Domino's: Is it time to own a slice of this business?

Domino’s is the world’s largest pizza chain, built on a focused model of delivery and carryout, an asset-light franchise system, and a vertically integrated supply chain. With over 21.000 stores in more than 90 markets, the company combines operational efficiency with technological innovation and strong brand loyalty. Through store expansion, its growing rewards program, and a recent move into the aggregator marketplace, Domino’s is finding new ways to grow in a competitive and fast-changing industry. The question is: Does this global pizza leader earn a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that I do not own any shares in Domino's at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Domino's, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Domino’s Pizza, founded in 1960 in Michigan, started as a single restaurant and has grown into the world’s largest pizza chain, with over 21.300 stores across more than 90 countries. The company specializes in delivery and carryout pizza and does not typically offer dine-in services, allowing for a streamlined store model that requires less space, staffing, and capital investment compared to traditional restaurants. Domino’s operates an asset-light business model with approximately 99% of its stores owned and operated by independent franchisees. The company generates revenue through franchise royalties and fees, the sale of food, equipment, and supplies through its vertically integrated supply chain, and to a smaller extent, from company-owned stores. Its operations are structured into three segments: U.S. Stores, International Franchise, and Supply Chain. In the U.S., Domino’s earns a 5,5% royalty on franchisee sales and collects additional technology and marketing contributions. Franchisees typically benefit from strong store-level economics, and many are long-time operators who began their careers working in Domino’s stores. The international franchise business is built primarily on master franchise agreements, where partners pay a 3% royalty, initial development fees, and additional fees when opening new locations. These master franchisees are responsible for expanding and localizing operations in their regions. The supply chain segment is a cornerstone of Domino’s business and accounts for the majority of its total revenue. The company operates dough manufacturing and distribution centers across the U.S. and Canada that supply ingredients, equipment, and other essentials to franchisees. Although franchisees are not required to purchase exclusively from Domino’s, most choose to do so due to the cost efficiency, convenience, quality, and consistency it offers. Domino’s success is supported by several competitive moats. Its brand is globally recognized and associated with fast, reliable pizza delivery and value pricing. The company has also built a technological edge through years of investment in digital ordering platforms, which now account for over 85% of U.S. orders. These systems improve the customer experience, increase order accuracy, and encourage loyalty. Domino’s vertically integrated supply chain ensures uniformity and scale-driven cost advantages that most competitors cannot match. Its franchise network is highly experienced, and its selection and training process has produced a group of operators with deep operational expertise and a strong track record of performance. Overall, Domino’s combines scale, efficiency, and innovation in a franchise-driven model that delivers strong unit-level economics and growing royalty and supply chain revenue. Its integrated ecosystem of technology, supply chain, and high-performing franchisees creates a durable competitive moat in the global quick-service pizza market.

Management

Russell Weiner serves as the CEO of Domino’s Pizza, a position he assumed in 2022 after more than a decade of leadership within the company. He joined Domino’s in 2008 and has since held multiple senior roles, including Chief Operating Officer, President of the Americas, and Chief Marketing Officer. Prior to joining Domino’s, he led PepsiCo’s North American cola business, where he gained valuable experience in brand management and large-scale consumer marketing. Russell Weiner holds a Bachelor of Arts degree in Government from Cornell University and an MBA in Marketing and International Business from New York University’s Stern School of Business. He currently serves on the board of directors at Domino’s, as well as on the board of The Clorox Company. During his time as Chief Marketing Officer, he was the architect of the “Pizza Turnaround” campaign, a bold initiative that played a pivotal role in transforming consumer perception of the brand. The campaign became a defining moment in the company’s resurgence and helped establish Domino’s as a category leader in both innovation and transparency. For his work, Russell Weiner was named Brandweek’s Marketer of the Year in the restaurant category in 2010. Under his leadership in the U.S. business, Domino’s saw retail sales grow from $3 billion to $8 billion, store count increase by 25%, and market share roughly double. He is credited with creating the foundation for sustained domestic growth by focusing on product quality, operational execution, and digital engagement. Since taking over as CEO in 2022, Russell Weiner has brought a deep understanding of the brand, the business model, and the global franchise system to the role. His long-standing tenure and track record of success at Domino’s suggest continuity in strategy, as well as a readiness to adapt and evolve the business.  In a recent earnings call, he stated, “Our system understands that to be the best, you need to beat the best, even when the best may be yourself.” This philosophy reflects a leadership mindset that prioritizes continuous improvement, humility, and forward-looking innovation. Given his operational expertise, marketing acumen, and deep roots within the company, I believe Russell Weiner is well-positioned to lead Domino’s through its next phase.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Domino’s has consistently achieved a high ROIC above 50% in every year over the past decade, which is very impressive. There are several reasons why Domino’s has been able to achieve such a high ROIC - and why it is likely to continue doing so in the future. One is its franchise-based, asset-light structure. With about 99% of stores operated by franchisees, Domino’s avoids most of the capital expenditures associated with opening and operating restaurants. Instead of building out a large company-owned store base, Domino’s earns royalties - high-margin revenue - based on franchisee sales. This allows the company to generate strong cash flows without tying up significant amounts of capital in physical assets. Another reason is its scalable supply chain business. Domino’s operates a vertically integrated supply chain in the U.S. and Canada, manufacturing and distributing key ingredients like dough, cheese, and toppings to franchisees. While this segment does require some investment in facilities and logistics, it benefits from economies of scale and produces recurring revenue as system-wide sales increase. The company’s supply chain centers serve thousands of stores efficiently, keeping invested capital low relative to output. Finally, Domino’s benefits from strong franchisee economics. Thanks to efficient operations, a widely recognized brand, and advanced digital ordering systems, Domino’s stores tend to have attractive unit-level returns. This drives franchisee interest in expanding the store base, allowing Domino’s to grow without needing to fund new store openings directly. As more stores open, the company benefits through increased royalty and supply chain revenue, all with relatively limited capital investment. Hence, I expect that Domino’s will continue to achieve a high ROIC in the future.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. It is curious that Domino’s has had negative equity for all ten years. However, there is a clear explanation for this. The main reason is the company’s long-standing and aggressive share repurchase program. When a company buys back its own stock, the cost of those shares is recorded as treasury stock and deducted from shareholders’ equity. If buybacks are large and sustained over time - as they have been in Domino’s case - this can result in negative equity. Domino’s has consistently returned capital to shareholders through both buybacks and dividends, often using its strong free cash flow to do so, and occasionally taking on debt to support these initiatives.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Domino’s has managed to generate positive free cash flow in every year over the past decade. In fact, 2024 marked the company’s second-highest free cash flow on record. While the levered free cash flow margin has not yet returned to its historical peaks, it reached its highest level since 2021 - despite Domino’s recording its largest capital expenditure since 2018. Domino’s primarily uses its free cash flow for dividends and share repurchases. In 2024, the company raised its dividend by 15%, and over the past decade, it has reduced its share count by nearly 37%. This disciplined capital allocation enhances shareholder value both through growing per-share cash flow and through rising dividend payouts. As Domino’s continues to grow its free cash flow, investors can reasonably expect continued dividend increases and further reductions in shares outstanding. The free cash flow yield indicates that the shares are trading at a premium price. However, we will revisit valuation later in the analysis.

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a period of 3 years. We do this by dividing the total long-term debt by earnings. Upon calculating Domino’s financials, I can see that Domino’s has 6,5 earnings in debt. It is much more than I would like to see, but not surprisingly, Domino’s has benefited from the low interest rates and used debt to buy back shares. However, management recently noted that refinancing upcoming debt at current interest rates could lead to higher interest costs, putting some pressure on interest expense. While Domino’s has strong cash flow to support its obligations, the debt level is something worth monitoring going forward.

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Risks

Competition is a risk for Domino’s because it operates in one of the most intensely contested segments of the food industry: quick-service restaurants and food delivery. In the U.S., Domino’s faces national rivals like Pizza Hut, Papa John’s, and Little Caesars, as well as thousands of regional chains and independent pizzerias that often compete aggressively on price and local loyalty. Internationally, it contends with similar dynamics, including entrenched regional players with strong brand recognition in their home markets. But the competitive pressure doesn’t end with traditional pizza chains. Domino’s also competes with supermarkets, convenience stores, and meal kit services, all of which have expanded their ready-to-eat offerings. As prepared foods and grocery delivery continue to improve in quality, affordability, and convenience, the line between grocery and restaurant increasingly blurs - bringing even more players into Domino’s competitive space. Beyond food, Domino’s must also compete for real estate, franchisee interest, and labor. The QSR sector has faced staffing shortages in recent years, which have delayed store openings and strained operations. The company must continually attract, train, and retain franchisees, managers, and frontline employees in a tight labor market. A shortage of qualified operators or delivery drivers could limit growth or impact the customer experience.

Macroeconomic conditions are a risk for Domino’s because they affect both the cost side of the business and consumer demand. On the cost side, inflationary pressures - particularly in food, labor, energy, and rent - have been significant in recent years and are expected to remain a challenge. Ingredients like cheese, which alone accounts for around 25 percent of the food basket in company-owned stores, are subject to volatility driven by weather, seasonality, and global supply trends. Labor costs have also risen sharply, fueled by minimum wage increases in several jurisdictions (including major changes in California) and a tight labor market that has made it more difficult to recruit and retain employees. These pressures impact not only Domino’s directly, but also the profitability of its franchisees, potentially making it less attractive for them to open new stores or renew existing ones. At the same time, on the demand side, Domino’s faces the risk that consumers - especially those with lower disposable incomes - may reduce spending on delivery or carryout food during periods of economic stress. Management has specifically noted that low-income customers have been more sensitive to pricing, and that ongoing macroeconomic headwinds could weigh on same-store sales growth in the U.S. and abroad. In difficult economic environments, Domino’s may be forced to raise prices to offset rising input costs, which could lead to a further drop in demand, creating a difficult balance between protecting margins and maintaining traffic.

Changing consumer preferences are a growing risk for Domino’s. One of the biggest challenges is the rising demand for healthier, lower-calorie food options. As concerns about obesity, diabetes, and general wellness increase, more consumers are cutting back on foods perceived as indulgent or unhealthy - categories in which pizza is often included. This trend is especially relevant in developed markets, where dietary awareness and demand for transparency around ingredients are particularly strong. A new and potentially significant factor is the increasing use of GLP-1 weight-loss drugs, such as Ozempic and Wegovy, which suppress appetite and reduce calorie consumption. While the long-term impact of these drugs is still uncertain, early signs suggest they could shift consumer behavior, especially among health-conscious individuals. If adoption becomes widespread, it could lead to a structural decline in demand for calorie-dense foods like pizza and fast food in general. Domino’s, with its core product offering focused on pizza and limited diversification into health-forward menu items, may be more exposed to this risk than QSR brands with broader or more flexible menus. In addition, consumer preferences are constantly evolving due to generational shifts, lifestyle changes, and technological habits. For example, younger consumers may prioritize convenience and speed but also expect customization, plant-based options, or sustainability commitments. Others may shift their preferences away from delivery altogether in favor of home cooking, meal kits, or more experience-driven dining. Because Domino’s is highly reliant on a single product category and two core service formats (delivery and carryout), any long-term change in consumer habits could disproportionately affect its business.

Reasons to invest

Opening new stores is a key reason to invest in Domino’s because it is not only a proven growth lever but also a central part of the company’s long-term competitive strategy. Domino’s continues to expand its store base, and this growth is not simply about adding more locations - it’s about expanding profitably. The company’s store-level economics remain best-in-class, supported by a deep and motivated franchisee base. In 2024, the estimated average U.S. franchisee store profitability was approximately $162.000, a figure management considers among the highest in the quick-service restaurant industry. These attractive returns help ensure strong and sustained demand for new franchise units. A critical component of Domino’s store expansion strategy is its “fortressing” model, which involves opening new stores in close proximity to existing ones. While this may seem counterintuitive, the approach reduces delivery times, improves food quality, and increases convenience for carry-out customers. Around 90 percent of carry-out orders come from within one mile of a store - Domino’s so-called “golden mile.” By increasing store density, the company boosts customer satisfaction and grows high-margin carry-out transactions, which involve lower labor and delivery costs. Fortressing also strengthens Domino’s competitive position. By filling in geographic gaps, the company can limit opportunities for competitors and independent operators to establish themselves in key markets. It also reduces pressure on high-volume stores and enhances system-wide efficiency. As a result, store openings serve both a defensive and offensive purpose: they drive incremental market share, improve the customer experience, and reinforce Domino’s scale advantages across marketing, technology, and supply chain operations.

Domino’s Rewards program is a compelling reason to invest in the company because it strengthens customer retention, drives repeat purchases, and creates a long-term flywheel effect that supports sustainable growth. Launched in September 2023 as an enhanced version of the previous “Piece of the Pie” program, Domino’s Rewards has quickly gained traction. By the end of 2024, the program had grown to 35,7 million active members - an increase of approximately 2,5 million compared to the prior year. What makes this growth especially meaningful is that many of the new members are light users and carryout customers, key segments that the redesigned program was specifically built to attract. Loyalty programs like this have a compounding effect. Once customers are enrolled, Domino’s can market to them directly with targeted promotions and personalized offers, encouraging more frequent ordering and increasing lifetime value. These campaigns are not only more effective, but also more efficient from a marketing spend perspective. Management has emphasized that this isn’t a one-time benefit, but rather a multiyear opportunity that can deliver consistent gains in same-store sales and customer engagement. Importantly, the loyalty program is particularly well-aligned with Domino’s broader strategic push toward growing its carryout business. Carryout orders are typically more profitable than delivery orders due to lower labor and logistics costs. By incentivizing and retaining more carryout customers through Domino’s Rewards, the company is expanding its base of high-margin transactions in a cost-effective way.

The aggregator marketplace represents a significant growth opportunity for Domino’s. For years, Domino’s chose to operate exclusively through its own ordering channels, avoiding third-party delivery platforms entirely. That changed in 2024, when the company officially entered the aggregator space through a partnership with Uber Eats. By year-end, 3 percent of sales were already coming through this new channel - a promising start, considering Domino’s only began participating in the fourth quarter. Importantly, management has emphasized that sales through Uber Eats have been incremental, meaning they are not cannibalizing orders from Domino’s existing digital platforms. This suggests the company is reaching new or previously underserved customers, especially those who primarily use delivery apps. With continued optimization of marketing and offer design, Domino’s expects to further grow this channel profitably, creating value for both the company and its franchisees. Looking ahead, Domino’s plans to expand its presence across other major aggregator platforms. While its exclusivity agreement with Uber runs through early 2025, negotiations are already underway with additional partners. The company intends to begin pilot programs with select stores and ultimately expand its presence meaningfully in the second half of 2025. Management remains confident that the aggregator channel represents a $1 billion incremental sales opportunity over time. The aggregator marketplace is also the fastest-growing segment within the QSR pizza category, and Domino’s is still in the early stages of capturing that growth. By tapping into these platforms, the company increases its visibility among customers who may not otherwise consider Domino’s, particularly younger or convenience-focused consumers who prefer the ease of one-stop delivery apps.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 16,69, which is from the year 2024. I have selected a projected future EPS growth rate of 7%. Finbox expects EPS to grow by 6,6% in the next five years. Additionally, I have selected a projected future P/E ratio of 15, which is double the growth rate. This decision is based on Domino's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $113,62. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Domino's at a price of $56,81 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 625, and capital expenditures were 113. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 79 in our calculations. The tax provision was 138. We have 34,532 outstanding shares. Hence, the calculation will be as follows: (625 – 79 + 138) / 34,532x 10 = $198,08 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Domino's free cash flow per share at $14,83 and a growth rate of 7%, if you want to recoup your investment in 8 years, the Payback Time price is $162,80.

Conclusion

Domino’s is an intriguing company with a strong management team. The company has built a moat through its integrated ecosystem of technology, supply chain, and high-performing franchisees. It has consistently achieved a high return on invested capital, and I believe it will continue to do so due to its business strategy. In 2024, Domino’s delivered its second-highest free cash flow on record, despite increased capital expenditures. Competition is a risk for Domino’s because it operates in a crowded and fast-evolving food service market, where it faces pressure not only from national and local pizza chains, but also from supermarkets, meal kits, and delivery platforms. Macroeconomic conditions are also a risk, as rising costs for food, labor, and energy can pressure margins, while economic stress may reduce consumer spending on delivery and carryout. This creates a challenging environment where the company must balance pricing power with affordability to maintain sales and profitability. Changing consumer preferences are another risk for Domino’s. Growing demand for healthier food, the rise of appetite-suppressing drugs, and shifting lifestyle habits may reduce demand for traditional pizza offerings. With limited menu diversification, Domino’s could be more exposed to long-term shifts in eating behavior than some competitors. Opening new stores is a reason to invest in Domino’s because it drives profitable growth through strong unit-level economics and supports its broader fortressing strategy - clustering stores to improve delivery times, boost high-margin carryout orders, and block competitors. Domino’s Rewards program is also a reason to invest, as it strengthens customer retention, drives repeat purchases, and supports long-term sales growth. With over 35 million active members and a focus on high-margin transactions, the program creates a compounding flywheel effect that enhances both customer engagement and profitability. The aggregator marketplace is another growth driver for Domino’s. It opens up a large incremental sales opportunity by reaching new customers who primarily use delivery apps. As the fastest-growing segment in QSR pizza, this channel allows Domino’s to expand its visibility and capture additional demand without cannibalizing its existing digital sales. I believe that Domino’s has a great business model, but its high debt level means that I would need a discount to feel comfortable investing. Hence, I will personally only buy shares below the Ten Cap price of $198.

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