(Reuters) – Shares of Australia-based Domino’s Pizza Enterprises Inc fell more than 7% on Wednesday after the franchise operator reported a weak start to the 2025 financial year as rising costs and frugal consumers weighed on profitability.
Domino’s Pizza Enterprises operates the largest master franchise of the American pizza giant in 12 countries in Asia, Europe, Australia and New Zealand, with a total of 3,767 stores. Japan accounts for just over a quarter of those stores.
Rising living costs, the normalization of work and social life after the pandemic, and higher operating expenses have hurt its profitability, as target markets like Japan struggle to maintain their momentum post-Covid.
Citi analysts also noted in May that cheap fast food, local alternatives, and declining popularity and product quality pose significant challenges to franchising ambitions in Japan.
Since then, Domino’s has announced the closure of about 80 low-volume stores in Japan, as sales slow despite increased advertising spending. Sales in its biggest market are down 2.5% so far in fiscal 2025.
Group-wide sales were below expectations, with comparable growth down 1.3%.
Visible Alpha consensus expects underlying net income growth of 10% in the first half of fiscal 2025, which Citi analysts say “looks high,” and describes the company’s underlying performance as “still below optimal.”
“The weakness in early FY25 is disappointing and the market will be looking for evidence that the sales trend can improve,” Jefferies said.
Shares in the franchise fell about 7.3% to A$30.970, their biggest daily drop since Aug. 2. The stock was among the top 10 losers on the benchmark index as of 0135 GMT.
Its underlying profit fell 8% to A$120.4 million ($81.25 million) for the year ended June 30, but was in line with the Visible Alpha consensus. Sales grew 4.6% to A$4.19 billion but missed the A$4.22 billion consensus.
($1 = 1.4819 AUD)
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