Domino's Pizza stock plunges as 1H earnings disappoint

Domino’s Pizza (ASX: DMP) has copped a sharp re-rate towards the downside as the business missed both analyst and internal growth expectations. The company's stock is down -14% at noon.

Financials at a glance: 

• Sales of $2.05bn, up 11.1% 

• Net profit of $91.3m, down -5.3%

• Interim dividend of 88.4 cents per share, flat compared to last year

• Same store sales growth of 2.8%

• 285 new store openings to 3,227, up 4.6% 

The net profit result was below Bloomberg estimates of $95.7m and Bell Potter forecasts of $96m. 

Leading into today’s earnings, Morgans’ was expecting “Domino’s earnings growth trajectory to moderate considerably in 1H22 after a sensational performance in the prior period”. 

Why earnings went backwards 

Domino’s profits declined due to investments in Project Ignite for the Australia and New Zealand region and the cycling of record sales in Japan. 

Project Ignite is an initiative aimed at driving network growth by giving franchisees incentives such as fee reduction and royalty waivers. Ignite impacted first-half earnings by circa $6m. 

An uphill battle

Domino’s has set itself 3-5 year annual growth targets comprised of:

• 3-6% same store sales growth

• 9-12% new organic store additions

Today's half-year results have fallen short for both growth targets. 

“Forecasting short-term same store sales growth was challenging, particularly given very strong sales in the prior comparable period in some markets, and the sales rebuilding in Japan. Management expected SSS this Financial Year would be slightly below the 3-5 year outlook,” CEO Don Meij said in a statement.

A sluggish start

For the first 6 weeks of 2022, same store sales growth has slowed to just 1.7%, well below its medium-term target.

Domino's flagged that food inflation is expected to hit the business in the second-half, though the business is "well-positioned to mitigate through various strategies".

Encouragingly, Domino's said it remains on-track to hit its new organic store additions for FY22.

Domino's 12-month share price chart