Domino’s stock plunge to 9-year low amid store closures
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Shares of Australia's Domino's Pizza Enterprises sank on Thursday to nine-year troughs after the company said it would shut underperforming stores in Japan and France, prompting analysts to lower earnings estimates. Domino's stock slumped as far as 9.6 per cent to A$32.62 by 0052 GMT, the lowest since February 2015, against a near-flat benchmark index.
The pizza chain announced Wednesday, after the market closed, that it now expects store growth to be flat to slightly positive in the current fiscal year. That will be based on store closures of up to 80 low-volume stores in Japan and 10-20 closures in France.
Macquarie analysts said the company's aim to boost store profitability was a sensible strategy but one that would almost certainly cause some short-term disruption to expectations. In its Japan segment, Domino's opened over 400 stores between fiscal years 2020 and 2023, which as a matter of course resulted in a bunch of "immature stores."
"There were too many loss-making stores in Japan with too long a path to profitability, while the French store closures reflect the challenges for DMP in that market as the company repositions its operational focus," analysts at UBS said.
The company is confident that it will return to positive same-store sales in Japan by the financial year 2025, which started this month. It also expects 3-4 per cent group store growth in fiscal 2026.
"Given the lower levels of store openings in FY24-FY26, the previous timeline of 2033 will not be achieved," Domino's said on Wednesday.
On the news, Morgan Stanley analysts cut earnings estimates by 3 per cent for both fiscal 2025 and 2026. Macquarie lowered earnings forecasts for fiscal 2024 and 2025 by 2 per cent and 5 per cent, respectively, in the wake of revised network growth assumptions.
The retail food outlet operator is slated to release its annual results in August. Back in January, Domino's pulled its fiscal 2024 outlook following the disappointment of its first-half profit forecast.
The outlook for Domino's, though bleak, falls in line with the strategic focus towards improving store profitability and future growth projections as it handles its business in a cautious but forward-looking way. The reaction of the market signals immediate worries, but the long-term strategy may set the company up for better performance in later years.