Domino’s Pizza is rolling out new meal offerings, continuing to aggressively expand its store network and cutting delivery times, but disappointed investors and analysts with its latest financial results.
The fast-food giant reported first-half sales growth of more than 11% on Wednesday, but underlying net profit fell 5.3%.
Barrenjoey analysts said results fell short of expectations in all divisions and the current half started “a little weaker” than expected.
They tipped a stock price drop, which happened.
Shares of Domino fell 14.5% to $85.58 in intraday trading, continuing down from around $165 in September and well below Barrenjoey’s price target of $130.
CEO and managing director Don Meij said earnings were lower largely due to his reinvestment in Australia/New Zealand franchises, targeting under-penetrated markets, particularly Victoria and Australia. from South.
The current project has been to oust underperforming franchisees and replace them with better performing store managers and existing franchisees or test new franchisees for store ownership.
Mr Meij said the drop in profits was also due to a “rebasing” of sales in Japan in the December quarter after record growth which meant same-store sales in Japan (SSS) remained 40% higher. % compared to before Covid.
“Covid-19 has brought unforeseen challenges including a market closure (New Zealand in August), temporary store closures and staff shortages as they self-isolate as patients or close contacts” , did he declare.
What drove the stock price lower was Domino’s full-year SSS growth forecast “slightly below 3-5 year outlook” of 3-6%.
This key metric was an impressive 8.5% in the first half of fiscal 2021 when Covid restrictions caused massive adoption of delivery services, falling to 2.8% in the first half of the current fiscal year.
But the company thinks Covid has simply advanced the “era of delivery” and believes it is well placed to take advantage of it.
“Domino’s will continue to win and retain customers by providing value, product, service and image at an affordable price,” said Mr. Meij.
“This means we will respond to near-term inflationary pressures with a customer-focused approach, serving ‘more for more’ – like bigger meal deals that are a win for customers and franchisees alike.”
An example of this is the new “Value Max” range in Australia/New Zealand which offers customers additional toppings but also offers higher margins to franchisees.
As part of its expansion push, Domino’s plans to launch its new app in the June quarter which it says will convert new customers.
Mr Meij said the target of expanding stores in Australia/New Zealand by 1,200 in the 2025 to 2028 window – as part of his drive to have 6,650 stores globally by 2033 – was ” not only feasible but necessary to reach our customers”.
The idea is that more new stores mean customers are moving closer to them, which translates to faster delivery times and better unit savings for franchisees.
“Our teams have actually reduced delivery times and improved customer satisfaction scores, which shows the importance of our delivery-focused approach and having more stores closer to customers,” said Ms. Meij.