Domino's Pizza's Secret to Success Will Surprise You

Domino's Pizza  is getting it done. Shares of the pizza delivery giant moved 11% higher on Tuesday after posting blowout quarterly results. Revenue rose 11%, to $446.6 million, blasting through the $434.8 million that the pros were targeting. Good things happen when you pair up brisk expansion with a 7.7% surge in comps.

Profitability climbed even higher, proving that Domino's hasn't had to give up the store to boost its sales. Earnings per share soared 24%, to $0.63, fueled by a 16% increase in net income, and aggressive stock buybacks during the past year that have lowered the outstanding share count.

Is the country simply eating more pizza? That may very well be true, but all indications suggest that Domino's gobbled up market share during the quarter. The only publicly traded pizza rival that has reported financial reports this earnings season is Yum! Brands Pizza Hut, and that iconic chain clocked in with a 1% dip in comps, and a decline in operating income.

Analysts see growth at Papa John's when it reports early next month, but it's expected to fall just shy of the growth spurt at Domino's. Clearly, the 11,821-store chain is doing something right at the moment; but the real surprise is that it seems to have little to do with its signature pizzas. 

Fowl play
Domino's introduced specialty chicken during the second quarter, and it's been a big driver for the the chain. Taking its boneless chicken bites and covering them with pizza toppings, sauces, and cheeses is paying off.

Domino's offers four types of these specialty chicken entrees. From bacon and tomato to pineapple and mango habanero sauce, the $5.99 meals are becoming popular add-ons to pizza orders. "With the specialty chicken out there, some of the reason the ticket is up is simply that we are selling more food in each order than we were previously," Domino's said during Tuesday's earnings call.

Domino's isn't afraid to roll out items that rival Papa John's isn't offering. Sandwiches and pastas set Domino's apart from Papa John's, even though Pizza Hut has a pretty wide offering beyond its namesake pies. However, there's something to be said about a 7.7% uptick in year-over-year comps during the first full quarter of availability for the new specialty chicken items. 

Another trend that's benefiting Domino's, in general, and specialty chicken sales, in particular, is that digital orders continue to grow at the expense of phone orders. It's easier to upsell website visitors than pie-hungry patrons calling in their orders. Domino's has visual representations of its entire menu, and it can promote add-on items more effectively online. Domino's says that customers placing their orders online tend to spend more, and that's armed with the gamut of coupon codes that are readily available through discount aggregator sites.

Pie in the sky
Domino's is rocking in a climate that's been dicey for some eateries, and Tuesday's blowout performance was enough to lift shares of rival Papa John's in anticipation of its quarterly report in a few weeks. 

However, the specialty chicken kicker is unique to Domino's. Pizza Hut and Papa John's may offer wings and, sometimes, boneless chicken; but they're not following Domino's into baking up boneless chicken bites that are dolled up with pizza toppings.

That's fine for Domino's. It's the one that gets to cash in at a time when stubborn cheese costs will weigh on the chains relying too much on flagship pizzas. Diversifying its exposure to swings in dairy commodity prices is a welcome byproduct of Domino's success with specialty chicken. It's topping chicken and Wall Street expectations -- and that's a nice combo these days.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Papa John's International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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