Domino's Plunges 22% on First-Ever Annual Loss; Can Cost Cuts Save the Day?

TradingKey - Domino's Pizza Enterprises reported its first annual loss since going public on Wednesday, triggering a 22% plunge in its share price to A$15.10, marking the largest single-day drop in nearly two months.

The Australian pizza chain giant posted a A$3.7 million loss for the fiscal year ended June 29, a stark contrast to last year's A$96 million profit, and significantly below Visible Alpha's consensus estimate of A$14.5 million profit.

The company also warned that the new fiscal year has started on a weak note, with same-store sales declining 0.9% in the first seven weeks, contrasting sharply with the 3.1% growth expected for the first six months of this year.

Looking back at 2021, surging demand for takeaway during the pandemic once propelled the company's performance, but as takeaway services have exploded, pizza is no longer the only option in the hot food delivery market. Domino's now faces comprehensive competition from various restaurant cuisines and even fast-food chains, with the market environment having changed dramatically.

Earlier this year, Domino's announced the closure of 205 stores, with the Japanese market accounting for the largest share, 172 stores to be closed in the region. Japanese stores represent approximately 25% of the company's global store count.

The Japanese pizza market is highly competitive, with well-known pizza brands Pizza-La and De Mae-can having built deep customer bases. Restaurant giant Saizeriya, though not specializing in pizza, offers highly cost-effective pizza products that directly compete with Domino's.

Facing the severe performance, Domino's announced a more than 50% cut in its final dividend and launched a cost reduction and operational simplification plan.

Domino's is currently led by Executive Chairman Jack Cowin, who emphasized in a conference call, “We’re moving heaven and earth on the cost side of the business.” “This isn’t talk.”

Cowin stated that the company will abandon the past model of "pursuing sales at all costs" and instead prioritize profitability. New strategies include lowering menu prices, reducing voucher usage to improve transparency, and focusing on enhancing franchisee profits.

“I want to be clear, this is not business as usual,” Cowin said. “We’re making necessary changes to ensure that Domino’s can grow profitably.”