Domino's Pizza Enterprises Limited is the largest pizza chain in Australia in terms of network stores numbers and network sales, as well as the largest franchisee for the US Domino's Pizza brand in the world.
Once a poster child for the post-pandemic world, DMP, a holding in the Value strategy, reported its interim results this morning and confirmed what has been witnessed in other COVID beneficiaries’ results: that human behaviour is returning to normal. While company CEOs talked about how people would work, shop, and eat from home forever, the reality has ended up a lot closer to the pre-pandemic environment even though these long-term trends remain intact.
DMP has been spending big on expanding its store network in its major markets, and while the success of the rollout has been excellent, it just hasn’t been as successful as the stock was being priced for. DMP’s same store sales numbers today of 2.8% which is below its long-term target of 3-6%, and the early trading in the second half is 1.7%, are impressive at face value, but for a stock trading at rich multiples, a successful store rollout won’t generate the revenue and profit growth needed to justify those higher prices.
CEO Don Meij remains as bullish as ever and is maintaining the company’s strategy, but there’s no doubt the sales numbers are disappointing, and the stock’s fall this morning is not a surprise. It will be interesting to see how the new numbers in a post-pandemic world will impact DMP’s ranking in our ‘Value’ score. The business is still booming and growing very quickly, but clearly not as much as it was a year ago.
