How Honesty Helped Domino's


Domino's Pizza (NYS: DPZ) has certainly cooked up a storm with its third-quarter numbers as the international pizza maker reported a mouth-watering 33% jump in net profit. The company's new, innovative recipes and bold advertising campaigns are touted as the reasons behind the extra-thick numbers. Let's take a look at what's cooking at Domino's.

Served hot
Even in the face of uncertain economic times, Domino's has managed to make customers salivate over their new breed of pizzas. The company's revenue increased by 8% to $376.3 million compared to $347.4 million in the year-ago period on the back of better operations at home as well as abroad. Same-store sales pushed this by rising 3% in the U.S. and 8.1% internationally.

Domino's numbers were likely helped by the introduction of new products such as pasta bowls, artisan pizzas, and chicken wings. Aggressive advertising campaigns also made sure that the changes were caught by as many eyeballs as possible.

Besides this, Domino's also benefited from lower effective tax rates and lower interest expenses due to a reduced debt footprint.

On the other hand, rival Yum Brand's (NYS: YUM) Pizza Hut, the largest pizza store chain in the U.S. (by store count), saw its domestic third-quarter same store sales fall by 3%. Revenue from China did manage to grow by an impressive 19% though.

Honesty is the best policy
Domino's higher sales can also be attributed to honesty and accountability. The company spent millions of dollars on a "brutally honest" advertising campaign which addressed some people's claims that its pizza was lousy. It went a step further by offering money-back guarantees and jumping on to the social media bandwagon to interact and communicate with consumers.

Now many might have thought that the big guys at Domino's were stark raving mad to publicize customers saying that their pizzas were bad. But the gamble paid off, as it came at a time when people had generally lost faith in large businesses and corporations.

Of course, a sluggish economy has driven many Americans to cheap dining -- reflected in the 5% hike in sales at McDonald's (NYS: MCD) restaurants since 2010. Nevertheless, Domino's crazy campaign has played a major role in its smashing success.

Apple with that pizza
Domino's has also been going digital to boost its U.S. sales. One can place orders through its website and smartphone apps. Digital orders made through apps available on mobile devices like Apple's iPhone, as well as through its website, are approaching 30% of total sales. The move was a big hit as Domino's managed to generate a jaw-dropping $1 million in sales within a week from their presence in Apple's App Store alone.

The Foolish bottom line
Domino's certainly got the attention of consumers and investors alike as the company's stock has skyrocketed by more than 90% so far this year. This is fantastic when compared to stocks like Yum! Brands and Papa John's (NAS: PZZA) that have seen 4% and 16% gains, respectively.

Hats off to Domino's for pulling off such a feat. Building consumer trust in the brand was certainly what the doctor ordered in an environment of relatively low consumer confidence. Fools should take notice. To see if Domino's continues pulling rabbits out of hats, add it to your watchlist using the links below. It's free!

At the time thisarticle was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Domino's Pizza, Papa John's International, Yum! Brands, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple, McDonald's, and Yum! Brands.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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