Domino’s Pizza, Inc. (Nasdaq: DPZ)

Domino’s Q2 2025 financial performance demonstrated strong operational execution and market share gains. Total revenues increased 4.3% to $1.15 billion, driven primarily by higher supply chain revenues, increased U.S. franchise royalties and fees, and growth in U.S. franchise advertising revenues. The supply chain revenue increase was driven by a 4.8% increase in food basket pricing and higher order volumes, demonstrating the company’s ability to manage inflationary pressures effectively.

Income from operations surged 14.8% to $225.0 million, reflecting the scalability of Domino’s franchise-focused business model. This impressive growth was driven by higher U.S. franchise royalties and fees, supply chain gross margin dollar growth, and lower general and administrative expenses. The quarter also benefited from a $3.9 million pre-tax refranchising gain from 36 U.S. company-owned stores in Maryland.

Despite strong operational performance, net income decreased 7.7% to $131.1 million, primarily due to an unfavorable $27.4 million pre-tax swing in realized and unrealized losses associated with the company’s investment in DPC Dash Ltd. Additionally, the provision for income taxes increased $12.1 million due to a higher effective tax rate of 22.1% compared to 15.0% in the prior year.

Diluted earnings per share was $3.81, down 5.5% from $4.03 in Q2 2024. While net income decreased, the impact was partially offset by a lower weighted average diluted share count resulting from the company’s ongoing share repurchase program. During Q2 2025, Domino’s repurchased and retired 315,696 shares for $150.0 million.

The company’s cash flow generation remained robust, with free cash flow increasing 43.9% to $331.7 million for the two fiscal quarters of 2025. This strong cash flow performance supports Domino’s capital allocation priorities, including store expansion, technology investments, and returning capital to shareholders through dividends and share repurchases.

Supply Chain remained Domino’s largest revenue segment at $687.1 million (60.0% of total revenue), increasing 4.2% year-over-year. This growth was driven by a 4.8% increase in food basket pricing and higher order volumes from franchisees. Supply chain gross margin improved 50 basis points to 11.8%, reflecting procurement productivity gains that partially offset higher input costs.

U.S. Franchise Royalties and Fees generated $156.3 million, up 5.9% year-over-year, driven by same store sales growth of 3.4% and net store growth during the trailing four quarters. This high-margin revenue stream demonstrates the strength of Domino’s franchise model and the health of its franchisee base.

U.S. Franchise Advertising revenues increased 5.8% to $132.2 million, reflecting higher contributions from franchisees based on retail sales growth. These funds support Domino’s marketing initiatives and brand-building activities, contributing to market share gains in the competitive pizza QSR category.

U.S. Company-owned Stores generated $92.5 million in revenue, essentially flat compared to the prior year. However, gross margin decreased 200 basis points to 15.6%, primarily due to higher insurance costs and increased food basket pricing. The company continues to focus on refranchising company-owned stores to optimize its asset-light model.

International Franchise Royalties grew 4.7% to $77.2 million, demonstrating Domino’s successful global expansion strategy. This growth was achieved despite macro challenges in various international markets and foreign exchange headwinds, highlighting the resilience of the brand’s international operations.

Domino’s achieved robust store growth with 178 net store openings globally in Q2 2025, including 30 in the U.S. and 148 internationally. This expansion demonstrates strong unit economics and franchisee confidence in the brand’s growth potential. Over the trailing four quarters, the company added 606 net stores globally, representing a healthy growth trajectory.

U.S. same store sales growth of 3.4% was driven by strength in both delivery and carryout channels, enabling Domino’s to gain meaningful market share within the U.S. pizza QSR category. Franchise stores outperformed company-owned stores with 3.4% same store sales growth compared to 2.6%, reflecting the operational efficiency advantages of the franchise model.

International same store sales growth of 2.4% (excluding foreign currency impact) was achieved despite challenging macroeconomic conditions in various markets. This performance demonstrates the resilience of the Domino’s brand and business model across diverse international markets with different economic conditions and consumer preferences.

The company’s store expansion strategy focuses on markets with attractive unit economics and growth potential. With 99% of stores franchised at the end of Q2 2025, Domino’s maintains an asset-light model that enables rapid expansion while generating high-return royalty and fee income streams.

Store productivity metrics remained strong, with franchisees continuing to invest in new locations despite economic uncertainties. The trailing four-quarter net store growth of 606 units represents approximately 3% growth in the global store base, supporting long-term revenue and profit growth objectives.

Domino’s operational performance in Q2 2025 demonstrated the benefits of its franchise-focused business model and continued investments in operational efficiency:

Margin Performance by Segment

• U.S. Company-owned Store Gross Margin: 15.6%, down 200 basis points year-over-year, primarily due to higher insurance costs and increased food basket pricing, partially offset by sales leverage
• Supply Chain Gross Margin: 11.8%, up 50 basis points year-over-year, driven by procurement productivity gains that offset increased input costs
• Overall Gross Margin: 40.3% compared to 39.8% in the prior year, demonstrating effective cost management across the business
• Operating Margin: 19.7% compared to 17.9% in Q2 2024, highlighting operational leverage and efficiency gains

The company’s food basket pricing increased 4.8% during Q2 2025, reflecting Domino’s ability to manage inflationary pressures through strategic pricing actions. This pricing power demonstrates the strength of the Domino’s brand and the value proposition it offers to consumers.

General and administrative expenses decreased as a percentage of revenue, falling to 9.4% from 10.5% in the prior year. This improvement was partly due to expenses related to the company’s biennial Worldwide Rally in Q2 2024 that did not recur in 2025, but also reflects ongoing operational efficiency initiatives.

The supply chain segment continued to demonstrate strong operational efficiency, with procurement productivity helping offset commodity cost inflation. This performance supports both company profitability and franchisee economics, a key competitive advantage in the quick-service restaurant industry.

Free cash flow margin remained exceptionally strong, with the company generating $331.7 million in free cash flow for the two fiscal quarters, representing approximately 15% of trailing revenue. This cash generation capability supports Domino’s capital allocation priorities and provides financial flexibility for growth investments.

Domino’s continued to strengthen its competitive position through strategic initiatives focused on digital innovation, menu expansion, and operational excellence:

Key Strategic Achievements

• Aggregator Platform Expansion: Domino’s is now fully rolled out on the two largest aggregators, expanding its reach while maintaining direct customer relationships
• Menu Innovation: The company now offers all major crust types, including stuffed crust, enhancing its competitive position against rivals
• Digital Leadership: Over 85% of U.S. retail sales in 2024 were generated via digital channels, demonstrating continued leadership in digital ordering
• Supply Chain Excellence: Robust supply chain capabilities continue to support franchisee success and operational efficiency
• Loyalty Program Growth: The rewards program continues to expand, driving customer retention and frequency

CEO Russell Weiner emphasized the company’s competitive advantages: “With what we believe are best-in-class unit economics, the largest advertising budget, a robust supply chain, and a rewards program that is bigger than ever, our business is well-positioned.”

The company’s refranchising strategy continued with the completion of 36 store transfers in Maryland, generating a $3.9 million pre-tax gain. This asset-light strategy allows Domino’s to focus on brand building, innovation, and support for franchisees while maintaining strong returns on invested capital.

Domino’s technology infrastructure continues to evolve, with innovative ordering platforms supporting growth across multiple channels. The combination of owned digital platforms and strategic partnerships with aggregators provides comprehensive market coverage while protecting profit margins.

The company’s marketing investments, supported by the largest advertising budget in the pizza category, continue to drive brand awareness and market share gains. This investment in brand building creates sustainable competitive advantages and supports long-term growth.

Domino’s maintained a disciplined approach to capital allocation while strengthening its financial position:

• Share Repurchases: Repurchased $150.0 million of shares in Q2 2025 (315,696 shares), with $200.0 million repurchased in the first half of 2025
• Dividend: Declared $1.74 per share quarterly dividend, demonstrating commitment to returning capital to shareholders
• Leverage Ratio: Improved to 4.7x from 5.0x in the prior year, providing financial flexibility
• Available Repurchase Authorization: $614.3 million remaining under current authorization
• Capital Expenditures: $35.2 million for two quarters, demonstrating capital efficiency

The company’s strong balance sheet and cash flow generation provide significant financial flexibility to pursue growth opportunities while maintaining attractive returns to shareholders. The leverage ratio improvement reflects both EBITDA growth and disciplined debt management.

Free cash flow of $331.7 million for the first half of 2025 represents a 43.9% increase over the prior year, demonstrating the cash-generative nature of the franchise business model. This cash flow supports the company’s capital allocation priorities without constraining growth investments.