Domino’s Pizza Enterprises has reported a slight decline in its financial performance for FY24, with net profit after tax (NPAT) dropping by nearly 2% to $120.4 million. Despite this, underlying earnings grew by 3% to $207.7 million, and overall network sales saw a 4.6% increase, reaching $4.19 billion.
The growth was largely driven by strong performance in the Australia/New Zealand segment, where underlying earnings before interest and tax (EBIT) rose by 10.4% to a record $124.1 million. Same-store sales in this region increased by 1.5% over the year, and online sales grew by 7.5%, contributing more than 80% of total sales, or $3.37 billion.
Domino’s also reported an improvement in the profitability of its franchised stores, with average earnings per store rising by 6.7% to $97,400, driven by increased same-store sales and reduced operating costs. Shareholders will receive an unfranked second-half dividend of 50.4 cents per share, bringing total dividends for the year to $1.059, a decrease of 3.7% from the previous year.
Challenges Ahead
As FY25 begins, Domino’s is facing a slower-than-expected start in same-store sales growth. CEO Don Meij remains optimistic about achieving the company’s guidance of 3% to 6% same-store sales growth for the fiscal year but acknowledges that the company’s operations in France and Japan need to improve to contribute more effectively to overall profit and sales.
Domino’s Asian market has been hit by external factors, including geopolitical tensions in Malaysia. To counteract these challenges and address cost-of-living pressures, the company is making adjustments to its menu, introducing a smaller snacking menu and more affordable options to attract customers.
Tribeca’s Jun Bei Liu highlighted that changing consumer habits, including a shift towards wellness and cautious spending, are also affecting companies like Domino’s and Collins Foods, which owns KFC. Liu noted that consumers are becoming more health-conscious and careful with their spending, impacting traditional fast-food businesses.
Market Response and Analyst Downgrades
Domino’s shares have dropped nearly 50% year to date, contrasting with a nearly 6% rise in the S&P/ASX 200. The stock is currently in a long-term bearish trend, with indicators such as the 200-day moving average showing declining demand. In the medium and short term, the stock continues to trend downward, indicating that investors see limited opportunities in owning Domino’s shares at present.
In response to the company’s recent financial results, several analysts have lowered their price targets for Domino’s. UBS cut its target by almost 10% to $33 per share, while Barrenjoey slashed its target by 26% to $31, downgrading the stock to neutral from overweight. Jefferies reduced its target to $44 from $46, citing significant work needed by management to turn the business around, though they noted potential upside if successful. Goldman Sachs also lowered its target by 3% to $40.
Outlook: Mixed But Cautiously Optimistic
Despite these downgrades, the overall market sentiment remains cautiously optimistic. According to Refinitiv data, the mean recommendation on the stock is a BUY, with an average target price of $38.81, suggesting a potential upside of nearly 26% from current levels. Citigroup maintains a buy rating with a price target of $45.35, indicating a 48% upside. Morgan Stanley also remains overweight on the stock, with a target price of $45, suggesting a 47% increase from current levels.
In summary, while Domino’s faces significant challenges in certain markets, there remains a belief among some analysts that the company has the potential to recover and grow, provided it successfully navigates the current hurdles.