Domino's Pizza earnings slice: global pressures leave profit a little cheesy

Article written by Juliette Saly (ausbiz)

A slice of profit

Domino’s Pizza reported a nearly 2% drop in FY24 NPAT to $120.4 million. Underlying earnings rose by 3% to $207.7 million, and network sales increased by 4.6% to $4.19 billion.

A key driver of this growth was the Australia/New Zealand segment, which delivered a 10.4% increase in underlying EBIT to a record $124.1 million. Same-store sales rose by 1.5% over the year, while Domino’s reported 7.5% growth in online sales to $3.37 billion, representing more than 80% of total sales.

The company states that average franchised store profitability in FY24 improved by 6.7% to $97,400, due to growing same-store sales and a reduction in operating costs. Shareholders will receive an unfranked 2H dividend of 50.4 cents per share, bringing total dividends for the year to $1.059, down 3.7% from FY23.

Domino's Pizza financial results summary

Kneading dough

Domino’s is experiencing a slower-than-expected start in same-store sales at the beginning of FY25.

CEO Don Meij is confident of achieving July's guidance for 3% to 6% same-store sales growth over fiscal 2025. However, he told ausbiz that the company’s France and Japan business units need to perform better and start contributing to the group’s profit and sales.

Meanwhile, Domino’s Asian business was affected by external factors, including geopolitical tensions in Malaysia.

Domino’s is also adjusting parts of its menu to attract more customers and counter cost-of-living pressures, including a smaller snacking menu and more affordable options.

Tribeca’s Jun Bei Liu told ausbiz that the shift towards the wellness movement and changes in eating habits are also impacting companies like Domino’s and KFC owner Collins Foods. Liu noted that “perhaps the consumer is a little bit more cautious, a little bit healthier,” and that the trend she’s observing is consumers being more careful with their spending.

You want a pizza this?

Domino’s shares are down almost 50% year to date, compared with a near 6% increase in the S&P/ASX 200.

Domino’s shares appear to be in a long-term bearish trend, as confirmed by multiple indicators. ASX Tradewatch data show the long-term 200-day moving average of the stock is falling, indicating low demand for Domino’s shares.

In the medium term, the five-day moving average is below the 50-day moving average. Domino’s shares have also been trending lower in the near term.

All of this suggests that investors currently see little opportunity in owning Domino’s.

Domino's Pizza daily chart

Stock recommendation history chart

Analyst downgrades reflect caution

Analysts have been trimming their price targets on Domino’s in the wake of its results.

• UBS has cut its price target (PT) by almost 10% to $33 per share, and Barrenjoey has slashed its target price by 26% to $31, downgrading the stock to neutral from overweight.
• Jefferies has reduced its PT by 4.3% to $44 from $46, noting that there is significant work for management to turn around the business. However, they believe there could be “significant upside if management can right the ship.”
• Goldman Sachs has lowered its target on Domino’s by 3% to $40.

Analyst consensus summary grid

Potential upside remains as some analysts maintain bullish outlook

Despite these reductions, the mean recommendation on the stock, according to Refinitiv data, is a BUY, with an average target price of $38.81, representing a nearly 26% upside from current levels.

• Citigroup maintains a buy rating on the stock, with a price target of $45.35, suggesting a 48% upside.
• Morgan Stanley remains overweight on Domino’s, with a PT of $45, indicating a substantial 47% rise from current levels.

Expert broker recommendations table