More than $850 million was wiped from the market value of former market darling, Domino’s Pizza yesterday as the company again produced figures left the market underwhelmed.
In fact the 18.8% plunge in the share price by the close (it was over 22% during trading) is what happens to companies that become market darings which lose their way – even though the figures they report are more than OK. Yesterday’s plunge took the total loss for the year so far to more than 36%, or well over $1.7 billion in value.
Domino’s sin was to produce 2016-17 figures that missed its own full-year profit and global growth targets, and the compounded that (in the eyes of greedy investors) by forecasting a slowing in sales and profit for the current year. The pizza maker also announced a $300 million share buyback, which will be funded through new and existing debt facilities.
Final dividend up 6.1 cents (26.9%) to 44.9 cents, 50% franked. That took the full year payout to 93.3 cents. Overall, Domino’s reported a net profit of $102.9 million in the 12 months to July 2, up 25% on the previous year. That was well short of Domino’s guidance of 32.5% growth, issued in February after a strong first half performance. Total sales jumped 18% to $2.3 billion, as it rolled out 178 new stores across its franchise networks in Australia, New Zealand, Europe and Japan.
Despite the solid effort in 2016-17 shares in Domino’s closed at an 11-month low of $41.50 yesterday, down $9.61, a plunge that cut its market value to $3.7 billion.
Domino’s, which operates in eight countries, failed to meet its same-store sales targets in Australia, New Zealand, Europe and Japan for the 2017 financial year (a fairly comprehensive miss). The biggest miss was in Europe, where same store sales rose 2.8% – almost half the company’s forecast of between 5% and 7%.
After troubles with its rollout in France cut Domino’s European same-store sales growth to about half its forecast for 2016-17, the pizza chain is also facing higher costs in Australia after pledging to increase its workers’ wages.
"I acknowledge our results, while strong, did not reach the guidance we set," Domino’s chief executive Don Meij said in a statement.
"This was largely due to the delay in rectifying some issues with our online platform in France, and the initial response in H2 to our value range offering in France, which did not meet our expectations – both have now been addressed." But such was the disappointment that investors didn’t listen.
What will now be interesting is the view taken by analysts today and tomorrow and whether they still think as highly of the company and its management as they did last year.
Domino’s warned it faces an easing in sales in the first half of the current financial year and slower profit growth for the full year (especially in Australia).
That will come as the company lifts wages for employees as it continues to negotiate a new agreement with the retail workers’ union.
Australia and New Zealand – Domino’s largest market by earnings – saw a 13.6% lift in same store sales, below its forecast of 14% to 16% (but not as big a miss as in France).
Domino’s blamed the decline on a drop in phone orders, caused by a lack of advertising of changes to its telephone number.
Looking to the current year, Domino’s expects net profit to increase by around 20% in the 2018 financial year – the weakest forecast for four years
