Domino's Plans To Cut Store Openings 'Come As A Surprise': Analyst
Domino’s Pizza, Inc.’s (NYSE:DPZ) plans to cut back on opening new stores has caught analysts off guard, given its solid performance in the quick-service restaurant industry.
The Michigan-based pizza giant has lowered its guidance for new store openings worldwide to 825 to 925 locations and to 650 to 750 stores in 2024, according to its second-quarter earnings report released on Thursday.
Domino’s reported $142 million in net income for the three-month period, up from $109 million in net profit posted during the same period last year.
“Unit guidance cuts come as a surprise, but new rewards program and [third-party delivery] continue to fuel growth,” Goldman Sachs analyst Christine Cho said in a note.
She said Domino’s Pizza Enterprises, one of Domino’s master franchisees, plans to focus on closures in Japan and France.
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Cho said Goldman Sachs still maintains a “Buy” rating for Domino’s as the company expects to have solid growth over the next three years in great part due to its rewards program and third-party delivery arrangement with Uber Technologies Inc. (NYSE:UBER).
“While we were surprised by the large international unit growth guidance cuts, we see this as a necessary re-set and expect some acceleration in international [same-store sales growth] with a healthier franchise store base,” she wrote.
TD Cowen analyst Andrew M. Charles said the cut in store openings overseas should not have much impact on Domino’s future bottom line.
“We argue on-track U.S. development for 175+ net openings annually is more important as international growth carries 60% of the sales volumes and 50% of the royalty rate versus U.S. stores,” he said.
He also considered Domino’s to be the “brightest story in quick service” and maintained a “Buy” rating on the stock.
“We like DPZ’s positioning as the category leader in the $40+ billion QSR pizza category, with superior unit economics and an advantage with digital and data analytics,” he wrote in a note.
“While pizza delivery headwinds have challenged the category for the better part of the last 18 months, we are optimistic on Domino’s robust strategic playbook to overshadow these headwinds to drive U.S. same-store sales upside in 2024-25 and organically deliver EPS beats.”
Price Action: Domino’s declined 1.19% on Friday to close at $404.17, while Uber gained 1.58% to $76.31.
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