Domino’s Pizza Faces Challenges with International Expansion and Sales

Domino’s Pizza announced Thursday that it will open fewer stores than anticipated in its international markets due to muted demand from cost-conscious consumers. This information led to a 12% drop in the company’s shares during early trading.

Reduced International Store Openings:

Domino’s had initially targeted opening over 925 international outlets for the year. However, this target will fall short by about 275 stores.

This reduction is primarily due to the closure of low-volume stores in Japan and France by its Australia-based master franchise, Domino’s Pizza Enterprises, which operates more than 3,800 stores in 12 international markets.

Impact on Growth Strategy:

The slowdown in international unit growth is a significant concern, as Northcoast Research analyst Jim Sanderson highlighted that international expansion was a crucial component of Domino’s long-term growth strategy.

Consequently, the company has also suspended its target of achieving 1,100 global net new stores from 2024 to 2028.

U.S. and International Same-Store Sales:

• U.S. Same-Store Sales: Increased by 4.8%, slightly below the expected 4.9%.
• International Same-Store Sales: Increased by 2.1%, falling short of the 2.5% estimate according to LSEG data.

The sequentially slower growth in U.S. food services in June indicates that consumers are still stretching their budgets despite a positive overall U.S. retail sales report.

Consumer Behavior and Value Offers:

Domino’s CEO Russell Weiner emphasized that Americans continue to seek value, prompting the company to introduce a refreshed loyalty program and carry out “boost” weeks, offering a 50% weekly discount.

However, the company plans to reduce the number of boost weeks to one each in the third and fourth quarters, compared to two in the reported period.

Financial Performance:

Despite the challenges, lower supply-chain costs contributed to a better-than-expected profit. The company said earnings of $4.03 per share, surpassing the expectations of $3.68 per share.