Australia’s Domino’s Pizza plummets on withdrawing annual outlook, rating downgrades

By Himanshi Akhand

(Reuters) – Shares in Australia’s Domino’s Pizza Enterprises posted a record drop on Thursday, after the retail food outlet operator withdrew its fiscal 2024 outlook and its first-half profit forecast missed expectations.

The stock slumped as much as 31.1% to A$39.50, its lowest since August 2019, and was the top laggard on the benchmark index, which was up 0.3% as of 0038 GMT.

After market hours on Wednesday, Domino’s said it expected first-half preliminary net profit before tax between A$87 million ($57.19 million) and A$90 million, hurt by weaker-than-expected network sales in Asia and Europe.

“With improvements still required in H2 to grow order volumes… any previous guidance for FY24 performance, de facto or otherwise, is no longer in effect,” Domino’s said.

It had earlier said it expected earnings in fiscal 2024 to be significantly higher than 2023 as it continued to cut costs.

The company’s first-half forecast was 12% to 15% below Visible Alpha consensus estimates, prompting brokerages to slash their ratings and earnings estimates.

Analysts at Citi downgraded the stock to “Neutral” from “Buy” due to increased uncertainty around Japan and France outlook, which together constitute about 39% of the group’s stores.

The brokerage also trimmed its earnings per share estimates by 8%-19% for fiscals 2024 to 2026.

“We expect the magnitude of the deterioration in SSS (same store sales) in Asia and Europe to overshadow positive comments around improving average unit economics in ANZ and Europe.”

Jefferies analysts also downgraded Domino’s to “Underperform” from “Hold”, noting that “market patience is running thin”.

Morgan Stanley, however, kept its “Overweight” rating, expecting the company to deliver earnings growth in the second half.

Domino’s share price had slumped about 44% and 11% in 2022 and 2023, respectively, and Thursday’s decline brings 2024 year-to-date losses at nearly 30%.

($1 = 1.5211 Australian dollars)

(Reporting by Himanshi Akhand in Bengaluru; Editing by Rashmi Aich)