Domino’s Pizza (DPZ) stock price is down over 13% during trading today as investors absorb the shocking earnings report.
The company reported an EPS beat and almost achieved the sales targets. However, a weak guidance and suspension of new store opening targets has investors worried.
The EPS clocked in at $4.03 beating expectations by 9.6% while revenue of $1.1 billion fell just below analyst estimates.
The company’s free cash flow was up 23.1% from the previous quarter at $127.2 million. Its same store sales rose, though came in slightly below expectations.
Even though the results don’t look all that bad, it is the forecast that has spooked investors. It warned that same store sales are likely to slow down in the coming quarters as well.
New stores coming up
The problems have prompted the company to reconsider its new store opening plans. The target of 1100 new net stores in the next 5 years stands suspended while the company figures out what to do with the slowing sales.
Domino’s international operations were supposed to drive long-term growth in the company but the concerning numbers and weak forecast is casting doubts over that strategy. Jim Sanderson of Northcoast Research, says:
That’s a little bit of a concern because international unit growth was a kind of a key component of the company’s long-term growth strategy.
Inflation hurting food businesses
Domino’s popularity among consumers is in question now that people have demonstrated they clearly value saving money over food.
Even though inflation numbers are improving in the US and retail numbers show the US consumer is going strong, there is no guarantee people will give away their money for fast food with the same ease.
The company knows this and that is why it worked on offering value to the customer. It not only refreshed its loyalty program but also launched other offers to attract food lovers.
One of these offers is the boost weak, where the company offers discounts throughout the week.
In the coming quarters, we can expect one boost week per quarter as per the management.
The management is also happy with the Hungry for MORE strategy, which is aimed at aggressive growth and building a legacy of success. CEO Russell Weiner says:
Our year-to-date performance demonstrates that our Hungry for MORE strategy is off to a great start, having an immediate impact on sales and profits.
Despite the optimism, investors have to wonder why new store openings and sales are going down if the company believes its growth plans are intact?
If it is inflation and spending habits, the company may be able to improve things down the road through offers like boost week.
But if people have found alternatives that Domino’s can’t beat on pricing, it might just be that only the die hard Domino’s fans keep their loyalty.
No one can blame the consumer for saving money in this tough economic environment.
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