This morning pizza maker Domino's Pizza Enterprises Ltd. (ASX: DMP) reported its annual results for the full year ending June 30,2017. Below is a summary of the results, with comparisons to relevant prior corresponding periods.
- Full year net profit of $118.5 million, up 28.8%
- EBITDA (operating income) of $230.9 million, up 28.3%
- Network sales of $2,318 million, up 18%
- Earnings per share of $1.34, up 22.8% on statutory basis
- Dividends per share of 93.3 cents, up 26.9%
- Same store sales up 8% over the year
The headline numbers might look hot, but Domino's shares are down 15% today as it delivered a big miss on its same-store sales growth, EBITDA, and net profit growth guidance.
Missing guidance is guaranteed to trigger a stampede to the exits for investors, who bid the stock up to around 37x analysts' expectations for earnings per share at $51 per share. Back in November 2016 analysts at Morgan Stanley even slapped a $95 share price target on the pizza business, when the stock traded at $64 on a lofty 48x analysts' expectations for FY17's earnings.
Today shares change hands for $43 with same-store sales (SSS) growth going backwards in Japan as a market that may prove a bridge too far for the discount pizza operator.
European SSS growth also came in at just 2.8%, while ANZ remained the highlight with SSS growth of 13.6%.
ANZ same-store sales growth for Domino's is now forecast to come in at 7%-9% in FY 2018, and the group will have its work cutout to meet these forecasts given the rising competition in the discount digital takeaway space.
Domino's and its franchisees are now feeling the heat from the breakneck growth of digital takeaway aggregators such as Menulog, Deliveroo, Foodoora and Uber Eats.
Back in 2014 I flagged that Domino's share price would rise due to its position as the ASX's best digital retailer, however the international digital rivals above now take that title thanks to their narrow-moat business models.
Outlook
The group is forecasting net profit growth around 20% in FY 2018, and aims to open 180-200 new stores over this financial year.
Given today's guidance miss investors will take the latest forecasts with a pinch of salt, and today's news alongside more aggressive guidance is likely to fuel short selling of the stock.
At $43 the group trades on around 27x estimated earnings per share of $1.58 in FY 2018 using the guidance for 20% profit growth as a forecast basis. This is not going to smoke out the value investors, and I suspect the group's best days are behind it.
