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Domino's Pizza (DPZ) is trading roughly flat despite reporting strong Q1 EPS upside this morning. Revenue rose 2.5% yr/yr to $1.11 bln, which was generally in-line. We think the main concern was its US comp decline. A positive was DPZ noting that its US business sources most of its food products from within the country, so it's not expecting tariffs to have a material impact on profits.

• Let's dig in a bit on US comps. At -0.5% in Q1, this was slightly below internal expectations. It also continues its recent trend of declining comps following +0.4% in Q4, +3.0% in Q3, and +4.8% in Q2. Its US carryout comps were up +1%, while its delivery comps was down -1.5% in Q1. DPZ says its delivery business continues to be impacted by macro pressures that are impacting the low income consumer.
• In terms of comp guidance and despite the slight downside in Q1, DPZ reaffirmed its expectation that US comps in 2025 will be +3% and that it will be lower in the first half compared to the back half. However, DPZ added a caveat, that if macro pressures persist, it could put pressure on achieving this number. DPZ continues to expect +1-2% international comps as there continues to be macro and geopolitical pressures around the globe.
• DPZ launched what it describes as its biggest new menu item in its history in early March: Parmesan Stuffed Crust Pizza. DPZ admits there was a large gap in its menu relative to other pizza chains. While timing meant it did not have a meaningful impact on Q1, DPZ is very happy with how the launch has gone thus far. It has seen a high mix of orders coming with a stuffed crust pizza. DPZ is excited about the impact this product will have in 2025 and beyond.
• Another big recent change for DPZ has been its delivery system. It previously had used only its own drivers. However, last year it signed a deal with UBER Eats and then a few weeks ago it announced a partnership with DoorDash. It still also uses its own drivers, but these services allow Domino's to reach new customers. DPZ began piloting with DoorDash in a small number of stores in Q1 with a nationwide US launch expected in May 2025 and across Canada later in 2025. DPZ expects a meaningful impact from this new partnership in the back half of the year.

Overall, this was a somewhat disappointing quarter for Domino's Pizza, but not all that surprising. The company has been signaling for a while that 1H25 comps would be weaker. As such, we think investors are bracing for weak US comps in Q2, but then some improvement in Q3. We commend DPZ for getting with the times and partnering up with the major delivery aggregators, this should act as a tailwind in 2H25 especially when year ago comps get easier. This should also help its struggling delivery segment. Finally, we suspect we will hear a similar story about a pressured consumer from other QSR names that are reporting this week and next.