After rocketing to record highs during the covid pandemic, shares in Domino’s Pizza Enterprises (ASX:DMP) have since plunged 50% after a first half FY22 earnings miss and subsequent broker downgrades over future growth concerns of its Asia division, and inflation of input prices.
The pizza delivery group’s share price more than tripled during the covid pandemic, reaching as high as $165 in August last year, but began a retreat soon after on the back of institutional investor selling.
The company fell a further 20% after the group reported a -5.3% fall in first half FY22 net profit after tax (NPAT) on February 23, to $91.3m - 9.1% below the consensus of analysts’ forecasts.
Revenue up 11.1%, to $2.05bn
NPAT down -5.3%, to $91.3m
Company guided to new store openings increasing 9-12% per annum
Same store sales growth of 3-6% annually over next 3-5 years
First 6 weeks of trading in second half FY22 showed weaker same store sales growth of 1.7%, compared to 10.1% for the same period of 2H21
Management reiterated that “Age of Delivery” has started
Some analysts claim the market is pricing in not only the earnings miss, but the bigger risks from competitors and inflation, and lower growth in key markets like Japan.
Goldman Sachs cut its rating to Neutral, citing a nearly 30% reduction in its forecast FY22 earnings for the Asia division as the main factor.
The Asia division is Domino’s biggest business unit, with first half FY22 revenue of $442.6m, compared to $403m for Australia and NZ, and $361m for Europe.
Prices on key inputs of cheese and wheat increased as much as 10% and 21%, respectively, in January, Goldman also noted.
Despite the bearish overall sentiment from analysts and the negative market reaction, Domino’s CEO, Don Meij said plans were on track to boost store numbers by a third, to 4000 stores worldwide by 2023, and to 5000 by 2026-2027.
Meij expects key same store sales metric to increase by 3-6% annually over the next 3-5 years, and highlighted the importance of having “more stores, closer to customers”.
“Prior to the pandemic, Domino’s made clear our vision for the future of the quick service restaurant industry is delivered food, ordered online. Covid-19 brought forward this future; the ‘Age of Delivery’ for our industry has begun.”
Domino's share price movement over five years.
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