Shares in pizza giant Domino’s tumbled on Thursday, falling by almost 30 per cent at the market open after chief executive Don Meij issued the company’s fourth profit downgrade in three years.
Three hours after the market closed on Wednesday, the pizza maker scrapped its full-year guidance and announced while its Australia and New Zealand stores had delivered their best sales in six years, that strong performance had been offset by falling sales across Japan, Taiwan, Malaysia and France.
The company flagged its preliminary net profit before tax for the first half of the financial year is expected to be between $87 million and $90 million, down from $104.8 million a year earlier and well below the consensus estimate of $103 million.
“With improvements still required in H2 to grow order volumes, Domino’s advises any previous guidance for financial year 2024 performance, de facto or otherwise, is no longer in effect,” the company told investors.
Investors punished the shares in morning trade on Thursday, sending them down 29 per cent to $40.94.
Domino’s shares surged during the pandemic, but are down 45 per cent over the past year after multiple profit downgrades.
Chief executive Don Meij, who has led Domino’s since 2002 after first serving as a pizza delivery driver in the 1980s, said management had a “clear plan for growing sales and reducing costs, although progress in growing sales in some markets was slower than anticipated”.
“We are very mission focused on becoming ‘The Dominant Sustainable Delivery QSR in every market
by 2030’, and delivery growth has been the biggest engine room in most markets,” Meij said.
“This has been led by Australia and New Zealand where customers are rewarding us with more frequent orders and a higher ticket and, as a result, the business improvement has been fastest. Many of the same approaches are showing positive signs in Europe.
“Our franchisee partners in ANZ and Europe are improving average unit economics, but there is more work to do, and this will remain an ongoing focus in all markets into the 2025 financial year.”
Meij told investors on a call on Thursday that the company’s technology advantage against its competitors had evaporated in recent years. Domino’s has long leaned on technological innovations to stand out, including drone delivery, and voice ordering through smart-home speakers.
“There’s no question that’s been neutralised compared to where we were a number of years back,” he said of Domino’s tech edge. “It’s still really important and we’re still constantly impressed with what we can do with conversion and execution.
“There’ll still be a lot of energy and investment [in technology] because it does matter and it is material. But many of our competitors have now caught up to that.”
The Domino’s current competitive advantage and growth lies in delivery, according to Meij.
“Everything we do is designed to be delivered, and that’s how we’re differentiating today. We think we have a significant advantage in delivery.”
Broker Goldman Sachs reiterated its “sell” rating on Domino’s shares and said the results were below consensus forecasts. Jefferies cut its rating to underperform and Citi trimmed it to “neutral”.
“This profit downgrade supports our thesis that Japan’s elevated competition post-COVID is a more structural headwind,” Goldman Sachs analyst Lisa Deng said in a note. “We expect the market to take this news negatively.”
Domino’s will release its interim results on February 21.
Meij said that as chief executive, he took full responsibility for the disappointing set of numbers across Europe and Asia.
“Where we’ve disappointed, it’s been in an executional area of the business,” he said. “Ultimately I’m held responsible for that as head of management. This is a team effort and in good times I get undue credit… And right now when things are going bad I take full responsibility.
“These are executional issues I’m accountable to and that we need to deliver upon.”
Source: Thanks smh.com