Shares of Domino's Pizza Enterprises (ASX: DMP) experienced a significant decline on 15 April 2024, dropping by as much as 3.96% to AU$38.58, marking their lowest level since August 2019. At the time of reporting, the stock was down 3.1%, with trading volumes slightly exceeding the 30-day average of 325,547 shares.
Analysts at Macquarie expressed concerns about Domino's store rollout and its impact on margins, particularly in the company's Asia business segment. As a result, Macquarie lowered its price target (PT) for Domino's by 2.4% to AU$41. Additionally, the brokerage reduced its earnings estimates for fiscal years 2024 through 2026 by 3%, 4%, and 5% respectively.
Franchisee profitability, a key indicator for Domino's, remains notably below the levels seen in fiscal year 2021. Macquarie highlighted management's acknowledgment that current profitability levels are insufficient to drive store growth effectively.
Furthermore, Macquarie pointed out that Domino's organic store count growth continues to face challenges, with external and structural factors impacting key regions. These challenges have contributed to a 31.9% decline in Domino's shares year-to-date, as of the last close.
The decline in Domino's shares underscores investor apprehension regarding the company's growth prospects and operational performance. Analyst concerns regarding store rollout, margin impact, and franchisee profitability highlight potential headwinds that Domino's may face in the near term.
Investors will likely monitor Domino's response to these challenges and its strategies for addressing them. The company's ability to navigate these obstacles effectively will be crucial in restoring investor confidence and driving future growth in its share price.