Domino’s Pizza and Papa John’s stocks plummet
Domino’s Pizza fell at its hardest in more than a decade, as supply problems and slowing demand meant fourth-quarter sales fell short of Wall Street expectations and prompted management to cut sales growth targets.
Shares of the pizza chain fell 12% on Thursday, its steepest drop since 2010, while Papa John’s International Inc., which also reported weak sales in North America, fell 6%. The loss wiped a total of $1.7 billion from their market cap.
Domino’s is down 46% from its pandemic peak in late 2021 as demand from hidden customers surged. Papa John’s shares are down 38% from their yearly high. Now the focus is on rising inflation, which is pushing more people to prepare meals at home rather than pay for delivery.
Domino’s is also struggling with driver shortages. However, executives were reluctant to use third-party deployment options, called 3PD, such as GrubHub Holdings Inc. or DoorDash Inc., and instead tried to solve this dilemma within the Domino system.
The quarterly results and guidance are a “big step backward in the recovery of the company’s business model and perhaps fuel the bear case that 3PD has permanently changed the competitive landscape for delivery-centric pizza companies for the worse,” Jon Tower, an analyst at Citigroup Inc., wrote in a Note.
Andrew Charles, a Cowen analyst who assesses Domino’s market performance, wrote that Thursday’s findings and guidance warrant “a renewed look at the conversation” about third-party alternatives.
Domino’s said it faces “macroeconomic headwinds,” particularly in its U.S. delivery business. The company trimmed its two- to three-year targets for global retail sales and unit growth and said 2023 results will come in at the low end of expected ranges for those metrics.
Meanwhile, Wednesday was a brutal day for shares in Domino’s largest franchisee by store count, Australia-based Domino’s Pizza Enterprises Ltd. It fell 24%, the sharpest since 2005, after worse-than-expected first-half earnings and sales.
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