Domino’s Pizza fell the most in more than a decade as delivery problems and waning demand caused fourth-quarter sales to fall short of Wall Street expectations and led management to cut its target for revenue growth.
Shares of the pizza chain fell 12% on Friday, the steepest slide since 2010, while Papa John International Inc., which also reported weak North American sales, slumped 6%. The losses wiped a combined $1.7 billion off their market capitalization.
Domino’s is down 46% from its pandemic peak set for late 2021, as demand from holed-up customers surges. Papa John’s shares are off 38% from that year’s high. Now the focus is on rising inflation, which is causing more people to prepare meals at home rather than pay for delivery.
Domino’s is also grappling with a driver shortage. But executives refused to tap third-party delivery options, called 3PD, like GrubHub Holdings Inc. or DoorDash Inc., rather than seeking to resolve the dilemma within Domino’s system.
The quarterly results and forecasts are “a big step back in the recovery of the company’s business model and may add fodder to the bear case that 3PD has permanently changed the competitive landscape for the worse delivery-centric pizza players,” Jon Tower, an analyst at Citigroup Inc., write in the notes.
Andrew Charles, a Cowen analyst who rates Domino’s market performance, wrote that Thursday’s results and guidance “justify revisiting the conversation” about third-party alternatives.
Domino’s said it faces “macro-economic headwinds,” particularly in its U.S. delivery business. It lowered its two- to three-year targets for global retail sales and unit growth, and said 2023 results for those metrics would be at the lower end of the expected range.
Meanwhile, Wednesday was a rough day for shares in Domino’s biggest franchisee by store count, Domino’s Pizza Enterprises Ltd in Australia, falling 24%, the most since 2005, after worse-than-expected first-half earnings and sales.
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