Domino's Crashes Most Since Late 2008 After "Temporarily Suspending" Store Growth Guidance Metric
Shares of Domino's Pizza in premarket trading in New York crashed the most since late 2008 following a surprise announcement in an earnings report this morning about the company cutting its 2024 international store-growth target due to "challenges" faced by franchisee Domino's Pizza Enterprises. Also, the company "temporarily suspended" its long-term guidance metric of plus 1,000 global net stores annually.
Domino's US same-store sales increased by 4.8% in the second quarter, missing the 4.92% average estimate tracked by Bloomberg. Internationally, comparable sales surpassed estimates, rising by 2.1%
Here's a snapshot of the second quarter results (courtesy of Bloomberg):
Revenue $1.10 billion, +7.1% y/y, estimate $1.1 billion (Bloomberg Consensus)
Total domestic stores comp sales growth +4.8%, estimate +4.92%
Domestic franchise comparable sales growth +4.8%, estimate +4.87%
Domestic co-owned comparable sales growth +4.5%, estimate +6.08%
International comparable sales +2.1%, estimate +0.89%
Adjusted EPS $4.03, estimate $3.69
Operating income $196.1 million, estimate $203.4 million
Restaurant margin 17.6%, estimate 18.5%
Wall Street analysts focused on the company's announcement that it is "temporarily suspending its guidance metric of 1,100+ global net stores until the full effect of Domino's Pizza Enterprises' store openings and closures on international net store growth is known."
Domino's expects to open 175 stores annually in the US between now and 2028, but international openings will drop 175 to 275 stores below its 2024 goal of more than 925 new stores.
"The company is partnering closely with Domino's Pizza Enterprises as they work through this process and will provide further updates once it has more visibility into the effect on its annual global net store growth numbers," said Domino's.
The news sent shares in New York crashing nearly 15% in the premarket. If losses are sustained through the cash session, this would be the largest daily decline since the 17.87% plunge on December 1, 2008.
The pizza bubble is reversing.
Here's what Wall Street analysts are saying about the earnings report (courtesy of Bloomberg):
Citi, Jon Tower
"Crux" of investor frustration over this print will be the suspension of Domino's long-term unit growth plans "merely 8 months after the company issued new longer-term targets," Tower writes
Domino's unexpected lowered 2024 international unit growth goal to 650–750 from 925+ will "shake investor confidence" in management's broader guidance and pressure shares, which have been trading at a premium multiple vs. global quick-service peers in recent quarters amid "greater relative visibility into longer-term drivers of the business"
While the issue seems to be "isolated to the brand," Tower says other "fast-growing and global quick service operators" probably come under pressure in the near term
Rates neutral
Baird, David Tarantino
Notes recent expectations for US comparable sales were +5-6%, and flags that Ebit was softer than anticipated
"Although somewhat disappointed that Q2 results did not live up to elevated expectations, the key components of our positive thesis are largely intact, and as a result, we see a good risk/reward in buying DPZ on the anticipated pullback"
Says small differences in international unit growth "do not have major impact on DPZ's earnings growth in a given year," so he's optimisitic the company is on track to deliver results at or above its annual growth targets for system sales and Ebit this year * Rates outperform with PT $580
Bernstein, Danilo Gargiulo
Says the comparable sales growth in domestic markets and the re-acceleration of trends in international markets encouraging
"At the same time, while we remained cautious on unit growth in intl' markets, the suspension of guidance suggests that the challenges in the portfolio of stores may be more enduring than we had anticipated"
Rates market perform with PT $510
Is the pizza bubble toast?