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Domino’s Pizza cuts sales growth forecast for 2022, triggering an 17pc sell off

Investors have ditched Domino’s after the pizza chain cut its sales forecast, with about $1.2bn wiped of the company after the underwhelming interim financial results.

Domino's CEO Don Meij says the pizza chain will remain competitive and offer value for money in the face of inflationary pressures. Picture: Annette Dew
Domino's CEO Don Meij says the pizza chain will remain competitive and offer value for money in the face of inflationary pressures. Picture: Annette Dew

Domino’s Pizza, which operates a network of stores across Australia, New Zealand, Asia and Europe, has paid the price for its December half earnings undershooting market expectations and warning sales growth would slow this year with its shares slapped down 17 per cent on Thursday.

The spectre of inflation also reared its head in the first-half results although chief executive and major Domino’s shareholder Don Meij pledged to only wave through minimum price hikes for his customers and instead would raise the quality of his ingredients — such as more premium pizza crusts — to signal the food chain still offered great value.

Although his pizza chains managed to lift revenue through some of the worst conditions since Covid-19 emerged, especially at his European and Japanese operations, and the interim dividend wasn’t reduced but kept flat the company did post a 6.9 per cent slide in net profit to $89.1m for the half.

Investors baulked at the results and trading outlook, sending shares in Domino’s diving 17 per cent to a 14 month low. The shares later closed down $14.05, or 14 per cent, at $86.13, stripping about $1.2bn from its market capitalisation.

Revenue lifted 10.2 per cent to $1.2bn. Network sales, drawn from its franchisee and corporate stores across Australia, New Zealand, Japan, France, Germany and the Benelux countries rose 11.1 per cent to $2.05bn.

Crucially, the first half results missed analyst expectations across all divisions which looked driven by the countries Domino’s operates in exiting lockdowns and trading reverting to less elevated levels as witnessed through lockdowns.

The second half started slightly weaker than some in the market had expected too with Domino’s also guiding that same store sales growth this year would be under the 3 to 6 per cent guidance set down for the next three to five years.

Jarden analyst Ben Gilbert said earnings were 5 per cent below consensus forecasts with poorer performances in Asia (Japan) and Europe the driver.

“Expectations were low heading into the result and Domino’s met these expectations with same store sales growth and operating profit below, with cash flow weak. While Domino’s were cycling a big half, comments re second half same store sales growth are likely to see consensus downgrades and questions around profit impact when combined with inflation.”

Mr Meij heralded the December half result given the huge volatility and disruptions swirling around its global business caused by Covid-19 and related lockdowns, travel restrictions and store closures.

He said as its stores come out of lockdowns and restrictions the company expected same store sales growth this financial year would be slightly below the three to five year outlook.

“We are not immune to the challenges facing the global economy, but these are short-term challenges we will navigate through, with a continued focus on the long-term.

“Importantly, despite this short-term uncertainty, there is no question that our business is materially stronger than prior to Covid-19.

“The cumulative growth we have delivered on a two-year basis reflects this strength and it is our intention to continue to build on this strength for the long-term,” Mr Meij said.

The fast food chain said it had made a positive start to the second half with network sales up 6 per cent, or 1.7 per cent growth on a same store sales basis.

Within its operations there was also an earnings dive for its business in Asia of more than 17 per cent, led by Japan despite the lifting of the state of emergency and as accelerated corporate store openings compressed margins.

During the half Domino’s added its 10th market with the inclusion of Taiwan and its 156 stores, with the Asian region contributing a 16.4 per cent lift in sales however earrings for the region fell 17.3 per cent reflecting the rebasing of Japan sales and compressed margins.

In Europe sales were up 11.9 per cent to $796.7m with franchisees rising to Covid-19 conditions by growing delivery sales through improved execution. Pre-tax earnings grew 11.5 per cent to $49.7m.

In Australia and New Zealand, multiple stores set records as network sales grew 6.4 per cent to $689.6m and EBIT fell 6.1 per cent to $60.3m reflecting investment in franchisees and temporary closure in New Zealand.

Domino’s declared a flat interim dividend of 88.4 cents payable to shareholders on March 17.

Mr Meij said Domino’s would also keep a check on inflationary pressures to keep the food group competitive and provide value for customers.

“Domino’s will continue to win and keep customers by delivering value, product, service and image, at an affordable price.

“We‘ve been working around the world looking at our menus wherever we may move a price and we’ve given the customer more. So if we go we’re launching more premium crusts, we’re launching new menus and to make sure that if there is any price movement there business, we’re giving the customer a lot more for that price.”

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Original URL: https://www.theaustralian.com.au/business/companies/dominos-pizza-has-lowered-its-sales-growth-forecasts-for-2022/news-story/b7f5511ed1a416ecb7b7345f78bd9dd0