Why Domino’s Share Price Fell 7.76% On Strong Results

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Pizza franchise giant Domino’s Pizza Enterprises Limited [ASX:DMP] has fallen victim to a growing body of demanding investors, with the share price toppling 7.76% this morning.

The share price fell by $3.56 this morning to $42.34 on the back of their half yearly results. This is not the first time a company’s share price has taken a hit on the ASX this week despite posting positive results, with Blackmores Limited [ASX:BKL] plummeting yesterday.

At time of writing, Dominos shares have recovered slightly, now sitting at $43.75.

What’s going on with Domino’s share price?

It seems investors on the ASX have come to expect more from companies these days, for even posting positive revenue and earnings growth won’t cut it anymore.

Domino’s delivered global food sales growth of 14.6% to $1.43 billion, and a 12.1% increase in earnings before interest and tax (EBIT) to $108.3 million.

The company boosted revenue by 23.7% to $702 million, underlying EBITDA jumped 12.1% to $137.2 million, and net profit after tax increased by 8.4% to $68.2 million.

Domino’s also saw a boost in its overseas markets, which contributed more than half of the company’s EBITDA with $71 million from Europe and Japan.

The pizza giant also said results were in line with their vision of ‘Leading the Internet of Food in Every Neighbourhood,’ online sales increased 16.5%, $132.2 million higher than the prior corresponding period.

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So, what went wrong?

It seems this result has fallen a tad short of expectations. According to a note out of Goldman Sachs, its analysts had forecast half-year revenue of $661.3 million, EBITDA of $142.6 million, and a net profit after tax of $74.1 million.

Although the company did beat forecasts on revenue, it fell short on the latter two.

What’s next for Domino’s

Despite the drop in share price, today’s results aren’t too much to fret about. In fact, they’re pretty decent.

Growth across all of Domino’s operating regions seemed good. Network sales and single store sales were up across the board.

In ANZ, a total of 13 new organic stores had been built and opened, and same store sales grew 3.5%. However, CEO Nick Knight said domestic growth, while outperforming peers, did not reach management expectations.

We expected higher sales growth and a performance better than we delivered, and we will be redoubling our efforts to do both in the months ahead.’

Management in Japan said operations had exceeded expectations, with strong sales growth and profitability increases. 31 new stores were opened with an increase of 4.8% in same store sales.

Europe CEO Andrew Rennie said the European region performed well, leading the Group in new store openings and revenue growth. 33 new stores were opened with 2.3% growth in same store sales.

For the first seven weeks of H2 FY19, Domino’s has seen a 4% rise in same store sales.

Management said it expects Same Store Sales for the Full Year to be within guidance, at the mid-to-lower end of the 3–6% range. As a result, EBIT is expected to be at the lower end of guidance of $227–$247 million.

As a result, new store builds are now expected to be slightly lower than originally guided — in the range of 200–215.

Domino’s also noted renewed confidence in Japan and updated modelling in Belgium, Domino’s has upgraded its Group future store outlook to 4,900 (250 stores) by 2025–28.

Regards,

Ryan Clarkson-Ledward,

For Money Morning

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About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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