Macquarie downgrades Domino’s Pizza on earnings risk
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The news: Macquarie analysts have downgraded Domino’s Pizza Enterprises citing a downside risk to earnings due to fewer store openings.
The numbers: The brokerage downgraded Domino’s to ‘underperform’ from ‘neutral’, and cut its price target on the stock by 8% to $29.50 to reflect a weaker earnings outlook.
Shares in the company tumbled 4.4% to $31.78 in early trading on the ASX.
The context: Macquarie analysts said franchisee profitability has been under pressure since FY21, driven by declining revenue, which is likely to impede store rollouts in the medium term.
The fast food retail group, which owns and operates pizza stores in Australia, Asia and Europe, last month posted a muted trading update, with same store sales down 1.2% for the first 17 weeks. It also announced Don Meij would retire as chief executive after 22 years in the role.
What they said: “The pace of store rollout is likely to remain subdued over the medium term. In total, we forecast store numbers will see a CAGR of 0.2% from FY24 to FY27. This compares to Visible Alpha consensus expectation of 2.4% over this period," the analysts said in a note.
"As a result, our FY27 total store count is ~250, or ~6% below consensus."
Every 50-store reduction in forecasts is a 3% headwind to earnings, they estimated.
The source: Macquarie research
