Domino’s Australia franchise slumps 7% as high costs take larger slice of profit

9:41 pm Tuesday, August 20th, 2024

(Reuters) – Shares in Australia-based Domino’s Pizza Enterprises Ltd slumped more than 7% on Wednesday, after the franchise operator flagged a weak start to fiscal 2025, as rising costs and frugal consumers weighed on profitability.

Domino’s Pizza Enterprises runs the largest master franchise of the U.S. pizza giant in 12 countries across Asia, Europe, Australia, and New Zealand, with a total of 3,767 stores. Japan accounts for just over a quarter of those stores.

High living costs, normalisation of work and social life after the pandemic, and rising operational expenses have hurt its profitability, with focus markets such as Japan struggling to maintain its post-COVID momentum.

Citi analysts in May had also flagged that cheaper fast-food and local cuisine alternative, and low popularity and product quality posed major challenges to the franchise’s Japan ambitions.

Domino’s has since announced closure of around 80 low-volume stores in Japan, as sales decelerated despite higher advertising spends. Sales in its biggest market were down 2.5% so far in financial year 2025.

Group-wide sales trended below its expectations, with like-for-like growth down 1.3%.

Visible Alpha consensus expects a 10% underlying net profit growth in the first half of fiscal 2025, which Citi analysts say “seems high”, calling the business’ underlying performance “still less than optimal”.

“Weakness in early FY25 is disappointing and the market will be looking for evidence the sales trend can improve,” Jefferies said.

Shares of the franchise operator fell as much as 7.3% to A$30.970, their biggest intraday fall since Aug. 2. The stock was among the top 10 losers in the benchmark as of 0135 GMT.

Its underlying profit dropped 8% to A$120.4 million ($81.25 million) for the year ended June 30, but met Visible Alpha consensus. Sales grew 4.6% to A$4.19 billion but missed A$4.22 billion consensus.

($1 = 1.4819 Australian dollars)

(Reporting by Sameer Manekar in Bengaluru; Editing by Rashmi Aich)