Australia's Domino's Pizza Enterprises Faces Record Drop in Shares, Withdraws Outlook

Shares in Australia's Domino's Pizza Enterprises experienced a significant decline on Thursday, following the company's decision to withdraw its fiscal 2024 outlook. The retail food outlet operator also fell short of expectations with its first-half profit forecast.

As a result, the stock slumped by up to 31.1% to A$39.50, reaching its lowest level since August 2019, according to Reuters. This drop made Domino's Pizza Enterprises the top laggard on the benchmark index, which remained marginally positive, up 0.3% as of 0038 GMT, as per Yahoo.

Profit Expectations Fall Short, Stock Hits Lowest Level in Months

After the market closed on Wednesday, Domino's Pizza Enterprises announced its preliminary net profit before tax for the first half of the fiscal year. The company expects the figure to be between A$87 million ($57.19 million) and A$90 million, significantly affected by weaker-than-expected network sales in Asia and Europe.

This forecast represents a 12% to 15% shortfall below Visible Alpha consensus estimates. Consequently, brokerages have downgraded their ratings and revised their earnings estimates, reflecting disappointment in the company's performance.

Domino's Pizza Enterprises expressed concerns regarding the growth of order volumes, stating that further improvements are necessary in the second half of the fiscal year. The company's decision to withdraw its previous guidance for FY24 performance, both explicitly and implicitly, signals a lack of confidence in achieving projected targets.

Previously, Domino's had projected that earnings in fiscal 2024 would surpass those of 2023 as part of its ongoing cost-cutting efforts.

Investors reacted swiftly to Domino's Pizza Enterprises' underwhelming first-half results. The company's lower-than-expected profit forecast and withdrawal of the fiscal 2024 outlook raised concerns about the future trajectory of the business. Consequently, the stock experienced a record drop of up to 31.1%, falling to A$39.50, a level not seen since August 2019.

Challenged by Weaker Network Sales in Key Markets

Domino's Pizza Enterprises cited weaker network sales in both Asia and Europe as the primary drivers behind its disappointing first-half performance. The company's reliance on these markets for growth meant that the lower-than-anticipated sales had a significant impact on its overall profitability.

The challenges faced in these regions highlight the need for strategic measures to regain momentum and drive sales growth.

The withdrawal of the fiscal 2024 outlook by Domino's Pizza Enterprises has left investors questioning the company's ability to meet long-term targets. With order volumes still requiring improvement in the second half of the fiscal year, doubts linger regarding the company's future performance.

The diminished confidence in achieving projected targets has led brokerages to revise their ratings and reduce their earnings estimates for the company.

Domino's Pizza Enterprises had previously positioned its cost-cutting efforts as a key driver of earnings growth in fiscal 2024. However, the company's first-half profit forecast falling short of expectations raises concerns about the effectiveness of these cost-cutting measures. Investors will closely monitor future updates to assess the impact of these initiatives on the company's overall financial performance.

Photo: Domino’s Newsroom