Domino's sales fall after 41 straight quarters of high unemployment

Domino's Pizza DPZ just saw sales fall after 41 straight quarters of high same-store sales in the U.S., ending one of the most impressive periods in fast food industry. What streak of high unemployment in the US slowed to a halt largely because of the low worker shortage forcing low-wage sectors such as retail, restaurants and hospitality to collapse.

Domino's same-store sales fell 1.9%, a sharp change from a 17.5% increase in the same quarter of last year, the company said Thursday. Same-store sales at franchise-owned and company-operated stores fell 8.9% and 1.5%, respectively.

Yes, staffing was a challenge most definitely during the quarter as we highlighted, Domino's Pizza CEO Ritch Allison told analysts on a conference call. What I can tell you is that when you look at the first half of the year relative to the third quarter, we certainly saw more of an impact in the system around some things like decreased operating hours and some challenges with respect to delivery time times in particular. When we look at it in our own corporate location business, we definitely saw our staffing levels relative to ideal were lower than we saw during the first half of the year. Allison said Domino's is trying to reduce the personnel shortages, but didn't give many assurances if it would be completely fixed anytime soon.

In our corporate store operations, we are doing things proactively like looking at our wages, compensation for our team members, and as I talked earlier working across the system, rolling out an applicant tracking system to help with team acquisition and hiring. And then we re also working on a number of operational improvement inside of our stores to allow us to operate more efficiently and frankly with less labor for every order that goes out, Allison explained.

The same-store sales weakness led to Domino's missing analyst top line estimates for the third quarter. The third quarter sales were seen averaging $998 million compared to analysts' projections of $1.03 billion. Earnings per share came in at $3.24 a share versus estimates of $3.11.

The earnings beat reflected mostly some $1.1 billion in stock repurchases in the third quarter, which had the effect of lowering Domino's shares outstanding and pumping up profits. In Wall Street parlance, it was a low quality earnings beat for the pizza hawking giants.

Shares ended relatively unchanged at $477.48, with a profit of approximately $28.11 on Thursday.

Analysts will probably downward revise their sales and earnings forecasts for the rest of 2021 and 2022 as Domino's contends with its staffing issues which are impacting how aggressive it is with sales driving promotions. That concern by the Street may keep Domino's stock in the penalty box for now.

In the near-term, estimates are likely to move lower post-call given negative top-line revisions which in turn means that the stock will likely be stuck in the mud until investors gain greater clarity on pricing decisions and the impact on same-store sales. In a Research Note to clients, Wells Fargo senior Jon Tower told the analysts of restaurants about various issues in Jon Tower.

Tower reiterated its neutral-weight equal equivalent on Domino's stock. He changed his EPS projections for 2021 and 2022 by 3% and 1.2%, respectively.

Brian Sozzi is an editor-at-large and anchor for Yahoo Finance. Follow Sozzi on Twitter and LinkedIn.