Shares of Domino’s Pizza Enterprises in Australia dropped to their lowest level in over nine years on Thursday, following a revised earnings forecast prompted by the closure of underperforming stores in Japan and France.
Domino’s stock plummeted by as much as 9.6% to A$32.62 early Thursday, marking its lowest point since February 2015, while the broader market remained relatively stable.
The pizza chain announced after markets closed on Wednesday that it anticipates stagnant to slightly positive store growth for the current fiscal year. It also revealed plans to shutter up to 80 low-performing stores in Japan and 10-20 stores in France.
According to analysts at Macquarie, while Domino’s focus on enhancing store profitability is sensible, it is likely to dampen short-term earnings expectations.
Domino’s aggressive expansion in Japan, where it opened more than 400 stores between 2020 and 2023, resulted in several unprofitable outlets termed as “immature stores.”
UBS analysts commented on the challenges in the French market for Domino’s, noting that the closures reflect strategic adjustments as the company refines its operational approach.
Looking ahead, Domino’s projects a return to positive same-store sales in Japan for the fiscal year 2025, which commenced this month. The company aims for an overall group store growth rate of 3%-4% by fiscal 2026.
“Given the reduced pace of store openings from FY24 to FY26, the previously targeted timeline of 2033 will not be achieved,” Domino’s stated on Wednesday.
In response to the revised growth outlook, Morgan Stanley lowered earnings estimates for fiscal 2025 and 2026 by 3%, while Macquarie adjusted forecasts for fiscal 2024 and 2025 downward by 2% and 5%, respectively, citing changes in network expansion assumptions.
Domino’s Pizza Enterprises is scheduled to report its annual results in August after withdrawing its fiscal 2024 outlook earlier this year when first-half profit expectations fell short.
Investors considering Domino’s Pizza (DPZ) should weigh these developments carefully amid the company’s strategic adjustments and revised financial outlook.