Pass on DOM; stock is expensive with weak moat, facing GLP-1 and debt risks, lacking growth catalysts.

you know, management in terms of looking at their performance, it's pretty decent, but I would be lying if I said I was blown away. If we look at a few KPIs since Russell Weiner has taken over, you got compounding of revenues of about 3% and then earnings per share and EBIT about 5%.

Another yellow flag that I think I have to mention here is that the majority of insider transactions over the last 2 years have been sales and a lot of these have been in the exercising of options.

So, in the last 2 years, there actually hasn't been an open market buy that I could find.

This is also pretty disappointing when you consider that the business has had multiple 30% draw downs and right now is coming off a 39% draw down. It would be really great to see insiders taking advantage of this alongside other shareholders.

I know the whole reason Domino's became interesting for you was because of this drop in its share price. So, how about you take me through what happened over the past few years that have caused this decline?

So, the one that really kind of sticks out to me is a classic reduced growth rate hurdle that I think a lot of businesses tend to face just as they exist for a longer longer period of time.

So, since 22, revenue has compounded at just 3%. For the decade before that though, it was a much healthier 11%.

So this to me fully justifies the PE really dropping from over 40 times in 2020 down to around 20 times today.

Part of what got me interested in dominoes was asking whether the current growth rates are now the new normal or if they're just kind of some sort of medium-term headwind they're facing and maybe previous growth rates are achievable at some point in the future.

The other major issue is in the same store sales growth. So in Q2 2026 it came in at just.1% in the US and it actually slightly declined by.1% internationally excluding foreign currency.

So you know the market is currently seeing these declining numbers and not really taking into account any future growth at this time. But I mean wow 40 times earnings for Domino's Pizza at the time that that seems insanely rich to me.

Domino's just doesn't have the same competitive advantages and still suffers when their customers are going through some tougher economic times.

So, if we examine risks a little more closely, I also think debt is one risk you certainly have to take into account. The fact Dominoes can go up to 5.5 times leverage is pretty concerning to me given the fact that the business is currently seeing these declines in its growth numbers.

I'm hesitant to say that this business won't be around in the next 2 years. But if I look out maybe 20 years from now, I would say I have zero conviction and saying that this business will still be around.

With people, you know, moving to become healthier and the abundance of people on GLP1 drugs, I think there's a largecale movement away from foods that aren't as nutritious.

Then you take into account that GOP1 drugs are likely to actually decrease in price once we do have the generic versions. You know, it's hard to say more people are going to want to eat unhealthy foods.

If anything, my assumption would be that it's probably a downward trend, but who knows exactly what the impact will be.

And I can only speculate on what would happen if same store sales growth continued to decline or their store count declines. But my guess is that their lenders would start getting nervous about what have otherwise been pretty generous debt covenants and this whole securitization approach that they've taken and maybe they'll require either higher interest rates or more restrictive covenants in the future if they feel like the business is going through a slow deterioration.

And so I'm pretty curious to hear more about how food delivery apps you think have impacted Domino's takeout business. Yeah, I think at one point the aggregators were proving to be a pretty serious problem and Domino's actually resisted them for quite a long period of time, but eventually they just caved in because I think they understood that they probably couldn't beat them at their own game.

And I think this probably shows the strength of these businesses over the strength of, you know, just Domino's delivery business. So why is ordering through the aggregators bad for Domino's?

First, the margins on this are just not as good as keeping it in-house.

So in return for connecting their network to Domino's, Domino's is obviously paying them a fee on every single pizza or other food item that they deliver. And if customers aren't comfortable ordering from specifically Domino's app, it obviously reduces the chances that Domino's can then onboard them onto their own native app that offers rewards but also has higher margins and they can bypass these fees that they have to pay to the aggregators.

The other issue with using food delivery apps is who absorbs a margin compression. As I mentioned earlier with the Quiznos case study, if you're telling your franchises to reduce margin in their business, well then you run the risk of degrading the relationship with your franchises.

Intuitively, if Domino's is losing some of its higher margin delivery business to Uber and Door Dash, then you would think that we would see company margin starting to compress.

Unless your point, they are passing on costs to franchises. Yeah, I thought so too. But actually when I looked at their eB margins, they're continuing to climb upward. So right now they're over 21% and that's up from 18% in 2018.

So how do you interpret that? How have they managed to expand margins? I think they've expanded the margins for three primary reasons. So the first one here is that they've gotten a larger and larger increase in their share of franchises over corporate owned stores.

So obviously the franchise royalty fee like I've already mentioned many many times carries much higher margins and therefore as they shift more and more to the franchise model away from the corporate owned models it lifts corporate margins up.

Then second you have the supply chain procurement advantages. Obviously as they sell more and more pizzas they have to increase the capacity of their supply chain which I think probably gives them some scale benefits which can positively impact their gross margins.

Then third year is just operating leverage. You know, opening more and more franchises adds a lot of incremental revenue without adding too many incremental expenses.

So, I hope we didn't scare too many people off too badly with all the risks that we've talked about today. Because this is still a business that has been around for a very long time, especially for a retailer in the food industry, an industry that is notoriously difficult to succeed in, let alone thrive in for multiple decades.

So, while Domino's, like any business, obviously has its risks, I think we should now discuss what they can do to get out of the current rut that they're in. So, I mentioned earlier that Domino's has compounded its earnings per share at about 15% for the last two decades.

While I definitely think that this type of growth is probably never going to happen again, I also think that they do have some abilities to at least further increase their intrinsic value.

Even though I listed aggregators as a potential risk, it's obviously also a potential growth lever. While that growth will come with lower margins, sure, it's still a growth lever that Domino's wouldn't have if it just continued to leave itself off of the aggregator's platforms.

On top of that, management sees about a billion dollars of incremental revenue just from being part of these aggregators. And that would be meaningful as they're currently around $5 billion in revenue. And so this would be a decent growth lever.

yet. If they want to grow for the next 10 plus years at meaningful rates, a billion dollars in revenue is nice to have, but it's not going to turn this company back into being a fast grower by any means.

So, is there anything else that you think could move the needle? I'm not sure how much of a Domino's consumer you are, but the rewards program is another area where they've been working very, very closely on.

So, I like the app back then because it told you when your pizza would be ready, and it was always nice to just get a free pizza every now and then.

I would say that when I was eating Dominoes a little more regularly that the rewards app was actually something that probably kept me in their ecosystem versus if they did not have one.

So they currently have about 36 million reward members. The benefits that they list are improved personalization, customization, data collection, and improved customer benefits.

It's actually really funny because I remember on Sundays, which was usually the day that I would order Dominoes, I'd always get a push notification from the app telling me about what kind of deals that they were offering or simply reminding me that pizza might just be a good option to eat.

So, the app I would say kind of understood me at a pretty deep level and understood some of my customer preferences and the Domino's Pizza rewards program would have gotten this data through seeing my own customer behavior and it probably added a couple sales at least for me because they had access to that data.

>> They seem like pretty decent growth levers, but I think you have probably left the most obvious one maybe and maybe the most powerful one for last, which is simply to continue increasing the number of stores they have both in the US and globally.

And I would imagine globally there's a huge runway for opportunity. So, as of June 14th, 2026, the store count is around 22,500 and this number has been compounding at about 6% annually since 2012.

The US now has over 7,000 stores. So, I would say you're probably correct that the US market is probably pretty saturated. It is definitely the global presence where I think future growth and opportunity is going to come from.

What I think they'll probably do is continue to maybe share the fortress strategy that I think they've really really focused on in the US with their international franchises and hopefully that will allow them to have more concentrated areas of franchises to help them continue to grow.

So I mentioned earlier how hard it is for restaurants to succeed simply because tastes change over time and Domino's has done a lot of work on this end over the years. you know, they completely changed their pizza recipes from the original simply because their customers no longer liked it.

They've also added some new items to their menus to try and draw in new customers or keep existing customers coming back. >> I think it's pretty nice to see a willingness to adapt and innovate there.

but to a lesser extent, yeah, Domino's has very much succeeded in staying relevant to the average consumer and also expanding their customer base over time.

So, I think they deserve credit for that for sure. And the pizza really is a lot better than it used to be. But I I think it's that time of the episode where we try to figure out what Domino's intrinsic value is to a long-term shareholder.

>> Yeah, let's do it. So, my base case is very simple because Domino's at its core is a pretty simple business, which I really do like. Sell pizzas and hopefully more and more of them each year, expand the store count, and increase the same store sales by a very moderate, you know, low singledigit number.

So in my base case, I assume a revenue growth rate of about 5 1/2% over the next 5 years. While growth has decelerated a little below this in the past few years, I think they'll probably rebound a little bit with consumers still interested in pizza.

And I assume that the move towards utilizing aggregators helps increase customer awareness and that maybe they can keep some of these new customers around for the long term. I also think they stick with their new store openings target about say about 700 to 800 per year.

I give them EBITDA margins of about 20 and a half% which is in line with their current margins from the last 12 months.

I wouldn't be surprised if they can maybe ek out a little higher EBIDA margin expansion from the continued winding down of corporate locations and maybe increasing its count of franchises which as we know have a much higher margin profile.

But to keep things safe, I just assume no real margin expansion. And what about the assumptions that you would see for the bare and and bull cases? >> So for the bear case, I assume that revenue decreases and this is due to a decrease in demand suppressing same store sales growth as well.

To attract customers, Domino's would then have to lower the price of their pizza through things like promotions and sales, which would further depress margins.

And since the economics of their stores now are not as good as before, new store openings growth rate would also decline. And obviously with this decline, I think you get the further multiple compression as well.

But under the bull case, we assume everything works out just incredibly well. The fortressing strategy in the US begins to show that it works internationally as well. They're able to move customers from the aggregator platforms to their own app, increasing customer loyalty at again these higher margins.

International expansion goes even better than ever as master franchises continue to grow the business along with the US and they're able to open over 800 stores per year. In this case, margins will expand a little bit as well as a business is still perceived as having some sort of decent growth potential.

So, the market gives it a multiple more in line with a business that's still growing, albeit at a decent clip with expanding margins. And by the way, if you want to play around with the numbers from this model, just subscribe to our intrinsic value newsletter and you'll be linked to the model so you can change the numbers around if you disagree with my assumptions.

Well, I think it's always important to think through a bull and bear case.

I feel like the bull case here is maybe optimistic for my tastes. I'm probably more sympathetic to the bare case because of the GLP1 risk. I see a very tangible headwind there and it's not as clear to me what would sort of be the tailwind that lifts them up to the bull case.

So I probably have a bias toward being a bit pessimistic against Domino's. Yeah, that's fair. I think personally Domino's is a very interesting business.

Like I mentioned, I used to be a massive consumer and my family still eats it every now and then, but I usually stay away as my stomach forces me to. But in reality, it's a business that just doesn't really have the most compelling competitive advantages.

While they've done some really good things in terms of innovation, and they're willing to make some pretty large scale changes to continue moving the business forwards, I still don't think I would be comfortable with it given the scale that it now has.

If you have these large swings in customer preferences, it's going to be hard to maintain the need for customers to eat, let's face it, not the healthiest food. And while they can always rely on the college age demographic, once that demographic ages and is making more money, in my view, Domino's just becomes a much less attractive place to choose as a food option.

Given that I think this business is still expensive and is probably unlikely to grow that much in revenue, and my base case is basically no expansion of margins over the multiple, I'm fine just taking a complete pass on dominoes.

You know, I've been interested in Domino's a few times before, but I do have to say I never dug into the details around their whole business securitization approach to debt financing.

And it is a great way to lower your borrowing costs, but there is a real cost to it. You're mortgaging your best assets. And so, these creditors get priority claims on the cash flows and can literally control how much cash is released to the parent company to ensure that they're paid back.

And so yeah, that is a turnoff for me. Management not having full discretion over the business's cash effectively.

And you know, that could very much impact their ability to share buybacks or dividends in the future. And then on top of that, you have this lack of insider ownership. And then like I said, there's really not an obvious catalyst for the business going forward.

If anything, there's more obvious headwinds. So, it's a pretty interesting case study, but unless it were a really bargain bin price, it's not something I would personally be invested in.

Um, yeah, if we could get at like eight times earnings, I would look at it, but not so much today. And so while it looks like Domino's has this really stable royalty revenue stream, if the underlying franchises hit rough spots, at the same time that Domino's has to roll over its debt, the sacrifices they've made to access cheaper debt financing will become more evident and will really hinder the company's ability to make shareholder distributions as I mentioned a moment ago.

And I think that would lead to the stock just absolutely getting punished.