The shares of Domino's Pizza (NYSE: DPZ) gapped sharply lower this morning, despite a stronger-than-expected third-quarter profit. Ahead of the bell, Domino's reported net income of $17.8 million, or 31 cents per share, for the quarter ended Sept. 6. Excluding a $14.3 million pretax gain, Domino's profit of 17 cents per share was two cents better than analysts expected.
However, revenue for the period tumbled 6.5% to $302.7 million, falling well short of consensus estimates for $308.9 million. Same-restaurant sales were flat in the U.S., although they were up 2.7% internationally. With top-line results softer than expected, the pizza chain cited lower interest expense and tighter cost controls for the robust bottom-line results.
Traders are focusing on Domino's revenue miss today, rather than the upbeat profit figures -- the stock was down more than 10% at its intraday nadir of $8.41. On the charts, the shares are currently pinned between new-found support from their 10-day moving average, and long-term resistance from their 20-month trendline. The latter moving average hasn't been bested on a monthly closing basis since April 2007.
Prior to today's report, some option players appeared to be anticipating major downside from DPZ. On Monday, the stock's most active strike was the December 7.50 put, with 307 contracts changing hands. Nearly all of this volume crossed the tape at the ask price, suggesting that these puts were freshly purchased. Since these contracts were purchased for $0.25 each, the speculator needs DPZ to fall below $7.25 prior to December expiration in order to begin making a profit.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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