A trifecta of problems facing the international operations of Domino’s Pizza Enterprises sparked a 30% plunge in the share price of the Australian-owned company on Thursday, erasing more than $1.5bn in value.
Domino’s, which holds the branding rights in several countries of the American pizza chain, disclosed that net profit before tax for the recent six-month period was expected to be between $87m and $90m, down from almost $105m a year earlier.
The shareholder response to the trading update was ruthless. Managing director Don Meij convened a call with analysts and investors, and sought to explain the troubles.
“It’s quite humbling to sit in front of you and to be able to share the disappointing results in part of our business today,” he said on the video conference. “It really shows a rollercoaster.”
While sales are growing strongly in Australia and New Zealand, backed by popular ranges of snack-sized pizza products, the same is not true of its French business or its operations in parts of Asia.
Meij blamed enduring poor sales figures in France on “execution” problems, rather than any issues related to taste.
“It’s very clear, we haven’t had success in France. That’s the one area of our business that we’ve rarely shown any bright lights,” he said.
Even as Domino’s grows its business in neighbouring Germany, France has proven difficult. The company’s online delivery platform, which sits at the heart of the chain’s operations, was formerly felled by the regular usage of apostrophes in French addresses it struggled to read.
Growth in Japan was also weaker than expected, especially in the important pre-
Christmas trading period, despite Domino’s using premium menu items such as a pizza rice bowl to drive sales.
Domino’s has invested heavily in Japan, with mixed results, and without the apparent success of other American brands such as KFC, which has a passionate following there.
Meij said anti-American sentiment in other parts of Asia were also hurting sales. “It’s well publicised that American brands in Asia, and I largely talk to Malaysia in this case, have been affected by what’s happening in the Middle East right now,” he said, referring to the fighting in Gaza.
Major American brands, including McDonald’s and Coca-Cola, have been ostracised in some markets recently because of the US’s close ties to Israel.
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Domino’s aggressive global expansion has made it a very volatile stock, riding the highs and lows of market sentiment.
Its share price briefly rose above $160 in the pandemic, as locked-down consumers ordered out en masse. Now hovering at $40, shares are trading at pre-pandemic levels.
The pizza business walks a fine line between keeping meals affordable, and turning a profit. During the inflationary period, it faced steep increases in delivery costs and produce prices, including cheese, but customers reacted badly to a 7% delivery charge which was promptly scrapped.
Brokers are concerned by the latest figures, with UBS holding a sell rating on the stock. Analysts at Citi moved their rating from “buy” to “neutral”.
Meij assured shareholders on Thursday he was confident in the strength of the company’s balance sheet andthat the company retained the “full support” of its bank lenders.
“We have underperformed and I don’t want to over promise,” Meij said. “We need to bring better results to the market.”
