Domino’s shares dive 10 per cent on store closures

Shares in Domino’s Pizza have hit a nine-year low after the company heavily reined in its global rollout in Japan and France.

Domino's CEO Don Meij is being forced to rein in his ambitious store rollout plans for the pizza chain. Picture: Annette Dew

Shares in Domino’s Pizza have collapsed to a nine year low after the company heavily reined in its once ambitious global store roll out program to slice back on its stores in Japan and France as the pizza maker struggles to balance its new store openings, sales growth and profitability.

Following a trading update issued to the market after the close of trade on Wednesday where it revealed a dramatic slow down in its new store openings over the next few years, shares in Domino’s on Thursday dived 10 per cent to fresh nine year lows of $32.71. It is the lowest the share price has been since February 2015 and the company has lost 40 per cent of its value since the start of calendar 2024.

In the opening minutes of trade Domino’s shares are down $3.30, or 10 per cent, to $32.71.

Compounding the negative sentiment towards the pizza maker, also on Thursday Macquarie cuts its Domino’s share price target 10 per cent to $37 in wake of the downgraded store openings target while UBS has watered down its earnings forecasts for the group due to expected lower sales.

There is also growing concern among analysts about the profitability of franchisee operators of Domino’s stores and a rush to open stores in Japan in particular – with store numbers there up 67 per cent between 2020 and 2023 – and operations in Japan saddled with too may loss-making outlets.

Fast-food retailers such as Domino’s and the recently listed Guzman y Gomez rely heavily on new store openings to drive sales and harness economies of scale, as well as entering new markets.

The ASX-listed Domino’s has long dazzled investors with promises of aggressive store opening targets year after year, and while it has committed to its long-term outlook of 7100 stores that ambition will now be lowered with stores to be shuttered in Japan and France.

On Wednesday Domino’s announced that following a review and after encountering a number of local challenges in the Japanese market it would close up 80 stores out of its network of 403 stores, although this would be cushioned by at least 20 new store openings.

In France, long heralded by Domino’s management as a huge opportunity for the group,it would close up to 20 stores out of around 480 stores it currently has there.

Overall Domino’s new store openings in 2025 would be around a 3 per cent lift on its network, well below more recent store growth targets of 7 to 9 per cent. For the medium term, the next three to five years, new stores would also be well below the average run rate of as much as 9 per cent growth but it wont hit its target of 7100 stores by 2033.

UBS analyst Shaun Cousins has revised his earnings forecasts for Domino’s by 0.3 per cent in 2024, 3.9 per cent in 2025 and 5.1 per cent in 2026 due to the lower sales now expected from the shrinking store network.

Mr Cousins said Domino’s focus was now on store closures following too much expansion.

“This is a bold action and should support same store sales growth and EBIT margins, yet improvement is already forecast, while execution risk remains,” he said.

“Given a mature Australia and New Zealand division, structural and cycling challenges in Asia, and a mixed Europe we remain cautious.”

Domino’s is slated to release its full-year results on August 21.