. Revenue hit about $1.2 billion or $1.15 billion to be exact.
That was trailing the $1.17 billion mark that Wall Street was looking for. So again, very slight misses. It's worth noting, total revenue actually rose about 3.5%. That was thanks to a range of factors, including new store openings. U.S. growth was actually just 0.9%. International sales actually dipped slightly. So we're seeing some of these mixed results. I do think it signals that
Even a business as stalwart as this one, historically speaking, might be feeling a bit of a squeeze as customers are cutting back on discretionary spending.
Yeah. Management is sending good signals to the market that they believe in what they're doing here. They allocated an extra billion dollars for share buybacks. Their management generally just gets a really big gold star from me for capital allocation. Over the past decade, the share count's been down 38% or so. The company's produced 192% total return over that time.
Buybacks were a big part of that strategy. I like this move. I don't know if it's enough to make investors happy, and judging by the stock's response, it's not.
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Chapter 2: What financial results did Domino's Pizza report and what do they indicate about the economy?
But the numbers were not great.
One of the interesting things here, you look at the company, Same-store sales. This tracks sales at locations that have been open for some time. Generally speaking, well, probably universally speaking, you want to see same-store sales rise. In this case, same-store sales did increase for Domino's, marginally so.
That usually translates to an increase in profitability as well, but both the sales are up, but the profits are down. I'm just curious what your thoughts are with that, Rachel.
Yeah, and it's an important thing to talk about. That disconnect between rising sales, marginally so, is correct. That's a good way to put it. This isn't obviously a high-growth business, but still, the growth was slim. We're also seeing those falling profits. It's actually a bit of an accounting illusion for this particular financial report.
Domino's operating income actually jumped about 10% in the quarter. That was thanks to more efficient supply chain, higher franchise fees. It was actually bolstered by a nearly $8 million gain from the sale of a fully depreciated corporate aircraft. But net income was dragged down by a $30 million non-cash, so a paper loss. on their investment in DPC Dash, and that's their partner in China.
So essentially, the core business is profitable, but because the market value of their investment in China fluctuated this quarter, they had to record a technical loss that masked their actual operational growth. And you see that sometimes with businesses like this, and it's always important to dig beyond those headline numbers to understand what's actually at play.
For sure, it's important to do, but it doesn't seem like many investors are doing that today. Just looking at that headline, earnings per share number, seeing that it's down, reacting negatively today. Really, it's been an ongoing trend now for a couple of years that Domino Pizza's stock topped out and just been not doing well, not beating the market anyway.
For that reason, I'm curious, is this a business, Domino's Pizza, largest pizza chain in the world, down right now? Is this a stock that either of you like right now? What are things about the business that you do like?
Yeah. This is, I think for me, an example of a company that I think is a really great business, but a great business does not always translate to a great stock. In fact, there's many examples of that. There are a few things I like about the business. I mean, in terms of their actual model, right? I mean, they are a massive logistics and manufacturing powerhouse.
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