Domino’s Pizza fell the most in more than a decade as delivery problems and slowing demand drove fourth-quarter sales below Wall Street expectations and led management to cut revenue growth targets.
Shares of the pizza chain fell 12% on Thursday, the biggest drop since 2010, while Papa John’s International Inc., which also reported weak sales in North America, fell 6%. The rout erased $1.7 billion in combined value from their market caps.
Domino’s is down 46% from its pandemic peak set at the end of 2021, when demand from locked-down customers increased. Papa John’s shares are down 38% from their peak that year. Now the focus is on soaring inflation, which is pushing more people to cook meals at home rather than pay for delivery.
Domino’s is also struggling with a shortage of drivers. Yet executives have been reluctant to leverage third-party delivery options, dubbed 3PDs, like GrubHub Holdings Inc. or DoorDash Inc., seeking instead to resolve this dilemma within the Domino system.
The quarterly results and guidance are a “big step back in the recovery of the company’s business model and perhaps add fodder to the bearish case that 3PD has permanently altered the competitive landscape for pizza-centric players. on delivery,” 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 results and guidance “warrant revisiting the conversation” about third-party alternatives.
Domino’s said it faced “macro-economic headwinds,” particularly in its U.S. delivery business. It cut 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 expected ranges.
Meanwhile, Wednesday was a brutal day for shares of Domino’s largest franchisee by store count, Australia-based Domino’s Pizza Enterprises Ltd.
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