Highlights:
- Management and Financial Pressure: Domino’s Pizza Inc faces growing pressure over its Australian operations led by Don Meij, with fund managers questioning the need for a management shake-up and possible capital raising due to the company's low share price and high debt.
- Strategic Adjustments: The Australian arm has announced a strategic review, including closing nearly 10% of its stores in Japan and France, and adjusting its growth targets. The US parent company has suspended its global store growth forecast, impacting its stock price.
- Investor Sentiment and Market Outlook: Despite recent challenges and a significant drop in stock value, Citi analyst Sam Teeger maintains a buy rating with a target price of $44.50, indicating potential for recovery if positive developments occur.
Domino’s Pizza Inc (ASX:DMP) is growing increasingly impatient with its Australian partner, led by Don Meij, amid ongoing concerns about the company's performance. Fund managers are questioning whether a management overhaul is necessary for the ASX-listed Domino’s and if a capital raising might be needed, given its share price is at nearly a decade low of $29.68 and net debt stood at $770 million as of December 30.
Domino’s Pizza Enterprises, (ASX:DMP) which holds the master franchise rights for multiple countries including Australia, New Zealand, and several European nations, recently faced scrutiny after the US parent company suspended its global store growth forecast for 2024-2028, citing poor performance in Australia. This announcement led to a 14% drop in the US parent company’s stock price.
Domino’s Australia has announced a strategic review, including closing nearly 10% of its stores in Japan and France, and has adjusted its long-term goal of reaching 7,100 stores by 2033. The US parent company is closely working with the Australian arm on this process but has not commented on its level of involvement.
The Australian arm's poor performance has led to a reduced interim dividend and possible elimination of the final dividend to conserve cash. Jack Cowin, the chairman and major shareholder, has seen the value of his stake plummet from $3.68 billion in 2021 to $681 million, reflecting dissatisfaction with the stock’s performance. Although he remains involved, including attending investor events and recruiting new talent, the pressure is on Meij to turn the situation around.
With capital expenditure declining and earnings expected to improve, the focus is on reviving struggling markets in France and Japan. Analysts note that Domino’s average franchisee profitability has fallen significantly, and questions remain about the true cost of store closures and any potential financial impacts.
Despite these challenges, Citi analyst Sam Teeger maintains a buy rating on Domino’s with a target price of $44.50, suggesting that positive news could rekindle market interest. As the company continues to face financial and operational pressures, the urgency for a successful turnaround grows.